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New Logic

Turns out the FCC concluded last week that a merger to monopoly can be in the public interest so long as you apply enough conditions to satisfy at least three commissioners.

When the FCC released its outline of the XM/Sirius merger, it said it decided the deal on the assumption that the relevant competitive marketplace was not the broader competition—iPods, cable radio, terrestrial radio—but the much narrower satellite radio industry.

The Department of Justice also found no reason to block or condition the deal, taking the wider view that the market included all audio delivery devices, not just satellite radio.

The FCC majority defined the market as two companies—XM and Sirius—in order to justify the conditions it placed on the deal, with the result that post-merger, only one company will remain in the space.

That got us to thinking about analysts' predictions that the approval of the XM/Sirius merger would not be used to open the door to a merger of DISH Network (formerly EchoStar) and DirecTV.

Those companies tried it in 2002, arguing such an arrangement would make them a stronger competitor to cable. The FCC and Justice rejected a deal then.

High government hurdles have remained, that is until now, apparently thanks to a change of heart at the FCC and changes in technology that might make a satellite video merger more palatable to the Justice Dept. Of course, there are politics—there are always politics. The more powerful the Democrats become, the more scrutiny mergers are likely to get.

Analyst Craig Moffett, who two weeks ago predicted the merger would not open the door to a TV meld, conceded the FCC's decision “certainly seems to leave that door ajar, at least as it relates to the public interest test the FCC applies.” But he says the sticking point is still Justice.

In the DOJ's rejection of the EchoStar-DirectTV deal, it fixed on rural areas where there is no cable service and the number of services would be reduced to one. Even when EchoStar offered to give up spectrum to a third party, as XM and Sirius agreed to do, the DOJ said it wouldn't suffice.

But the world has changed a lot in six years. The FCC has now provided precedent under the right regulatory conditions, while Justice has said that new technologies are competitors to traditional media.

There remains a problematic rural gap in video delivery that stands between a merger and letter of the law. But we are hard pressed to believe that gap is permanent, particularly with the government's eagerness to achieve universal broadband.

Multichannel video is no longer the exclusive province of cable and satellite. The realities and possibilities of services like Qualcomm's MediaFlo, digital multicast channels programmed to look like cable systems, and wireless Internet access combine to present a picture of a thriving and competitive video marketplace that could soon be used to justify a satellite merger.