Technology & Science

XM, Sirius merger in U.S. raises competition concerns in Canada

The planned merger of the two U.S. satellite radio companies could raise competition concerns for their Canadian counterparts even if they don't follow suit and merge into one company.

The planned merger of the two U.S. satellite radio companies could raise competition concerns for their Canadian counterparts even if they don't follow suit and merge into one company.

The merger of the XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. into Sirius XM Inc., which recently received approval in the U.S. from the Federal Communications Commission, raises the possibility that the combined company would have an ownership stake in both Canadian satellite radio businesses.

According to XM Canada's year-end financial statements for 2007, XM Satellite Radio Holdings Inc. has a 23.3 per cent interest in the company. XM Canada is a publicly traded company run by Canadian Satellite Radio Holdings, also of Toronto, in partnership with XM Satellite.

Sirius Satellite Radio Inc. holds a 20 per cent stake in Sirius Canada, according to Sirius Canada spokesman Jeff Roman. Toronto-based Standard Radio and the CBC are the majority owners.

Having one company hold a significant share in two competing companies is sure to draw the interest of the Competition Bureau, said John Clifford, a competition lawyer with McMillan Binch Mendelsohn LLP.

An ownership stake over 10 per cent is generally seen to be significant enough to influence behaviour, he said.

A spokesperson for XM Canada said XM ownership said the deal will have "no impact at this time" on XM Canada. Roman said Sirius Canada would not comment on regulatory matters.

But Competition Bureau assistant deputy commissioner of mergers Steve Peters said the bureau was looking at the merger but hadn't yet come to a conclusion and made a decision on a course of action.

"We've been aware of this for some time and it's something we're closely following," he said.

Peters said if the bureau had an issue with the ownership arrangement here in Canada it could make an application before the Competition Tribunal or enter negotiations with the two companies. Or it could rule that the change in ownership structure wasn't a concern, he said.

Should the two Canadian companies merge, they would likely face a test similar to that their U.S. counterparts faced, said Clifford.

The U.S. deal received approval from the U.S. Department of Justice, which ruled the two companies didn't form a monopoly because they were also facing competition from other forms of audio entertainment such as digital radio and devices like Apple Inc.'s iPod.

An unusual scenario

But the circumstances would be different if the companies continued to operate separately, since the Competition Bureau would likely be looking at two separate companies with a potentially common owner.

Peters said the arrangement is highly unusual.

"I can't really remember a scenario like that ever happening," he said.

At issue would also be the Competition Bureau's interpretation of competition. The U.S. Department of Justice in its ruling said that since the two companies used different technologies and subscribers rarely switched platforms they weren't direct competitors.

The prospect of XM Canada and Sirius Canada not merging was first raised on Monday by XM Canada president Michael Moskowitz, who told the Globe and Mail on Monday his company was open to going it alone.

"Nothing is off the table at this point in time," he told the Globe and Mail. "You can merge or you can go it alone, and we'll evaluate those two options."

Should the two companies merge, they would likely also face scrutiny from the Canadian Radio-television and Telecommunications Commission, said Clifford.

CRTC spokesman Denis Carmel said it was too early for the commission to say what it might investigate in the event of a merger, but said that any transaction that changes ownership of either organization would require CRTC approval.

U.S. head office has a say

Andy Woyzbun, lead analyst with Info-Tech Research Group in London, Ont., said regulatory concerns are likely to be of secondary importance to how the actual merger in the U.S. plays out.

"Ultimately it all depends on what the U.S. head office wants to do," he said. "I don't think the Canadian companies have much of a say."

And in the short term, working out the logistics of the merger may take a while, he said.

"What we have is two companies with different technologies and different programming coming together," he said. "Which technology are they going to use in the future, and how are they going to make a change that is acceptable to their partners, particularly the car manufacturers? These are questions that still need to be worked out," he said.

Until those choices are made, Canadian consumers will likely see little change in their service, he said, and the two Canadian companies would be able to continue on their own.

Sirius Canada Inc. said it has more than 750,000 paying subscribers, while XM Canada claims more than 400,000 subscribers. Their U.S. parents have 8.3 million and about nine million subscribers, respectively.

The uncertainty over the merger, which had been in a holding pattern during an FCC approval process that has gone on for more than a year, hasn't slowed consumers north of the border from signing up to one of the two services.

XM Canada reported that for the three months ending May 31, 2008, subscribers increased 58 per cent from the previous year. Sirius said it has added 450,000 subscribers since the merger was first announced in February 2007. Consumer analyst NPD Group Canada also said about 24,000 satellite radio players sold in June 2008.

Satellite radio companies on both sides of the border have struggled to turn a profit since launching, and now face increased competition from devices such as Apple's iPhone, available in Canada through Rogers Communications.