Now that the onus of responsibility for the merger between Sirius and XM has landed on the steps of the FCC, the focus now turns to the various "public interest" concessions that could be imposed to allow the marriage to pass.
Up to this point, the most vocal of opponents - such as Georgetown Partners and Clear Channel - have directed their arguments toward the divestiture of spectrum. Personally, I've always favored Public Knowledge's suggestion that Sirius-XM should make 5% of its channel capacity available to non-commercial programming over which it has no editorial control. (I can only hope the Commission would hold the same reasonable opinion.)
But there's a separate argument that has recently come to light. One that is just as important as the control of spectrum - that of the "open device" principle.
It's not exactly a new issue, simply one that has never received as much attention as divvying up broadcast infrastructure. Indeed, Public Knowledge has even suggested the "open device" principle in several of its filings, as has the Media Access Project and several others.
But now a filing published today with the FCC indicates that the "open device" argument has taken center stage.
The filing reveals that Kathleen Wallman and Cameron McAlpine, on behalf of U.S. Electronics, met with Michelle Carey, Senior Legal Advisor, Media Issues to FCC Chairman Kevin Martin on Wednesday. You might recall that U.S. Electronics (USE) is the company that filed suit against Sirius Satellite Radio Inc. in dispute to losing its device contract with the satellite radio provider.
But this issue extends beyond just the sour grapes that USE might have against Sirius (though I do believe it originated from the contract dispute... so those grapes are still mighty sour).
I had the opportunity to speak with Kathleen and Cameron prior to their meeting at the FCC. It was an interesting conversation, but I had entered into it already holding an opinion: "open access" for devices is absolutely a good thing, both for consumers and the companies. This isn't just from the satellite radio standpoint - take the recent 700mhz auction, and the fact that the C-block of spectrum will allow consumers to be able to utilize any wireless device they wish - partially thanks to Google.
It's my firm belief that the "open device" issue has implications that - in the short term - may not seem very favorable to Sirius-XM (since it's harder to control the supply chain) but in the long term would ultimately help to benefit the companies and their consumers.
But what does "open device access" mean? Public Knowledge puts it best:
"The new company should make the technical specifications of its devices and network open and available to allow device manufacturers to develop, and consumers to use, any device they choose without interference. Pursuant to Commission rules, these devices must be certified by the FCC for receiving signals on the frequencies licensed to the merged entity and be subject to a minimum 'do-no-harm' requirement."In short, this condition would allow any manufacturer to develop satellite radio receivers - as long as they're "up to spec" - and essentially lets consumers choose whatever device they prefer to use to connect to satellite radio networks.
Now don't get me wrong, of course I believe that U.S. Electronics is a disgruntled former partner and is looking for a way back in. I even posed that question to Ms. Wallman, but she claims she has no involvement with the argument between USE and Sirius. Her focus is on the open device access provision (and I believe her). The company, admittedly, seems to make no secret of the fact that it wants back in to the satellite radio market. Can't blame them, there's gold in them hills.
But let's separate ourselves from the ulterior motives behind USE's request for a moment. The concept of allowing any device manufacturer to access the (eventually) combined Sirius-XM network seems like a no-brainer to me.
The company points that FCC Commissioner Michael Copps himself said that, "fax machines and computer modems are direct descendants of [the 'open access'] principle." And that FCC Chairman Kevin Martin said, "Competition in the manufacturing and distribution of consumer devices has always led to innovation, lower price and higher quality."
They point to the Hush-A-Phone and Carterfone decisions, which paved the way for third-party devices to operate on the then monopolistic AT&T network. (If you're not familiar with these cases, they're really quite interesting, read up on them here and here. The Carterfone Decision ultimately led to numerous innovations such as answering machines, fax machines, cordless phones, computer modems and the early, dialup Internet.)
While from an idealogical standpoint, these sound great, let's look at it from a business standpoint. Show me the money, right? The fact of the matter is that the retail market is looking pretty anemic as of late, no matter how much NPD is becoming less relevant to the greater picture. Open device access could be the boon to spur innovation, leading to new devices that would re-inspire consumer interest.
Sirius and XM may argue that they subsidize the cost of building those radios, so why should they give up any potential profits derived from those devices? But with open device rules and specifications, the R&D costs are offloaded to other manufacturers who want to join the fray - ultimately leaving the product development costs to others to incur. Keeping the retail process in its own silo is a shrinking piece of pie at this point, and the true profits are seen from the subscriptions anyway.
As media companies, they should be concerned with one thing and one thing only: enabling everyone to experience that media. The benefit to Sirius-XM is that in order to experience that media, you need to pay for it. So why be the gatekeeper? Why be the bottleneck?
In the end, it's ultimately about improving the consumer's experience. MP3 players with Satellite Radio embedded. Clock radios that incorporate Satellite Radio, Internet Radio and HD Radio all in one. Cell phones with uses of satellite radio that extend beyond what Sirius and XM are capable of imagining.
And in pursuing that end, Sirius and XM would ultimately make out the winners.
[View the FCC Filing (PDF)]