XM-Sirius Rent-Seeking

The FCC’s review of the XM-Sirius merger is a perfect example of the type of quagmire that’s inevitably created when a government agency is given broad, discretionary authority over private businesses. Various special interest groups have proposed that the merger be subjected to a laundry list of requirements. Lefty groups want an open device mandate. A rent-seeker entrepreneur named Chester C. Davenport wants the merged entity to set aside 20 percent of its spectrum for minority-controlled broadcasting. There are a variety of other proposals to require the firm to lease spectrum to unaffiliated entities. Clear Channel is demanding that it be subjected to the same “indecency” regulations that now plague terrestrial radio.

There are good arguments against each of these proposals, and there are some plausible arguments for some of them as well. But what I find most problematic about the situation is the way the proposals are handled. We have a constitutional system of government in which Congress is supposedly in charge of writing laws, the executive branch is in charge of executing them, and the courts are in charge of interpreting them. This ensures that laws are written by the most politically-engaged branch—Congress—and interpreted by the most impartial branch—the courts.

But in this case, as in many others, Congress has effectively given the FCC its blessing to wear all three hats. It can dream up new “conditions” (read: regulations) for the merger focusing on virtually any subject that strikes its fancy. The conditions are specific to one company, so there’s ample scope for favoritism and arbitrary decision-making. And once the conditions have been announced, and XM-Sirius have been blackmailed into “accepting” them, the FCC effectively wears executive and judicial hats as well. Yes, supplicants before the FCC can and do appeal decisions to federal courts, and the FCC is sometimes overruled. But the courts tend to give the FCC relatively wide deference in its policy decisions, and firms that practice regularly before the FCC may be reluctant to too aggressively defend their prerogatives in the courts for fear of souring their relationship with the FCC going forward.

The fundamental problem (aside from the courts’ failure to require that lawmaking powers be limited to Congress as required by the Constitution) is the FCC’s baroque process for apportioning spectrum. The right way to handle it would be for XM, Sirius, and every other broadcaster to have a property right in the spectrum they use, which would entitle them to do as they please with that spectrum (as long as it didn’t interfere with other broadcasters) or to lease or sell the spectrum to anyone else. In a world with genuine property rights, spectrum would find its way to owner with the highest-valued use, and anyone who wanted to enter a market like satellite radio would be able to do so simply be purchasing spectrum rights in the appropriate bands. The FCC’s role would be limited to keeping track of who held which license and verifying that spectrum uses did not create interference with one another.

My suspicion is that in such a world, satellite radio would prove economically infeasible because the spectrum would be more valuable in other uses. But I don’t know, and the FCC’s soviet-style spectrum allocation process is certainly not a good way to figure it out. The FCC should approve the XM-Sirius merger without conditions. But the more important lesson is that, Congress should be moving toward genuine property rights in spectrum, so that the 21st-century wireless market ceases to be micro-managed by an anachronistic 20th-century bureaucracy.

Once we have a real market for spectrum, Congress may choose to enact general regulations governing the use of that spectrum. But the current system, in which the FCC has the arbitrary power to single out individual companies for arbitrary restrictions on virtually any subject the FCC’s commissioners happen to be concerned with, is deeply flawed. It’s not fair to companies that have the misfortune of attracting the FCC’s scrutiny, and it’s not good for consumers, who are deprived of the benefits of a robust and competitive market for spectrum.