Former Federal Communications Commission Chief Economist Thomas W. Hazlett's advocacy of the proposed XM/Sirius satellite merger centers around a single irony: nothing makes the case for the application better than terrestrial broadcaster opposition to the union.

"These interests emphatically claim that they oppose the merger because it will lead to a monopoly that will harm consumers," Hazlett writes in a brief filed today with the FCC. "This fierce opposition is powerful evidence in itself that AM/FM radio—'free radio'—competes with satellite radio, and reveals the true concern of terrestrial stations: that the merger will create a stronger rival better able to meet the needs of consumers."

Hazlett's 51 page statement, commissioned by XM and Sirius, effectively turns all economic arguments against the merger on their head. But the filing also ignores key legal questions about the proposal, implicitly suggesting that they represent a substantial hurdle that XM and Sirius may not overcome.

The Hazlett brief goes as follows:

The opponents of the merger work with false market definitions

The campaign to stop the XM/Sirius union often portrays the radio universe as carved up into channels rather than market share, Hazlett contends. By presenting the situation in this manner, adversaries such as the National Association of Broadcasters (NAB) can count XM or Sirius' numerous channels (as many as 170) as equivalent to Clear Channel frequencies, and suggest that in a given market XM controls 51% of market share, while Clear Channel, with five stations, controls only 1.5%.

Such logic "clashes frontally with market realities," Hazlett writes. "The market share analysis conducted posits that satellite radio is the overwhelmingly dominant radio service. This would surprise investors, who value terrestrial radio broadcasting properties at more than eight times the level of satellite operators. Indeed, they value one broadcaster, Clear Channel, at more than twice the value of XM and Sirius combined."

Given that less than 10% of U.S. automobiles have satellite receivers, XM and Sirius cannot be accurately portrayed as dominant broadcasters attempting to consolidate the market. They are "niche players," Hazlett argues, trying to improve their situation against "dominant terrestrial station incumbents and emerging digital media rivals."

It is competitiveness, not anti-competitiveness, that terrestrial broadcasters fear

Hazlett rhetorically wonders why conventional broadcasting critics of the proposed merger warn that it will trigger higher satellite subscription prices. Logically, this would cause a drop in subscriptions and a rise in terrestrial radio listening.

"In seeking to block the proposed XM-Sirius combination, however, terrestrial radio interests reveal that they predict just the opposite would occur," Hazlett's filing contends. "They anticipate that a merger would facilitate not price increases, but an intensification of rivalry."

The reality is that terrestrial broadcasters have identified satellite radio as "a substitute for their product," and fear that a merger will enhance its efficiency, siphoning away over-the-air radio listeners.

Opponents ask the wrong question about competition

The question is not whether an XM/Sirius merger will create less competition in satellite radio, but whether it will "increase or decrease the value of services available to consumers."

The XM/Sirius merger will lead to greater productivity and more consumer options as satellite radio becomes more stable, Hazlett contends. Economies of scale will lead to better programming. The merged entity will drop duplicative shows and create more niche channels.

"Instead of making choices between popular channels carried exclusively by one satellite system or the other, and then shouldering risks associated with changes in program menus or their own preferences, customers will be able to confidently access their favorite shows," the briefing claims.

The history of the satellite radio proceeding reveals NAB's true fears

Hazlett cites numerous objections made by the NAB to the very idea of the Digital Audio Radio Satellite (DARS) service, established by the FCC in 1997, that launched XM and Sirius. He argues that these filings reveal NAB's actual apprehensions, quoting from a 1995 NAB filing:

"Whether it is advertising-supported or not, satellite DARS providers fundamentally will compete with terrestrial broadcasters for listeners. . . . Although subscriber supported services would not appear to propose a direct threat to local broadcasters’ revenue base, the audience fragmentation likely to occur from the deluge of programming options could severely handicap traditional radio broadcasting."

It is conventional broadcasters' "reliably self-interested opinion that the merger will not create monopoly," Hazlett concludes, "but more intense competition. Precisely why this combination is in the consumer’s interest."

Perhaps so, but Hazlett's accounting of the history of the DARS proceeding omits a simple legal reality, observed in an earlier filing by the American Anti-Trust Institute (AATI). The Washington think tank's June 5th statement points out that when the FCC gave the ok to DARS in 1997, its Order forbade a satellite radio monopoly.

AATI cites the Commission's own language in its 31 page filing:

"Even after DARS licenses are granted, one licensee will not be permitted to acquire control of the other remaining satellite DARS license. This prohibition on transfer of control will help assure sufficient continuing competition in the provision of satellite DARS service."

In fairness, Hazlett's briefing focuses on the economic impact of the proposed XM/Sirius merger. But somebody has still got to explain how to get around those last two sentences.