Slate's Bizbox
gizmos: The latest gadgets and tech toys.

Local MotivesWhy the FCC should scrap its absurd rules for satellite radio.

By Thomas Hazlett
Posted Tuesday, March 16, 2004, at 6:01 PM ET

Early this month, in a seemingly innocuous move, XM Radio offered 15 new satellite radio channels featuring local programming—traffic updates and weather reports. But because FCC rules require XM (and its rival, Sirius) to exclusively provide national programming, each of these local channels is available all across the country. An XM subscriber in Oregon, for example, can learn about a foggy night on the coast of Florida or the traffic en route to O'Hare, just by flipping the dial.

The launch of the new channels has kicked off a highly charged debate about whether the local content is legal. Traditional broadcasters claim it's not, because the programming targets particular regions. XM and Sirius (which plans similar channels) claim it is, because the programming airs nationwide. So far, the FCC seems to be siding with XM, but the regulatory scuffle points up the pickle that satellite radio is currently in: In order to get permission to exist, XM and Sirius had to swear off local content. But in order to survive, they need to find a legal way to deliver it to subscribers.

Satellite radio broadcasting was first authorized in 1997, when two licenses were issued to the companies now known as XM and Sirius. Their applications had taken seven years for the Federal Communications Commission to approve, mainly because the National Association of Broadcasters charged that the new service threatened "traditional American values of community cohesion and local identity." (It also threatened revenues. But at the time, the FCC found that traditional radio stations drew 80 percent of their income from local advertising, which suggested that national competition would not be too damaging to existing stations.) The irony, of course, was that just as lobbyists for traditional broadcasters were making arguments about the integrity of regional identity, local stations were airing more and more national programming, and companies like Infinity and Clear Channel were launching their ambitious industry consolidation. But the NAB pressure worked both to delay satellite rivals and to get the FCC to craft license rules that seemed to ensure that satellite service would air only national shows.

XM and Sirius launched service in late 2001 and early 2002, respectively, and they now serve approximately 1.8 million subscribers. Each system features about 60 channels of music and another 40 of national news, sports, public affairs, and comedy for about $10 to $13 per month. Equipment and installation cost an additional $120-$300. Analysts tout projections of 15 million customers by 2006. But success is by no means certain. Bankruptcy rumors plagued XM in 2002, and Sirius' bondholders were awarded a huge chunk of equity to stave off bankruptcy in 2003.

And so long as satellite radio omits community news, weather, traffic, and sports, its march to financial success will be uphill. Currently, XM and Sirius subscribers can easily flip back and forth between satellite programming and AM and FM bands. Airing local content would help bring listeners directly to satellite audio when they turn the ignition—no need to scan the AM dial for traffic updates—which would make subscribers feel they were getting more for their money and heighten their loyalty to the service. It would also—as the FCC foresaw—allow satellite radio to tap into local advertising, a potentially fat new revenue stream.

Airing local programs nationwide is a good start, but it's a remarkably inefficient solution because it soaks up precious channels—and satellite operators are allotted only so much bandwidth (12.5 MHz per operator). There are, after all, about 269 local radio markets. Squeezing an extra 15 or 20 channels onto the available bandwidth is one thing, but providing more slots for local news becomes very expensive very fast.

What makes these inefficiencies particularly grating, though, is that existing technology and infrastructure would allow scores of cities to enjoy multiple full-time local news channels via satellite. This smarter way to distribute local content on satellite radio would employ the repeater stations already in use. Repeaters are land-based relays that, as the name implies, pull in satellite feeds and (using the identical frequency) retransmit them. This boosts reception for area subscribers who would otherwise hit "dead zones"—tunnels, valleys, office building canyons—where signals fade. But they could also allow programs to be customized, market to market. When boosting a satellite signal, a repeater station could insert, say, a 10-minute local news bulletin into a broadcast airing on one of XM's national news channels. And it could easily supplement the range of national channels already on offer with several local ones.

The NAB attacks repeaters—even when they're used just to boost signal strength—as "a crutch for a technology that is not up to the task of providing the seamless, mobile coverage promised by proponents." And the trade press has been littered with such ominous headlines as: "NAB Accuses XM of Local Programming Plot." Capitol Hill has been happy to play enforcer. Former House Commerce Committee chairman Billy Tauzin, R-La., admonished the FCC that regulators must be vigilant in policing rules "intended to prevent companies like XM from offering localized programming like news, weather and traffic in direct competition with small radio broadcasters."

But in this era of industry consolidation, relatively speaking, there are fewer small, independent broadcasters left to protect. And the FCC's regulations, no matter what their original intent, now serve mainly to spare incumbent broadcasters—tiny or huge—the effort and expense of competing with their satellite rivals.

The notion that traditional broadcasters deliver idiosyncratic menus closely tailored to local audiences is a quaint one. Nationally syndicated content has become the order of the radio day, and satellite programming is, if anything, less cookie-cutter than its earth-bound analogs. That this debate has been framed along such outmoded lines illustrates how increasingly strained the concept of "local" has become. Regulators lacking spatial skills are charting geographic divides when they should be mapping communities of interest. Satellite radio caters to niche preferences in music or politics by connecting dispersed audiences. The opera buff in Tuscaloosa, left for deaf by "local" radio, connects with her community when tuning to satellite radio's 100 channels. To characterize satellite programs as uniform because they are nationally distributed is absurd. To then mandate that uniformity is worse.

It's only natural that sky-bound radio competitors want to offer that additional dimension—local news, weather, traffic, and sports—and they should be allowed to use repeaters to do it. Their financial success may depend on it. The earth-bound stations certainly hope that it does. That's why they are pressing so hard to see that they can't.

Print This ArticlePRINTDiscuss this in The FrayDISCUSSEmail to a FriendE-MAIL
Share on FacebookPost to MySpace!Share with MixxDigg ThisShare with RedditShare with del.icio.usShare with FurlShare with Ma.gnolia.comShare with SphereShare with Stumble Upon
Thomas Hazlett is a senior fellow at the Manhattan Institute. He formerly served as chief economist of the Federal Communications Commission.
Join the Fray: our reader discussion forum
What did you think of this article?
POST A MESSAGE | READ MESSAGES