Robert Mazer [email protected] Tel 202.639.6755 Fax 202.639.6604 July 9, 2008 ELECTRONIC DELIVERY VIA ECFS The Honorable Deborah Taylor Tate Commissioner Federal Communications Commission 445 Twelfth Street, S.W. Washington, DC 20554 Re: MB Docket No. 07-57 Notice of Ex Parte Comments Dear Commissioner Tate: iBiquity Digital Corporation, by its attorneys, hereby submits this ex parte filing to address certain issues you raised in our meeting last week. You asked iBiquity to clarify the exact terms of the condition to the XM Satellite Radio/Sirius Satellite Radio merger that iBiquity has proposed in this proceeding. You also asked iBiquity to address the cost implications of any such condition and the implications of Commission adoption of this condition. iBiquity has provided below additional information on each of these topics. iBiquity urges you to consider the impact the proposed merger will have on terrestrial digital radio and to ensure the public interest is protected by conditioning any approval as iBiquity proposes. Condition Concerning Protection of HD Radio™ Technology iBiquity previously provided the following language to the Commission as a proposed condition to ensure a merged satellite entity cannot use its position in the marketplace to disadvantage the rollout of HD Radio technology: The licensee will certify no later than June 1 of each calendar year, in accordance with the dates specified below, that any newly introduced satellite radio receiver model that operates with the licensee's satellite DARS system and includes the ability to receive terrestrial analog AM/FM signals, will also include the ability to receive digital AM/FM signals in accordance with the technical specifications for terrestrial digital radio specified in MM Docket No. 99-325. This requirement will be effective three years from the effective date of this rule for new model Original Equipment Manufactured ("OEM") automobile receivers and one year from the effective date of this rule for new model non-OEM receivers. Vinson & Elkins LLP Attorneys at Law The Willard Office Building, 1455 Pennsylvania Avenue NW, Suite 600 Abu Dhabi Austin Beijing Dallas Dubai Hong Kong Houston Washington, DC 20004-1008 London Moscow New York Shanghai Tokyo Washington Tel 202.639.6500 Fax 202.639.6604 www.velaw.com DC 774254v1 July 9, 2008 Page 2 Based on subsequent conversations with the Commission, iBiquity encourages the Commission to further clarify that this requirement applies to all receivers whereby the consumer uses the same tuning apparatus or display for both satellite and analog AM/FM radio. Only devices that exclude analog AM/FM (satellite-only devices) or devices with a separate satellite control and display should be exempt from the requirement to include HD Radio technology. The Commission’s requirements should be based on the consumer experience rather than the actual architecture of the device. To the extent that the consumer is using the same controls to tune to AM/FM and satellite or the consumer is viewing the same display with information about either service, the consumer is using the device to assess the relative merits of terrestrial versus satellite programming. In this case, the public interest demands that the consumer have access to a digital platform for both terrestrial and satellite services. The Commission’s rules should not focus on whether satellite technology is integrated in the same unit with analog AM/FM or if they are in separate units that are connected. As long as the consumer perceives them to be interchangeable due to common controls or display, the condition to include HD Radio technology should apply. This issue is dealt with in more detail in the June 9, 2008 ex parte letter filed by iBiquity in this proceeding. Cost iBiquity estimates the cost of components to include HD Radio technology in most satellite receivers will be no more than $12-$15. This estimate is based on a baseband chip containing HD Radio software costing approximately $10, additional flash memory of one or two dollars and a small cost for nonrecurring engineering. The $10.00 baseband chip cost estimate is based on royalty reports from iBiquity’s licensees indicating recent sales in the marketplace as low as $9.60 per HD Radio chip. Even for less sophisticated receivers that might require use of a complete HD Radio module, component costs should not exceed $20. These cost estimates are based on relatively low volume orders. iBiquity believes costs will decrease significantly if this condition is adopted and receiver manufacturers negotiate with suppliers for higher volume purchases. Moreover, during the three year time frame before the condition is fully effective for OEM automobile installed receivers, iBiquity believes many receiver manufacturers will have adopted or moved toward adoption of software radios that will allow different system software to be flashed into the memory of the radio. This would reduce the marginal cost of adding HD Radio technology to the cost of memory and flashing the software. iBiquity believes any higher cost estimates are based on out-of-date price information, low volume component orders that contain higher per unit costs, or significant supplier profit margins that may be reduced due to more robust negotiations in the marketplace. July 9, 2008 Page 3 Implications of Commission Action The proposed condition to the merger has been structured to address a number of issues. First, the condition would be imposed on the merged satellite entity rather than on manufacturers or distributors or radio receivers. This avoids any concerns about the Commission’s jurisdiction or attempts to impose mandates on equipment manufacturers. There is no doubt that the merged company, as a Commission licensee, would be directly subject to the Commission’s jurisdiction. The Commission throughout its history has adopted licensing conditions to insure that the public interest is best served by the licensee’s operations. See 47 U.S.C. §303. The Commission also has an affirmative obligation “to encourage the provision of new technologies.” 47 U.S.C. §157. Here, the adoption of the condition proposed by iBiquity will insure that the public reaps the benefits of a competitive marketplace for digital radio and at the same time will encourage the development and proliferation of this important new technology. iBiquity believes that after the imposition of this condition, the merged company will be in a position to satisfy the Commission’s requirements through its contractual relationships with SDARS receiver manufacturers. The timeframes specified in iBiquity’s proposed condition should provide the merged company ample time to work out all the details associated with the introduction of the HD Radio requirement with its vendors. Second, the condition provides three years for the design and certification of receivers intended for OEM automobile installation. This extended time period will address concerns about the need to conform to typical procurement cycles for the automobile industry. Third, the proposed condition is not an attempt to diminish the combined satellite company or to inhibit its ability to serve the public. Instead, this is a narrowly structured condition designed to ensure that a combined satellite company cannot use its position in the marketplace to block competition from terrestrial digital radio. AM/FM radio (and broadcasting in general) always has been a focus of the Commission’s regulatory policy. The Commission has spent decades promoting the availability of broadcast services and in recent years the transition of broadcast services to a digital platform. In return, the Commission has imposed on broadcasters, through both adjucatory and rulemaking proceedings a wide range of public interest obligations and regulations designed to promote the public interest. The introduction of the HD Radio system has helped broadcasters to fulfill these obligations through the introduction of new multicast audio services. These HD2 and HD3 channels are being used to provide listeners with new audio programming otherwise unavailable to the public, new niche programming, important new public affairs programming and, in the near future, new services for the hearing and visually disabled communities. Attached to this letter is a list of stations offering multicast broadcasts demonstrating the array of new audio services being provided to the public via HD Radio. July 9, 2008 Page 4 iBiquity believes it is critically important for the Commission to continue to promote digital radio services by taking into account the significance of a merger of the two satellite radio licensees. The Department of Justice has justified the merger of XM and Sirius by finding that terrestrial digital radio would serve as a source of competition for satellite services. This competition cannot develop, however, if AM/FM radio is relegated to an analog world. Consumers want additional services such as multicasting, program associated data and datacasting, however, these services cannot be offered to consumers without a digital platform. For competition to develop, consumers will need to have access to a digital platform for both terrestrial and satellite radio. The proposed merger between XM and Sirius presents an opportunity for the merged satellite company to use its position in the marketplace to slow or block the rollout of HD Radio technology, thereby preventing the development of robust competition for these radio services. If even a small portion of