Cable TV Franchises as Barriers to Video Competition

Abstract:     
Traditionally, municipal cable TV franchises were advanced as consumer protection to counter natural monopoly video providers. Yet historical evidence has demonstrated that franchise regulation - fraught with conflicts and delays, while ultimately proving ineffective in constraining rates - failed to improve consumer welfare. Now, marketplace changes render even this weak traditional case moot. First, local rate controls are, since the 1996 Telecommunications Act, pre-empted by federal law. Second, video rivalry has proven viable, with inter-modal competition from satellite TV and local exchange carriers (LECs) offering triple play services. Third, a community's interest in protecting local rights-of-way from excessive or disruptive use, best achieved through generic liability rules, are already in force for LEC video entrants under the terms of their telephone licenses. For these new rivals, which exploit scope efficiencies in entering video markets, cable franchises do not establish parity but duplicate existing regulation. Indeed, cable operators entered voice and data markets via video franchises, avoiding regulatory burdens such as build-out requirements. Eliminating the double taxation of overlapping regulatory structures improves economic efficiency by reducing a substantial barrier to competition. Were head-to-head wireline video rivalry, now offered to just under five percent of U.S. households, to extend nationwide, annual benefits to consumers are estimated to approximate $9 billion, with overall economic welfare increasing about $3 billion per year.

Number of Pages in PDF File: 85

Keywords: barriers to entry, municipal franchising, cable television, telecommunications policy, media competition, video regulation

JEL Classification: D42, D45, L14, L82

working papers series