Infrastructure Investment and Franchise Fee Abuse: A Theoretical Analysis
12 Pages Posted: 17 Jul 2019
Date Written: July 15, 2019
Fees levied by local franchise authorities on cable television operators are limited to a statutory five-percent cap, though franchise authorities often skirt that maximum levy by demanding additional monetary and in-kind concessions from cable operators. The Federal Communications Commission has recently formally proposed to subject all of a franchise authority’s monetary and in-kind demands to the five-percent (5%) cap subject to few statutory exceptions. In this BULLETIN, we analyze the investment effects of this proposal. Whether using simple economic and financial models or a more complex two-stage investment model that mimics the regular negotiations that occur between the cable operator and local authorities, we show that the Commission’s proposed limits on local franchise authorities’ extra-statutory exactions will promote infrastructure investment by both incumbents and new entrants.
Keywords: Franchise Fee, Cable Television, Federal Communications Commission, Regulation, Investment
JEL Classification: L86
Suggested Citation: Suggested Citation