The Consumer Welfare Cost of Cable 'Build-Out' Rules

31 Pages Posted: 16 Aug 2005

See all articles by George S. Ford

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Thomas Koutsky

USAID Global Development Lab

Lawrence J. Spiwak

Phoenix Center for Advanced Legal & Economic Public Policy Studies

Date Written: June 2005

Abstract

Firms that wish to offer wireline, multichannel video programming services in direct competition with cable incumbents are being faced with calls by those incumbents and policymakers to "build-out" to entire communities as a pre-condition of receiving a franchise. This "build-out" requirement is often incorporated into the local cable franchising process, which the FCC over a decade ago called "the most important policy-relevant barrier to competitive entry in local cable markets." In this Policy Paper, we show that build-out mandates are actually counter-productive and serve primarily to deter new entry, increase the profits of incumbents, and harm consumers. With both a theoretical model and an empirical simulation, we show that build-out rules cause new video entrants to bypass certain communities entirely and sharply lower the number of communities in which new network construction would be profitable. We show that consumer welfare is likely to be higher with "free entry" policies that impose no build-out requirement.

Keywords: cable franchises, build-out requirements

JEL Classification: K23, L10, L50, L96, 031, O33, 038

Suggested Citation

Ford, George S. and Koutsky, Thomas M. and Spiwak, Lawrence J., The Consumer Welfare Cost of Cable 'Build-Out' Rules (June 2005). Phoenix Center Policy Paper No. 22, Available at SSRN: https://ssrn.com/abstract=777465 or http://dx.doi.org/10.2139/ssrn.777465

George S. Ford

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States

Thomas M. Koutsky

USAID Global Development Lab ( email )

1300 Pennsylvania Avenue NW
Washington, DC 20577
United States

Lawrence J. Spiwak (Contact Author)

Phoenix Center for Advanced Legal & Economic Public Policy Studies ( email )

5335 Wisconsin Avenue, NW
Suite 440
Washington, DC 20015
United States
202-274-0235 (Phone)
202-318-4909 (Fax)

HOME PAGE: http://www.phoenix-center.org

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