The Economics of Build-Out Rules in Cable Television

23 Pages Posted: 8 May 2006

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

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 to receiving a franchise. This "build-out" requirement is often incorporated into the local cable franchising process. In this 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. Using 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 Television, Build-out Rules, Entry, Franchising

JEL Classification: H79, K23, K29, L10, L11, L13, L50, L98, L99, O33

Suggested Citation

Ford, George S. and Koutsky, Thomas M. and Spiwak, Lawrence J., The Economics of Build-Out Rules in Cable Television. Hastings Communications and Entertainment Law Journal, Vol. 28, p. 207, 2006, Available at SSRN: https://ssrn.com/abstract=899590

George S. Ford

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

5335 Wisconsin Avenue, NW
Suite 440
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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)

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