Franchise Fee Revenues after Video Competition: The 'Competition Dividend' for Local Governments
Phoenix Center Policy Bulletin No. 12
11 Pages Posted: 8 May 2006
Date Written: November 2005
In response to federal efforts to reform the local cable franchise process, state and local governments have argued that proposed legislation will reduce local franchise fee revenues by at least $300 million per year. As demonstrated in this POLICY BULLETIN, however, the introduction of competition for multichannel video services promises to significantly increase gross industry revenues and therefore could substantially increase local franchise fee collections. Specifically, this POLICY BULLETIN finds that if wireline, local telephone company entry into the multichannel video industry is successful, then gross taxable revenues from the wireline multichannel video industry will increase by an estimated 30%. Commensurately, effective proentry video policies would allow the local franchise fee percentage cap to be lowered (or the revenue base narrowed) significantly without doing any harm to local government franchise collections. This POLICY BULLETIN estimates that a reduction in the franchise fee cap from 5% to 3.7% would be revenue neutral. However, this "competition dividend" will only occur if wireline entry happens and, therefore, reform of the cumbersome and anticompetitive video franchising process is crucial to ensuring that such entry occurs.
Keywords: Cable television, franchise reform, franchise fees
JEL Classification: H79, K23, K28, L10, L11, L13, L50, L98, L99, O33
Suggested Citation: Suggested Citation