Research
Studies of Video Franchising and the Benefits of Franchise Reform
Video Killed the Franchise Star: The Consumer Cost of Cable Franchising and Proposed Policy Alternatives
Mercatus Center at George Mason University
Jerry Brito and Jerry Ellig
December 18, 2006
The authors of this study conclude that local franchising regulations cost American consumers about $10.4 billion annually. The authors look at several ways to reduce these costs, and ultimately conclude that franchises should be eliminated in favor of simple open entry rules. They determine that "widespread video competition could create $6.3 billion in consumer benefits annually," with rates for customers in markets currently without competition falling by about $86 a year.
Cable TV Franchises as Barriers to Video Competition
Thomas W. Hazlett
George Mason University School of Law
June 2006
This landmark study is a long and detailed report on how local franchising agreements have outlived their reason for existing: protecting customers from cable monopolies. It finds that instead of protecting consumers, local franchising rules actually serve to protect the incumbent cable monopolies from potential competitors. According to the study, as of mid-2005 approximately 40% of U.S. households could choose between the phone company and the cable company for telephone service, while only about 4% of U.S. homes were offered two choices for cable TV subscription service. The author calculated that the consumer benefits of nationwide cable TV competition are about $9 billion annually, as competition lowers prices by 15%. The author also asserts that incumbent cable companies promote build-out requirements for potential competitors because they know the rules will result in less competition. The study concludes that state or federal licensing of video entrants would pre-empt municipal franchise barriers, and thus better serve the interests of consumers.
Cutting the Cord: Streamlining the Video Franchising Process
Pacific Research Institute
Sonia Arrison and Vince Vasquez
April 2006
This study concludes that the franchising rules meant to protect consumers from the monopoly powers of the cable companies are no longer needed, because competition is possible in the form of Internet Protocol TV and other services that use new technology. The study concludes that regulatory reform is vital because a healthy communications sector will help America compete with the rest of the world.
Study of the Effects of the Texas State-Issued Video Franchise Law On Fiber to the Home Deployments and Video Competition
RVA Render & Associates
December 12, 2006
The Fiber-to-the-Home Council (FTTH Council) secured the services of RVA Render & Associates LLC (RVA), a market research firm frequently involved in advanced broadband related market research, to objectively study the impact of the Texas State-Issued Video Franchise Law (SB 5). This study surveyed providers of fiber-based video and concluded that the new state-wide franchising law had dramatically increased video service in Texas in just one year. Video enabled fiber grew eight times faster in Texas than in the rest of the country, the authors found. According to the study: "Over 108 statewide video franchise applications have already been granted by the Texas PUC. Over 660 communities now have choices - some for the first time ever." In just one year, the number of customers offered video grew by 1,815%.
I Want My MTV: Reforming Video Franchises for Competitive TV Services
Reason Foundation
By Steven Titch
Project Director: Adrian T. Moore
January 2007
This study looks at various video franchise reform proposals and the benefits of franchise reform. It also takes a strong stand against the franchise fees providers are required to pay and build out requirements. The study asserts that franchise fees are a discriminatory tax and intrusive regulation. The authors argue that these fees hinder the ability of service providers to expand the availability, quality and utility of broadband services to their customer base. The study concludes that a free-market approach to franchising is appropriate.
Assessing the Case for Cable Franchise Reform
Mackinac Center for Public Policy (Michigan)
By Diane S. Katz
Sept. 19, 2006
The study looks at the history of the cable industry and franchise fees and argues that franchise fees are a hidden tax on consumers. The authors demonstrate that cable prices in non-competitive markets rose nearly 38% above the annual inflation rate from 1991 to 2006, while cable prices in competitive markets were 15.7% lower than the national average. They also point out that per-channel rates have increased up to 114% in some areas over the past 15 years. Some of that rate increase went to providing extra channels; however, even controlling for this extra service, cable rates still rose 67% per-channel nationwide. The study concludes that franchise reform that eliminates barriers to competition is necessary.
Better Prices and Better Services for More People: Assessing the Outcomes of Video Franchise Reform
Reason Foundation
By Steven Titch
January 2007
This study emphasizes that state-wide franchising benefits both small and large companies, citing examples of local companies offering video service using IPTV that were able to expand much faster than was possible under local franchising regulations. It also shows that the concerns addressed by local franchising agreements are covered by state-wide franchising agreements; PEG channels are still supported, fees can be paid to the local authority to cover the cost of using the municipal rights of way, and build-out to all areas of a given service area happens in a timely manner.
The Impact of Video Service Regulation on the Construction of Broadband Networks to Low-Income Households
I/S: A Journal of Law and Policy for the Information Society
Lawrence J. Spiwak, Esq., George S. Ford, PhD, Thomas M. Koutsky, Esq.
2007
This paper examines how new broadband providers decide where to build their networks, and simulates how construction decisions are affected by the services that the provider may offer on its network. The study concludes that if a company is able to bundle services such as video, phone, and broadband access, it becomes profitable to serve lower-income homes. If we want national broadband deployment, the study concludes, we should make it as easy as possible for firms to bundle all three telecommunications products together.
Video Programming and Consumer Choice
Wayne T. Brough, Ph.D.
FreedomWorks
April 10, 2006
This report reviews the history of the telecommunications industry and its regulations. It examines the idea of "level-playing-field" statutes and decides that since the original reason for onerous requirements on cable companies is no longer applicable, "level-playing-field" statutes actually tilt the field in favor of the incumbents and act as a deterrent to competition. This report also makes the point that "right-of-way" fees, which are set higher than necessary to repay the town for access, are essentially hidden taxes on consumers. They conclude that an open market, with no barriers to competitive entry, is necessary for the US to continue to expand and upgrade the telecommunications industry.
Experts: Lack of Cable/Video Competition Costs U.S. Consumers $22 Million a Day, Also Means Loss of Choices
New Millennium Foundation
May 2006
This is a summary of a panel of telecommunications experts, which concluded that consumers could save $22 million a day, nationwide, if competition was introduced into the cable industry. According to the panel, increased competition would spur investment in broadband networks for residential customers and save customers more than $20 a month on their cable bills. The panel estimated that every year of delay costs Americans $8.2 billion in lost savings.
Reducing Barriers to Investments in Fiber Connections and Advanced Broadband Services for American Households
Kevin A. Hassett and Robert J. Shapiro
February 2007
This report argues that reducing barriers to competition would increase revenues for video providers, and thus generate extra investment in the industry, providing more people with broadband service each year. The authors of the report also note that this expansion is likely to happen fast - one year after Texas enacted franchise reform, lower prices and better services led to increased demand, which led to a 3.5% increase in revenues. If that same rate (likely a low estimate, since consumers and companies had not yet had time to take advantage of the new situation) were applied to the whole country investment across the country would increase by between $6.1 billion and $9.5 billion over 10 years. The authors argue it is more likely that investment will increase by between $3.35 billion and $5.76 billion a year, for a cumulative investment increase over a normal 10-year investment cycle of $33.5 billion to $57.6 billion.
Report to the Subcommittee on Antitrust, Competition Policy and Consumer Rights, Committee on the Judiciary, U.S. Senate
Telecommunications Wire-Based Competition Benefited Consumers in Selected Markets
United States General Accounting Office
February 2004
This study examined 12 different markets: six where there was existing competition in cable markets and six where there was a cable monopoly. They found that the rates for telecommunications services were generally lower in the six markets with broadband service providers (BSPs) than in the six markets without a BSP. For example, expanded basic cable television rates were 15 to 41% lower in five of the six markets with a BSP when compared with their matched market. This makes a strong case for increased competition in the cable industry.
The Benefits of New Wireline Video Competition for Consumers and Local Government Finances
Criterion Economics, LLC
Robert W. Crandall and Robert Litan
May 2006
This study uses values of the price elasticity of demand for wireline video services found in other literature and survey data to find that entrance of telecommunications companies into the video market will cause prices of video services to decline, subscriptions to rise, consumer value to increase, and local franchise fee receipts to rise. Overall, prices for wireline video service will decline by 13.5% and subscribers in currently non-competitive areas will increase by between 29.7% and 39.1%. The study finds that local franchise fee receipts in areas currently without wireline competition will increase by between $249 million and $413 million per year.
In Delay There is Plenty: The Consumer Welfare Cost of Franchise Reform Delay
Phoenix Center,
George S. Ford, PhD, Thomas M. Koutsky, J.D.
January 2006.
This policy paper draws on existing data that shows cable prices are about 15% lower in the face of wireline video competition and finds that a one-year delay in entry because of franchise requirements would cost American consumers $8.2 billion. The toll on consumers cumulates as reform is deferred so that four years of delay would cost consumers almost $30 billion in unrecoverable losses. The study points to research that shows that the local franchising process raises the costs of entry and causes considerable delay in the construction of new, multi-service broadband networks.
An Interim Report on the Economic Impact of Telecommunications Reform in Indiana
Ball State University Digital Policy Institute
February 15, 2008.
This study examines some of the early benefits of Indiana's telecom reform bill that was passed in 2006. The authors found that Digital Subscriber Line (DSL) services have been expanded by major providers, reaching 102 new communities across the state and there was a 72% increase in high-speed technology lines over 2005. The study found that deployment of broadband technology is driver of economic growth and over 2,200 new jobs have been created and more than $516 million invested in the state as a direct result of Indiana's reform legislation. The study also concluded that where direct competition is available or is on the horizon, some cable firms are responding to consumer negotiation and beginning to lower prices to maintain market share.
The Consumer Benefits of Video Franchise Reform in Illinois
The Heartland Institute
By John Skorburg, James Speta, and Steven Titch
April 2007
This study looks at the prospects for video franchise reform legislation in Illinois. It cites examples from other states (highlighting Texas and Indiana) and gives an overview of the relevant literature. The authors conclude that franchise reform would save Illinois consumers $316 million a year by reducing cable prices 15.6%. The benefit to each cable consumer in Illinois would be $115 each year.
The Economic Impact of Video Franchising and Broadband Investment in Michigan: 2006
The Digital Policy Institute, Ball State University - Muncie, Indiana
May 19, 2006
Barry L. Litman, Ph.D., Michigan State University, and Robert E. Yadon, Ph.D., Ball State University
This study examined the impact of video franchising in Michigan. The authors found that introducing state-wide franchising would save existing cable subscribers between $156 million and $468 million each year. The overall impact on the economy would be 34,400 new jobs and the gross state product (a total of all goods and services sold in Michigan) would increase more than $13.5 billion. The authors also state that build-out requirements would be more of a hindrance than a help, quoting economist Thomas W. Hazlett, "Incumbents advocate build-out requirements precisely because such rules tend to limit, rather than expand, competition." They conclude that state legislators should pass a state bill instead of waiting for a national franchising reform law.
Bring Competition To Cable TV
by Diane S. Katz
The James Madison Institute
Spring 2007
This study examines the effects of franchise reform in Florida, and concludes that customers would be better served by competition in the video market. Looking at four cities in Florida, the authors found that cable rates increased from about $40 dollars in 2002 to about $60 in 2006. The study also concluded that local municipalities would benefit from greater competition, even if prices decline, because there would be more video subscribers. The authors estimate that the new subscribers would raise franchise-fee revenue by between $249 million and $413 million. This fee would cover the cost to municipalities for access to public rights of way.
Expected Consumer Benefits From Wired Video Competition in California
Yale M. Braunstein
School of Information, University of California, Berkeley
April 2006
This study focuses on the potential effects of video franchising reform in California, concluding that consumers in the state would save between $692 million and $1.015 billion each year.
Tennessee Cable TV Monopolies Raise Prices, But Competition Could Save Consumers $460 Million
The American Consumer Institute
January 23, 2008
This study reports that Tennessee consumers are overpaying for cable by $460 million a year. The authors highlight several facts: wireline competition would lower video prices by 25% per channel; cable TV prices are 28% lower in competitive markets; and competition would lead to increased demand and investment, thereby creating up to 101,000 jobs. The study concludes that Tennessee should enact statewide video franchising reform.