Wednesday, November 30, 2005 - The Progress & Freedom Foundation Blog

Competition Dividend?

A new policy bulletin published by the Phoenix Center tackles some of the issues around franchise regulation. The study addresses revenue problems faced by local government that may result from proposed changes to the current franchise fee system. George S. Ford and Thomas M. Koutsky authored the paper. (Several years ago Ford collaborated with Tom Hazlett on an excellent paper that showed empirically why "level playing field laws" had anti-consumer effects.)

Ford and Koutsky assume that franchise fees will continue to apply to gross revenues. They assume that franchise regulation will be maintained. And they conclude that new franchise revenues will result from wireline telecom firms entering the video marketplace. Time will bear out their first assumption. The second assumption may be well founded: Franchise regulation is likely here to stay but is by no means necessary. Their conclusions are worth noting. First, they find that successful wireline entry into the video market will increase revenue collections by as much as 30 percent. There is a little math involved but basically new entry drives prices down and with lower prices, more consumers are willing to buy video services. As a result, total gross revenues increase. To maintain the same level of revenues, the cap on franchise fees could be dropped from 5 percent of gross revenues to 3.7 percent, according to Ford and Koutsky.

I'm not convinced that the political attractions of a revenue neutral policy should outweigh the virtues of reduced regulation and taxation for all market participants - elimination of the franchising regime - but I can certainly agree with the final conclusion of Ford and Koutsky, namely, for consumers to see any "competition dividend" the current franchising process must be reformed.

posted by @ 6:32 AM | Cable , State Policy , Think Tanks , Wireline