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one educational station.

These signals are imported by microwave.

averging 3 hops of 35 miles each per charnel.

Within five years the system is assumed to reach maturity, apar from further growth due to rising incomes or enlargement of its franchise area. Penetration is predicted to be 28.1% if the distant signals are fully available, but 27.2% as a result of exclusivity protection on the independent channels.

Part B summarizes the growth of penetration, subscribers, and system revenue (including advertising) over the first 10 years.

In Part C we may assess the impact of copyright fees on profitability. For each of the four fee schedules described earlier

we report two rates of return--one assuming a 10 year average lifetime of capital, the second assuming 15 years. If fixed capital equipment is replaced about every 15 years, this system will earn a 10.4% real rate of return on total invested capital absent any copyright fees. Alternatively, the statutory schedule (number ) reduces the rate of return to 9.3%, and the flat 16 % fee lower returns sharply to 5.5%. A shorter lifetime for equipment reduces these returns by 2.5 to 3 percentage points.

In the analysis below we report rates of returns based only on 15-year lifetimes. Fifteen years represents a compromise between somewhat longer physical lifetimes for some parts of the cable plant and rather shorter economic lifetimes of currently operating systems experiencing technological obsolescence. It appears

RESULTS--IN DETAIL

The financial prospects for cable under the final PCC rules

and the impact of alternative copyright fee schedules are contained in the seven tables which follow. While we shall briefly review the major findings here, the reader should consult the tabulations for particulars. Tables 4 and 5 report the expected experience in middle markets of large and intermediate sized systems respectively. Line 1 of Table 4 restates the example system discussed in detail above.

Lines 2 and 3 are for similarly situated communities with somewhat different sets of local signals. Penetration ranges from about 22-27% and rates of return from 7.5 to 10.4% when there are no copyright fees. Despite somewhat higher penetration rates, systems in the second 50 middle markets earn lower returns, principally because of reduced density, while in the lowest ranked markets there is great variation, with profitable, 55% penetration systems when one network is missing from the local signals.

Intermediate-sized systems in middle markets are decidedly below the 10% rate of return needed to attract investment funds. Except where quite large systems of 25,000 or more subscribers

can be built, central city areas of the major markets are not bright prospects for cable under present rules, even without copyright

payments.

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