Modified Costs and Revenues Several cost items in the Comanor-Mitchell Report have been modified for this study, either to take account of the FCC rules as finally adopted or as a result of the availability of more recent information. A brief summary of those costs which were modified for all systems investigated in this report is presented below: 1. 2. 3. 4. 5. 6. Local Franchise Tax. 5% of gross revenues annually. FCC Fee. $35 initial fee plus $0.30 per subscriber annually. Channel switchers. One switcher included in capital equipment costs for each imported signal. Pole rent. All results reported here include pole Local origination. We assume the Comanor-Mitchell Public service channels. The final FCC rules require CATV systems to provide 3 non-broadcast channels for non-commercial public access, educational access, and government access respectively. The public access channel is to be provided without charge, while the other two channels will be free for five years. The costs of meeting these provisions are taken to be an additional 75% of the capital costs assumed for local origination, plus $4875 per year for part-time technician salaries. 7. The previously proposed 5% "public dividend" tax 8. Rate of subscribers growth over time. Park's recent As compared with Comanor-Mitchell, the effect of these modifications is to increase the size of typical systems in two ways: a) study systems gain subscribers more rapidly in early years; b) the size of a study system is measured in its fifth year, rather than its size after twelve to fifteen years. Figure Al provides a graphical comparison of the growth curve used for this study and the earlier ComanorMitchell study. As in the Comanor-Mitchell Report, financial (internal) rates of return are calculated for a firm of indefinite life by assuming that the firm reaches an equilibrium of revenues and costs after one 15-year lifetime, or generation, of equipment. Thereafter, the plant is rebuilt periodically, while subscriber penetration is held constant at the mature level. The rate of return is generally robust with respect to exact assumptions about conditions in later generations. Another solution to this terminal value problem is to assign the firm a value at the end of its first generation, based on operating characteristics such as revenues, subscribers, etc. For an example of this method see L. L. Johnson, "Cable Communications in the Dayton Miami Valley: Basic Report." The Penetration Equation Technical details of the penetration equation are summarized below. For further discussion see R. E. Park, "Prospects for Cable in the 100 Largest Television Markets." Vi= number of B-contour off-air VHF signals of type i Pen= penetration = subscribers/households passed by cable |