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F. CONCLUSIONS

Based on the foregoing calculations, our conclusions on the ability of cable systems to develop in major markets and to pay prospective copyright fees is much more sanguine than that offered by Mitchell. The difference derives largely from the unsupportable assumptions made by Mitchell in his analysis--assumptions wholly inconsistent with NCTA members' predictions and recent behavior in cable system sales. Once Mitchell's low penetration rates and conservative revenue estimates are replaced by more reasonable industry estimates, rates of return rise strikingly, even in the face of rather substantial copyright fee payments. Despite our rather substantial revision of Mitchell's calculations, our estimates of prospective system profitability remain quite conservative for six major reasons.

First, we use Comanor-Mitchell's capital and operating cost data with very little alteration. These estimates have been criticized as considerably high and will probably prove to overestimate cable system costs in future years.

Second, we utilize Mitchell's arbitrary maturity path in our calculations. As cable is built in larger, denser markets, it may be easier for cable operators to enroll subscribers at a more rapid pace. Third, we assume that no installation fees are collected by

system owners despite obvious evidence to the contrary.

Fourth, we assume that every system invests in its own origination equipment. For smaller systems, this may well be a generous assumption if methods are devised to share origination facilities.

Finally, the large microwave costs are arbitrary at best. With the development of new competition in microwave common carriage, and the possibility of satellite distribution systems, it seems likely such costs for each system to build and maintain its own microwave equipment will decline substantially.

Our assumption of future mature penetration levels is more generous than that provided by existing statistical demand models, but these models are seriously deficient in their ability to predict even current demand. Since our projections of penetration derive from estimates offered by major cable companies, we believe that they are more soundly based than the relatively pessimistic values advanced by Mitchell.

The resulting estimates of cable profitability find medium to large size systems earning in excess of 20 percent on capital in nearly every situation in the absence of copyright payments. These returns are above those deemed necessary to attract investment capital to the industry. Thus, we conclude that substantial copyright fees could be paid without inhibiting the growth of typical cable systems in the country's major markets as they are presently conceived.

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