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one educational station.
These signals are imported by microwave,
averging 3 hops of 35 miles each per channel.
Within five years the system is assumed to reach maturity, apart
from further growth due to rising incomes or enlargement of its
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
In Part C we may assess the impact of copyright fees on pro
For each of the four fee schedules described earlier
we report two rates of return--one assuming a 10 year average life
time 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
Alternatively, the statutory schedule (number 3)
reduces the rate of return to 9.3%, and the flat 16.5% fee lowers
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 be
tween somewhat longer physical lifetimes for some parts of the cable
plant and rather shorter economic lifetimes of currently operating
systems experiencing technological obsolescence.
unlikely that 20-channel systems built today will remain competitive
beyond 1985 without major rebuilding.
The financial prospects for cable under the final FCC 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
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
Lines 2. and 3 are for similarly situated communities
with somewhat different sets of local signals.
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, princi
pally because of reduced density, while in the lowest ranked mar
kets there is great variation, with profitable, 55% penetration
systems when one network is miss ing 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
In these tables, N means network, I means independent, E means educational;
V means NHF, U means UHF.