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CONCLUSION

The outlook for early development of cable television service

in the major cities is at best mixed.

As compared with the rules

discussed two years ago, the final Fcc rules more tightly

restrict the choice of broadcast signals a system can provide to its

subscribers.

Analysis of the important variations in potential market and

cable systems characteristics in these urban areas demonstrates that

only the largest systems, or multiply-owned systems of slightly

smaller scale, will be viable in the central city areas where off

the-air reception quality is high, and then only under favorable

construction and penetration conditions.

At the edges of these

markets returns will be sufficient to attract investment in the largest

scale systeins, but systems of 10,000-15,000 will be profitable only

under especially favorable circumstances.

In an investment environment in which the majority of urban

households can be profitably wired for cable television service

only when atypically propitious cost and demand factors occur, to require

more than quite limited copyright payments will significantly retard

or halt CATV expansion in the urban markets.

The proposed statutory

fee schedule in .644

(up to 5% of subscriber revenue) would

generally lower rates of return on total capital a full

percentage point for systems in the profitable range, and in

an important proportion of cases its leveraged effect on equity

investors would be sufficient to create unprofitable systems.

As expected, a fee schedule of one-half that in S.644

reduces rates of return on total capital about one-half a

percentage point. Fees of this magnitude would restrict

cable construction primarily in market circumstances where

returns are already limited for other reasons.

In contrast,

a flat 16.5% copyright payment would create a decidedly

unprofitable investment climate for cable television through

out the top 100 markets, far outweighing the limited prospects

opened up by the 1972 FCC rules.

43a

Bibliography

Comanor, William S. and Mitchell, Bridger M., "Cable

Television and the Impact of Regulation," The Bell
Journal of Economics and Management Science, Vol. 2,
No. 1 (Spring, 1971), pp. 154-212.

Comanor, William s. and Mitchell, Bridger M., "The Lost

Generation: A Correction," Bell Journal of Economics and Management Science, Vol. 2, (Autumn 1971), pp. 704-705.

Comanor, William S. and Mitchell, Bridger M., "The Costs

of Planning: The FCC and Cable Television," Journal
of Law and Economics, Vol XV (1), April, 1972, pp.
177-206.

Foundation 70, "Cable in Embryo: Economic Considerations for

Urban Franchising," Wellesley, Mass., processed,
September 1971.

Halle and Stieglitz, Inc., "The Cable Television Industry,"

October, 1971.

Johnson, Leland L., et al, "Cable Communications in the

Dayton Miami Valley: Basic Report," Rand Report
R-943-KK/FF, January 1972.

Mitchell, Bridger M., "An Economic Analysis of the Ability

of CATV Systems in Top 100 Markets to Pay Copyright Royalities," Washington, D.C., processed May 15, 1972.

Park, Rolla Edward, "Prospects for Cable in the 100 Largest

Television Markets," Bell Journal of Economics and Management Science, Vol. 3, No. 1, (Spring, 1972), pp. 130-150.

Park, Rolla Edward, "The Exclusivity Provisions of the

Federal Communications Commission's Cable Television
Regulations," Rand Corporation, R-1057-FF/MF, June 1972.

Seiden, M.H. and Associates, CATV Report, 1970.

Sloan Commission on Cable Communications, On the Cable:

The Television of Abundance, McGraw Hill, New York,
1971.

Weinberg, Gary, "Cost Analysis of CATV Components: Final

Report," RMC Report UR-170, June 1972, prepared for
the Office of Telecommunications Policy.

Federal Communications Commission, "Cable Television Ser

vice: Cable Television Relay Service," Federal Register, Vol. 37, No. 30., Part II, (Feb. 12, 1972), pp. 32523341.

Federal Communications Commission, "Cable Television Ser

vice: Reconsideration of Report and Order," Federal Register, Vol 37, No. 136, Part II. ( July 14, 1972), pp. 13848-13910

Television Digest, Inc., CATV and Station Coverage Atlas,

1971-1972, Washington, D.C..

Television Digest, Inc., Television Factbook, Services

Volume, Washington, D.C.

45

APPENDIX

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.

Local Franchise Tax.

5% of gross revenues annually.

$35 initial fee plus $0.30 per subscriber

2. FCC Fee.

annually.

3.

Channel switchers. One switcher included in capital equipment costs for each imported signal.

4.

Pole rent. All results reported here include pole
rent of $250 per aerial mile in top 100 markets,
$175 in other markets.

5. Local origination. We assume the Comanor-Mitchell

standard systems, with capital costs of $38,000 and
annual operating expenses of $4300, and for smaller
systems a minimum system, with capital costs of
$11,000 and operating expenses of $2500 per year for
live origination. All systems are assumed to provide
a time-and-weather channel.

6.

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.

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