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 throughout the top 100 markets, far outweighing the limited prospects opened up by the 1972 FCC rules. 43 a Bibliography Comanor, William S. and Mitchell, Bridger M., "Cable Television and the Impact of Regulation," The Bell 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 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 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 Service: Cable Television Relay Service," Federal Register, Vol. 37, No. 30., Part II, (Feb. 12, 1972), pp. 32523341. Federal Communications Commission, "Cable Television Service: 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 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. 2. 3. 4. 5. 6. FCC Fee. $35 initial fee plus $0.30 per subscriber annually. Channel switchers. One switcher included in capital 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. 8. The previously proposed 5% "public dividend" tax 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." |