'In Delay There Is No Plenty': The Consumer Welfare Cost of Franchise Reform Delay

Abstract

Traditional phone carriers have announced ambitious multi-billion dollar plans to bulk up their networks with fiber in order to deliver a range of new services, including multi-channel video in competition with video incumbents. This competition promises to benefit consumers through lower prices, enhanced services and expanded choices from both incumbents and new entrants. Actual market entry, however, faces a significant barrier in the form of local franchise requirements that are delaying entry and could postpone competition for a substantial period of time. For that reason, public policymakers are being urged to speed the delivery of new services to consumers by reforming the franchise process. This POLICY PAPER seeks to assist policymakers by measuring the impact of delayed entry on consumers. Drawing on existing data that shows cable prices are about 15 percent lower in the face of wireline video competition, we find that a one-year delay in entry because of franchise requirements would cost American consumers $8.2 billion. The toll on consumers cumulates as reform is deferred so that four years of delay would cost consumers almost $30 billion in unrecoverable losses. These estimated losses may be understated, as we assume a 15 percent price decline, which is consistent with GAO analysis. A recent survey by Bank of America found substantially greater price declines, on the order of 28-42 percent, as the result of new wireline video competition from traditional telecommunications carriers.