Abstract

Despite its relatively small size, the cable television industry has been the focus of intense public debate within the Congress, before the Federal Communications Commission (FCC), and in the courts. Broadcasters, theater owners, and some citizens' groups have mustered a variety of arguments for constraining its growth, while cable system owners and a number of firms eager to sell their services over the cable have sought a relaxation of restrictive regulation. Unfortunately, relatively little attention has been focused upon the efficiency of the local franchising process that has developed in this industry.' Given the obvious natural-monopoly attributes of cable television, this oversight is particularly unfortunate. As cable begins to develop a va-riety of new services-such as pay entertainment channels and two-way communications-the potential for monopolistic restriction will increase, and this potential must be restrained by some form of social control. If the current system has not been capable of keeping subscriber fees at levels close to the social cost of providing service, it seems unlikely that future monopoly (or monopsony) exploitation can be restrained by local franchising. On the other hand, if competitive bidding for franchises before local governments has been successful in restricting monopoly profits, more formal public utility regulation and its associated costs and inefficiencies might be avoided. In the process of arguing against restrictive FCC regulations,2 designed to protect commercial broadcasters, and in an attempt to fend off eager copyright owners, the National Cable Television Association (NCTA) has financed two studies that predict a dismal future for the industry.3 Each of these studies purports to demonstrate that few cable systems in the nation's largest 100 television markets will be able to

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