Economics teaches that consumers and society as a whole benefit from vigorous competition. For the last quarter-century, policymakers have debated how to best apply this principle to the cable television market. Congress enacted three bills between 1984 and 1996 designed to increase competition in the cable television market, but those efforts have seen only limited success.
Recent technological developments promise to change that. Incumbent phone companies such as AT&T say they now have the technology to offer affordable video content to their customers, but that restrictive cable franchising rules—which require them to negotiate individually with hundreds of municipalities—are standing in their way. The Missouri legislature is currently debating franchise reforms that would allow new entrants to apply for a statewide franchise to offer video services across the state.
In this paper, I estimate the benefits of increased video competition to Missouri consumers, to state coffers, and to the state as a whole. I find that increased video competition would benefit consumers by between $66 million and $76 million annually. On the other hand, incumbent cable companies would be harmed by between $45 and $53 million per year. On net, therefore, increased competition would benefit the state by more than $20 million per year.
Franchise reform would also benefit the state if it attracted new infrastructure investments. Based on the experience of other states, I estimate that new entrants would make $420 million in capital investments. If made in one year, that quantity of investment would generate roughly $17 million in additional state revenues the first year, and approximately $1 million annually in subsequent years.
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