A NOTE ON THE IMPLEMENTATION OF CABLE TV RATE CAPS

In devising rate caps under the 1992 Cable Act, the FCC measured the e ffects of market power in cable TV by comparing overbuild franchise ar eas (served by more than one cable operator) with monopoly areas. This paper draws attention to, and corrects, several shortcomings in the F CC's analysis. We conclude that the overbuilds' rates are, on average, 12 percent lower than monopoly rates (and not 16 percent as estimated by the FCC, a difference of approximately $700 million in terms of an nual cable revenues). Furthermore, overbuild operators offer better se rvice quality than monopoly systems; the average overbuild offers upto 34 percent more non-broadcast channels.