An Economic Analysis of Subscriber Limits

03 January 2002
By Linda McLaughlin with Massachusetts Institute of Technology Elizabeth and James Killian Professor of Economics and Management Paul L. Joskow

This paper responds to the Federal Communications Commission's request for comments on the need for limits on the size of cable operators (e.g., 30 percent of nationwide subscribers) so as not to discourage the entry and expansion of attractive cable program services. It finds that the Commission's concerns are inconsistent with the behavior of MSOs and their effects on program availability and diversity. Since 1992, there has been rampant entry of new basic program services and carriage of those services by large MSOs.

Further, the recent expansion in channel capacity and the increasing importance of program service competition between traditional cable MSOs and DBS suggests entry will be even easier in the future. Horizontal buyer market power issues give neither a theoretical nor an empirical basis for the Commission's assumptions underlying a subscriber limit. The paper further shows that vertical integration does not provide any justification for this limit. Moreover, the limit could actually have the effect of harming consumers by increasing the cost of programming and reducing the number of program services.