Crandall and Litan Release Study Showing Benefits of Video Competition for Local Government Finances and Employment

May 4, 2006

According to a new Criterion study by Robert Crandall and Robert Litan, the entrance of telecommunications firms into the market for video program distribution (MVPD) will increase local franchise fee receipts and enhance local employment. Using values of the own-price elasticity of demand for wireline video services in the literature and newly developed from 2006 survey data, the authors find that entrance of telecommunications companies into the MVPD market will cause prices of video services to decline and subscriptions to rise. Because the telcos will also offer enhanced video packages, such as high-definition television and video-on-demand in areas where those services are not currently available, the demand for MPVD service will increase. Overall, prices for wireline MVPD service will decline by 13.5 percent, but subscribers in currently non-competitive areas will increase by between 29.7 percent and 39.1 percent. Because the percentage increase in subscribers exceeds the percentage decrease in the price of MVPD service, the dollar value of monthly transactions for video services will increase, which, in turn, will increase local franchise fee receipts.  In particular, the authors find that local franchise fee receipts in areas currently without a wireline competitor will increase by between $249 million and $413 million per year. They also find that local employment will improve as a result of  telco entry into the MVPD market. For example, they estimate that the $2 billion that Verizon invested in its FiOS product in 2005 created between 3,300 and 7,400 additional jobs

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