Delaying video competition costs US consumers $8.2 billion a year: Study

MUMBAI: American consumers stand to lose $8.2 billion in the next year if policymakers fail to remove barriers to entry, including local franchise requirements, in the video industry.

The Phoenix Center for Advanced Legal & Economic Public Policy Studies has put out a new Policy Bulletin. Total losses increase for each year of delay and would climb to a total of almost $30 billion if market entry is delayed for four years, the Policy Bulletin added.

The reports states that competition promises to benefit consumers through lower prices, enhanced services and expanded choices from both incumbents and new entrants. Actual market entry, however, faces a significant barrier in the form of local franchise requirements that are delaying entry and could postpone competition for a substantial period of time.

In calculating the costs that consumers will bear by any delay in reform, the Bulletin drew from a Government Accountability Office and other surveys finding that cable television prices drop significantly when cable providers face wireline video competition.

The actual cost to consumers may exceed $8.2 billion because recent surveys suggest that cable companies are slashing prices by more than 40 per cent in some markets in response to new competition from the traditional phone carriers.

Phoenix Center Chief Economist George S. Ford observed that the costs of delay may not be measured by dollars alone. "In some instances, needless delay may deter entry altogether by raising business costs and risk. When that happens consumers are permanently saddled with lower service levels and less innovation. Moreover, our estimate does not even consider the substantial adverse impact that any delay would have on the roll-out of new broadband services."

Phoenix Center Resident Scholar Thomas M. Koutsky expressed hope that policymakers will consider the consumer losses when considering franchise reforms designed to open the door to competition.

"Every month, American consumers pay more for cable service than they would if robust, wireline video competition was present. Claims that the franchising process protects consumers often forget the immediate and substantial harm that consumers must endure today, in an environment where the franchise process delays and stymies new entry.

"The costs to American consumers for the status quo are significant and substantial. Franchise reform should be an easy choice," said Phoenix Center President Lawrence J. Spiwak.

"Phone company plans for head-to-head competition with the cable industry should deliver substantial savings and new services, but those benefits are at risk because of outdated rules. For the sake of consumers, we need new public policies that speed competition, not delay it," added Spiwak.

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