1. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 1 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley Expected Consumer Benefits from Wired Video Competition in California Yale M. Braunstein School of Information University of California, Berkeley October 2006

2. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 2 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 2 Background Video delivery systems in the U.S.  Over-the-air broadcast (“OTA”, analog & digital)  Local & regional cable franchises (co-ax)  Satellite  Pre-recorded (VCR & DVD)

3. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 3 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 3 Current statistics Approximate national market shares: Cable: 70%; Satellite: 15%; OTA: 15%

4. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 4 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 4 Cable has “near monopoly” …and prices are essentially unregulated.

5. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 5 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 5 But, technology is changing Conversion to digital  For OTA, cable & satellite Use of IP Deployment of optical fiber (in selected regions)

6. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 6 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 6 “Convergence” Slow to arrive But may actually be here, at least in part Affects different parts of telecom and broadcast 1.Broadband (DSL & cable modem; 2000) 2.Voice (switched & VoIP; 2004-2005) 3.Now video (2006?; very limited)

7. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 7 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 7 What is holding back wired video competition ? Infrastructure Capital Management Regulation Not necessarily in that order !

8. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 8 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 8 Our assignment Estimate the savings cable television subscribers in California could expect if alternative wired distribution of video programming were to become widespread. Purpose: to provide policy makers with objective information about likely effects of competition.

9. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 9 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 9 Our approach Use current population data Use existing data on cable subscription rates Use existing data on cable subscription demand patterns Develop reasonable estimates of the effects of competition on subscription prices  Using results of two government studies of areas with wired video competition

10. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 10 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 10 California video “markets” Over 90% of the households live in four “Designated Market Areas” (DMAs) DMAs are different from political boundaries or census areas Basically, they are limited by coverage of TV signals and reflect viewing & advertising patterns.  There are 210 DMAs in the U.S. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley

11. s l i d e 11 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 11 DMA Size and Cable Television Prices © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley These calculations were very complex: multiple cablecos in some regions, several programming packages, package definitions in the subscriber data did not match those in the pricing data. 90% of HH in the 4 DMAs

12. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley s l i d e 12 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 12 Two studies estimate possible savings from competition FCC “Report on Cable Industry Prices” (February 2005)  Cable television service was provided in 32,510 “non-competitive” communities while there were only approximately 400 communities with competitive wireline overbuilds. Based on a stratified random sample, the monthly subscription rates for basic and expanded basic services were on average 15.7% lower in the competitive group than in the non-competitive group and 27.2% lower on a per-channel basis. GAO “Wire-Based Competition Benefited Consumers in Selected Markets” (February 2004)  Compared the monthly cable television rates in six markets with broadband service providers who offered a full range of services including subscription television with six comparable markets without such competition. Averaging the results from all six markets, the average price was 22.2% lower when competition was present. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley

13. s l i d e 13 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 13 Combining the savings estimates (in %) with the California data © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley

14. s l i d e 14 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 14 Additional considerations - 1 Time needed to get from “before” to “after” is unstated. The FCC Pricing Study found that the average price per-channel was, on a percentage basis, even lower than the average overall price for wired video service in competitive markets than in markets without competition. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley

15. s l i d e 15 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 15 Additional considerations - 2 Competitive operators offer a wider variety of packages and options as they seek to serve additional market segments. We did not include non-English- language channels, etc. © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley

16. s l i d e 16 © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley 16 Postscript California bill AB 2987 “The Digital Infrastructure and Video Competition Act of 2006”  Passed Assembly 77-0 (June 1, 2006)  Passed Senate 33-4 (Aug. 30, 2006)  Signed into law by Gov. Schwarzenegger (Sept. 29, 2006) http://gov.ca.gov/index.php?/press-release/4190/ © 2006 | Professor Yale Braunstein | School of Information | U.C. Berkeley