Optimal Second Best Pricing of CATV Pole Attachments

Pre-1978 community antenna television (CATV) and utility behavior in Ohio is modeled in order to ascertain whether the pole attachment rates charged by utilities were consistent with monopoly pricing. Optimal attachment rates are also derived using second best pricing rules. This constitutes one of the few attempts to apply optimal second best pricing rules to an existing problem. Although these principles are applicable to a wide variety of regulatory problems, they remain unused by almost every regulatory agency in the US. This analysis attempts to pursue second best pricing rules to the level of implementation. Although the focus is on CATV rates, CATV companies and consumers are not the only ones who would benefit from inverse demand elasticity rates. The data indicate that telephone pole contacts in Ohio should probably be priced lower than those for CATV. Since telephone and electric utilities typically share pole costs on an approximately equal basis, telephone consumers would be likely to benefit from implementation of inverse demand elasticity rates based on data applicable to their region. The results indicate that Ohio electric utilities have used their pole monopoly to raise prices above marginal costs, total costs, and even rates foretold by second best pricing principles. Given the rates granted in California, the outlook is not hopeful for curbing utility monopoly power in this area by state regulation.