Telephone company entry into cable television: A re-evaluation

In a recent issue of this journal, L.L. Johnson and D.P. Reed (J and R) address an important regulatory issue concerning the 'economy of scope' of integrated broadband networks versus separate voice and cable TV networks. However, we do not believe that the technical question of economy of scope has been resolved, as their analysis seems to suggest. Technological advances have fundamentally altered the architectural models and economics of local loop design of an integrated broadband network, shifting the focus from fibre-to-the-home towards fibre-to-the-kerb. Technological and statistical uncertainties were not addressed in the J and R analysis. Moreover, by focusing only on video entertainment services, the J and R revenue potential is too conservative. We conclude that the question of the economy of scope of integrated networks is, at present, open.