Convergence and diversification in cable industry: An empirical analysis of the deployment pattern of cable telephony in US local telecommunications markets

The primary purpose of this study is to examine the deployment pattern of cable telephony in the US local telecommunications market. A model is established stressing that the size of local markets and the specific cost advantages of local cable systems are associated with the deployment of cable telephony by cable operators.Probit regression analysis, using the data from the 2005 Television & Cable Fact Book, the Federal Communications Commission and the US Government Census reveal that cable operators deploy cable telephony in specific local markets where the economies-of-scale and scope of the entry and less costs for system upgrades generate a long-run duopoly profit from voice services.Local video competition with other MVPD service providers and horizontal integration do not appear to increase cable operators’ incentives to deploy cable telephony. In this sense, the findings show an unrealized aspect of the goal of competition policy.