This case concerns the Cox Cable (a national cable tele vision company) franchise in Jefferson Parish, Louisiana (a generally lower middle class suburban area of the New Orleans metropolitan region). Most certainly, national trends are sig nificant in this case; however, local conditions are equally as important.
The major problem facing the franchise is the instability of its subscriber base. Approximately three percent of the firm's subscribers are disconnected each month, although the total number of basic cable subscribers continues to rise. This phenomenon is referred to as "churn." As both connection and disconnection operations are among the most cost intensive activities involved in the operation of the franchise, the high churn level is significant. Six months of continuous connec tion and payment, therefore, are required for the company to recoup variable installation and service costs, while 12 months of continuous connection and payment, therefore, are required for the company to recoup variable installation and service costs, and amortized fixed plant costs. Only subsequent to these con tinuous connection periods can the company begin to earn a pro fit on a customer. A 36 percent annual subscriber turnover, thus, is devastating to the firm's bottom line.
The subscriber turnover problem is further aggravated by the fact that approximately one third of the monthly discon nects are the result of non payment of monthly payment fees. Three additional types of costs are incurred by the franchise with respect to such disconnects. First, the franchise incurs the additional expenses associated with carrying a past due account balance. Second, the franchise, more often than not, is never able to collect the past due connection fees, which, on the average, amount to connection charges for two months. Thirdly, in non payment disconnections, the cable television converter box is, as often as not, unrecovered by the fir...