Competition and Mobile Network Operator’s Investment Relationship: Empirical Evidence for Developing Countries

Abstract

Policymakers have reformed telecommunications market structure since several decades ago, from a monopoly to a more competitive market. They believed that the competitive market structure would be able to overcome the limitations of investment required to develop the industry and to provide equitable access. However, the advance of digital age has changed the competition landscape in telecommunication sector considerably. Telecommunication companies are also required to provide higher investment to further improve their networks quality as well as coverage. This study aims to reinvestigate effect of competition on investment under the current context. The empirical estimation results show the intensity of competition has a significant short-run impact on the investment behaviour of cellular telecommunications companies. The effect is not linear, but in the form of an inverted U curve. This points out the existence of a competition intensity that maximizes mobile network operator (MNO)'s investment. We find that the intensity is in the level of 0.61 or when a company has an EBITDA margin of 39%. This finding implies a different behaviour of MNOs having EBITDA margins of less and more than 39% in respond to the change in competition intensity. MNOs in the first groups will react to the increase of competition intensity by decreasing their investment. Meanwhile, the others will respond to the rise in competition intensity by increasing their investment. The empirical results also show the accumulative impact of the competition intensity on investment is 12,5 times of the short-run