Private Control, Competion, and the Performance of Telephone Firms in Less Developed Countries

Abstract

Firm-level data of 23 public telephone firms from less developed countries is used to compare the operating performance under private and state control in the period 19862001. Fixed-effects estimation indicates that privately controlled firms exhibit higher productive efficiency than their state counterparts after controlling for monopoly conditions, income level, and the scale of the firm’s fixed telephone network. This strongly supports the property rights theory of the firm even under the limited private property protection that less developed countries offer. On the other hand, public telephone firms that face competition on basic services and from wireless firms tend to exhibit higher productive efficiency than those that do not. Contrary to a common view, private telephone firms are not more profitable than state controlled; while as expected monopoly status is strongly related with higher profits. Finally, privately controlled telephone firms tend to exhibit higher investment growth than state controlled. JEL Classification: D2, L33, L96.