Privatization, Reforms and Firm’s Performance in Mobile Telecommunication Industry

Abstract

Since the introduction of mobile telephony in the early fifties in Europe, US and Japan, the demand for this service exploded. Actually there are countries that have a market penetration of more than 100 per cent. This dramatic growth in the mobile telecommunications industry can be, at least partly, attributed to the growing trend toward privatization (defined as the sale of total or partial previously state-owned enterprises to private owners), market liberalization and deregulation. In Europe, while most national markets were monopolies in the late 1980s, by today, most of them have three or more competing mobile networks. The telecommunications reforms reflect changes in technology that might mitigate the reliance on government interventions and affect our understanding of the effects of these interventions. Many several studies have shown the impacts of telecommunications reforms on the market outcome and firms’ performance. On the one hand, privatization is said to increase the incumbent’s operational efficiency by reducing political control; on the other hand, it may very well deter market competition since the incumbent is able to engage in anti-competitive behaviors. The public incumbent, instead, due to political oversight may suffer from inefficient operation in competing with the rivals. Many studies point out that the privatization will produce the greatest efficiency gains where competition replaces monopoly. When both private and public firms are exposed to the same competitive pressures and market signals, they are expected to yield similar performance in terms of allocative efficiency, regardless of their ownership structure. The introduction of competition, breaking up or unbundling monopolies, and the privatization of state-owned telecommunications operators have become the main themes of telecommunications sector reform in developing and developed countries. These reforms might result in a falling of telecommunication prices, a significant expansion of telecommunications networks and a substantial improvement in productivity. This study attempts to uncover evidence on these effects. Several recent econometric studies have examined the effect of telecommunications reform on sector performance, especially for European countries. The majority of these studies consider that competition on its own, and complementarities between competition and privatization, are positively correlated with telecommunications industry performance.