Privatizing Monopolies in Developing Countries: The Real Effects of Exclusivity Periods in Telecommunications

Abstract

Many developing countries have given newly privatized incumbent network utilities, especially telecommunications, exclusive rights to serve particular markets. Research to date has explored privatization, competition, and to a lesser extent, regulation. We know little, however, about the effects of the privatization transactions themselves and, in particular, how these ‘‘exclusivity periods’’ matter. I use original data to investigate this approach to privatization. I find that exclusivity periods are associated with significant increases in the firm’s sale price. Exclusivity periods are also, however, correlated with a significant decrease in the incumbent’s investment in the telecommunications network, payphones, mobile telephone penetration, and international calling.