Telecommunications Privatization in Developing Countries: The Real Effects of Exclusivity Periods

Abstract

The telecommunication sector around the world has been undergoing dramatic reforms since the 1980s. Research to date has explored the effects of privatization, competition, and to a lesser extent, regulation. We know very little, however, about the effects of the details of privatization transactions themselves. In particular, countries often grant the privatized firm an exclusivity period in which the firm is guaranteed a temporary monopoly to entice investors. I use an original, new dataset to explore the effects of these exclusivity periods. I find that exclusivity periods are associated with significant increases in the firm's sale price. The increased revenues to the government come with a cost, however. Exclusivity periods are correlated with a significant decrease in the incumbent's investment in the telecommunications network, payphones, mobile telephone penetration, and international calling.