Vertical and horizontal integration in public utilities. Evidence from telecom EU operators and Italian water regulatory agencies

Abstract

The thesis is composed of three chapters. The first chapter is a review of the literature on economies of vertical and horizontal integration, focused on the public utilities industry. First of all, the definition of economies of scope and the different methods of evaluation are illustrated. Subsequently, the problem of integration connected with the implementation of unbundling (business separation) policies is presented for different categories of utilities (energy, telecommunications, water, multiutilities). Finally, the issue of the quality of service is treated, by examining the indicators used in the mentioned industries, and it is linked to the problem of integration. The second chapter presents an empirical analysis of the economies of vertical integration in fixed telecommunications, which is an issue of large interest but rarely addressed from the empirical perspective. The dataset includes European incumbent firms and the analysis employs a method based on Data Envelopment Analysis. It allows to compute the economies of vertical integration by comparing, for each firm, the efficiency scores obtained with respect to two frontiers, composed of separated and of integrated firms, respectively. The results show the existence of vertical diseconomies, which however become less important when firms concentrate more on “high-quality” retail services (broadband). The third chapter is aimed to measure the potential gains from merging Italian water authorities. The dataset contains operational and financial (cost) information on fifty agencies (more than half of the existing authorities). The approach, illustrated in Bogetoft and Wang (2005) and in Bogetoft and Otto (2011), is implemented both in a parametric and in a non-parametric framework. The merger gains are evaluated ex-ante on the basis of the technology as defined by the existing observations. Moreover, the computed potential gain (or loss) is decomposed in technical efficiency, harmony and size effect. By looking at the results, it emerges a relevant potential from recovering technical inefficiency. Moreover, important gains seem to be achievable in terms of size effect, while the output remix (harmony) effect is limited.