Seeking the Links between Telecommunications Investment and Competition

Abstract

Using country-level time series and firm-level panel data, we show that telecommunications investment and competition have evolved quite independently, at least in OECD economies. The literature findings on this subject are quite mixed, but we here strengthen empirical evidence employing a set of models and methods. As a first analysis, unknown breakpoints were sought in the investment series of each country. Structural changes emerged, but they do not show a clear-cut relationship with liberalization and unbundling events. The incumbent’s investment was then focused on. Product market competition does not play an autonomous role, a result that was confirmed by both causality analyses and micro-econometric investment models. However, it moderates the impact of pro-entry regulation. The unbundling regime has been found to reduce the incumbent’s incentives to invest, unless a certain degree of competition has already emerged on the service market.

Keywords: communications, investment, competition

JEL Classification: L96, L51