Ringing in the 20th Century: The Effects of State Monopolies, Private Ownership, and Operating Licenses on Telecommunications in Europe, 1892-1914

Abstract

For many countries, recent reforms in telecommunications represent a restoration of the private provision and competition that prevailed in the early part of the 20th century. At that time, just as today, telephone service in countries with competing private providers was superior to service in countries with a state-owned monopoly.

Countries around the world are liberalizing their telecommunications networks by privatizing incumbent state-owned firms and introducing competition. For many, this change represents a return to private provision and competition - not a new phenomenon. The beginning of the 20th century saw great variation in the structure of telecommunications sectors, with some countries operating state monopolies and others - especially in Scandinavia - allowing vigorous private competition.

Wallsten uses data on countries around the world in 1913 and on European countries in 1892-1914 to test the effects of government monopolies, private provision, and operating licenses on telephone development. Controlling for per capita income and, where possible, for country and year fixed effects, he finds that state monopoly provision is correlated with substantially lower telephone penetration and higher consumer prices for long-distance service than private provision. Contrary to conventional wisdom, rural service was also worse under state-owned monopolies. Operating licenses that gave the state the right to appropriate firms' assets similarly led to lower telephone penetration and higher prices.

This paper - a product of Regulation and Competition Policy, Development Research Group - is part of a larger effort in the group to examine the effects of telecommunications privatization and liberalization in the developing world. The author may be contacted at [e-mail].