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Consequences of Vertical Separation and Monopoly: Evidence from the Telecom Privatizations

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  • Viani, Bruno E.

Abstract

Two common policy instruments used by governments around the world to increase the availability of basic telephony (i.e., local, long distance, and international service) have been: (1) award monopoly rights on basic services to cross-subsidize residential local telephony; and (2) separate vertically (i.e., structural separation) the owner of the local fixed network from the provider of long distance or international telephone services. I use data from a panel of 67 countries during the seven years following the privatization of the telephone monopoly and find that contrary to wide spread beliefs: (1) monopoly on basic services is not associated with lower residential telephony prices; quite the opposite, monopoly increases residential local prices; (2) monopoly does not help universal service provision and lowers the use of international telephony; and (3) mandatory vertical separation reduces international telephony usage and the number of fixed lines in service. In summary, monopoly and vertical separation harm those consumers that were precisely designed to help: the downstream (business) users of international telephony and the upstream users of residential local telephony.

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Bibliographic Info

Paper provided by Regulation2point0 in its series Working paper with number 361.

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Date of creation: Aug 2006
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Handle: RePEc:reg:wpaper:361

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  1. Klein, Benjamin & Crawford, Robert G & Alchian, Armen A, 1978. "Vertical Integration, Appropriable Rents, and the Competitive Contracting Process," Journal of Law and Economics, University of Chicago Press, vol. 21(2), pages 297-326, October.
  2. Hausman, Jerry & Tardiff, Timothy & Belinfante, Alexander, 1993. "The Effects of the Breakup of AT&T on Telephone Penetration in the United States," American Economic Review, American Economic Association, vol. 83(2), pages 178-84, May.
  3. Cremer, Jacques & Rey, Patrick & Tirole, Jean, 2000. "Connectivity in the Commercial Internet," Journal of Industrial Economics, Wiley Blackwell, vol. 48(4), pages 433-72, December.
  4. Nakil Sung & Yong-Hun Lee, 2002. "Substitution between Mobile and Fixed Telephones in Korea," Review of Industrial Organization, Springer, vol. 20(4), pages 367-374, June.
  5. Bruno Viani, 2007. "Monopoly rights in the privatization of telephone firms," Public Choice, Springer, vol. 133(1), pages 171-198, October.
  6. Leslie E. Papke, 1994. "Tax Policy and Urban Development: Evidence From The Indiana Enterprise Zone Program," NBER Working Papers 3945, National Bureau of Economic Research, Inc.
  7. Duso, Tomaso & Roller, Lars-Hendrik, 2003. "Endogenous deregulation: evidence from OECD countries," Economics Letters, Elsevier, vol. 81(1), pages 67-71, October.
  8. Fink, Carsten & Mattoo, Aaditya & Rathindran, Randeep, 2002. "An assessment of telecommunications reform in developing countries," Policy Research Working Paper Series 2909, The World Bank.
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Cited by:
  1. Francesc Trillas & Miguel Angel Montoya, 2008. "The degree of commitment to regulator independence: measurement and impact," Hacienda Pública Española, IEF, vol. 185(2), pages 89-114, July.
  2. Bruno Viani, 2007. "Monopoly rights in the privatization of telephone firms," Public Choice, Springer, vol. 133(1), pages 171-198, October.

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