Regulation, institutions, and commitment : privatization and regulation in the Argentine telecommunications sector
AbstractIn 1990, Argentina privatized its state-owned telephone company, ENTel. Shifting telecommunications to the private sector was one of the first actions taken under the reform program of the new president, Carlos Saul Menem. In privatizing ENTel, the government focused on privatization as a way of establishing its reform credentials. Establishing a post-privatization regulatory regime was given lower priority. A well-defined regulatory regime was not in place before the sale, but privatization took place nonetheless. The authors find that despite the delay in implementing a regulatory regime, ENTel's privatization appears to have had a net positive impact, both on Argentina's reputation and on welfare. The reform program had its own virtuous cycle, creating and reinforcing credibility in the short run. But the neglect of the regulatory regime appears to have been costly in terms of the sale price that the government received and the tariff levels that investors demanded. In the long run, this neglect, if it persists, may have a negative impact on the telecommunications sector's performance. Regulation plays an important role in the private provision of telecommunications. Many argue that competition should be limited to allow economies of scale. But limited competition can lead to abuses of monopoly power and to demands from customers and suppliers for a regulatory regime to protect them from such abuses. In addition, the sector requires high sunk costs and asset specificity and the assets'owners are particularly exposed to the risks of expropriation - either outright (through nationalization) or gradual (through service requirements or low tariffs). A stable, credible regulatory environment reduces the risk of investment in this sector and reduces the expected rate of return that private investors would require to participate. Establishing a stable, credible regulatory regime before privatization increases the value of a privatized telecommunications firm to potential purchasers by reducing the risk associated with the purchase. This in turn affects the price generated by the selling government. By failing to establish such a regime in advance, the Argentine government received a lower sale price and increased the probability that buyers would capture windfall profits.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The World Bank in its series Policy Research Working Paper Series with number 1216.
Date of creation: 30 Nov 1993
Date of revision:
ICT Policy and Strategies; Public Sector Economics&Finance; Environmental Economics&Policies; Parliamentary Government; National Governance;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Spiller, Pablo T, 1996. "Institutions and Commitment," Industrial and Corporate Change, Oxford University Press, vol. 5(2), pages 421-52.
- Alfred E. Kahn, 1988. "The Economics of Regulation: Principles and Institutions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262610523, December.
- Greenwald, Bruce C & Sharkey, William W, 1989. "The Economics of Deregulation of Local Exchange Telecommunications," Journal of Regulatory Economics, Springer, vol. 1(4), pages 319-39, December.
- Pablo Spiller, 1988. "La economía política de regulaciones a las industrias: un informe con implicaciones para estudios de regulaciones en países en desarrollo," Estudios de Economia, University of Chile, Department of Economics, vol. 15(3 Year 19), pages 419-470, December.
- Bernard Hoekman & Carlos Braga, 1997.
"Protection and Trade in Services: A Survey,"
Open Economies Review,
Springer, vol. 8(3), pages 285-308, July.
- Hoekman, Bernard & Primo Braga, Carlos, 1997. "Protection and Trade in Services: A Survey," CEPR Discussion Papers 1705, C.E.P.R. Discussion Papers.
- Hoekman, Bernard & Primo Braga, Carlos A., 1997. "Protection and trade in services : a survey," Policy Research Working Paper Series 1747, The World Bank.
- Galal, Ahmed & Nauriyal, Bharat, 1995. "Regulating telecommunications in developing countries : outcomes, incentives, and commitment," Policy Research Working Paper Series 1520, The World Bank.
- Ball, R., 1999. "The Institutional Foundations of Monetary Commitment: A Comparative Analysis," World Development, Elsevier, vol. 27(10), pages 1821-1842, October.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi).
If references are entirely missing, you can add them using this form.