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Determinants of European telecommunication operators systematic risk

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  • Chalmeau, Olivier
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    Abstract

    This article studies the determinants of systematic risk for a panel of European telecommunication incumbent operators. The systematic risk (the beta coefficient) is estimated with the capital asset pricing model using different econometric methods (OLS, ML GARCH and Kalman Filter). Previous empirical literature has identified accounting variables as being determinants of systematic risk. These control variables serve as a basis to study the impact of regulation and competition on risk. The Polynomics regulatory index is used for regulation and Herfindahl-Hirschman Indexes for competition. The overall index of regulation doesn't have a clear impact on risk. However, subindexes indicating quantity regulation is associated with higher risk. By quantity, we mean regulatory constraints such as Universal service obligation or coverage obligation for mobile networks. In contrast, access regulation decreases the risk. The impact of the competition's intensity is different for the mobile and fixed markets. Results for mobile competition are not significant whereas more intense fixed competition is associated with less risk. These results are consistent with the interpretation that regulation and competition have reduced the investment of the sector. It is also consistent with the observation that competition has taken place on services rather than on infrastructures. --

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    Bibliographic Info

    Paper provided by International Telecommunications Society (ITS) in its series 24th European Regional ITS Conference, Florence 2013 with number 88495.

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    Date of creation: 2013
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    Handle: RePEc:zbw:itse13:88495

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    Web page: http://www.itseurope.org/

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    1. Alexander, Ian & Mayer, Colin & Weeds, Helen, 1996. "Regulatory structure and risk and infrastructure firms : an international comparison," Policy Research Working Paper Series 1698, The World Bank.
    2. Zenhaeuserna, Patrick & Schneiderb, Yves, 2012. "Polynomics telecommunication regulation index 2012," 23rd European Regional ITS Conference, Vienna 2012 60399, International Telecommunications Society (ITS).
    3. Michał Grajek & Lars-Hendrik R�ller, 2012. "Regulation and Investment in Network Industries: Evidence from European Telecoms," Journal of Law and Economics, University of Chicago Press, vol. 55(1), pages 189 - 216.
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    5. Binder, John J & Norton, Seth W, 1999. "Regulation, Profit Variability and Beta," Journal of Regulatory Economics, Springer, vol. 15(3), pages 249-66, May.
    6. Gaggero, Alberto A., 2007. "Regulatory risk in the utilities industry: An empirical study of the English-speaking countries," Utilities Policy, Elsevier, vol. 15(3), pages 191-205, September.
    7. George J. Stigler, 1971. "The Theory of Economic Regulation," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 3-21, Spring.
    8. Norton, Seth W, 1985. "Regulation and Systematic Risk: The Case of Electric Utilities," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 671-86, October.
    9. Carlo Cambini & Laura Rondi, 2009. "Access Regulation, Financial Structure and Investment in Vertically Integrated Utilities: Evidence from EU Telecoms," EUI-RSCAS Working Papers 68, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
    10. Stephan Schaeffler & Christoph Weber, 2011. "The Cost of Equity of Network Operators - Empirical Evidence and Regulatory Practice," EWL Working Papers 1101, University of Duisburg-Essen, Chair for Management Science and Energy Economics, revised Jun 2012.
    11. Carlo Cambini & Laura Rondi, 2012. "Capital structure and investment in regulated network utilities: evidence from EU telecoms," Industrial and Corporate Change, Oxford University Press, vol. 21(1), pages 31-71, February.
    12. Maya Bacache & Marc Bourreau & Germain Gaudin, 2014. "Dynamic Entry and Investment in New Infrastructures: Empirical Evidence from the Fixed Broadband Industry," Review of Industrial Organization, Springer, vol. 44(2), pages 179-209, March.
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