Competition and Telephone Penetration: An International Statistical Comparison

Abstract

Government restrictions on entry are endemic in telecommunications, even where there are no obvious reasons for them, as is the case in mobile telecommunications. This may in part be because policy makers genuinely do not understand the benefits competition will bring. By using the natural experiment in world telephony markets where nations have chosen vastly different regulatory regimes, this paper shows how competition spurs telecommunications penetration. Further, we show that moving from two to three or more firms is more important than moving from one to two, and that actual entry matters more than the threat of entry. This is of economic as well as policy interest since game-theoretic models yield ambiguous predictions about oligopoly and monopoly when entry is threatened.

JEL Classification: L96, L11