Competition In Telecommunications Industry: Impact Of Liberalization And Innovations

The benefits of competition have been well recognized in the theory. Monopoly, whether private or public, is inefficient and is detrimental to welfare of society. Monopoly not only results in high prices and lower quantities for consumers but also inefficient operations for operators. The natural selection of competition to select efficient firms in the market overturned the role of government intervention in the competitive markets. Realizing the benefits of competition, deregulation and liberalization was started in the telecommunications industry which was for a long time treated as natural monopoly; where one firm can produce more efficiently than more firms due to high sunk costs and substantial economies of scale and scope. Rapid innovations in services and technologies eroded the notion of natural monopoly for telecommunications industry. The experience of counties showed that competition is, at least possible in some segments of the industry like long distance, wireless and value added services and even now in access part. Technological innovations in Wireless even made it substitute for fixed line and rapid technological advancements in other alternative platforms like cable, Fiber and power line also eroded the natural monopoly notion in local loop (last mile). The main objective of this dissertation is to reinvestigate the benefits and situation of competition in the context of new developments and innovations in telecommunications industry. Previous works on this topic are limited to investigate the competition and its impacts from market point of view. In this research, we investigated the competition impact on social welfare from Firm point of view by using the cost/price functions of a firm. Apart from that, this report also explored the liberalization as a tool in telecommunications to bring competition in the market and its impact on social welfare. Furthermore, the impact of innovations on competition and market structure, especially technological innovations, had been investigated along with new trends in competition, policies and regulations are explored. This report extensively uses graph/curves to explain and explore some issues and also uses some game theory models. Case studies of Pakistan and Korea are taken to explore the benefits of competition and to explore the new technologies adoption in countries. Competition is beneficial for both consumers and producers, though more beneficial for consumers. The trend in developed countries is deregulation: more reliance on competition policies instead of sector specific regulations and forbearance in merger and acquisitions cases for the mergers which are beneficial for society. Technological innovations and convergence is dragging the markets towards furious competition in all segments of telecommunications industry. Wireless platform has become the major channel to provide telecommunications services in developing countries. Strong competition in this sector resulted in rapid penetration of telecom services in many countries and lower prices for consumers. It has also contributed in overall economic growth of the country.