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

Policy variation across countries on the use of mandatory vertical separation and statutory monopoly allows the assessment of their impact on basic telephone services (local, long distance, and international service). Panel data analysis from 56 countries during the 7-year period following the privatization of the main telephone provider indicates that vertical separation and monopoly harm the consumers that were supposed to benefit: the downstream users of international telephony and the upstream users of residential local telephony. Mandatory vertical separation reduces the usage of international telephone service and the number of fixed lines in service, whereas statutory monopoly reduces the amount of fixed lines in service and increases the price of local residential telephony.