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 me to assess their impact on basic telephone services (local, long distance, and international service). Panel data analysis from 67 countries during the seven-year period following the privatization of the main telephone provider indicates that vertical separation and monopoly harm those consumers that were precisely supposed to help: 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, while statutory monopoly reduces the amount of fixed lines in service and increases the price of local residential telephony