The beta in the WACC for regulated fixed and mobile telecommunications services : its role and robust estimation

It is a highly controversial topic, both in the regulatory as well as the scientific research environment, whether the beta factor - as a measure for systematic risk - for fixed line and that for mobile operations has actually the same value. Since most telecommunications operators are today integrated, offering both types of services, It is difficult to address this empirical question directly. This paper contributes to the discussion by providing new empirical evidence with an approach that is a bit more sophisticated than is typically the case. Using an especially derived panel data set for 16 European tele-communications operators, covering the period 2010 through 2016, we tested the main hypothesis regarding the impact of mobile operations on risk, as well as carried out a preliminary test regarding the validity of the Modigliani/Miller formula needed for the main hypothesis. We do not find any empirical evidence that the risk parameters of fixed line and mobile network operators are different. Instead, they seem to be rather similar or within in the same range. Second, as a byproduct, we are not able to empirically confirm the Modigliani/Miller formula according to which the transformation of the equity betas into asset betas depends essentially on the debt/equity ratio assuming in the process a debt beta equal to zero. Our results rather confirm the findings of other studies suggesting that the debt beta is strictly positive.