Competition and Mobile Network Operator’s Investment Relationship: A Firm Level Empirical Evidence for Developing Countries
Main Article Content
Keywords
Investment, Competition Intensity, Mobile Network Operator, Digital age
Abstract
Policymakers have reformed the telecommunications market structure for several decades, from a monopoly to a more competitive market. They believed that the competitive market structure would be able to overcome the limitations of investment required to develop the industry and to provide equitable access. However, the advance of mobile broadband technology has triggered the emergence and proliferation of over-the-top (OTT) services that have considerably changed the competition landscape. First, in addition to acting as new competitors, the availability of OTT services also helps Mobile Network Operators (MNOs) to acquire more subscribers. Second, the competition has broadened to cross geographical boundaries. This paper aims to investigate the effect of the competition intensity on MNOs’ investment behaviour in the most recent context and focus only on MNOs in developing countries. The results show that competition intensity and MNO’s investment behaviour have an inverted U-shaped relationship with a turning point of 0.61. This points to the existence of competition intensity that maximizes the MNO’s investment. The empirical results also show the cumulative impact of the competition intensity on investment is 12.5 times of the immediate impact.
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References
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Stasavage, D. (2002). Private Investment and Political Institutions. Economics and Politics, 14(1), 41–63. https://doi.org/10.1111/1468-0343.00099
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Alesina, A., Ardagna, S., Nicoletti, G., & Schiantarelli, F. (2005). Regulation and Investment. Journal of the European Economic Association, 3(4), 791–825. https://doi.org/10.1162/1542476054430834
Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. The Review of Economic Studies, 58(2), 277. https://doi.org/10.2307/2297968
Arrow, K. (1962). Economic Welfare and the Allocation of Resources for Invention (pp. 609–626) [NBER Chapters]. Retrieved from National Bureau of Economic Research, Inc website: https://econpapers.repec.org/bookchap/nbrnberch/2144.htm
Bacache, M., Bourreau, M., & Gaudin, G. (2014). Dynamic Entry and Investment in New Infrastructures: Empirical Evidence from the Fixed Broadband Industry. Review of Industrial Organization, 44(2), 179–209. Retrieved from JSTOR.
Baum, C. F., Schaffer, M. E., & Stillman, S. (2003). Instrumental Variables and GMM: Estimation and Testing. The Stata Journal: Promoting Communications on Statistics and Stata, 3(1), 1–31. https://doi.org/10.1177/1536867X0300300101
Bilbil, E. T. (2018). Methodology for the Regulation of Over-the-top (OTT) Services: The Need of A Multi-dimensional Perspective. International Journal of Economics and Financial Issues, 8(1), 101–110.
Cameron, A. C., & Trivedi, P. K. (2005). Microeconometrics: methods and applications. Cambridge?; New York: Cambridge University Press.
Cisco. (2018). Cisco Visual Networking Index: Forecast and Trends, 2017–2022, November. Retrieved February 19, 2019, from: https://www.cisco.com/c/en/us/solutions/collateral/service-provider/visual-networking-index-vni/white-paper-c11-741490.html
Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Retrieved from http://www.dawsonera.com/depp/reader/protected/external/AbstractView/S9781400830176
Elixmann, D., Godlovitch, l., Henseler-Unger, I., Schwab, R., & Stumpf, U. (2015). Competition & investment: An analysis of the drivers of investment and consumer welfare in mobile telecommunications. Bad Honnef: Wik-Consult Report, Study for Ofcom.
eMarketer. (2018). 4G Mobile Connections in Asia-Pacific to Outnumber 3G, 2G by 2018. Retrieved June 25, 2019, from: https://www.emarketer.com/Article/4G-Mobile-Connections-Asia-Pacific-Outnumber-3G-2G-by-2018/1016129
Frontier. (2015). Assessing the case for in-country mobile consolidation (A report prepared for the GSMA). Retrieved from Frontier Economics, Ltd website: https://www.gsma.com/publicpolicy/wp-content/uploads/2015/05/Assessing_the_case_for_in-country_mobile_consolidation.pdf
Garrone, P., & Zaccagnino, M. (2015). Seeking the links between competition and telecommunications investments. Telecommunications Policy, 39(5), 388–405. https://doi.org/10.1016/j.telpol.2015.03.002
Grajek, M., & Röller, L.-H. (2009). Regulation and Investment in Network Industries: Evidence from European Telecoms. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1448666
GSMA. (2016). Competition Policy in the Digital Age. Retrieved from GSMA website: https://www.gsma.com/publicpolicy/resources/competition-policy-digital-age-case-studies-asia-sub-saharan-africa
GSMA. (2018). The Mobile Economy 2018. Retrieved January 17, 2019, from Mobile Economy 2018 website: https://www.gsma.com/mobileeconomy/wp-content/uploads/2018/05/The-Mobile-Economy-2018.pdf
Gujarati, D. N. (2003). Basic Econometrics (Fourth Ed.). New York: McGraw-Hill.
Hansen, L. P., Heaton, J., & Yaron, A. (1996). Finite-Sample Properties of Some Alternative GMM Estimators. Journal of Business & Economic Statistics, 14(3), 262–280. https://doi.org/10.2307/1392442
Houngbonon, G. V., & Jeanjean, F. (2016). What level of competition intensity maximises investment in the wireless industry? Telecommunications Policy, 40(8), 774–790. https://doi.org/10.1016/j.telpol.2016.04.001
ITU. (2017). Spanning the Internet Divide to Drive Development. In Aid for Trade at a Glance 2017 Promoting Trade, Inclusiveness and Connectivity for Sustainable Development. https://doi.org/10.1787/aid_glance-2017-en
ITU. (2018). Key ICT indicators for developed and developing countries and the world (totals and penetration rates). Retrieved from: https://www.itu.int/en/ITU-D/Statistics/Documents/statistics/2018/ITU_Key_2005-2018_ICT_data_with%20LDCs_rev27Nov2018.xls
ITU-D. (2019). Fixed-broadband subscriptions. Retrieved from https://www.itu.int/en/ITU-D/Statistics/Documents/statistics/2019/Fixed_broadband_2000-2018_Dec2019.xls
Jeanjean, F., & Houngbonon, G. V. (2017). Market structure and investment in the mobile industry. Information Economics and Policy, 38, 12–22. https://doi.org/10.1016/j.infoecopol.2016.12.002
Kang, F., Hauge, J. A., & Lu, T.-J. (2012). Competition and mobile network investment in China’s telecommunications industry. Telecommunications Policy, 36(10), 901–913. https://doi.org/10.1016/j.telpol.2012.02.003
Kiviet, J. F. (1995). On bias, inconsistency, and efficiency of various estimators in dynamic panel data models. Journal of Econometrics, 68(1), 53–78. https://doi.org/10.1016/0304-4076(94)01643-E
Lestage, R., Flacher, D., Kim, Y., Kim, J., & Kim, Y. (2013). Competition and investment in telecommunications: Does competition have the same impact on investment by private and state-owned firms? Information Economics and Policy, 25(1), 41–50. https://doi.org/10.1016/j.infoecopol.2013.02.001
Lu, X., & White, H. (2014). Robustness checks and robustness tests in applied economics. Journal of Econometrics, 178, 194–206. https://doi.org/10.1016/j.jeconom.2013.08.016
Murray, M. P. (2006). Avoiding Invalid Instruments and Coping with Weak Instruments. The Journal of Economic Perspectives, 20(4), 111–132.
Mutinda, S. (2016). Evaluating the impact of market structure in mobile telecommunications markets: panel data analysis for emerging economies. M.Com Minor Dissertation, University of Cape Town, Cape Town. Available from https://open.uct.ac.za/handle/11427/23766
North, D. C., & Weingast, B. R. (1989). Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth-Century England. The Journal of Economic History, 49(4), 803–832. Retrieved from JSTOR.
Pindyck, R. S., & Rubinfeld, D. L. (2013). Microeconomics (8th ed.). New Jersey: Pearson Education, Inc.
Reed, W. R. (2015). On the Practice of Lagging Variables to Avoid Simultaneity. Oxford Bulletin of Economics and Statistics, 77(6), 897–905. https://doi.org/10.1111/obes.12088
Roodman, D. (2009). How to do Xtabond2: An Introduction to Difference and System GMM in Stata. The Stata Journal: Promoting Communications on Statistics and Stata, 9(1), 86–136. https://doi.org/10.1177/1536867X0900900106
Sacco, D., & Schmutzler, A. (2011). Is there a U-shaped relation between competition and investment? International Journal of Industrial Organization, 29(1), 65–73. https://doi.org/10.1016/j.ijindorg.2009.09.003
Scartascini, C., Cruz, C., & Keefer, P. (2018). The Database of Political Institutions 2017 (DPI2017). https://doi.org/10.18235/0001027
Schumpeter, J. A. (1942). Capitalism, socialism and democracy (1st ed.). New York?; London: Harper & Brothers.
Stasavage, D. (2002). Private Investment and Political Institutions. Economics and Politics, 14(1), 41–63. https://doi.org/10.1111/1468-0343.00099
Sujata, J., Sohag, S., Tanu, D., Chintan, D., Shubham, P., & Sumit, G. (2015). Impact of Over the Top (OTT) Services on Telecom Service Providers. Indian Journal of Science and Technology, 8(S4), 145-160–160. https://doi.org/10.17485/ijst/2015/v8iS4/62238
Thomson Reuters. (2019). Thomson Reuters Datastream. Retrieved from Thomson Reuters website: Subscription Service
Tirole, J. (1988). The theory of industrial organization. Cambridge, Mass: MIT Press.
WEForum. (2017). Digital Transformation Initiative Telecommunications Industry. Retrieved from World Economic Forum website: http://reports.weforum.org/digital-transformation/wp-content/blogs.dir/94/mp/files/pages/files/dti-telecommunications-industry-white-paper.pdf
Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. Cambridge, Mass: MIT Press.
World Bank. (2019a). GDP per capita (constant 2010 US$). Retrieved December 15, 2019, from World Bank website: https://data.worldbank.org/indicator/NY.GDP.PCAP.KD?name_desc=false
World Bank. (2019b). Population, total. Retrieved December 15, 2019, from World Bank website: https://data.worldbank.org/indicator/sp.pop.totl?name_desc=false
Article Sidebar
Published
Dec 31, 2019
Article Details
How to Cite
Ariansyah, K., & Nuryakin, C. (2019). Competition and Mobile Network Operator’s Investment Relationship: A Firm Level Empirical Evidence for Developing Countries. Journal of Telecommunications and the Digital Economy, 7(4), 17–32. https://doi.org/10.18080/jtde.v7n4.205
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Section
Industry Case Study
Copyright Telecommunications Association Inc.
Author Biographies
Kasmad Ariansyah, Ministry of Communication and Information Technology, Republic of Indonesia
Kasmad Ariansyah has graduated from Magister of Economic Planning and Development Policy, Faculty of Economic and Business, University of Indonesia. Since 2011, he has been a researcher at Ministry of Communication and Information Technologu, Republic of Indonesia
Chaikal Nuryakin, Faculty of Economy and Business, University of Indonesia
Chaikal Nuryakin is currently a lecture as well as head of undergraduate economics program of Department of Economics, Faculty of Economics and Business, University of Indonesia. He has also served as Head of Digital Economy and Behavioral Economics Research Division of LPEM FEB UI
