Competition and investment in telecommunications

This study examines the relationship between competition and investment by Incumbert Local Exchange Carriers (ILECs) in US telecommunications markets. A panel data model and a dynamic panel data model that have not been used in previous studies are applied in this analysis. Results of the panel data model suggest that investment by ILECs is positively related to the market share of Competitive Local Exchange Carriers (CLECs), and negatively to the absolute number of CLECs. However, once the persistence in ILECs’ investment behaviour is controlled for using the dynamic model, our measures of the existing competition from CLECs, at best, have a weak effect on ILECs’ investment. Therefore, while strengthening competition in the telecom sector may be key to restoring telecom investment, it is uncertain that competition spurred by the mandatory sharing policy in this sector stimulates ILECs’ incentives to invest in new infrastructure.