Strategic Investments in Telecommunication Infrastructure Quality

Abstract: Liberalizing European telecommunication markets during the 1990s has had ambiguous effects on quality investments in EU 15 countries which were beside others driven by diverse country-specific aspects. For analyzing the driving factors underlying the heterogenous European countries’ investment patterns I use the set-up of an investment adjustment model. A significant positive effect of competition on infrastructure investments is found. In a subsequent step I extend the model to find out how incumbents and new entrants deal with the transition period between the introduction of the European directive and the transition into national law. I show that investments were significantly increased during the transition period. Integration tests prove most of the underlying model parameters following a I(1) process. Subsequent Pedroni and Kao co-integration tests show ambiguous results. For the multivariate analyses three alternative econometric models are used, namely a standard REGLS, a LSDV-C and a dynamic panel data approach. All three models provide similar estimation results.