Regulation Performance and Investment in Telecommunications in the European Union: a policy evaluation approach

According to the European Regulatory Framework in Telecommunications sector, one of the main tasks required from the NRAs is to promote efficient investment and innovation in the field. The aim of this paper is to estimate the relevance of regulation for the growth of investment across 16 EU Countries. This is done estimating how regulation affects revenues and investment elasticity to incumbents’ market power. To do so, we use the panel structure of our data and the timing of the introduction of regulation to carry out two “quasi experiments”, where incumbents are ideally splitted in two groups, according to whether they are subject to a specific regulation or not. We consider a sample of 16 EU countries from 1997 to 2011. The results seem to to suggest that New Regulatory Framework has little reduced the impact of market share on firm’s revenues and investment in the recent years. Over a longer time span instead, being a regulated country does not imply lower revenues and investment by telecommunication companies. Instead, in regulated countries it is likely that the telecom sector benefits from a better economic and institutional environment, which makes firms more productive for a given level of market power. Finally, in countries with a long-lasting regulatory tradition, an increase in market share represents a more significant increase in firm’s market power than in a nonregulated country, so that in regulated countries, elasticity of investment to market share turns to be higher.