Privatization, Investment and Efficiency in the Telecommunications Industry: Theory and Empirical Evidence from MENA Countries

Inadequate levels of investment in the telecommunications industry in MENA countries resulted in a network unable to meet demand, with poor service quality, limited choice of services, low productivity and an inappropriate tariff structure. There is a strong need to speed up the privatization and liberalization of telecommunications in Arab countries to attract investments in the provision of universal service and the development of information and communication technologies. Nevertheless, it is not clear at all, either theoretically or empirically whether privatization and entry lead to an increase in investment in infrastructure and in social welfare. Using a theoretical model, this paper examines the incumbent’s and the entrant’s strategies in terms of investment in an open regulatory framework. The theoretical results are ambiguous. Using recent data from MENA countries, the paper goes on to examine the investment behavior and overall performance of the telecommunications firms that have experienced some form of entry and privatization. Preliminary results show that privatization and entry do increase investment in the sample countries examined.