Telecommunications Competition, Rate-rebalancing, and Consumer Welfare in Nepal

This paper examines two important aspects of telecommunications liberalization as a policy for economic development. The first involves the tradeoff between increased efficiency from competition and the consequences of higher prices for basic services resulting from rate-rebalancing. The second addresses an entrant’s ability to provide efficient, high-quality service under the given competitive environment. Using new data from Nepal, we analyze how the introduction of competition in landline and mobile services and subsequent rate-rebalancing has affected the welfare perceptions of residential consumers. We find that while many consumers remain sensitive to prices, competition is viewed as a way to satisfy growing demand for telecommunications services. However, service quality remains a problem, and the incumbent operator has succeeded in maintaining a higher overall level of satisfaction relative to entrants. This suggests that a more aggressive rate-rebalancing strategy may be necessary to fully bring out the benefits of efficient and fair competition.