Telecommunications Privatization: evidence and some lessons

The privatization of state-owned telecommunication companies began in Asia in Japan in the 1980s and gathered pace during the 1990s. To judge the results requires a prior understanding of the aims and objectives of privatization and even an agreed definition of privatization. In its widest context, privatization can refer to a range of policies to embrace private sector capital in the development of the industry, everything from outsourcing to full-blown market liberalization. This paper looks at research results of studies of privatization in its narrow sense of full or partial transfer of ownership of a SOE to the private sector, usually by share issue privatization (SIP). Econometric research examines the results of privatization, while non-econometric research tends to study the process and context of privatization. Overall the evidence suggests that while privatization is usually associated with faster fixed line growth, greater profitability and higher productivity, evidence on prices, net employment effects and capital investment is less clear-cut. One thing most studies agree upon is that the effects of privatization cannot be easily isolated from the effects of competitive reforms, changes in market structure and the nature and role of the post-privatization regulatory regime. Taken together these effects almost certainly outweigh the effects of privatization taken on its own. 1. Privatization The term ‘privatization’ can have several different meanings. At its most decisive it refers to the 100 per cent transfer of ownership through the sale of a state-owned enterprise (SOE) to private sector equity holders as a publicly listed company by means of a share issue privatization (SIP). But, as cases in post-communist Russia illustrate, sometimes the transfer of ownership can be done as a private transaction and the issue of transparency then becomes especially important. Because telecommunications is usually regarded as being of strategic importance to national economic development and requiring experienced management, or because of limitations in local capital markets, the majority shares may be sold to an overseas company with telecommunications experience. For example, in 1990 New Zealand Telecom was auctioned to Bell Atlantic (USA) and Ameritech (USA) for NZ$4.25 billion. On the other hand local politics may 1 The International Finance Corporation (IFC, 1995) states ‘A generous stance would admit any transfer of ownership or control from public to private sector. A more exacting definition would require that the transfer be enough to give the private operators substantive independent power.’ The IFC lists numerous techniques of ownership transfer including public offer, closed subscription, joint venture, liquidation, concessions, auctions, voucher or certificate based transfers, employee or management buyouts, and combinations of these. Megginson and Netter (2001) provide a similar review, adding that in the USA state outsourcing is also sometimes termed ‘privatization’.