REGULATION AND STATE OWNERSHIP: Conflicts and Complementarities in EU Telecommunications*

In many countries infrastructure liberalization proceeded faster than the privatization of former state monopolies. Regulatory agencies, established to oversee the transition and safeguard the preconditions for competition, therefore monitor state-owned firms in addition to privately owned firms. The research on public-private firms has generated heterogeneous findings, with some pointing to the advantages and other to the disadvantages of this arrangement. Government regulation of mixed public-private firms raises additional complicated issues, of which the paper studies two using the example of European telecommunications between 2000 and 2004. It examines, first, whether the dual role of the state as owner and regulator could be abused to disadvantage private competitors. Second, it probes whether, conversely, the combination of government ownership and regulation might help overcome some of the shortcomings of the regulation of private firms. We find weak evidence that public and mixed regulated firms were subject to more favorable regulation of interconnection prices. However, this effect weakened as more independent regulation was established. In the area of universal service provision, there is no clear evidence that public and mixed telecommunication service providers were more likely than private ones to be utilized in pursuit of social output goals without explicit compensation. Overall, it seems that the presence of independent regulation, appeals processes, and competition review is a safeguard against capture by public and mixed firms. * Research assistance by Carol Ting and Junghyun Kim is gratefully acknowledged. Comments by Douglas N. Jones and by two anonymous referees helped improve earlier versions of the paper.