"TITLE OF THE PAPER"
PRODUCTIVITY PERFORMANCE AND MARKET LIBERALIZATION IN TELECOMMUNICATIONS: PERU 1998-2003 Javier Coronado Principal Economic Analyst, OSIPTEL Calle de la Prosa 136, Lima 41, Perú, email@example.com Paul Phumpiu Manager – Regulatory Policies and Strategic Planning, OSIPTEL Calle de la Prosa 136, Lima 41, Perú, firstname.lastname@example.org JEL-Code: D24, L51, L96 Keywords: Price Caps, Total Factor Productivity, Telecommunications Industry In 1998, Peru liberalized its fixed telecommunication industry. Today, this liberalization process shows several mixed results. For instance, as in many experiences around the globe, competition has significantly increased in the international long distance service but has been quite limited in local fixed services. Some local fixed services have become more competitive in the corporate segment, but that has not been the case for the residential segment. At the same time, mobile services which have always been under an open market structure, has become more dynamic and competitive in both the residential and corporate market. In this paper, we evaluate the performance of different markets and their changing structures under different liberalization processes. In order to do this, we analyze how the different regulatory regimes on end-user’s tariffs (price caps and competition), interconnection access charges, and competitive structures, may have influenced on the average productivity of those firms in the local fixed market, long distance fixed market, and local mobile market. Firm’s performance from an efficiency point of view can be assessed from different angles. For example, partial productivity measures as ‘mainlines per employee’, ‘revenues per mainline’ or ‘operational costs per mainline’ give valuable information about how managerial decisions respond to changes on the competitive environment. However, we consider that a method that captures the global contribution of input factors to productivity performance is more appealing to show the insights of firms’ outcomes under different situations. Therefore, productivity performance of firms and markets is estimated using superlative price and quantity index numbers, under the methodology of total factor productivity (TFP). For this exercise we carry out the estimations using a “primal” approach which takes the production function as its starting point. Input factors are valued using economic theory, specially the cost of the service of capital. Sample data is neither large nor uniform, but an effort is made to perform consistent comparisons between TFP growth estimates from different firms in different markets. It is worth mentioning that the NRA (OSIPTEL) in Peru has applied TFP measures for the calculation of the X-factor of the price cap regime since September 2001. This X-factor was set to a 6% annual rate and is applied to three baskets of services supplied by the dominant firm: (i) installation services, (ii) monthly rent and local service, (iii) long distance services. According to the concession contract, this X-factor lasts for three years, thus, in September 2004, the NRA will apply a new X-factor which is currently under revision. This paper contributes to the discussion on how regulatory regimes and the competitive environment may affect the investment decisions and/or the reaction capacity of firms. We consider that a measure of their productivity trends, and their analysis given the regulatory and market environment under which the firms survive and compete, can give us valuable information so as to evaluate whether some core regulatory or competition policies have provided the sufficient incentives for firms to develop and for consumers to benefit from it. References1  D. Caves, L. Christensen and E. Diewert, “The Economic Theory of Index Numbers and The Measurement of Input, Output, and Productivity,” Econometrica , Vol. 50, pp. 1393- 1414, 1982.  E. Diewert, “Superlative Index Numbers and Consistency in Aggregation,” Econometrica, Vol. 46, pp. 883-990, 1978.  E. Diewert, and D. Lawrence, “Progress in Measuring the Price and Quantity of Capital,” Working Paper, The University of British Columbia, 1999.  E. Diewert and A. Nakamura, “Index Number Concepts, Measures and Decompositions of Productivity Growth,” Journal of Productivity Analysis, Vol. 19, 2003: 127-159.  D. Kridel, D. Sappington, y D. Weisman, “The Effects of Incentive Regulation in the Telecommunications Industry: A Survey”, Journal of Regulatory Economics, Vol. 9, pp. 269-306, 1996.  W. Wilson, y Y. Zhou, “Costs, Productivity, and Firm Heterogeneity in Local Telephone Markets,” Journal of Regulatory Economics, Vol. 11, pp. 291-310, 1997.  P. Xavier, “Price Cap Regulation for Telecommunications. How has it Performed in Practice?” Telecommunication Policy, Vol. 19 pp. 599-617, 1995. 1 We include some basic bibliographical references that are intended to show what kind of work we expect to perform in this paper.