Three empirical essays on the economics of telecommunications

This empirical dissertation consists of three essays on the economics of telecommunications. An abstract for each of the three essays follows.; Essay 1. Non-parametric data envelopment analysis is applied to measure the relative technical efficiency of local exchange carriers (LECs) in the U.S. at both the static and dynamic level. A Tobit analysis is then performed to examine the relationship between the technical efficiency of the LECs and specific variables. A average technical efficiency scores for the LECs over the 1988--2000 period indicate that while LECs have improved their ability to optimize input and output combinations, the technical gaps between them have become larger. As a comparative analysis among the sample LECs, the Tobit estimates for the dynamic and static efficiency measures show that only pure price cap regulation among the class of incentive regulation regimes has a positive effect on increasing efficiency measures of local exchange carriers (ILECs). Finally, it is unclear that the introduction of incentive regulation, with the exception of pure price cap regulation, induces greater efficiency on the part of the ILECs.; Essay 2. This study examines the relationship between competition and investment by local exchange carriers (ILECs) in U.S. telecommunications markets. A panel data model and a dynamic panel data model are applied in this analysis. Results of the panel data model suggest that investment by ILECs is positively related to the market share of competitive local exchange carriers (CLECs), and negatively to the absolute number of CLECs. However, once the persistence in the ILECs investment behavior is controlled for using the dynamic model, our measures of the existing competition from CLECs, at best, have a weak effect on ILECs' investment. Therefore, while strengthening competition in the telecom sector may be key to restoring telecom investment, it is uncertain that competition spurred by the mandatory sharing policy in this sector stimulates ILEC's incentives to invest in new infrastructure.; Essay 3. This study examines the relationship between wireline and wireless telephone service in the U.S. telecommunications industry over the period 1999--2003. Results of the empirical models show that a 1% increase in the number of wireless telephones is related to a 0.02--0.03% decrease in the number of households subscribing to wireline telephone service. This suggests that wireless is a substitute for wireline telephone service. This paper also finds that whether households treat wireless telephone service as a substitute or a complement for wireline telephone service depends upon the household's income level. That is, while wireless telephone service has displaced wireline service for a select subset of households, the two services appear to have achieved coexistence in the marketplace in accordance with household budgeting constraints. Therefore, policymakers need to recognize that wireless is a substitute for wireline telephone service in their deliberations as to whether wireline telephone service should be deregulated.