The impact of competition on the efficiency of public enterprise: The case of Korea Telecom

Abstract

The notion of total productivity can be employed in evaluating the performance of monopolistic public enterprises in a transitional period. This study comparatively analyzes the efficiency change of Korea Telecom (KT) once the biggest telecommunications service provider in Korea but now facing both domestic and foreign competition. Dichotomizing the reference period into before-competition and after-competition and using Data Envelopment Analysis (DEA), we measure the technical efficiency, the allocative efficiency and the overall efficiency and highlight the differences between two periods. It is observed that the overall efficiency has been significantly improved mainly due to the enhancement of the allocative efficiency but the technical efficiency has been slightly improved. The major cause of insignificant improvement of technical efficiency is due to hothouse competition and excessive regulation on management of KT. Monopolistic firms in transition can respond to the external competition by reducing input cost and excessive capital. There may exist a considerable time lag, however, in achieving the improvement of technical efficiency. © 2000 by John Wiley & Sons (Asia) Ltd.