Production Economics in the Telecommunications Industry

Abstract

This chapter focuses on applications of production economics in Telecommunications industry, which has a long history of using production economics tools, specifically for policy purposes. These applications were responsible for major structural changes in telecommunications industry, going from a regulated monopoly to a highly competitive industry. The chapter starts with some historical perspective of the analyses and debate on the question whether telecommunications in the USA was a natural monopoly or not. Results of these studies initiated a chain of deregulations in the USA and elsewhere. One important aspect of this deregulation and privatization was the hypothesis that deregulation/privatization will bring in competition, which will improve efficiency and performance of the telecommunications industry – benefiting both the firms and consumers. We discuss two important aspects: (a) total factor productivity growth and (b) efficiency of telecommunications industry. With increased competition and diversification of product/services the production structure has changed. Several studies addressed the productivity and efficiency of telecommunications under different regulatory structures. In recent years strategic social responsibility and sustainability became an important aspect of firm performance. A small subsection is devoted to summarize the limited number of studies done in this context. With the advent of big-data analytics and its new computational methodologies (ML/AI/Deep-learning/Reinforce-learnings) applied analytics have changed in a significant way. Although production economics has not been impacted by this wave, but the scope for using these newer methods do exist. Finally, we briefly discuss some of the studies that either used these new methods and/or show the path for incorporating those in applied economics at large.