Liberalization, investment and innovation: the case of the telecommunications sector.

Summary How do liberalization policies - that is, opening up to competition and privatization - affect innovation in telecommunications? In order to answer this question, we first look at the regulation of network access, which is the main tool for promoting competition. In this area, our review of the literature highlights a contradiction between the desire to���increase social surplus given the existing infrastructure and the desire to promote the deployment of new networks. In a model that extends this work by focusing on geographic coverage, we show that an obligation to mutualize networks reconciles these two objectives better than controlling the access tariff. More generally, competition and privatization have contradictory effects on firms' investment. In our empirical study, it appears that the positive effects of competition outweigh its negative effects on average. It also appears that competition "through services" is less favorable to investment than competition "through infrastructure. Our second theoretical model nevertheless establishes that the latter affects the nature of R&D activities and increases the share of development at the expense of research. Based on a comparative study of French and Korean regulatory modes, we emphasize that, beyond the trade-offs made in the implementation of liberalization policies, their articulation with innovation support mechanisms is a fundamental determinant of technical progress in telecommunications.