Scale Economies on Wireless Telecommunications Industry

ARTICLE IN PRESS
Telecommunications Policy 33 (2009) 29–40

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Telecommunications Policy
URL: www.elsevierbusinessandmanagement.com/locate/telpol

Estimating scale economies of the wireless telecommunications industry using EVA data$
Changi Nam a, Youngsun Kwon a,Ã, Seongcheol Kim b, Hyeongjik Lee c a b c

School of IT Business, Information and Communications University, 119, Munjiro, Yuseong-gu, Daejon 305-732, Republic of Korea Associate Professor, School of Journalism and Mass Communication, Korea University, 5-1, Anam-dong, Seongbuk-gu, Seoul, 136-701, Republic of Korea Full-time instructor, Department of Management Science, Republic of Korea Naval Academy, 88-1 Angok-dong, Jinhae, Kyungnam, 645-797, Republic of Korea

a r t i c l e in fo

abstract
This paper proposes a new estimation method of total cost and average cost curves and applies it to the telecommunications industry. The method is more flexible and entails less hassle for data collection than traditional methods. The results show that the longrun average cost (LRAC) curve is downward sloping, revealing the presence of economies of scale in production. The two largest Korean mobile network operators are realizing full economies of scale, while the smallest operator is not. Finally, the paper recommends three policy alternatives that the Ministry of Information and Communication of Korea can draw on to increase efficiency in the Korean mobile telecommunications market. & 2008 Elsevier Ltd. All rights reserved.

Keywords: Scale economy estimation Economic value-added (EVA) Telecommunications Asymmetric regulation

1. Introduction Empirically estimating the long-run average cost (LRAC) curve and the minimum efficient scale (MES) of production has been an important research topic in the field of regulatory economics because data relating to both are critical for measuring production efficiency in industries, especially in public utility variants.

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