Seeking the links between competition and telecommunications investments

• Multiple methods are used to seek the links between market opening and investments.
• Investment breakpoints are associated with market reforms only in some countries.
• Neither unbundling nor competition intensity, alone, drive incumbent׳s investments.
• Yet they spur incumbent׳s investments in combination.

This paper empirically analyzes the relationship between competition and investments in the telecommunications industries of OECD countries. The impact of market opening on infrastructure investments is a critical ingredient for regulatory reviews, but the literature findings on this subject are quite mixed. The paper employs various methods to find out whether pro-entry regulation and competition had any significant effect. As a first investigation, we seek unknown breakpoints in countries׳ investment series. Market opening and unbundling obligations are found to be temporally associated with investment breaks only in some countries, and both upward and downward shifts are detected. In order to understand causes behind cross-country heterogeneity, a micro-econometric model of incumbent׳s investments is estimated. Neither unbundling obligations nor competition intensity, alone, have a significant effect, but they spur incumbent׳s investments in combination. Overall, our results support the view that competition does not depress investments at firm and country levels. Conditionally on their ability to foster competition, unbundling obligations play a positive role.