Competition and mobile network investment in China’s telecommunications industry

Until now, researchers have not addressed the relationship of competition and investment in China's telecommunications industry, the biggest mobile telecommunications market in the world with unique institutional characteristics. This paper seeks to fill this gap by examining the effects of mobile telecommunications competition on mobile network investment in China. Fixed effects and dynamic panel data models using Chinese regional panel data over the period 2003–2009 show a consistent positive correlation between the mobile market concentration and mobile network investment in the industry. This phenomenon is attributed mainly to the soft budget constraint problem that occurs under asymmetric market competition between state-owned enterprises. It is suggested that the asymmetric competitive structure has been a potential driving force of overinvestment in the mobile network in China; hence, improving the competitive structure by implementing appropriate regulatory policy rather than by policy allowance or inequitable policy burdens would be an effective way to alleviate overinvestment in network facilities. Co-construction and sharing of network infrastructure should be carried out to reduce duplication of infrastructure especially in the coming 3G era of China's telecommunications industry.

► Illustrates a positive correlation between market concentration and network investment. ► The soft budget constraint of state-owned enterprises drives network overinvestment. ► Suggests an improved regulatory structure to alleviate overinvestment in network facilities.