Dynamic performance analysis of U.S. wireline telecommunication companies

Assessing the changes over time in the efficiency of firms participating in competitive markets has always been a major concern to researchers and experts alike. With respect to the US wireline telecommunications sector, recent changes in unbundling regulations, as well as intermodal competition and mergers, have just increased uncertainty in a sector still marked by the Telecommunications Act of 1996. Although Data Envelopment Analysis (DEA) has become a methodology commonly used in many efficiency assessment applications, in the telecommunications context there is a need to implement an approach that takes into account carry-over activities between consecutive years; because of a wide customer base, financial long-term planning and investments in network elements and facilities are crucial for Local Exchange Carriers (LECs) to succeed. To that end, a Dynamic DEA application is formulated in this paper to evaluate the Incumbent LECs' (ILECs) performance from 1997 to 2007. Finally, a regression analysis has been carried out to establish the impact of competition and regulatory schemes upon carriers' efficiency. The results show that local competition has worsened efficiency, whereas neither intermodal competition nor incentive regulation has such a clear influence.

► Review of the main factors influencing the decline of wireline customer base. ► TPIS, liabilities, customers and employees are considered as carry-over activities. ► Since 2003, more investments required of most ILECs to be efficient. ► Most ILECs need to reduce their staff and their operating expenses. ► Local competition from CLECs has deteriorated ILECs' efficiency.