Study of the scale economy in the brazilian mobile telecommunication sector after privatizations

Abstract

In recent decades, the telecommunication sector has gone through significant structural transformations, technological innovations and changes in regulatory processes around the world. In Brazil, after the state monopoly had been broken, mobile telephony followed the same trend, developing a complex oligopolistic structure. Initially, when the market opened, a structure was in which competition took place between A and B Band operators. In a second phase, when universalization targets were achieved, foreseen in the new Brazilian telecommunications model, competition between the operators was intensified, with the entrance of D and E Band operators. Given the changes in the market structure of the Brazilian telephony sector, in the period after privatizations, this study aimed to verify if the Brazilian mobile telephony operators were enjoying economies of scale, through the analysis of the polynomial cost function and of cost curves. An applied documentary research was carried out, using the statistical method of least squares with a model for panel data. The estimated results of the cost function for the sector revealed that production based on the number of clients presented growing returns and decreasing production, evidencing the existence of economies of scale in the sector. However, the sector contained an excessive number of companies, given the market's demand for Brazilian mobile telephone companies to enjoy the benefits of scale gains.