Capital subsidies, profit maximization, and acquisitions by partially privatized telecommunications carriers

J. Gregory Sidak

Telecommunications Policy, vol. 26, issue 5-6, 287-294

Abstract: A recent phenomenon in competition policy is the acquisition of a private firm by an enterprise that is either wholly owned by government or in the midst of privatization. Such an acquisition poses the question of how public ownership may alter the incentives of a firm to engage in anticompetitive conduct. It also prompts one to examine the process by which such altered incentives revert, as the level of government ownership declines, to the same incentives that face purely private firms. Using Deutsche Telekom's acquisition of VoiceStream Wireless as a case study, this article presents the economic questions relevant to evaluating the competitive consequences of acquisitions by partially privatized firms. It predicts gains or losses to various constituencies of producer groups. It then analyzes bond ratings and weighted-average costs of capital to determine whether such data are consistent with the hypothesis, advanced by parties opposed to such foreign investment, that partially privatized acquirers benefited from the government subsidization of their credit.

Keywords: Anticompetitive; behavior; Capital; subsidy; Cross-subsidization; Deutsche; telekom; Government-owned; enterprises; Predatory; pricing; Privatization; VoiceStream (search for similar items in EconPapers)
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