Did Privatization Expand Telephone Access?
Using heterogeneity-robust difference-in-differences estimators to address biases in prior studies, this paper finds that privatizing state telephone companies significantly expanded fixed-line access, with subscriptions per 100 inhabitants increasing by approximately 0.5 immediately and growing to roughly 2.9 within five years.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
For decades, the promise of modern life in many parts of the world was held back by a simple, frustrating reality: you could not get a telephone. In the late 1980s and 1990s, state-run telephone companies across the developing world were defined by scarcity. In countries like Argentina, Mexico, and Chile, there were fewer than ten phone lines for every hundred people. In Brazil, millions waited years just to get a connection, often paying thousands of dollars on the black market for a privilege that was supposed to be a public service. Frustrated by chronic underinvestment and rationed access, governments began a massive wave of change, selling their state telephone companies to private investors. The theory behind this shift was straightforward: private owners, driven by the need to make a profit and the pressure of the market, would invest more heavily and run the networks more efficiently than politicians who used the companies for other goals. But while the idea seemed sound, the proof was messy. Previous studies trying to measure if this switch actually helped people get phones relied on statistical methods that have since been shown to be flawed when reforms happen at different times in different places.
A new study by John Levendis of Tulane University cuts through that confusion by re-examining the data from twenty-one countries across four continents using a more reliable way to measure cause and effect. The researcher wanted to know if the transfer of ownership to private hands actually expanded access to fixed-line telephones, or if the growth seen in those countries was just part of a trend that would have happened anyway. By applying a modern statistical approach that carefully compares countries that privatized at different times against those that never did, the study found a clear, positive answer. The data shows that privatization did indeed expand telephone access. At the moment a country transferred control to a private investor, the number of phone lines per hundred people jumped by about half a line. This was not a temporary spike; the effect grew steadily over the following years. By five years after the sale, the number of subscriptions had risen by nearly three lines for every hundred inhabitants. Given that many of these countries started with fewer than ten lines per hundred people, this represents a massive expansion of the network, effectively growing the system by thirty to sixty percent in just half a decade.
The researchers were careful to ensure this result was not a fluke or a trick of the math. They checked their findings against different ways of analyzing the data and found the same story repeated. They also looked closely at the years before the sales happened to make sure the countries that privatized were not already on a faster track to growth than the ones that stayed state-owned. The data showed no such difference before the reforms began, which strengthens the conclusion that the private ownership was the engine of the change. The pattern of growth fits a logical story: when private investors took over, they began investing in new capacity, but it took a few years for those new wires and switches to translate into actual phone lines for customers. The study also noted that this growth eventually slowed down after five years, likely because the market was reaching its limit and people were beginning to switch to mobile phones, a technology that was just starting to spread globally.
While the results are strong, the study offers a nuanced view of what actually drove the change. The researchers point out that privatization rarely happened in a vacuum; it was almost always bundled with other reforms, such as new rules that allowed companies to set their own prices and competition from new players. The study cannot separate the effect of the ownership change from the effect of these accompanying rules, meaning the success was likely a package deal rather than the result of selling the company alone. Furthermore, the study excluded countries where the government later took the companies back, as those situations were too chaotic to measure fairly. Despite these complexities, the core finding remains robust across different tests and specifications. The evidence suggests that when governments transferred operational control of their telephone networks to private investors, the result was a significant and lasting increase in the number of people who could actually get a phone. For policymakers today facing decisions about selling off new infrastructure like fiber networks or 5G spectrum, this historical record provides a clear lesson: transferring control to the private sector can work, but it is the entire package of ownership change and regulatory modernization that delivers the results.
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