FUNCTIONAL SEPARATION AND ECONOMIES OF VERTICAL INTEGRATION IN EUROPEAN FIXED TELECOMS

This work presents an empirical analysis of the economies of vertical integration in fixed telecommunications, which is an issue of large interest but rarely addressed from the empirical perspective. The dataset includes European incumbent firms and the analysis employs a method based on Data Envelopment Analysis. It allows to compute the economies of vertical integration by comparing, for each firm, the efficiency scores obtained with respect to the separated firms frontier with the efficiency scores computed with respect to the integrated firms frontier. The results show that diseconomies of vertical integration are relevant, providing an important argument in favor of separation policies. However, they reduce when the downstream output (retail lines) is split in narrow and broadband lines (i.e., by considering the quality of the downstream accesses), for firms more concentrated on broadband.