Market Competition, Infrastructure Sharing, and Network Investment in China’s Mobile Telecommunications Industry

Abstract

The relationship between market competition and network investment in the mobile telecommunications industry has always been one of the focuses for scholars and regulatory agencies. The conclusions of previous studies on this topic remain ambiguous. Infrastructure sharing has become a noticeable trend in the global mobile telecommunications industry, but its impact on operators’ investment and innovation behaviors is controversial. This paper uses fixed effects and dynamic panel data models to empirically examine the relationship among the market competition, infrastructure sharing, and network investment in China’s mobile telecommunications industry. The results show that market competition has a significant positive impact on the total industry network investment, but the interaction of market competition and infrastructure sharing has undermined network investment, which indicates that the competitive strategy of rational operators will shift from facility-based competition to service-based competition when both deep infrastructure sharing and fierce market competition appear at the same time, and this is likely to cause insufficient incentives for investment in advanced technology. This paper suggests that China’s regulators should improve the market structure, enhance market competitiveness continuously, and support infrastructure sharing, but at the same time they should exercise caution when conducting in-depth infrastructure sharing. In addition, they should accelerate the development of 5G vertical industry applications to expand the market space for industry development.