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Abstract
In this paper we provide a quantitative analysis of the welfare impact of improved domestic market access for foreign telecom providers in Tunisia. In this context, we set up a CGE model for Tunisia in which the domestic telecommunications industry is initially monopolized. In that case, one of the major potential benefits of providing a license to a foreign telecom provider is that it can erode domestic market power. Potentially offsetting these benefits, however, limited entry by foreign firms into the domestic telecom market may shift profits abroad and may induce an international cartel formation if the regulation of the domestic telecom sector is weak. We find that limited foreign market access in Tunisia is welfare improving if regulation can prevent the domestic incumbent and the foreign service provider to form a cartel. If they form a cartel, however, foreign market access is welfare reducing. Our results emphasize the importance of market structure and the regulatory environment on the success of telecom liberalization. It strengthens the argument that pro-competitive regulatory reforms need to accompany telecommunications liberalization in developing countries such as Tunisia.