Theory Of Privatization Essay

Telecommunications provides the basic infrastructure for the information highway and therefore is a vital force in economic development and globalization. Privatization is defined as the transfer of assets and service function from the public to private sector. Following, I will be looking at the theory of privatization and determine the relevance of privatization in the telecommunications industry in the late 20th century and 21st century.

The timeframe of 20th century to 21st century is chosen as many divestitures of state owned enterprises occurred during this period. For example, in China, state-owned enterprises have been in retreat for years from the late 1990s. Their numbers declined to around 114,000 in 2010.

Many telecommunication firms have started off as state owned enterprises (SOEs). These enterprises do not have the sole aim of making profits. The government provides services that are cheaper than those provided by private enterprises. This is due to the fact that governments have their political objectives to consider. For example, centrally managed SOEs in China, their role was to contribute to the aggregate growth of China. They do this by enhancing the ever-growing infrastructure in China and ensuring that the Chinese consumers have

A free market is one where the market forces of demand and supply are allowed to work freely to reach equilibrium, with no government intervention. With government intervention, there will be a monopoly market. The basis for a monopoly market is the existence of barriers to entry. If the government is running the telecommunication company, it may have policies that prevent new firms from entering the industry. Moreover, the telecommunications infrastructure has high fixed cost and this acts as a barrier to entry. This suggests that very little competition exist between