Market Structure and Impact of Vertical Separation: Evidence From Mobile Sector in China

ABSTRACT In year 2014, a mobile tower company was established in China as a nationwide monopoly. This paper tested the impact of this major structural change or ‘reform’ on China's mobile operators with important policy implications. As a measure to improve the efficiency of state‐monopolised network‐based industries, the government has repeatedly reiterated since 2013 in a series of official files a fundamental guideline of separating network and retail markets and liberalising the competitive sectors. However, the issues like whether the network sectors are intrinsically non‐competitive natural monopolies and whether and how the choice of market structure matters in determining the effectiveness of the reform remain to be evaluated. Answers to these questions may seem to be theoretically obvious, but do have important empirical significance in China's setting, particularly for the new round of changes in mobile market place with 5G technology. Results show that the tower sector is not a natural monopoly and the single‐firm market arrangement has not been conducive to improving the operators' performance. Policy recommendations are provided at the end of the article.