The cost structure of Australian telecommunications

Since 1991 Australian telecommunications has undergone substantial reform. To a large extent, the economic correctness of pro-competitive policy depends on the non-existence of natural monopoly technology. This paper provides estimates of the Australian telecommunications system cost structure, and tests for subadditivity from 1943 to 1991. Additivity of the cost function after 1945 rejects the natural monopoly hypothesis and supports recent government policy. Diminished natural monopoly characteristics suggest that coordination between firms through networking can achieve similar economies as internal co-ordination within a monopoly. This finding is important, given the trend towards network unbundling, and service provision through interconnection.