In 2001 Utel was nationalized by buying out the shares of its private owners. The intention was to re-integrate the international calls business into the state monopoly Ukrtelecom and then to privatize the monopoly as a whole. However, there is no clear consensus reached about the role of privatization and competition in different telephone services (local, long distance domestic and international).
When discussing Ukrtelecom’s privatization main arguments usually focus on expected budget revenues and attracting a private investor. The primary goal of restructuring the telecommunications sector, however, should be to achieve supply of telecommunications services to all customers at the lowest price. There are several arguments used in the debate in favor of the creation of a monopoly. These include the alleged higher efficiency of an integrated monopoly due to its higher investment potential, protection of domestic industry and security arguments. The paper shows that these arguments are not valid.
A private monopoly can never be as efficient in reduction of costs as a competing company, especially if there is no regulatory or competitive pressure from outside. In addition, an integrated monopoly can successfully deter entry of new operators and reduce competition not only into natural monopoly segments (local telephone services), but also into potentially competitive segments of an industry (long-distance and international telephone services).
