Telecommunications and transition in Central and Eastern Europe

This paper analyses the strategic role of liberalization and competition of the telecommunication sector in transforming economies and shows that network externalities cause special problems in the stage of early network expansion. Introducing competition in the telecommunication sector in post-socialist East European economies could not only contribute to rapid network expansion but also stimulate economic efficiency through backward linkages and forward linkages. Falling marginal costs during network expansion and improving quality of services - due to network competition - could generate high productivity gains and stimulate demand across the economy. Improved information networks will also have market-enhancing effects.