Explaining telecoms and electricity internationalization in the European Union: a political economy perspective

Abstract

One consequence of the liberalization of certain services in the European Union was that a number of formerly inward-looking incumbents in telecommunications and electricity rapidly transformed themselves into some of the world’s leading Multinationals. However, the precise relationship between liberalization and incumbent internationalization is contested. This article tests three persuasive arguments derived from the political economy literature on this relationship. The first claims that those incumbents most exposed to domestic liberalization would internationalise most. The second asserts the opposite: incumbents operating where liberalization was restricted could exploit monopolistic rents to finance their aggressive internationalisation. The third argument claims that a diversity of paths will be adopted by countries and incumbents vis-à-vis liberalization and internationalization. Using correlation and cluster analysis of the sample of all major EU telecoms and electricity incumbent Multinationals evidence is found in favour of the third hypothesis. Internationalization as a response to liberalization took diverse forms in terms of timing and extent and this is best explained using a country, sector and firm logic.