Explaining Telecoms and Electricity Internationalization in the European Union: A Political Economy Perspective

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.