Estimating the Translog Cost Function for the Telecommunications Sector in Saudi Arabia: The Case of Saudi Telecom Company: An Empirical Study

Abstract

The objective of this research paper is to estimate a translog cost function for the Saudi Arabian telecommunications sector. Telecommunications sector is one of the rapidly growing sectors during the past decade nationwide. A Saudi Telecom Company (STC) data set has been used, as STC has the largest share of the telecommunications sector in Saudi Arabia. Three input cost factors have been considered: marketing and sales, capital and other expenditures. The outputs were total revenue and number of subscribers. The estimation results show that marketing and sales costs are the most important productive components and that capital costs come next. The demand price elasticity values suggest that capital is the most important factor in terms of price sensitivity, which underlines the importance of capital and technology supplies as a necessary component, primarily for the telecommunications sector. From the findings, the telecom sector today relies on advanced technology that incurs high cost. Searching for appropriate funding mechanisms is logical and even necessary for sophisticated technologies and increasing costs. Upgrading marketing techniques, supporting customer services programmes and developing training programmes would yield excellent outcomes and enhance performance. The estimation results end with checking the existence economics of scale, and it has been found that the industry has increasing returns to scale. Therefore, it would be highly recommended to expand the services offered by the telecommunications sector.