A study on the efficiency of telecommunication service provider using DEA

Abstract

As telecommunication market in Korea has been liberalizing, telecommunication service providers need to search better network operation to improve their efficiency and enhance profits. A key step towards achieving higher efficiency is performance monitoring and measurement. Therefore, this paper examines the efficiency of telecommunication service provider in Korea by measuring its performance. The main objectives of this paper are to estimate the efficiency for telecommunication service provider in Korea with DEA (Data Envelopment Analysis) that has been widely applied for performance analysis in public and private sectors and to provide indications to decision maker to check whether any corrective actions need to be taken or not and what kind of actions should be taken to increase efficiency. Previous studies on efficiency in telecommunication industry using DEA are mostly focused on time-series analysis. Also, these studies assume that operating environments of each telecommunication service provider would be same, therefore, ignore the constraints that may be caused by external conditions leading to inefficient operation. This paper, however, does not focus on time-series operating efficiency, but efficiency of each business unit operated by Company “A”, one of telecommunication service provider in Korea. To measure efficiency of business units, this paper considers one output of revenue, three inputs of number of employees, subscriber lines, and investment on network. Moreover, this paper compares that how the efficiency level of each business unit is affected by their network operating environments that will be different from each business unit using CDI (Context Difficulty Index), which represents the difficulty of network operating environment.