Telecommunications regulation and the institutional foundation of the Palestinian Authority

PurposeThis paper aims to determine the most possible telecommunications regulatory system for the Palestinian Authority by investigating its institutional foundations. The paper highlights the problem of setting sophisticated institutions in fragile states that do not fully control their resources and investigates possible solution in terms of foreign investments.Design/methodology/approachThe paper follows a qualitative research approach in two parts. The first part examines the institutional endowment framework set by Levy and Spiller and Levy and Spiller but considers critique of the framework. It also investigates institutional problems in fragile states in order to identify similar patters identified in Levy and Spiller framework. The second part focuses on the Palestinian Authority institutional foundations. Data are collected through interviews with key stakeholders of the Palestinian telecommunications sector.FindingsThe case of the Palestinian Authority shows a mix of political investment cycles and a genuine attempt of regulatory reforms. Endogenous fragility of the government magnified the effect of corruption and the maintenance of business‐politicians ties. Also, the Palestinian telecommunications sector suffers from exogenous fragility in terms of Israeli control of radio spectrum, international gateway, and importing of equipment. Inability of the Palestinian Authority to invoke GATS BTA conflict resolution mechanism and the crucial role foreign investors played to secure release of spectrum for the second mobile operator indicates the need for the Palestinian Authority to attempt attracting foreign investment. However, foreign investments require regulatory effectiveness that the Palestinian Authority lacks; thus eliminating endogenous fragility becomes a prerequisite to exogenous fragility.Originality/valueThis paper sheds light on problems regarding setting up an institution‐based regulatory system in unstable states. It contributes to the argument that “one size fit all” might not be the answer for some countries, especially fragile ones.