policy can be influenced, then service providers may behave strategically to manipulate policy choices in their favour.

From the viewpoint of governments that seek services liberalization, the importance of credibility poses a dilemma. Factors that strengthen credibility may slow pro-competitive reforms. In some cases, governments made compromises in designing first generation telecommunications reforms, most significantly in the form of exclusive licenses granted to privatized entities. These locked governments into arrangements with private monopolists that proved costly in terms of delayed network roll-out and/or high prices for consumers. But to accelerate the introduction of competition or to impose severe price controls squeezing the profitability of the monopolist could undermine the government's credibility in committing to second generation reforms. The solution may well be to follow the example of Hong Kong and Singapore. Both countries terminated exclusive rights early but compensated the incumbents on commercial terms.

However, the incentive to renege on earlier promises is not a one-way street. At the time governments award service licenses, service providers may promise more than they can deliver in the future. The reason for such over-commitments is founded in operators' expectations that governments are unlikely to terminate network operations to avoid delays or disruptions in the provision of services. The experience of Indian cellular operators pointed out above provides testimony to this problem.

What can governments do to enhance both the credibility of their reform initiatives and the credibility of enforcing obligations in services licenses? First, an independent judiciary can be important in resolving disputes between operators or between service providers and the government. A regulator that is isolated from political discretion and where office terms do not depend on political cycles can be a way to ensure regulatory independence. Competition also reduces the degree to which governments are locked into arrangements with a single operator. Finally, commitments to regional and multilateral agreement can be important means of strengthening domestic reforms. We return to this issue in Section V.

# **IV.** ECONOMETRIC ANALYSIS

Most of the assertions in the previous section were based on evidence from case studies. Can we draw a sharper link between policy and performance through more rigorous empirical methods? This is possible thanks to data contained in the recently created World Bank/lTU database on telecommunications policy. We shall assess econometrically the impact of alternative policy and regulatory reforms in 12 developing Asian economies over the period 1985-1999. We identify for each country and for each year whether the incumbent operator has been corporatized and/or privatized, the state of competition in the various market segments (local, long distance, international, cellular), and whether a separate regulatory agency has been created. Controlling for the level of development and other economic variables, we then analyze how various measures of telecommunications performance are affected by government policy.

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