17 would bring down the price of local calls, intensify reported telephone faults, and improve labor productivity. With respect to the price of local calls, the results suggest that an IRA is important to ensure local users that the potential gains from technological progress are not offset with the increase in local tariffs often associated to tariff rebalancing.<sup>15</sup> Regarding quality, the deterioration associated with the existence of an IRA probably reflects the fact that an IRA does a better job at measuring quality than a self-regulated operator. Thus, reform policies initially may end up increasing measured faults, even if they ultimately improve quality.<sup>16</sup> Finally, results suggest that the strongest effect of the introduction of an IRA is the enhancement of labor productivity.

When comparing the effects of an IRA in developing and developed countries, table 6 shows that these effects have the same sign in both groups but are stronger in developing countries in terms of labor productivity and quality, and are stronger in developed countries in terms of prices. Somewhat surprisingly, the introduction of an IRA has no statistically significant impact on access and on the fixed component of the tariff paid by users, whether residential or business.

# **6. CONCLUDING REMARKS**

We first reported basic data on telecom reform policies and performance outputs which hinted at a number of correlations. Based on this very basic data analysis, countries with private capital and/or an independent regulatory agency (IRA) seem to have, on average, more subscribers, lower local call price, lower fixed costs, lower faults, and higher labor productivity. We also observed that countries that have reformed present, on average, better performance outputs than countries that have not reformed. However, there seemed to be differences in the impact of reform policies between developing and developed countries.

We then provided a more formal assessment of these apparent correlations through an econometric analysis to refine the conclusions emerging from the basic data analysis. More specifically, we could confirm that countries with private capital have more subscribers, lower local call price, lower faults, and higher labor productivity. However, in terms of fixed costs, econometric results differ from the basic data analysis. We found that private capital is actually associated with an increase in residential and business subscription fees, which is consistent with the tariff rebalancing that typically takes place when ending direct subsidies as part of most reforms. With respect to the independent regulator, we could confirm that countries with an IRA have lower local call price and higher labor productivity, but we found again some discrepancies with the basic

> 15 Tariff rebalancing usually takes place as part of the reforms after the government eliminates historical cross-subsidies that favor local calls.

> 16 In the absence of a good measure of the probability of detection we cannot but remain agnostic about the true effect of reform policies on the quality of service. For instance, if we further control for log subscribers in the quality equation the coefficient on PRIV*DV grows, suggesting that congestion externalities due to the enlargement of the sector following privatization do not explain the results.