3 share of countries with private capital in main fixed lines operators increased from 9% to 53% in developing countries and from 17% to 82% in developed countries between 1990 and 2003. This information is summarized in table 1.<sup>7</sup>

**<u>Table 1: Evolution of reform implementation from 1990 to 2003</u>**

||**% of sample by**|**country group**|**Number**|**of Observatio**|**ns**|
|---|---|---|---|---|---|
||**Developing**|**Developed**|**Developing**|**Developed**|**Total**|
|**Privatization/competition**||||||
|Number of Countries with Private Capital as of 1990|9%|17%|129|35|164|
|Number of Countries with Private Capital as of 2003|53%|82%|129|34|163|
|Average Year of Privatization*|1997|1997|57|23|80|
|**Regulation**||||||
|Number of Countries with IRA as of 1990|5%|12%|153|51|204|
|Number of Countries with IRA as of 2003|65%|57%|153|51|204|
|Average Year of Establishment of IRA*|1998|1997|93|23|116|

Source: Own calculations using ITU data. * Average among countries that reformed between 1991 and 2003.

The regulatory environment has also changed significantly but tracking changes in regulatory systems is much more complex than tracking the extent of private sector participation. One of the most directly observable policies aimed to change regulatory systems may be establishment of an independent regulatory agency (IRA) for telecommunications. This could be the strongest public signal of the commitment to end self-regulation and to replace political considerations by economic concerns in regulation design.<sup>8</sup> The creation of IRAs is a process being monitored and documented by ITU as well. ITU considers that an agency is independent if it is separate from the ministry and from the incumbent in its structure, financing, and decision-making process.

This choice to proxy for the commitment to reform the regulation allows for a simple classification of countries into those that have an IRA and those that do not. ITU reports a list of countries that have an IRA. After consulting with ITU experts, we assume that countries that do not appear in ITU's list do not have an IRA. This assumption is not as strong as it may seem. Countries have incentives to report the creation of IRAs since these agencies play an important role in the interconnection process (one of the most critical regulatory issues for the sector) as well as in other pricing related matters.<sup>9</sup> Table 1 shows that the share of countries with an IRA increased from 5% to 65% in developed countries and from 12% to 57% in developing countries.

Finally, a comparison of the information on private capital and IRAs provides useful additional insights. First, it shows that among developing countries there are more

> 7 See Estache and Goicoechea (2005a) for a more detailed discussion of the data.

> 8 The concept of independence is to a large degree subjective. Estache et. al. (2002) define independence as having financial autonomy (because if the minister influences the budget to cover the regulator’s expenses there is a potential conflict of interests). But independence might also be considered in terms of capacity to make decisions. Also there is some subjectivity in the data generation process. Wallsten (2003) states that regulators might have incentives to report they are independent when they are not de facto independent. He also makes the argument that no matter what definition of independence is used; regulatory agencies will always be to some degree connected to the government.

9 Interconnection is defined, in the Telecommunications regulation handbook (2004), as connecting two networks owned by different companies in a way that ensures the proper functioning of the two systems.