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# **5.1 Selection of affordability indicators**

Affordability indicators should give a sense of the extent to which infrastructure services are provided at a price consistent with the income levels of residential users— ignoring for now the consistency of costs and prices. Ideally, affordability measures will capture the extent to which the price of a standard consumption bundle is consistent with users’ ability to pay. These measures should be collected from household surveys that specify the percentage of household income or household expenditure allocated by different income classes to a specific service.

The only practical information available for a large set of countries is the average price and, occasionally, the tariff structure. This information is widely seen as problematic, however, because it does not account for the _informal_ alternatives available to consumers in developing countries. But because it is the only information available for a large sample of countries, it is used in the few econometric studies of reforms. For example, Steiner (2001), Zhang and others (2002 and 2005), and Hattori and Tsutsui (2004), use electricity end-user prices as an independent variable to study the impact of reforms. For telecoms, three cross-country studies document the impact of reforms on prices (Boylaud and Nicoletti 2000; Ross 2001 and 2003).

We chose electricity end-user prices for households and for industry as proxies for affordability. End-user prices are defined as prices actually paid, net of rebates, including nonrefundable taxes and transport costs that the consumer must pay as part of the transaction, but excluding value-added tax. Data were collected from the following sources: IEA, Energy Regulators Regional Association (ERRA), Energy-Economic Information System of Latin America and the Caribbean (SIEE-OLADE), and South African Development through Electricity (SAD-ELEC). The chief limitation of data on electricity prices is coverage. We were able to get prices for just 56 of 153 developing countries.

To proxy the affordability of telecom services, we relied on the price for a threeminute local phone call in U.S. cents and the monthly subscription fee in U.S. dollars (for residents and for business). ITU defines the price of local calls as “the cost of a peak rate 3-minute fixed line call within the same exchange area using the subscriber's own terminal.” The monthly residential (or business) phone subscription fee is defined as “the recurring fixed charge for a residential (business) subscriber to the public switched telephone network.” The charge covers the rental of the line but not the rental of the telephone set where the equipment market is liberalized. In some cases, the rental charge includes an allowance for free or reduced-rate call units. If there are different charges for different exchange areas, the largest urban area is used. These indicators refer to prices in the fixed-line market and do not include mobile-market prices.

We could not find reliable databases at the national level in the water sector. Most data are collected at the company level, and most companies serve only a limited segment of the population. This may be why no comparable data is available at the country level.