2 reform.<sup>4</sup> Another contribution of the paper is the modeling of the effects of corruption in the sector and their interactions with reform policies. These interactions add useful policy results to Wallsten’s inclusion of a governance variable as a driver of performance.<sup>5</sup> Finally, we also look into the relevance of investment risk and its interactions with reform policies for telecom performance.

The paper is organized as follows. Section 2 offers background on the state of reforms in the sector. Section 3 discusses the performance indicators available and presents basic statistics. Section 4 summarizes previous cross-country academic literature on the impact of telecom reforms. Section 5 presents the econometric analysis resulting from this larger database on telecom performance. Section 6 concludes.

# **2. THE MAIN “MACRO” REFORMS IN TELECOM**

The reforms of the 1990s brought major changes to the traditional structure of the telecommunications sector. Until then, the typical operator was a monopolistic stateowned company. In most countries, this monopoly was self-regulated or regulated by the government rather than by an independent agency. The main drivers of regulation tended to be fiscal or employment concerns instead of service oriented concerns. Indeed, prices were often intended to generate fiscal revenue rather than to reflect costs and complex cross-subsidy schemes.

This situation changed with the major technological shocks of the 1990s. Besides the unbundling of the sector stimulated by the technological revolution, the first common element of reforms across countries may be the opening to competition. In most countries, this materialized by an increased role of the private capital in the sector. Indeed, state-owned operators were usually separated in multiple companies and in most cases they were sold, given in concession or licensed to private operators or investors which in turn started to compete with the incumbents and other entrants. Because there is no reliable measure of the degree of competition for a large sample of countries, the existence of private capital investment in telecoms may be the best proxy to document the commitment of the government to increase competition in the sector. It relies on the minimum volume of information and yet it gives a reasonable sense of the commitment to competition for the largest possible sample of countries. It is clearly not perfect since the opening to the private sector is necessary but not sufficient to increase competition. However, the experience suggests that the existence of private capital and the existence of competition are highly correlated when both are measured correctly.<sup>6</sup> According to the data from the International Telecommunications Union (ITU) on whether a country has at least some private ownership in their telephone companies, the

> 4 As shown later in a summary table, on average, developing countries introduced their major reforms around 1998 while developed countries did it around 1997. 5 See Wallsten (1999).

> 6 Note that the data on competition actually raises more issues. Besides the coverage problem; international databases on the existence of competition often refer to the “legal” status but not to the “de facto” situation.