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# **1. INTRODUCTION**

The economic literature on telecommunications reform is one of the largest on infrastructure reform (certainly larger than sanitation and any transport service and arguably in close competition with energy). This results partially from the relatively good quality of economic data on telecoms.<sup>1</sup> But the academic popularity of the sector also stems from three of its characteristics. First, telecoms’ impressive rate of technological change seems to have broken more bureaucratic impediments to change than reformers could have ever hoped for. Thus, it is important to get a sense of how much pro-active reforms added to the gains offered by the technological trend. Second, in spite of the high potential for competition in the sector, its complex regulatory dimensions seem to drive the size and distribution of the rent generated by the technological revolution. Third, the relative importance of the increased role of private operators in service delivery continues to be a source of argument.

The drivers of the impact of reforms and their distribution have been quite well documented in a plethora of country specific studies (with a very significant share on the US and the UK).<sup>2</sup> The impact of reforms has also been tested in cross-country studies but these are significantly scarcer than country specific ones. We review some relevant crosscountry studies later in some detail. Their country coverage varies from as little as 12 countries as in Fink et al. (2001), with a focus on Asian countries, to 200 countries as in Wallsten (2003), with both developed and developing countries. We do a cross-country analysis on the impact of reforms on telecom performance by using a database of 204 countries, 153 developing and 51 developed. The sample size is thus the largest so far— although only marginally so when compared to Wallsten’s.

When drawing general lessons for reformers, the main advantages of a large sample are that it reduces the risk of sample selection bias and allows a quick diagnosis of the differences in the impact of reforms across country types—e.g. developed vs. developing. Its main disadvantage is that it limits the policy assessment to fairly broad categorizations of reforms in order to ensure cross-country compatibility. In this paper, we focus on the following two broad categorizations of reforms: (i) the commitment to open the sector to private operators as a proxy for the commitment to open the sector to competition; (ii) the commitment to ensure a fair and efficient regulation of the residual monopoly elements in the sector. We test for the impact of these two reform policies on access, prices, quality and labor productivity in both developed and developing countries.

This paper adds to earlier work by increasing significantly the coverage of time elapsed since the start of the reforms. While our sample starts only in 1990, it ends in 2003; which is 4 to 6 years more than most of the previous studies.<sup>3</sup> This is significant since major reforms actually took place during the latter part of the 1990s in many countries and hence most of the earlier studies only covered a couple of years since the

> 1 This quality and availability owes a lot to the efforts of the International Telecommunications Union.

> 2 For a recent survey, see for instance, Ai and Sappington (2004).

> 3 In past studies, the period coverage started at the earliest in 1980 (Gutiérrez, 2003) and ended in 2001 at the latest (Li and Xu, 2004).