Telecommunications Reform in Developing Countries

Since World War II, developing nations have embarked on two massive changes in telecommunications policy. The first was the wave of nationalization of private companies that took place mostly in the 1950s and 1960s, and the second is the now ongoing process of re-privatization and, to a lesser degree, the introduction of competition. The purpose of this essay is to set forth the problems of contemporary neoliberal policy reform within the historical, economic and political context of these countries to assess the success of reform to date and to suggest future directions for research that might improve the performance of the sector. The existing literature well documents the decline in performance during the nationalization era and the improvements that reform usually brings; however, relatively little is known about the relationship between the details of reform and subsequent performance, or about the institutional factors that contribute to the stability of reform. The main conclusions are: (1) the recent literature on policy reform probably understates the importance of constructing regulatory governance institutions that are not captured by the newly reformed incumbent monopolist; (2) reform in some countries has focused too much on maximizing the revenues from the sale of state-owned enterprises rather than the long-run economic benefits of reform to consumers and society at large; and (3) too little attention has been given to creating an institutional environment, regulatory and legal, that supports a private and, where possible, competitive industry. The paper also argues that small developing countries probably should not allocate scarce educated technical civil servants to regulation, but should either adopt relatively simple “benchmark” systems or, better still, form multinational agencies for regulating prices and service standards. TELECOMMUNICATIONS REFORM IN DEVELOPING COUNTRIES by Roger G. Noll* During the late 1980s, telecommunications policy in developing countries entered a new era of neoliberal reform. This reform process achieved what some have called a watershed in early 1998, when the liberalization agreement of the World Trade Organization’s Group on Basic Telecommunications came into force (Drake, 1999). The WTO Basic Telecommunications Agreement commits the signatories to liberalize basic telecommunications. Originally 69 countries signed the agreement, but by early 1999 the number was up to 80 of the 132 WTO members (Pandya, 1999). Twenty of these countries, including not only the advanced, industrialized nations but also Chile, Dominican Republic, El Salvador, and Guatemala, committed to complete openness to competition and foreign investment in what amounts to a single market (Tyler and Joy, 1997). Many other developing and transition countries have embarked on less ambitious reforms. The developing and transition countries that have adopted reform commitments are so indicated in Table 1. Although the goals and process of reform differ among countries, the trend is unmistakable. In the early 1980s, the dominant institutional arrangement began moving from a state-owned monopoly that is run by a cabinet ministry towards a privatized and at least partially competitive industry that is subject to looser public control through either periodically renewed franchise contracts or American or British style continuous regulatory surveillance. The purpose of this essay is to review the history and origins of these reforms, the politics and economics of the new regime, and the lessons to be learned from the experiences of the pioneer countries that have now acquired several years of experience with a new, liberalized industry. This chapter focuses on telecommunications; however, most of the theoretical arguments about the economics and politics of policy reform apply to other infrastructure industries, such as electricity and transportation. Moreover, many apply to urban water systems as well, as is apparent in the following chapter of this