Are cost models useful for telecoms regulators in developing countries?

Worldwide privatization of the telecommunications industry, and the introduction of competition in the sector, together with the ever-increasing rate of technological advance in telecommunications, raise new and critical challenges for regulation. Fo matters of pricing, universal service obligations, and the like, one question to be answered is this: What is the efficient cost of providing the service to a certain area or type of customer? As developing countries build up their capacity to regulate their privatized infrastructure monopolies, cost models are likely to prove increasingly important in answering this question. Cost models deliver a number of benefits to a regulator willing to apply them, but they also ask for something in advance: information. Without information, the question cannot be answered. The authors introduce cost models and establish their applicability when different degrees of information are available to the regulator. They do no by running a cost model with different sets of actual data form Argentina's second largest city, and comparing results. Reliable, detailed information is generally scarce in developing countries. The authors establish the minimum information requirements for a regulator implementing a cost proxy model approach, showing that this data constraint need not be that binding.