The Effects of Public Ownership and Regulatory Independence on Regulatory Outcomes: A Study of Interconnect Rates in EU Telecommunications

Abstract

We examine the effects of public ownership and regulatory agency independence on regulatory outcomes in EU telecommunications. We present evidence of political influence over regulatory outcomes, and demonstrate the importance of regulatory independence in ensuring unbiased regulatory policy. Specifically, we study regulated interconnect rates paid by entrant firms to incumbent firms. We find that public ownership of the incumbent positively affects these interconnect rates, suggesting an ability of governments to influence regulatory outcomes in favor of incumbents in which they are substantially invested. But we also find that the presence of institutional features enhancing regulatory independence from the government mitigates this effect. In order to study regulatory independence, we introduce a new cross-country time-series database - the European Union Regulatory Institutions (EURI) Database. This database describes the development of institutions bearing on regulatory independence and quality in telecommunications in the 15 founding EU member states from 1997 to 2003. Beyond the current research, we expect this database will prove useful in future studies of the effects of the institutional environment of regulation on industry structure and performance.