Nowhere is the privatization debate more robust and activity more dynamic than in the area of telecommunications. In the past few years, privatizations in this sector have taken off, with more than 20 countries selling stakes totalling over US$140 billion (Exhibit 1). In the European Union alone, Denmark, France, Germany, the United Kingdom, Greece, Belgium, the Netherlands, Italy, and Portugal either have already privatized or expect to privatize their state-owned telephone companies and liberalize their telecoms sectors by 1998—a radical shift given that all were state-owned monopolies just fifteen years ago.

Privatization has helped telcos and governments address an unavoidable issue: improving telecommunications infrastructure is extremely expensive, and frequently outstrips the state’s ability to provide funds. At about US$1,000 per new line, China and India are each hoping to spend more than US$100 billion over the next decade on switching and transmission equipment and local loop telephony plant.

Similarly, UN estimates place telecom investment needs for the Czech Republic, Poland, and Hungary at US$70 billion through the year 2000 to reach a density of 30 lines per 100 people, similar to that enjoyed by Spain. Simply improving all of the...