International economic relationships in telecommunications. A painful transformation

Telecommunications Policy

Volumn 22, Issue 10, 1998, Pages 797-816

  Tyler, Michael ^a   Bednarczyk, Susan ^a  

^a Tyler & Co   (United Kingdom)

Author keywords

[No Author keywords available]

Indexed keywords

COMPETITION; COST ACCOUNTING; ECONOMICS; PUBLIC POLICY; REGULATORY COMPLIANCE; TELECOMMUNICATION SERVICES;

INTERNATIONAL ECONOMIC RELATIONSHIPS; REGULATORS; TELECOMS OPERATORS;

TELECOMMUNICATION TRAFFIC;

EID: 0032208385     PISSN: 03085961     EISSN: None     Source Type: Journal    
DOI: 10.1016/S0308-5961(98)00056-1     Document Type: Article

References (60)

1. Until the mid-1990s, only Australia, Chile, Finland, Japan, New Zealand, Sweden, the United Kingdom, and the United States had made such a change.
2. For example, regulatory rules concerning the rights of competitors to interconnect their networks to the Public Switched Network (PSTN) operated by the old-established incumbent telecoms operator.
3. International calls will no doubt continue to be priced to end-users somewhat higher than domestic long-distance calls, although the difference is likely to be relatively modest.
4. Also called Points of Interconnection (PoIs).
5. Canada has retained some foreign-ownership restrictions, but this does not sub-stantially impede open competition as described here.
6. The Interconnection Directive does not explicitly say that the same interconnect charges must apply for domestic and international calls. However, the provisions concerning cost-orientation of charges and non-discrimination seem to the authors to clearly imply this outcome, and there seems to be wide agreement that this is the correct interpretation.
7. We arrived at the number of 20 countries by counting only those countries which have: (a) made commitments in their WTO schedules to open their national market for basic fixed telecommunications; (b) incorporated in their commitments all or essentially all of the provisions of the Reference Paper on regulatory affairs, which inter alia allow the new entrants to interconnect to the incumbent operator’s network on interconnect terms which are cost-based, and the same as those provided to domestic competitors; and (c) committed to abolish foreign ownership restrictions.
8. The extension of foreign operators’ networks to PoPs that they have established in the destination countries; or in some cases, the extension of these networks all the way to customers’ premises in those countries.
9. For accounting and financial-reporting purposes, it is common for telecoms operators to show out-payments and receipts under the settlement systems on a gross basis, although no money actually flows between operators except on the net basis. The effect is to keep reported revenues higher than would otherwise be the case.
10. In practice, the most important example of SKA is the Internet, which carries international traffic without any form of settlement payment. Its international links, however, which predominantly run to and from the US, are paid for by the non-US Internet Service Providers.
11. Such a system has applied for some years in the Europe/Mediterranean (TEU REM) region, in accordance with ITU-T Recommendation D300R.
12. Strictly true only for direct routes between the countries concerned. Where transit arrangements are used, the costs incurred by the transit operator, and the transit settlements, may vary for the same destination country, depending on the country where the traffic originated.
13. This approach was, for example, advocated by the Australian delegation to the recent WTO telecommunications negotiations, drawing on work by Professor Henry Ergas, and is also under intensive consideration in ITU-T Study Group 3.
14. FCC estimates.
15. Deciding what indicator is most appropriate to measure costs is difficult, but this statement is likely true on most international routes for almost any reasonable cost-analysis concept.
16. The Informal Group of Experts convened by the ITU’s Secretary General to advise on the reform of the settlement system noted in its report of April 1997 that studies carried out by the ITU Secretariat indicated that ‘in all but a few cases, settlement rates should be priced below 25¢ per minute’. See ITU, Report of the Informal Expert Group on International Telecommunications Settlements’, Geneva, April 1997. .
17. The higher the settlement rate, the larger the percentage reduction of profit caused by a 1% reduction in the collection rate. (This reduction of profit is partially offset if such a price cut generates, through proportionate return, additional return traffic for the operator that has cut its price.)
18. Preliminary estimate by Industry Analysis Division, FCC Common Carrier Bureau as of January 1998. Final 1996 numbers were not available at that time.
19. BT’s ‘UK Direct’ or AT&T’s ‘USA Direct’ represent one important form of turnaround. If a caller in Country B calls Country A by means of ‘country direct’ services using a telephone credit card or calling card, the call is billed to the customer in Country A, not Country B. The call is counted for settlement purposes as a call from A to B, not from B to A, since the operator in Country A has received the caller’s payment, and is required by the settlement arrangements to settle with the operator in Country B.
20. Derived by AT&T from FCC 43.61 International Traffic Reports and FCC Trends Report-Canada 1990 (AT&T Supplemental Comments in CC Docket No 90-337, Phase II, February 26th, 1996).
21. Derived from TeleGeography 1997/98, Washington, DC, 1997.
22. Lam, P.-L. ‘Erosion of monopoly power by callback: lessons from Hong Kong’, Telecommunications Policy, 1997, 12(8), 693–695.
23. Such as leased line (private line) resale or foreign-operator PoPs (‘self-termination’).
24. Allowing leased-line resale (also called private-line resale or International Simple Resale) is generally only effective if operators are allowed to interconnect their leased lines to the PSTN at both ends and pay for their PSTN use at either domestic end-user prices or domestic interconnect rates.
25. Traditional arrangements already provide for this in the case of the Europe/Mediterranean region, under the terms of ITU-T Recommendation D300R.
26. The FCC took this view in its Notice of Proposed Rulemaking (NPRM) for its international settlement rates proceeding, saying that “… it may be appropriate for international services to provide a reasonable contribution to the common costs of foreign carriers”, NPRM in IB Docket No. 96-261, 19 December 1996.
27. If uniform termination charges are adopted to reform the traditional system, some of this pressure will be alleviated, since refile and hubbing will now remove less traffic from the traditional system. However, unless operators using the ‘new modes of operation’ were also required to pay the termination charge rather than domestic interconnect or end-user prices, the ‘new modes’ will continue to exert pressure to lower the termination charge to cost-based levels.
28. Comments of AT&T Corp. ‘In the Matter of International Settlement Rates’, File No. IB 96-261, 7 February 1997.
29. FCC Notice of Proposed Rulemaking, In the Matter of International Settlement Rates, IB Docket No. 96-261, released 19 December 1996; FCC Report and Order, In the Matter of International Settlement Rates in IB Docket No. 96-261, released 18 August 1997.
30. “There is no requirement on operators to maintain a system of parallel accounting.” This statement (in Oftel’s terminology) means that operators need not maintain the same accounting rate as others operating on the same route. Source: “International Facilities Licenses, Guidelines on Well Established International Operator Determinations and Arrangements for Accounting in Respect of International Conveyance Services,” Oftel, July 1997.
31. In this case, the agency responsible is the Department of Trade (DTI). Oftel retains powers, under certain ‘conditions’ in the licenses granted to UK-licensed operators, to intervene subsequently if it finds that anti-competitive behaviour is occurring.
32. Regulation of International Accounting Rates, CC Docket No. 90-337.
33. Author’s term: see detailed explanation on the next page of this summary.
34. Regulation of International Accounting Rates, Fourth Report and Order (Phase II), 11 FCC Rcd 20063, 1996.
35. Report and Order, In the Matter of International Settlement Rates, IB Docket No. 96-261; FCC 97-280, 18 August 1997. The details are explained in Chapter 13 of this report.
36. Specifically, leased-line resale and foreign-carrier PoPs.
37. Op. cit. paras 232–259. The FCC decided that is ‘will authorise carriers to provide switched services over… private lines … on the condition that settlement rates for at least 50% of the … traffic on the route are at or below the… benchmark’ (paras 244–245).
38. ‘Foreign Participation’ order, para. 257.
39. The correct interpretation of the GATS and the 1997 WTO Basic Telecommunications Agreement appears to be that the FCC restrictions are a violation of the 1997 agreement if they are such as to ‘nullify or impair’ the market-opening commitments made by the US in the 1997 agreement and thus create new trade barriers, while seeking to achieve their declared aim of preventing anticipated anti-competitive behaviour. This test is specified in Article VI of the GATS. Ultimately, whether the FCC’s restrictions do or do not ‘nullify or impair’ under the GATS could only be definitely decided by a WTO dispute settlement panel.
40. Thus, the foreign operator may have its own plant all the way to the customer’s premises at both ends, even though interconnect services must still be used between the PoP and the called party for most calls. WorldCom, for example, is in this situation for traffic between the US and Germany, or the US and the UK (for example) because it owns local networks at both ends of these routes.
41. In transit arrangements, the routings are approved by the destination operator, and the settlement payments are constrained by a rule, embodied in ITU-T Recommendations, that the shares of the accounting rate paid to the destination operator, and retained by the originating operator, must be the same. By taking certain traffic outbound from the originating country out of the settlement system, refile (unlike transit) may also cause or exacerbate an imbalance of inbound traffic over outbound, in the ‘relation’ between the originating and terminating countries. This would provide the originating operator with additional settlements revenue from the traffic that remains within the traditional settlements system.
42. Internet telephony is beginning to be used in this way as well.
43. Technically, this is accomplished by stripping out the signaling data which identifies where the call originated, and substituting the corresponding data for the location where the call is re-originated.
44. Such unconventional routings are less and less constrained by technical considerations, because digital signals undergo relatively little impairment even if they traverse very indirect routings: this was not true for the analog signals that prevailed at the time today’s settlement system was created.
45. The Secretary General himself has played a catalytic role as advocate for fresh thinking in this field, pressing the case for rapid reform of the settlement system along market-oriented lines.
46. As already provided for in the case of the Europe/Mediterranean region by ITU-T Recommendations D300 and D150R.
47. In this case, there could be a substantial degree of asymmetry, with cost-based interconnect rates in developing countries being substantially higher than those prevailing.
48. If the country is a WTO Member (or is willing to join the WTO and accept its trade rules), it can do this by adopting a new national Schedule to the 1997 WTO telecommunications agreement that effectively makes it part of the WTO ‘Single Market’.
49. In some Single Market countries it is possible that a non-discriminatory cost-based charge for terminating international calls may apply to all international calls, whether carried by domestically based or foreign operators, as required by the rules of a Single Market, but this charge may be somewhat higher than the interconnect charge for domestic calls.
50. The settlement rate should not exceed the (local) interconnect rate plus the costs of domestic long-distance carriage of the call, international gateway switching and an international half-circuit.
51. Including Australia, Germany, Hong Kong and the UK.
52. Since the issue is a commercial one, and many of the players involved have monopolies or substantial market power, competition law as well as the administrative law of telecoms regulation must be considered.
53. Report and Order ‘In the Matter of International Settlement Rates’, in IB Docket No. 96-261, released 18 August 1997, para 20.
54. Report and Order in IB Docket No. 96- 261, op. cit., para 279.
55. The relevant provisions are in the Reference Paper of the 1997 WTO Basic Telecommunications Agreement, clause 1.1 and in the GATS, Article VI, Domestic Regulation.
56. United States Court of Appeals for the District of Columbia, Cable and Wireless plc vs. FCC, No. 97-1612, Petition for Review, 26 September 1997.
57. Telecommunications Reports International (TRI), 25 October 1996. According to TRI, normally considered a reliable source, at one stage in 1996 AT&T unilaterally limited its settlement payments to 80 cents per minute. Telintar ‘unidirectionalised’ certain circuits (i.e. stopped accepting traffic on them from AT&T) on the grounds that AT&T had failed to make past-due payments. According to Telecommunications Reports, the FCC International Bureau then ordered all US operators to stop settlements payments to Telintar. Again according to Telecommunications Reports, a subsequent understanding, approved by the FCC earlier this year, called for AT&T to pay 92¢ per minute for the period to 30 September 1997 and then 85¢ per minute for the rest of 1997.
58. The issue, highly controversial in the 1970s, of whether to proceed with new submarine cables across the Atlantic provides a telling example.
59. Strictly, refusing to grant Section 214 authorisation.
60. Provision of card-calling and ‘country direct’ services to overseas emigrant communities is an important example.