World Telecommunication Day 1998

May 4, 1998


Taking Account Of the Revolution

In the following article by Pekka Tarjanne, secretary-general of the International Telecommunication Union, he explains why a reform of the system for sharing the costs of international calls is necessary, and why particular attention must be paid to the needs of developing countries.

At its World Telecommunication Policy Forum in March, the members of the ITU overwhelmingly endorsed efforts to overhaul the long-established international accounting rate system and paved the way for the development of new means of settling international telecommunications traffic that are more suited to the fast-changing telecommunications environment.

Technological change, most recently the development of new technologies that bypass the public switched telephone network, such as Internet telephony, is having a great impact on the way today's telecommunications services are delivered.

Old way no longer viable

This, along with factors such as the advent of callback and other alternative calling practices, the dramatic fall in the cost of international capacity and the liberalization of the world's telecoms markets, is exerting enormous pressure on the old way of sharing the cost of an international call between the originating telecommunications operator and the operator in the foreign country that terminates the call.

Under the old regime, in which monopoly providers generally agreed bilaterally on a price for handling one another's calls and split the cost down the middle, the system worked relatively well. In many cases, there was not even any need for significant amounts of money to change hands, since traffic between the two countries was balanced, with each receiving and sending about the same number of calls.

During the 1980s, however, the situation began to change. Markets in some countries started to deregulate, public telecommunications carriers began to be privatized and the balance of traffic along certain routes became highly unbalanced because of factors such as callback services and highly competitive pricing by some operators, particularly in the United States.

Recognizing that fundamental changes were taking place in the global telecommunications environment, the International Telecommunication Union began to address the need for a move toward cost-oriented accounting rates. Until recently, however, progress toward actually agreeing on the structure of a new system, or on a set of guidelines that would replace the old structure, had been slow.

New strategy needed

It was for this reason, combined with the expected wide-ranging implications of last year's World Trade Organization agreement on trade in basic telecommunications, that the ITU convened its second World Telecommunication Policy Forum in Geneva in March. At this event, which attracted more than 700 delegates from almost 120 nations, consensus was reached, if not on a new system that would be better adapted to the evolving telecommunications environment, then at least on the urgency of formulating a strategy. The result was agreement, under Opinion C, that the ITU develop transitional arrangements by the end of the year that could be brought into effect as early as January 1999. These arrangements will take into account the special concerns of developing nations, many of which are fearful of losing a vital source of hard currency through the loss of income from international telecoms settlements.

Range of options

Exactly what form the transitional system might take is not yet clear. A range of options is on the table, including a termination charge system, in which a single charge on any given origin/destination relation is applied by a carrier for terminating a call; a simple sender-keeps-all system, which allows the originating carrier to retain the entire charge for the call; and a more complex system of different rates for different classes of operator, in recognition of the higher charges some operators are forced to incur in delivering international traffic.

Certainly, many operators in the developing world have legitimate fears about the current upheaval in international accounting rates. Developing nations, especially those lacking a convertible currency and having a poor level of international trade and low per capita income, will find it hard to keep up their network maintenance and expansion programs if their supply of hard currency from international settlements suddenly dries up. As the price of calls go down, demand for services is expected to be stimulated, thus exerting pressure on network capacity. In an attempt to meet this new demand, operators will be required to import more telecoms equipment, but the added revenue, in local nonconvertible currency, will be of little help.

The current trend toward increasing trade deficits in telecoms equipment in developing countries is likely to be exacerbated or may result in worsening the already difficult debt burden. Also, tariff rebalancing will put pressure on such operators to increase local call charges, which may have the added negative effect of further isolating the local population from easy, affordable access to telecommunications.

Whatever new method is finally settled on, the move toward cost-oriented accounting rates would seem to be generally good for the consumer. With the cost of international capacity over telecommunications networks continuing to fall, thanks especially to high capacity fiber optic cables, the price of international calls should also drop dramatically, to eventually become more in line with the cost of an ordinary domestic call.

Certainly, we cannot expect the world's large telecommunications operators to surrender the generous profit margins they currently reap on international telephony without some resistance. Many carriers routinely charge international calls at around 10 times the price of a domestic call, even when the cost they incur to deliver both services is often not very different. But new technologies like Internet telephony, which can deliver voice calls at a very low cost virtually independent of distance, combined with the surge of new operators moving into liberalized markets around the world, mean that it will not be long before the old regime will be forced to bring international tariffs into line with real costs or risk being squeezed out of the market altogether.

For the ITU, which has as one of its mandates "the establishment of rates at levels as low as possible consistent with the operation of an efficient service," the shake-up in the international accounting rate system can only be positive.

Fair deal for developing countries

As always, the ITU will work to ensure a fair transition, particularly for developing countries, which will almost certainly be harder hit by tariff rebalancing.

For them, special consideration is vital if we are not to end up further isolating populations who are already being forced to survive on very meager telecommunications resources. But in the long term, and if all interests are kept in mind, it should be the consumer, including those in the developing world, who will benefit.

Cheaper international calls will mean an increase and expansion of business activity and opportunity, and improved communication between families and friends separated by distance. It would be very hard indeed to deny the benefits such changes would bring to the quality of life of people everywhere.

Pekka Tarjanne