| ITU-T Study Group 3 - Special Projects and Issues |
| Accounting Rate Reform undertaken by ITU-T Study Group 3 |
This
document summarizes the activities of Study Group 3 on the
accounting rate reform. It has been submitted also as an
informal note for the WTO Trade in Services Council, May 26
2000,1
1. In the telecommunication sector, when an international
telephone call passes from one country to another, the operator
in the country that originates the call has traditionally made a
compensatory payment to the operator in the country that
terminates the call. These payments are made when traffic in one
direction is greater that the traffic in the return direction.
The level of payment is based on bilaterally negotiated
"accounting rates". The so-called accounting rate
regime is set out in the International Telecommunication
Regulations (ITRs), an international treaty administered by
the ITU, which was last updated in 1988. The ITRs are
complemented by the "D-series" of Recommendations,
which are the work of Study Group 3 of the ITU Telecommunication
Standardization Sector.
2. The accounting rate regime contains a number of different
methodologies, but in recent years the most common system of
remuneration has been the "accounting rate revenue division
procedure". Under this system, a net settlement payment is
made on the basis of excess traffic minutes, multiplied by half
the accounting rate (the accounting rate share, or settlement
rate). Net settlement payments have grown larger as traffic
flows have become less balanced, during the 1990s. ITU estimates
that, between 1993-98, net flows of settlement payments from
developed counties to developing ones amounted to some US$40
billion2. However, an increasing volume of traffic now passes
outside the accounting rate system (e.g., via the Internet), or
is routed in such a way as to exploit the least-cost route
between two end-points, which is not necessarily the most direct
one.
3. In order to adapt the remuneration system to the new, more
competitive telecommunication environment, and to respond to the
growing expectations of the international community, Study Group
3 started an overall review of the remuneration system as from
1991. The topic has
generated considerable interest and, over the past few years,
delegates representing more than 80 countries exchanged
opinions and participated actively in the meetings. The
following represent common objectives for the work:
- to develop general principles and guidelines for the
establishment of accounting rates;
- to determine cost components to be included in the
telephone accounting rates;
- to expedite work on developing appropriate costing
methodologies;
- to establish a transition period to avoid drastic changes,
particularly for the developing countries.
4. Based on the above objectives, Study Group 3 developed
ITU-T Recommendation D.140 on accounting rates principles for
the international telephone service. Five principles were
adopted; they are:
- cost-orientation of accounting rates and accounting
rate shares;
- application of the cost-orientation principles to all
relations on a non-discriminatory basis;
- implementation on a scheduled basis of one to five
years, if a transitional timeframe is necessary;
- periodical review of accounting rates;
- to survey and publish global accounting rates
movement.
5. Recommendation D.140 was first adopted in 1992, with two
annexes which contain the guidelines for the cost elements to be
taken into account when determining accounting rates and other
guidelines regarding the provision of information relating to
accounting rates. Later on, two more annexes were added to
facilitate the bilateral negotiation of accounting rates and to
recommend the reduction of the total accounting rate at least to
a level of 1 SDR per minute by the end of 1998.
6. With the adoption of Recommendation D.140, Study Group 3
expected a quick reduction of accounting rates towards costs.
Between 1992 and 1996, the worldwide accounting rates decline
was only 4 per cent per year, speeding up to a decline a 12 per
cent per year between 1996 and 1998. Available information
suggests that actual costs, in many countries, have been
declining at a faster rate. Some countries feel that the rate of
reduction in bilaterally negotiated accounting rates has been
too slow, and have taken other measures to ensure a more rapid
transition towards cost-oriented levels. Since 1998, the rate of
reduction has accelerated to more than 20 per cent per year.
Perhaps as much as half of all international traffic now passes
outside the accounting rate system. Since 1998 the number of
international voice circuits used for the Public Switched
Telephone Network has been in decline on the busiest routes, for
instance between North America and Europe, with private leased
lines, which are used for carrying Internet Protocol traffic,
now much more numerous.
7. With the adoption of WTO General Agreement on Trade in
Services by all WTO Members and Protocol 4 (the agreement on
basic telecommunication services) by many of them, those
governments which made commitments to liberalize their market
have seen an acceleration in the reform of accounting rates. In
more liberal countries, the accounting rate regime has been
superseded by a regime of facilities-based interconnection, on
many routes. In a majority of the ITU’s 189 Member States,
competition is not permitted in the provision of international
telecommunication services. But in those Member States where
competition is permitted, which account for more than
three-quarters of total traffic, telecommunication services are
more and more considered as a tradable commodity.
8. Study Group 3 continued its work on reform
of the accounting rate system and studied new remuneration
systems which better reflect the new telecommunication
environment. In December 1998, Study Group 3 made important
headway by approving a revision to ITU-T Recommendation D.150.
It agreed on three new procedures for remunerating the party
that terminates international traffic. One of these, the
termination charge procedure, allows governments or
operators (in ITU parlance, administrations or recognised
operating agencies) to establish a single charge for terminating
traffic in their country, provided the charge meets certain
multilaterally agreed criteria. The second, the settlement
rate procedure, allows them to negotiate cost-orientated and
asymmetric settlement rates, better suited to the new market
situation. The third procedure, between countries that have
introduced liberalization, allows any other bilaterally
negotiated commercial arrangement, which is more suited
to the nature of correspondents’ relations. Recognised
operating agencies will agree bilaterally on the remuneration
procedure that is most appropriate to their needs.
9. The adoption of three new remuneration
procedures can be regarded as a real breakthrough in the reform
of the accounting rate system and should facilitate the process
of market reform for the benefit of the whole telecommunication
community, and particularly for users. It is also expected that
the introduction of these new remuneration procedures will
resolve the long-standing issue of apportionment of revenues,
the rates agreed in using those procedures being, in principle,
asymmetric. However, the first two procedures are not expected
to be implemented immediately by all ROAs, as one of the
pre-conditions for their application is the achievement of
cost-orientated rates. To facilitate this task, Study Group 3 is
now developing the appropriate costing methodologies. The Group
viewed that agreement on a common costing model at the ITU level
was not realistic and ought to be abandoned. Even so, Study
Group 3 is now developing the basic principles to be observed
when developing a costing methodology and also some guidelines
for facilitating the accounting rate negotiation.
10. To assist developing countries in the
achievement of cost orientation, Study Group 3 has also
developed guidelines on transitional arrangements, as a new
draft Annex to Recommendation D.140. These guidelines were
intended to facilitate the transition towards cost-orientation,
and to help the early introduction of new remuneration
procedures.
11. However, at it’s meeting in December
1999, Study Group 3 was unable to approve these guidelines.
Study Group 3 decided to request the consideration of this issue
by the World Telecommunication Standardization Assembly
(September – October 2000) to be held in Montreal. In the
meantime, Study Group 3 decided to continue its study on the
adaptation of its recommendations to the market environment,
including the guidelines to facilitate the transition to new
remuneration procedures during the next study period
(2001-2004). Study Group 3 agreed that such guidelines should be
aimed, inter alia, at discouraging the imposition of
unilateral actions.
12. In addition, the regional Tariff Groups
made a number of useful cost studies related to the provision of
international telephone services. For example, a study realized
in March 2000 by the tariff Group for Asia and Oceania has shown
that, on average, the costs of providing international telephone
services still partly depend on the distance, and between
relations of less than 3000 km and those of more than 6000 km,
the difference of costs is about 6.8 per cent. However, distance
may also be correlated with other factors such as traffic
volumes. Where traffic flows are thin, unit costs tend to be
higher. This is confirmed by the fact that the study also showed
that, within the same country, the cost of terminating
international calls may differ by about 35 per cent, depending
on the origin and volume of traffic on a particular route, the
transmission media and the technology used.
13. It is to be noted that the secretariats of the ITU and
the WTO have collaborated closely on understanding the
implications of reform of the accounting rate regime for trade
in telecommunication services. For instance, a member of the WTO
secretariat has participated as an observer in Study Group 3
meetings and is currently serving on an expert group, appointed
by the ITU Council, to advise on reform of the ITRs. In March
1998, ITU hosted a World Telecommunication Policy Forum on the
topic of trade in telecommunications. Opinion A of that Forum
calls upon the ITU Secretary-General to work more closely with
the WTO and a draft co-operation agreement between ITU and WTO
is currently under consideration.
___________________
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1 The views expressed in this paper, which has been
prepared by the ITU secretariat and approved by the ITU-T Study Group 3
management team, are not intended to represent opinions or official positions
of the ITU or its membership.
2 See, for instance, analysis in
ITU/TeleGeography Inc.
“Direction of Traffic: Trading Telecom Minutes”, ITU, Geneva, October 1999,
347 pp, available at: http://www.itu.int/ti/publications/ | | | |
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