Falling Through the Cracks: International Accounting Rate Reform
at the ITU and WTO

Rob Frieden Associate Professor, Penn State University

International telecommunication carriers negotiate operating
agreements setting out the general terms and conditions under
which they will match circuits and terminate traffic. The
operating agreement establishes an accounting rate ostensibly
reflecting the total cost incurred in linking call originator
and recipient. Carriers infrequently renegotiate their operating
agreements and many perceive an opportunity to capture
supracompetitive rents and erect an artificial barrier to market
entry by maintaining rates at levels well in excess of cost.
While accounting rates have declined on some routes--particularly
ones where facilities-based or simple resale opportunities
exist--overall the rates have not significantly declined despite
increases in traffic volumes and reduced costs. Carriers generating
less traffic than they receive have an incentive to keep
accounting rates high. International telecommunications and
trade policy forums have ignored the accounting rate issue until
quite recently. These forums can no longer afford to do so, because
high accounting rates have stimulated arbitrage and avoidance
strategies that have started to migrate significant traffic volume
and revenues from incumbent carriers. Without operating agreements
and often without legal authorization, new ventures provide callers
in high cost areas with outbound calling capability that appears to
originate from areas with lower costs. Callback services, leaky
PBXs, switched hubbing, refile and a variety of other techniques
makes it all but impossible for nations to prohibit entrepreneurs
and end-users from routing traffic that avoids an accounting rate
settlement, or incurs lower charges than regular dial-up calling. This paper will report on consideration of accounting rates and avoidance/bypass strategies like callback by forums operating under the aegis of the International Telecommunication Union and the World Trade Organization. The paper concludes that traffic and revenue migration, tactics that continuously occupy transmission capacity at no cost, e.g., call bombardment, and unilateral efforts by the FCC to set accounting rate benchmarks will create increasing pressure on international forums to address the issues on a comprehensive basis. The paper also concludes that self-help strategies by end-users will create increasing momentum for eliminating the accounting rate regime and replacing it with cost-based access charges. Rob Frieden, Assoc. Professor College of Communications Penn State University 814-863-7996; e-mail rmf5@psu.edu ------------------ RFC822 Header Follows ------------------ Received: by ei.com with ADMIN;26 Mar 1997 14:39:09 -0500 Received: from r02n02.cac.psu.edu ([146.186.15.12]) by mail.ei.com (Netscape Mail Server v2.0) with ESMTP id AAA161 for <tprc@ei.com>; Wed, 26 Mar 1997 14:34:03 -0500 Received: from Telcom1.soc.psu.edu ([146.186.150.40]) by r02n02.cac.psu.edu (8.7.6/8.6.12) with SMTP id OAA77746 for <tprc@ei.com>; Wed, 26 Mar 1997 14:35:25 -0500 Message-Id: <199703261935.OAA77746@r02n02.cac.psu.edu> X-Sender: rmf5@email.psu.edu (Unverified) X-Mailer: Windows Eudora Version 1.4.3 Mime-Version: 1.0 Content-Type: text/plain; charset="us-ascii" Date: Wed, 26 Mar 1997 14:37:19 -0500 To: tprc@ei.com From: rmf5@email.psu.edu (Rob Frieden) Subject: Paper Proposal Two