An Economic Model of International Interconnection

Douglas Galbi

An important decision that international carriers make is how much of
their traffic to send under the established international interconnection
arrangements (settled traffic) and how much to send under new
alternative arrangements (by-pass traffic). In general, the move to
competition in telecommunications in countries around the world, the
convergence of different media to digital signals, the growth of the
global internet, and the rapidly failing price of digital signal processing
are increasing the number of technical and market possibilities for
providing international voice communication services. The model
focuses on how changes in by-pass prices and proportional return
rules affect carriers' routing choices and social welfare.