Toward international settlement reform: FCC benchmarks versus ITU rates

The global telecommunications service market is undergoing significant change as more countries privatize suppliers, liberalize national markets, and encourage entry. Despite these changes, international settlement rates remain significantly higher than the cost to terminate calls and many carriers reap substantial monopoly profits from the settlement payments they receive. Annual US settlement payments approximate $5 billion. Settlement rates are declining but the progress has been slow. High settlement rates, by raising the cost of international telephone service, result in high calling prices. To accelerate a reduction in settlement rates, the US Federal Communications Commission (FCC) adopted a set of maximum rates, called benchmark rates, which it expects US carriers to use in their settlements with other carriers and created a process designed to insure the implementation of these rates. The FCC benchmark rates vary primarily on the basis of a country's level of economic development. When the FCC took its action, the benchmark rates, which range from 15 to 23¢, were significantly below the rates in effect with most countries. The FCC action was widely criticized even though the rates exceed costs, vary according to countries’ levels of economic development, and will be phased in over five years to give countries time to adjust. The International Telecommunication Union (ITU) took an unprecedented step of proposing an alternative set of settlement rates for its members. The ITU rates differ significantly from the FCC rates, being much lower for economically advanced countries and significantly higher for less developed countries. The ITU rates vary according to a country's teledensity but the rationale for the ITU categories lacks support. In addition, other, arbitrary categories are part of the plan. Neither the FCC nor the ITU approach to reducing settlement rates address the problem of reforming the international settlement process and replacing it with an economically efficient, market oriented payment scheme. The first stage of the FCC policy went into effect in 1999. Complemented by changing market conditions, the policy has lead to lower US settlement rates, but most rates still exceed competitive market levels. Virtually all US minutes in the FCC's top two income categories comply with the prescribed benchmark rates. In fact, many countries in these two categories have rates with US carriers that are below benchmark levels. Several less developed countries have also negotiated rates with US carriers that conform to the FCC plan. As a result, US carriers benefit from the FCC policy as their average settlement costs decline. These cost reductions make possible lower calling prices but the market structure of US international communications service industry may inhibit the flow-through of these savings to US consumers. US consumer's prices were falling before the FCC acted on settlement rates. The FCC action seems to have increased the pressure to further reduce these rates. At the same time, however, service markets are being increasingly segmented and price discrimination is more widely practiced so only some US consumers benefit from lower settlement rates.     

Rural telephony since divestiture

This paper determines whether local rural telephone rates have increased as well as whether rural rates have increased more or less than other telephone rates since the divestiture of AT&T. Also, examined are long distance rates, penetration levels and subsidization in rural telephone markets in an attempt to ascertain whether universal service is in jeopardy in rural areas.The author would like to thank Erwin A. Blackstone, Gerald Faulhaber and Alfred E. Kahn for their helpful comments.     

Prospects for video telephony

Noll overstates the case for the failure of video telephony. This paper reviews research on the use of video in business and at home. Improvements in algorithms, costs, standards and data transport are overcoming technological barriers. Recent field trials show sustained use of video phones and the emergence of novel applications that extend the medium beyond conventional interpersonal communication, including the use of video as data, to access multimedia services and to sustain organizational awareness. In residential settings the dominant use of video telephony is likely to be for routine social calls, for which video is especially suited.     

Quantifying price-driven wireless substitution in telephony

For the better part of a decade, a non-trivial and steadily increasing share of households in the United States has come to rely exclusively on wireless technology for their voice communications needs. Aggregate data show clearly (1) that the share of wireless-only households has risen steadily in recent years; while (2) the price of wireless service has fallen substantially relative to traditional landline service. The aggregate data are therefore consistent with the hypothesis that wireless/wireline cross-price elasticities are positive and economically significant. However, econometric corroboration of this conjecture has proven elusive in the existing empirical literature, which has relied on datasets compiled at the turn of the millennium, when wireless substitution was very limited. Partly in response to this dearth of econometric evidence, regulators and competition authorities in the US have generally been reluctant to conclude that wireless voice service represents a meaningful economic substitute for traditional wireline telephony. In the absence of reliable econometric estimates, even the sign of the relevant cross-price elasticities is an open question: The majority of US households maintain both a landline and at least one wireless connection, so it is unclear, ex ante, whether the two services are substitutes or complements. Thus, it is critical to identify consumer behavior at the margin. Using state-level panel data from a relatively recent time period (2001-2007), this study develops and estimates a demand system that permits evaluation of the own-price, cross-price, and income elasticities of demand for wireless and wireline telephony in the United States. A one percent decrease in the price of wireless service is estimated to decrease the demand for fixed-line service by approximately 1.2-1.3%, and the parameter estimates imply that the Slutsky symmetry holds for the demand system. These results substantially exceed prior econometric estimates from the existing empirical literature, and provide evidence that wireless voice service has evolved into a strong economic substitute for traditional landline service. The parameter estimates from the demand system suggest that roughly two thirds of observed landline attrition in the United States over the sample period is attributable to the observed decline in the relative price of wireless service.     

The future for telephony in Japan

Discussions about the future of telecommunications tend to focus on data transmission, facsimile or video communication, rather than on traditional telephony. However, the importance of telephony in society will remain unaffected for the next few decades, and it has many aspects which need attention. In this article, the share of telephones in the public network, present and future, are first reviewed, with an examination of telephone traffic growth. Second, technical possibilities for improving telephone service are pointed out. Finally, the author discusses the benefits of the evolving digital network for telephone subscribers.     

Prices for long-distance voice telephony in Germany

This paper examines the first 16 months of competition in the German market for long-distance voice telephony on the fixed network. It concentrates on price level and price structure. Competition induced by the entry of both network operators and switch-based service providers decreased the price level substantially. Furthermore, after initial attempts to design innovative price structures, most firms gave up differentiation, and instead charged uniform prices for long-distance calls for residential customers. Moreover, the decrease in the price level seems to have induced a shift in the peak-load structure, which raises concern about the regulation of the peak-load structure of interconnection charges.     

Internet telephony and the international accounting rate system

This paper attempts to provide an economic framework for assessing why and how Internet telephony may affect the international accounting rate system in particular, and communication over circuit switched networks in general. It reviews the regulatory treatment of Internet telephony, and compares the costs and prices of making international calls over the Internet and the public switched telephone network (PSTN). It argues that Internet telephony is unlikely to prove central to the downfall of the international system; other technologies, such as resale, will play a larger role. The paper also suggests a general framework in which to analyse competition between networks (such as the Internet and the PSTN). This framework indicates that differences in the preferences of end users for congestion will drive networks to specialise.     

Competition in a pure world of Internet telephony

From the angle of competition policy, voice-over IP looks like a panacea. It not only brings better service, but it also increases competitive pressure on former telecommunications monopolists. This paper points to the largely overlooked downside. In a pure world of Internet telephony, there would be no charge for individual calls, nor for telephony, as distinct from other services running over the uniform network. Specifically, establishing property rights for either of these would be costly, whereas these property rights were automatic and free of charge in switched telephony. Giving voice-over IP providers classic telephone numbers would enhance systems competition with switched telephony. But this would make it more difficult for clients to swap providers. The anti-competitive caller-pays principle would extend to IP telephony.     

Internet telephony: Costs,pricing, and policy

This article analyzes Internet Service Provider costs and regulatory and policy issues raised by Internet telephony. Transport and non-technical items such as customer service, sales and marketing, represent a substantial portion of an ISP’s costs with Internet telephony. Pricing models and yield management techniques supporting Internet voice services might be employed for other Internet differentiated services as well. An integrated regulatory framework will be required, because of convergence, to formulate policies for multimedia services. We conclude that governments should develop appropriate policies without introducing economic and technical distortions into the nascent Internet telephony market.     

Lessons from the deregulation transition in Chile's local telephony market

There is no experience in the world where entry to local telephony has been as significant as in Chile. This paper addresses two related questions: (i) whether the local telephony segment in Chile is competitive enough so as to deregulate rates and (ii) whether competition thus far achieved could be at risk in the case where asymmetric regulation is ended. The paper suggests that the market is competitive enough, that the regulation mechanism is extremely costly, and that subsidizing entry in order to have infrastructure competition is not necessary. It concludes that deregulation of consumer's rates would be in their own consumers’ interest.     

Diffusion of mobile telephony: Analysis of determinants in Cameroon

This paper explores the diffusion of mobile telephone technology in Cameroon by identifying and analyzing the determinants of this diffusion. Studying the diffusion of mobile communications in African countries by integrating them into panels of developing countries is problematic. This approach is likely to mask the intrinsic differences as concerns the diffusion process. This survey shows, through the estimation of an S-shaped growth curve, that the Logistic model best describes the diffusion of mobile phone technology in Cameroon. Income, openness to competition and the use of SMS are key forces driving this diffusion. Forecasts indicate an increase of almost 70% in the demand by 2026 as far as mobile phone use in Cameroon is concerned. This implies not only an improvement in operators' and State's revenues, but also, the need to invest in infrastructures. Our recommendation therefore calls for a greater liberalization of the mobile phone market in Cameroon. In addition, given the complementary relationship between the core and the mobile networks, infrastructural investments are also needed in both sectors.     

Diffusion of mobile telephony: An empirical study in Taiwan

Mobile telephony penetration is a major indicator of mobile telephony diffusion. Taiwan had a mobile telephony penetration of 108% in 2002, ranking first in the world. This study analyzes this accelerated diffusion in terms of growth model and determinants of the diffusion rate. To eliminate the inherent uncertainty associated with choosing the optimal growth model, this study compares the performance of three conventional models, namely Gompertz, Logistic and Bass, to identify the most appropriate model, and to distinguish the forces driving the diffusion rate. Empirical results indicate that the most appropriate model is the Logistic model. Network externalities, which this study shows to be the same as the imitation effect in the Bass model, explain the superiority of the Logistic model. Moreover, market competition, which markedly reduces service prices, is identified as a primary driver of the diffusion rate of mobile telephony in Taiwan. Economic conditions, technological innovation and number of operators are insignificant factors. Finally, mobile telephony is a substitute for fixed-line telephony in Taiwan.     

Diffusion of digital mobile telephony: Are developing countries different?

Factors determining the diffusion of digital mobile telephony across developed and developing countries are studied with the aid of a Gompertz model. After controlling for other factors, the speed of diffusion per se is not significantly different between the two groups of countries. Standards competition hinders and market competition promotes diffusion in both groups. Various factors are, however, more important in a developing country context: having a large potential user base, accumulating network effects, being open, commanding a high (non-telecom) technological level, and introducing innovation(s) complementing mobile telephony. Late entrants experience faster diffusion promoting cross-country convergence.     

Falling through the cracks: International accounting rate reform at the ITU and WTO

Heightened attention to international accounting rates at the ITU and the WTO has led some observers to conclude that carriers soon will impose cost-based termination charges. This article concludes that while accounting rates have declined on some routes, many incumbent carriers can and will delay or thwart progress. The article examines the FCC's unilateral regulatory initiative as evidence of a growing schism between governments keen on immediate progress and those that fear a ‘free fall’ in accounting rates and a quick end to settlement surpluses. The article also considers technological innovations like call-back and Internet telephony with an eye toward assesssing whether and how widespread accounting rate reductions will occur.     

Extended revenue forecasting within a service industry

Revenue forecasting is an important topic for management to track business performance and support related decision making processes (e.g. headcount or capital expenditure). It focuses on how a business recognises operating revenue, which can differ from the point at which a sales order is won. Whilst there are many publications detailing forecasting theory, in a business context these largely focus on sales order recognition alone.This paper describes the development of a revenue forecasting tool appropriate for service provision. The organisation involved in the development of the revenue forecasting tool will remain anonymous for commercial reasons but will be referred to as “Organisation A”. The targeted outcome was to extend the forecast window from one month to three months with an error rate of no more than ±10%. The tool was required to consolidate supporting data, adopt appropriate analysis/projection techniques and extend the forecast window in a specific and complex business environment.The resulting tool returned high level results that were aligned to the original targets, and was developed with three components using a combination of projection approaches appropriate to the operating environment. Whilst limited to a specific service industry as a trial, the paper provides a useful reference point for revenue forecasting in complex service businesses and provides a basis for further research opportunities for extended revenue forecasting and business analysis approaches within other service industries.     

Modelling and forecasting national introduction times for successive generations of mobile telephony

An accurate prediction of the timing of a country's introduction of a new generation of mobile telephony benefits numerous agents including suppliers of network and consumer equipment, regulators, and network planners. We consider the estimation and prediction of the time interval between the international introduction of a generation of mobile telephony and its introduction into a specific country when a decision maker judges the introduction of a newer technology a worthwhile investment. Using literature-based socio-economic and geographical variables, we examine how well variation in international introduction times of four generations of mobile telephony in 172 countries can be explained and forecast. We model and forecast introduction times at two levels of granularity: we use Cox's proportional hazards model for the introduction time; we partition countries into introduction time-based segments and model segment membership using multinomial logistic regression. Our modelling of each generation considers three subsets of explanatory variables: All variables, socio-economic Covariates only, Regional dummies only. Over successive generations, the Covariates only models reveal the changing relevance of each socio-economic covariate. Model-based forecasting of the introduction time of the next generation is performed under three hypotheses making different uses of the information available at the time the relevant generation is launched internationally. However, changing socio-economic environments coupled with changing models impair forecasting accuracy, the lower accuracy of modelled introduction times is concentrated in 20% of countries. We speculate about the nature of the unobserved factors affecting these countries' decision processes.     

Regulating prices in two-sided markets: The waterbed experience in mobile telephony

The distinguishing feature of two-sided markets is that the pricing structure, that is, the relative prices charged to each side, matters. Regulators need to understand and account for the interdependence of prices in both sides. Some interventions that lower the prices on one side can result in higher prices on the other side of such markets. This article reviews the recent literature analyzing this waterbed phenomenon in mobile telephony and draws some more general lessons for policy interventions in two-sided markets.     

税收流失现象浅析

税收流失已经成为我国税收领域的一项顽症,减少了国家的财政收入,严重干扰了正常的税收工作和社会经济生活秩序。本文对税收流失的概念、形式、现状和产生税收流失的因素进行了简单的分析,并提出了治理税收流失的初步措施。