The market for international long distance telephone services

The market for international long distance telephone services


Major Players and issues

The market for long distance telephone services is understandably complex. We are dealing with a large variety of telecommunication companies, various national and international regulatory agencies, a plethora of equipment manufacturers and developers, and a large and diverse consumer base.

In the United States itself we have to contend with long-distance service providers such as AT&T and MCI, local telephone access providers (the baby Bells, Competitive Access Providers, cellular service providers), virtual private networks and calling card companies among others. Most other countries have fewer players, often only one state-run or licensed telecommunication enterprise. What we are presented with is the semi-competitive US market, the largest in the world, and largely monopolisitic markets in other countries.

This paper is largely concerned with the way in which these markets function and in the manner in which these players interact with each other. The issues I will handle can be grouped into four sections:

  • Pricing structures for traditional service, an analysis of the effect of termination or accounting charges.
  • Competition amongst traditional service providers, comparisons between deregulated and regulated environments.
  • Competition from non-traditional markets such as calling cards, call-back services, local resale, Voice over Networks and virtual private networks.
  • Concluding remarks on future developments I anticipate in these markets.

Pricing long distance telephone calls

When attempting to evaluate a pricing mechanism for international calls one runs into problems almost immediately. Any survey of the market reveals that various competing providers have graded scales of rates which they charge their customer. Often a customer faces various options, or plans, with each of them containing a separate set of charges for each country called. Some of these plans have a flat fee per month that must be paid by the customer, others do not. Some plans apply to a limited set of numbers or particular countries, other plans apply to all calls a customer makes. Finally there are different rates for calls made during business hours and those made after business hours or on weekends.

The last discrepancy is perhaps easiest to explain. Each long-distance copany has a fixed capacity of lines, it would appear to be rational to price discriminate so that this scarce resource is used for the most-valued purposes when there is the greatest demand for it. Similarly, lower demand during weekends would generally lead to excess unutilized capacity unless consumers were offered lower prices during these periods.

The variety of plans are a little more difficult to evaluate since each of them operates under a different principle. One common factor appears to be the transaction costs the consumer faces while enrolling in one or the other plan. Consumers who do not invest in keeping abreast of the plans they are enrolled in and those the long distance service provider introduces would appear to face higher percieved transaction and discovery costs than consumers who do keep themselves well informed.

[charts of various plans offered by the companies]

We are not, however, immediately concerned with the retail costs of long distance calls. Rather, the assumption shall be that in the competitive environment faced by US long distance companies prices reflect costs. This would appear to be borne out by the similarity between the prices charged by the three largest long distance companies.

[Insert charts here, of costs etc.]

The long run average costs of service do not actually amount to very much, for most countries they average between 20-30% of the price paid by the consumer. The major component of long distance rates is the termination charge levied by the local telephone company in the foreign country. Since consumers in the US face substantially lower prices than their counterparts in other countries, their demand for telecommunication services is higher than that in other nations. There are undoubtedly other causitive factors as well, not least among them being the relative wealth of the US and greater access to telecommunication services (phones per user table?). The discrepancy in prices between various nations for what is essentially the same service (a call from the US to Poland is identical to a call from Poland to the US) is generally explained by the difference between the market in the US and that in other countries. In 1992, only 9 countries were found to have a competitive market for switched international telephone services, and a few others had different carriers for different routes, most of the remaining countries had only one telecommunications company which provided both local and long-distance services, in most cases this was a highly regulated enterprise, often owned in whole or in part by the government.

The monopoly power exercised by foreign telcos permits them to charge relatively higher rates than their US counterparts. Since business lost to US telcos is compensated by termination charges they recieve from the US, this would appear to be a win-win situation for the foreign telcos. This does not, however, translate into a socially desireable structure. Though it would appear on the surface that US consumers are paying for the operations of foreign telcos, the monopolies across the border do have negative effects in their own nations.

The most prominent of the negative effects must be the general inefficiency of a monopolistic enterprise. Waste thrives in an environment where the discipline of the market is not enforced. The actual cost of long distance voice communication is much lower than the charges levied by most providers in foriegn countries. Revenues from the long-distance services are used to subsidize other sectors of the telecommunications industry, or even totally unrelated state operations. Most often revenues are used to subsidize telecommunication services in rural areas. Though the value of a network increases with the number of people connected to it, these subsidies send inappropriate signals to consumers wishing to purchase long-distance services. This argument is particularly difficult to make when we note that a very large portion of the accounting rate settlements by US companies are made to telcos in developed countries with high teledensity.

As we shall see later in this paper, these attempts at maintaining such a structure is bound to fail as non-traditional voice communication begins to compete with traditional services. By tampering with the price structure, a system that over-prices long-distance communication affects the decisions made by a variety of its consumers. Such effects could include

  • Less than optimal usage of international voice services by local entreprenuers
  • Various informal arrangemenets to circumvent charges.
  • A competitive disadvantage for local traders who lack access to communication services.
  • Real resource losses as decisions are made taking the inaccurate charges into account, rather than long-run costs.

Monopolies, or “socially just pricing” of telecommuniction services, it would appear, affect many other aspects of the economy. In particular, entreprenuers who use international telecommunications services would find themselves at a competitive disadvantage when their only option for such services is a telecommunications monopoly. Competition in the telecom sector would have significant spill-over effects for various other industires.

Termination charges paid to foreign telcos are generally not a concern when evaluating the benefits of competition to the domestic consumer because foreign consumers typically pay much higher rates for similar service. Though US carriers do pay significant sums to foreign telcos for the final portion of an international call, foreign consumers often find themselves paying two to three times what US consumers pay. Since termination charges are effectively applied to the difference between incoming and outgoing traffic, foreign telcos cannot lower their rates without reducing revenue from accounting charges paid by US telcos. The result is not a transfer from US consumers to foreign telcos, but a much more significant transfer from foreign consumers to foreign telcos.

There are a variety of justifications for the bloated prices charged by foreign telcos for international service. One of the most common is an appeal to a form of tax on the “luxury” good that is international telephone services. The assumption is that international service is a “non-essential” commodity largely utilized by the upper class. Since most foreign telcos are state run enterprises, the government that supports such a price structure is effectively putting in place a tax on international telephone services. It is important to keep in mind that the opaque nature of such a tax makes it doubly valuable for the government. The costs of these taxes are effectively hidden in that they take the form of lost opportunities (to conduct business with persons in other countries or to speak to friends and relatives abroad), while the “benefits” are supposedly apparent. These take the form of “conservation” of a scarce luxury, subsidies to other areas of the telecom industry etc. The biased nature of cost-benefit analysis in this case may lead one to accept such a price structure since its true costs are unknown.

Most of the costs of these taxes result from the incorrect price signals sent to consumers. Consumers are not aware of the real resource cost of these services, and can only arrive at an estimate from the price they pay for them. When this price is inflated by government intervention, consumers use less of these services than they would otherwise do so. This reduced usage not only constitutes a direct utility loss (in real terms), but in the case of business transactions can have very far-reaching events. Even social conversations can have wide-ranging effects if they involve the movement of knowledge and information that would otherwise not be available. Lower levels of communication between one country and the rest of the world are, in an age where information is the most valuable commodity traded, liable to impoverish that country since their effect is most concentrated there.

A variety of justifications have been put forward to justify an activist stand by the UD govenrment towards foreign states unwilling to open up their telecom markets to US firms. Among these justifications are speculations on the cost of monopolistic telcos to US consumers, the spurt to the US telecom industry that would be a result of open telecom markets the world over. I would like to examine these propositions briefly [most notably those made in “The US stake in Competitive Global telecommunications”, by John Haring, Jeffrey H. Rohlfs and Harry M. Shooshan III; paper presented at 1994 Telecommunications Policy Research Conference and published in “Toward a Competitive Telecommunication Industry”, ed. Gerald W. Brock; Lawrence Erlbaum and Associates Inc., 1996].

The claim is that US consumers are paying for the operation of foreign telcos when they choose to make calls to a particular country. Since US operators generally have more outgoing minutes than incoming, they end up paying a significant amount in termination costs each year to a variety of operators in different countries.

[plug in table from DIRECTION OF TRAFFIC here]

For a number of foreign operators, this revenue forms a substantial portion of their total revenue from telecom operations. In fact, this revenue is considered so important in some nations that steps are taken to supress outgoing traffic. While realizing that the reason US consumers pay such inflated prices is the non-competitive structure of this market, I would suggest that we must also bear in mind that US consumers are comparatively much better off than users in other countries. For a comparable or worse level of service, foreign users often find themselves paying two to three times what US consumers pay for long distance calls. One of the solutions to this problem would be a revamping of the entire termination costs system. The largest cost to the operator is generally the cost of making the connection or switching the call, the actual duration of the call is not as important a determinant of cost. One suggestion is that this be taken into account for any future reciprocal agreement and termination costs be structured so that there is a large cost for the actual completion of the call (which is what one would expect from the term “termination cost”) and a smaller incrimental charge based on the duration of the call. This would permit a cost based price structure with the incrimental charge acting as a floating price to incorporate the use value of the service.

Though Haring et. al. do not suggest retaliation in the form of completely closing the US market to new entrants, they do suggest that US policy-makers push for more competitive foreign markets for US telcos. The argument is couched in the general vocabulary of “creating jobs” and “raising US GDP”. Haring et al do not point out that US telcos, as a result of operating in a highly competitive environment, are steadily outstripping foreign telcos in new technologies and efficiency. The fear that foreign telcos might be able to gain competitive advantages if permitted to operate in the US is largely unfounded. If, as Haring suggests, US telcos are much more efficient that foreign telcos used to operating as monopolies it is difficult to imagine a scenario where a foreign telco might be able to out-price a US telco. If foreign telcos do decide to use a combination of local resale and agressive marketing for limited service (i.e. service to their country alone), they may be able to provide service at lower cost by cutting into their revenues from termination charges US telcos would otherwise have paid. Such a situation would be unprofitable for the foreign telco and favourable for US consumers. Essentially, I do not see such a situation developing in the near future.

What I do expect is a steady increase in the technological abilities of telcos operating in competitive markets (i.e telcos in approximately 10 countries) which will stand them in good stead when the global telecom market finally does become competitive. Meanwhile, though US consumers are in subsidising the operations of foreign telcos (to a certain degree), their counterparts in non-competitive markets are in a worse position, where charges are 2 to 3 times as high. In both cases, these subsidies may have value to the consumer if they are being used to expand the local telephone network (the value of a network increases with the amount of people accessible through it).

Another factor to be taken into account is the presence of VANS (value added network service). VANS are private communication networks, most often utilizing dedicated lines, that are used by large corporations and consortiums to facilitate communication. The costs faced by corporations that operate VANS are typically much lower than those they would face if they used Public Telecommunication Operators (PTOs). This suggests that the system of accounting rates and over-priced long-distance services affects small and medium sized businesses, and residential consumers than it does the larger corporations. We shall see further how VANS combined with other ingenious communication structures might affect the future of competitive markets in global telecommunication.

A large portion of international traffic is between emigrants and their native country. Cultural factors influence calling patterns and we find that emigrants make more calls to friends and family in their home country than their friends and family do to them. This is partly a result of social factors which compell those away from home to initiate communication to those who are still there, but is also influenced by immigration patterns across the globe. Most immigration today is to the developed countries in the north-west, with immigrants coming from relatively poorer countries. The increase in living standards that accompanies such immigration obligates the immigrant to bear the costs of communication, if there is to be any voice communication at all. Similarly, these developed countries (most notably the US) often have a competitive telecommunication sector and prices tend to be lower. These factors together influence the flow of voice traffic so that its volume is greater in the direction of the native country than from it.

When we consider that a large number of people calling a particular country are recent emigrants, we can see that the accounting rate system and a monopolistic telecommunication sector is used to tax not only residents of the country itself, but its emigrant population as well. In essence the effect of these price structures is that emigrants (and in places like the middle east and asia these are often unskilled labourers) transfer a portionof their income to the governments of their native countries.

As can be seen from the discussion above, the market for switched international long distance telephone services is particularly convoluted and the presence of monopolies in various nations has wide ranging effects. The rest of this paper will examine the emergence of alternatives to switched service provided by PTOs and how this will change the telecommunications industry.

Competition from new markets

Increasingly, Public Telecommunication Operators (PTOs) operated switched long-distance services find themselves competing with a variety of other providers using different billing and service paradigms to provide international long-distance voice and data communication facilities.

A few services of particular note are:

  • VANS
  • Calling card facilities
  • Call-back programs
  • VON (Voice over Networks)
  • Roaming arrangements for cellular customers
  • Third party billing and collect calls
  • Local resale, call re-origination or direct calling

To understand the paradigm shifts PTOs are facing we need to examine each of these alternative services and their particular advantages and disadvantages.


VANS, or Value Added Network Services are communication networks operated by large multinational coporations and organizations to facilitate voice and data communication between their offices or members. Some examples of such networks are SWIFT (Society for Worldwide Interbank Financial Telecommunications), SITA (Société Internationale de Télécommunications Aéronautiquea), SABRE (Semi-Automated Business research Environment) IBM’s global network, General Electric’s Information Services, AT&T and Sprint, and Infonet, Concert and Unisource (each of them owned by a consortium of PTOs). Each of these networks serves as a web of communication protocols for its owners, and is used for different purposes. SABRE is the largest privately-owned network and serves airlines, hotels and travel agents wishing to make reservations, almost all the traffic on SABRE is data. AT&T, Sprint and IBM provide services to a variety of corporate customers, carrying both data and voice all over the world.

As telecommunication markets open, VANS operators will find themselves able to compete with PTOs to provide service to individuals. VANS have the requisite experience to operate large, distributed networks and can pose a formidable threat to PTOs that are unable to expand beyond their nation’s borders. VANS have also long provided their corporate customers with special network services and are capable of providing access tothe latest technology including ISDN (Integrated Services Data Network) and ATM (Asynchronous Transfer Mode) networks. If local resale is permitted in a particular country, it would be simple for a VANS subsidiary (or customer) to begin marketing a service that is the equivalent of a PTOs switched long distance service. In fact this is already the case in the US and UK with a plethora of small companies offering voice communication facilities to individuals over under-utilized networks. The opportunities for arbitrage are greater in a market with one PTO and inflated charges.

Calling Card Facilities

A large number of PTOs now offer their customers calling cards that can be used almost anywhere in the world to make a telephone call. In a telecommunications market with a monopoly in the international calling market, the savings to consumer using a calling card can be quite significant. Calling cards also provide the benefit of itemized billing at one address in one currency. Pre-paid calling cards are offered by a number of small operators as well. Calling cards tend to be used by travellers and tourists though they are increasingly being used by local consumers in countries with exceptionally high international rates.

A calling card call depending on the PTO maintaining the account can be accounted on either side of a bilateral termination charges agreement. Most often we find operators in competitive markets offering calling cards to their local clientele to be used in foreign markets. This will usually have the effect of raising a disparity in incoming and outgoing traffic.

Call-back programs

Call-back programs work in a variety of ways, but are generally similar in operation. A customer in one country calls a number in another country and generally waits for a period of time and then hangs up. An automated switch-board then calls-back the customer and she is presented with a foreign dial-tone. The consumer can then proceed to call a party assured that she will pay rates determined by the call-back operator, not the monopoly running switched international serivce for her local region.

Call-back operators have been much maligned by monopolistic PTOs whose markets they have cut into. In particular, the Phillipine government has gone to the length of banning all call-back services operated in other countries providing services to its residents. Such a response would be rather surprising if one operated from the reigning orthodoxy that monopolistic operators are largely unconcerned with their own markets, but rely heavily on accounting charges paid by foreign telcos. In this case it would appear that Phillipine telecom is concerned about the loss of business it is incurring. We can see why this is so. The local telco that charges twice or thrice as much as a foreign operator faces the following scenario when it finds its market being eroded by a foreign telco (whether it’s operation a call-reorigination, call-back, calling card or other service). It loses revenue from the localmarket, but receives an accounting charge for the added incoming calls (which may be a greater volume than the corresponding reduction in outgoing calls, since consumers face a lower price). The revenue from the accounting charge is bound to be less than the price charged by the foreign telco, which would translate into less than one half or one third of the local price (assuming local charges are 2 to 3 times as much as the foreign telco’s). Unless the local currency is heavily over-valued at the official exchange rate, ot the local government is facing a foreign exchange crisis, this situation is highly undesireable.

In addition, the local telco faces the cost of uncompleted calls to the call-back server, which would wear down switches. The largest component of the real resource cost of a telephone call is the cost of switching. In essence both telcos, foreign and local are bearing the cost of all these uncompleted calls, but the foreign telco may be able to recover them from the call-back operation, but thelocal telco will not be able to unless it charges for unanswered calls.


VON, or Voice over Networks is a relatively unexplored form of voice communication. It essentially envolves two computers connected to a large computer network (most often the Internet). If both computers are running VON software, their users can speak to each other over the Internet. Von software essentially waits for a pause in the speaker’s conversation, creates a data packet, compresses it and then sends it to the remote computer. The computer receiving the packet of data will then uncompress it and reconvert it to sound which is then sent over the computer’s speakers. Since the Internet uses high-speed dedicated lines to facilitate data transfers, it all but bypasses the PTO’s switched long distance service. A person using VOn software to communicate often pays only for the cost of a local call to her Internet Service Provider and operating the VON software. If the conversation is carried out during off-peak hours the delay is largely unnoticeable, though greater than over a dedicated voice line.

VON poses a threat to PTOs and all long distance service providers in general. It circumvents the entire long-distance telephone network, relying only on local calls. Since VON is such a formidable technology, it is not surprising to note that ACTA (America’s Carriers Telecommunication Association) recently filed a petition with the FCC (Federal Communications Commission) against software companies selling VON capable software. ACTA claims that the proliferation of VON software will jeapordize the Internet’s ability to carry ever-increasing amounts of data. ACTA’s petition further claims that the FCC has jurisdiction over the Internet and must, in the public interest, regulate Internet activities.

ACTA submits that it is not in the public interest to permit long distance service to be given away, depriving those who must maintain the telecommunications infrastructure of the revenue to do so, and nor is it in the public interest for these select telecommunications carriers to operate outside the regulatory requirements applicable to all other carriers.

From ACTA FCC PETITION, March 4, 1996 ( It is quite interesting to note that it is ACTA, an association of PTOs and telephone equipment manufacturers that has put forward this petition rather than the Internet Service Providers (ISPs) whose services VON will supposedly jeapordize. Contrary to ACTA’s claims, VON service is not “given away”, it is purchased by consumers who wish to use it from ISPs willing to provide them such facilities. Similarly, contrary to ACTA’s claims, consumers do pay for local calls to their providers and are not in a position where they “incur no other charges for making local or long distance telephone calls to any other ‘Internet Phone’ user in the world (except for whatever the user already pays mothly to whomever provides them Internet access)”. In fact the average VON user will face a local charge when connecting to her ISP, often this is a flat fee independent of the duration of the call. The flat fee local calling rate is a pricing policy implimented by regioanl telephone companies unwilling to bill for local telephone calls by duration when the largest cost involved is the use of a switch, an operation performed once whenthe call is put in place. If the user is utilizing an ISDN or ATM network to connect to her service provider (ensuring higher speeds), she is paying for the duration of the call.

ACTA’s complaint is based on the premise that VON is equivalent to telephone service and therefore can be regulated by the FCC. This claim is problematic for a variety of reasons, among them are:

Software vs. service
The ACTA complaint is aimed at software authors, not Internet Service Providers. As such, software that facilitates voice communication is simply a tool or part of the equipment a person may use (rather like a telephone), though the FCC does have some jurisdiction over communication devices the role it is being asked to play here is that of a service regulatory agency and it is unclear as to what exactly the service is that the FCC might regulate.
Multiple uses of the Internet
The Internet is a packet switched network, in essence it is a set of protocols and communication links that transport data from one loation to another. Whether the data is text, voice, visual or a combination of these is largely irrelevant to the network (though it has different implications for network usage statistics). If the FCC does intend to regulate VONs, it will have a difficult task isolating “VON operators”. This is largely because there are no exclusive VON operators (as yet). VON capability is used by a small number of ISP customers as part of a larger package that involves the bundling together of many services.

There are a number of reasons why long-distance service providers would like to see VON software distributors regulated by the FCC. One of the most obvious reasons is the one laid out in the ACTA complaint, it seems “unfair” that telcos are regulated by the FCC, but a service that is essentially a substitute for long-distance voice communication remains unregulated. One of the motivations for such a feeling may be a result of the closed nature of the long-distance market. There are essentially a limited number of companies operating in the especially lucrative market of long-distance communication. Despite the series of deregulation in the US market, the market is largely limited to three companies providing comprehensive service (AT&T, MCI and Sprint) and a number of smaller firms providing long-distance service to a particular region or country. One of the reasons for such a structure is the termination cost regime that governs international voice communication. It is not possible for a small firm to negotiate agreements with a variety of local network operators in 200 odd countries around the world. The structure we see emerging is one where most consumers use the big three and a rather small set of consumers rely on smaller providers.

The situation is even worse in other countries, most of whom do not have more than one service provider. VONs bypass the entire problem of termination costs and exclusive arrangements with local operators in foreign countries. The ACTA suit is the first instance of its kind in the world but that is only because US consumers have access to technology consumers in other countries do not. As VON services become popular it is to be expected that telcos in other countries will respondin a similar manner, in some cases requests to regulate VON service will not have to pass through a government agency since the PTO itself is the regulatory agency.

There are a number of things to keep in mind when evaluating the response to VON from consumers and telcos. Perhaps the most important is the quality of service. Present VON technology permits discrete communication as VON software waits for the user to pause and then compresses and sends data over the network. Some improvements are to be expected in this technology, especially if special Internet protocols are created to facilitate “live” voice communication. It is doubtful whether communication via a packet switched network will ever be functionally equivalent to switched line service. Though there is little doubt that VON implies a more efficient use of current resources (at least as far as actual data lines between regions, either underwater cable or satellite, go) the greater efficiency is at the cost of a slight delay in reception due to the added time required to translate data packets into voice. One significant disadvantage is that VON capability requires investment in a computer, an initial capital expenditure that is significantly higher than that involved in the purchase of a telephone. In addition, telephone networks are pervasive, it will take a number of years before as many people have access to VON as the number who are reachable via the global telephone network.

On the other hand there are a number of advantages to using VON and computer networks in general. Certain VON software provides for encryption of voice communication. The most popular such product is PGPfone which uses the ‘Pretty Good Privacy’ encryption program to transfer data securely. PGP is generally acknowledged to be one of the most secure encryption software available to the general public (though its export outside the US constitutes a felony). It is easy to see how secure communication may be desireable for a number of consumers in countries with repressive regimes, or corporations concerned about industrial espionage. Another significant advantage of computer mediated communication is the possibility of integrating video and voice communication. Though the technology is in its infancy, it appears as if the tool for such communication will be a computer rather than a video phone, if only because a computer already ioncorporates most of the functionality a video-phone would have.

In essence, communication with VON is going to be restricted to a small subset of consumers for a number of years, as the technology is improved however, it will pose a severe competitive threat to all long-distance voice operators. VON then, is a new-comer to this market and since it is not operated by PTOs (unlike almost all the other services in this section), is generating some consternation amongst PTOs that are aware of the capabilities of this technology.

Perhaps those least concerned about the proliferation of VON technology are Internet Service Providers. This is most surprising since they are probably the group whose resources will be strained by a sudden increase in the use of VON software. In fact current pricing structures may have to be significantly overhauled if ISPs are to survive in a world where VON is popular.

Roaming arrangements for cellular customers

Cellular phone service providers have now begun to offer wide area services to their consumers to permit them to use their cellular phones in a number of cities and countries. In particular, in European cellular providers have adopted a common standard which would make wide area roaming arrangements technically feasible. Even within Europe huge disparities exist between long distance rates and opportunities exist for arbitrage. Cellular phone users in Denmark pay less than one third of what French cellular users pay (based on purchasing power parities). In a fully convertible currency market (which is what the European currencies are), it is possible for a French consumer to use a Danish cellular provider if she so wishes. The ECU (European Currency Unit) would make such transactions much easier.

Third party billing and collect calls

Third party billing and collect calls are generally made by visitors to a country though they are also utilized by calling partners in countries where there is a wide divergence in rates between the two markets and it is cheaper to place collect calls to one country than it is to direct dial a number there. This facility is rather like a call-backprogram except that it tends to be more expensive than an automated service like call-back. Short duration collect calls may be used to request the other party to place a call to the original caller, something which would serve to explain the increasing number of very short calls being made over international networks.

Call re-origination or direct calling

Call re-origination is a slightly more complex service that involves a foreign telcos operator and borders on local resale. A consumer in one country places a call to a local number which puts her in touch with the foreign telco’s operator who will then dial the number requested by the customer. The call is billed to the consumer, often at an offshore address. This service is most often used by travellers.

Local resale

Local resale is operated by corporations that lease long distance lines from PTOs and then resell this excess capacity to individual consumers. This is almost a pure case of arbitrage in the international voice communications market, yet it accounts for over 500 million dollars in revenue within the US alone. This service can be operated in any market where local interconnection is possible, but that is currently limited to a few OECD countires, primarily those with competitive long distance sectors.

The new markets and services detailed above work together to undermine the traditional switched service and its limitations. With cellular services it is possible for consumers to bypass regional telephone operators altogether since the necessity of a landline connection is removed. Wireless services like cellular provide an opportunity for operators to undercut the monopolies in place over regional communications and by conductionin long distance voice communications. Problems with these expectations arise when long distance communication services are restricted for reasons not related to preservation of an infrastructural monopoly and development, but when the rationales used involved such factors as national security and cultural independence.

Despite these cautions, it is clear that the plethora of services now available to any consumer of international long distance telephone services are slowly but surely eroding into the PTOs market and will bring about unforseen changes in this market.

Conclusion, expectations for the future

From the activity we are witnessing in the market for international long-distance communication services, it is apparent that we are going to see major changes in this market very soon. A variety of paradigm shifts are calling into question the current structure of the market, particularly the accounting rate system and the concept of calls being made from one country to another. As the number of international carriers increases, it will be difficult to maintain a revenue sharing agreement like the accounting rate system.

Even if the monopolies in place in a number of countries are not removed during the next few years, their PTOs will find themselves competing with a number of other service providers selling equivalent service but in variant forms. Even without access to switched lines in local exchanges a foreign telco may operate, large and small telcos the world over are finding ways in which to provide services to foreign consumers at highly competitive rates.

As these services multiply and their consumer base increases, we would expect to see dissatisfaction with the accounting rates regime and a flight from national carriers that overcharge their consumers. Without pushing for telecom trade agreements, telcos operating in competitive environments are liable to see markets open up all over the world. IT is in these nascent markets that their experience in providing international voice communication services will stand them in good stead. Telcos in competitive environments will find that they are more adept at handling emerging technologies than “national carriers” are. An analogy that can be applied to the airline industry as well.

For developing markets we can only predict the intensification of pressure to permit competition in long distance and cellular services. Both of these markets are opening up in a variety of countries as their national telcos find themselves unable to cope with the demand for new technologies and the infrastructure they require.

[This paper was my senior honors thesis, written in 1996]

Leave Now

It’s good to go to a different place, even if the place is only in your dreams.  But perhaps the most far-away places are those in our dreams. They are far away in time, they embrace another reality, another universe sometimes.  And they are real because they aren’t always what we want.  Did I really want to lull myself back into the volley-ball game at school, the court larger than it is now, larger than it had ever been and me watchng from the sidelines as I always did because I never could fathom or drive myself to play a competitive sport.  I did not get up, I slept for 16 hours without stopping and I think life is a competitive sport, do I really want to play it?


I feel as if I must do something.  The intensity of the impatientness tearing at my skin is painful.  I almost feel as if I must jump up in the warm oppressive classroom and declare the absurd, the pet-lover’s manifesto or the definitive guide to scatology, perhaps even the undying nature of true love.  Then, feeling spent, I wish to collapse and let inertia saturate me.  The moment I begin to prepare for the leap of faith that will re-define for the world my peculiar madness I am restrained by the loss of energy from contemplating the leap itself. My madness is the fear of baring the madness within.