TELECOMMUNICATIONS: Global Accounting Rate System Under U.S. Attack

By IPS Correspondents Reprint | | Print |

Dipankar De Sarkar

LONDON, Mar 11 1998 (IPS) - Telecommunications experts and policy- makers from around the world meet in Geneva this month to hammer out a deal on a key foreign exchange earner for many developing countries.

The World Telecommunication Policy Forum is considering reform of the global standard on which telecoms costs are worked out — the International Accounting Rate System — in line with a World Trade Organisation agreement last February which commits some 70 signatory countries to liberalising their basic telecommunications sector.

The issue is high on the agenda of the Forum’s next meeting, hosted by the U.N. International Telecommunication Union (ITU), March 16-18. It will also come up at the the World Telecommunications Development Conference in Malta, Mar. 23 – Apr. 1.

The accounting system determines how much one telephone company pays a foreign telephone company for connecting a call.

Because most telephone calls originate in wealthy industrialised countries, the system earns five to ten billion dollars per year for developing countries, according to the ITU. For some of the poorest countries, it is the single largest source of foreign exchange.

The U.S. has, however, demanded that the system be reformed because, it argues, U.S. operators lose nearly six billion dollars per year in what it calls “above-cost” payments to other countries.

The issue, little publicised or understood outside the world of telecommunications policy-makers, is of urgent and critical importance to people in developing countries, says a new report published by the London-based development group, The Panos Institute.

“The reform of the international accounting rate system…will slash these payments,” Panos says. “The outcome of disputes over reform of the system could fundamentally affect the economic prosperity of scores of developing countries. The Geneva meeting could be the last hope of hammering out a deal,” it adds.

In 1996, Jamaica earned almost 100 million dollars from accounting rate revenues from U.S. telephone traffic alone. Ethiopia, one of the poorest countries in the world, had a total telecoms revenue of 75 million dollars in 1996, more than 60 per cent of it from international calls.

Other recipients with an annual accounting rate income of more than 100 million dollars include telecoms companies in Argentina, Brazil, Colombia, Pakistan, the Philippines and Sri Lanka.

At the same time the international accounting rate system was never designed to distribute essential capital to countries which need it most. The whole of sub-Saharan Africa — the region with the poorest telecommunications development in the world — received just 125 million dollars in 1995, or two percent of the total.

On the other hand, Mexico — a member of the OECD group of industrialised countries — received 876 million dollars, making it the largest recipient. Similarly, European operators, Canada, Japan, China, India and South Korea were other major beneficiaries.

“Nevertheless, although comparatively small volumes of money go to the least developed countries, these sums are proportionately more important to them and it is these countries which are likely to be worst affected,” Panos says.

According to the ITU, the least developed countries and other low- income small economies, with less than one million inhabitants, are likely to be hardest hit.

African countries are especially vulnerable, according to Lisham Adam of the United Nations Economic Commission for Africa (UNECA).

“The revenues of telecoms (operators) in many African countries heavily depend on the settlement inflows that they receive from carriers in the U.S. and others in Europe and Asia,” he argues.

Panos says countries in Central America and the Caribbean regions will also suffer from the proposed accounting rate system reform. Figures are startling: for countries such as Nicaragua and Haiti, settlement from the U.S. accounts for more than half of all telecommunications revenues.

“Jamaica earned 100 million dollars from U.S. traffic in 1996,” says Cezley Sampson of the Mona Institute of Business at the University of West Indies. “Reduction in settlement rates will reduce this inflow, affecting the country’s foreign exchange earnings and balance of trade.”

The poorest countries do not necessarily benefit most from the accounting rate system, but, says Panos, the revenues are important for several reasons.

Firstly, developing countries often have to pay in advance for expensive telecommunications equipment and to lease access to satellite and undersea cable systems.

In addition, many developing countries cannot afford direct telephone links with many countries, which means they have to pay more in ‘transit’ costs when they route their international calls through another country. African operators pay between 400 million and one billion dollars a year for transit payments. International settlements are a crucial way of recouping some of these costs.

“There are often important economic, political and social considerations challenging the notion that international telephone calls should be cost-based,” says the ITU.

Critics of the reform lobby argue that too rapid a reduction in accounting rate revenues will lead to increased domestic prices for consumers in developing countries and could slow down development of vital telecommunications networks. The worst off will be the poorest and those living in rural areas, they argue.

A number of experts have also questioned the basis of the U.S. claim, arguing that a major reason for the accounting rate deficit in the U.S. is the rapid growth of call-back and other alternative calling procedures which all provide substantial profits to U.S. operators.

Call-back systems allow a subscriber wishing to make a call from, for example, Manila to London to dial up a number (normally in the U.S.) which automatically routes the call to London at lower rates.

So call-backs not only undercut local operators in developing countries, they also add substantial revenues to the coffers of U.S. operators. At the same time, call-back traffic is counted as traffic leaving the U.S., which means it contributes towards the U.S. accounting rate deficit.

This complex system means that while the U.S. deficit is substantial, a large part of the deficit is still bringing in profits to operators. It is not an overall loss even though it seems like lost money, according to some commentators.

ITU Secretary General Dr Pekka Tarjanne said in 1996: “The U.S. settlement payment deficit… is not all bad for U.S. carriers because the collection charges they collect at home are now much higher than before.

“Indeed, it could be said that U.S. companies are largely responsible for engineering this deficit because of their pioneering use of calling cards, country direct services and call- back charges.”

One of the main complaints against the U.S. is that it is trying to replace an international and multilateral system, unilaterally with its own domestic law.

“Historically, the U.S. has refused to be regulated by the ITU and when it has not been able to get its own way within the ITU has resorted to internationalising its own domestic law, ” says Jill Hill, director of the International Institute of Telecommunications Regulators at London’s City University. “The threat by the U.S. Federal Communications Commission to withdraw from the ITU’s system of accounting rate follows this tradition,” she added.