Despite lack of jurisdiction, Federal Communications Commission limits on what foreign telephone companies charge Americans to use their networks are sure to lower international call rates in the next few years, say Midwest phone executives who specialize in the field.
Even though the FCC doesn’t have direct authority to set rates for foreign phone monopolies, its action last week will stick because of the huge market power held by the United States, said C. Holland Taylor, chief executive officer of USA Global Link based in Fairfield, Iowa.
“Think of it as if every country had a big toll booth where voice phone calls entering the country had to stop and pay a toll,” said Taylor. “The FCC’s order limits the amount that Americans are allowed to pay.”
Even though the FCC cannot directly regulate rates of foreign carriers, it will get what it wants through a combination of international agreements, technological pressures and market forces, said Taylor, who sits on a committee of the International Telecommunications Union concerned with settlement fees.
“State monopolies will really face a choice of taking what Americans will pay or nothing,” he said.
The arcane world of settlement fees paid by phone companies in different countries goes back several decades to a time when cozy monopoly relationships were universal and international calls were few and very costly.
In the mid-1950s, an ocean cable between the United States and France was half owned by the French phone monopoly and half by AT&T Corp., Taylor said. The cable could carry 56 calls and each circuit cost about $1.5 million to construct.
Settlement fees were established to equalize remuneration between the two undersea cable owners. If 60 percent of the calls originated in the United States and 40 percent originated in France, then the U.S. company owed the French a piece of its action under their agreement.
Technology has driven the costs of overseas calls through the floor, Taylor said. Today circuits cost about $10,000 to construct, and each can carry up to eight calls at the same time.
“Actual costs of carrying overseas calls are about a penny apiece per minute,” Taylor said.
But many foreign phone monopolies have become addicted to charging fees of 40 cents a minute and more, and they haven’t moved to lower them despite an international agreement to peg fees closer to actual costs.
The FCC order, which is tied to a study of what foreign companies charge for service at home, allows for settlement fees significantly above true costs, but much lower than current rates in most cases, said Taylor.
The FCC rules, set to take effect on Jan. 1, 1998, have been unpopular among foreign phone companies and will likely have a major impact on their operations.
The Philippine Long Distance Telephone Co., for example, derives more than half its income from foreign calls, mostly from the United States.
Its settlement fee rate of 50 cents a minute would drop to 19 cents within three years under the FCC ruling. Philippine and other foreign companies plan an appeal to the FCC to delay the scheduled reductions to soften their financial impact.
Because far more overseas calls originate in the United States than anywhere else, no foreign companies ever owe settlement fees to U.S. firms and have little market leverage, Taylor said.
While it is possible for foreign firms to set high settlement fees for individual U.S. carriers, they can’t withstand a united front behind the FCC order, he said.
If one country refused to accept calls from the United States, those calls would gain entrance after being routed through neighbor-
ing countries and over the Internet, skirting settlement fees altogether.
Monopoly control over international calls has been seriously undermined by callback technology, which enables a caller in a high-rate country to dial up a switch in the United States and then hang up without completing the call or incurring a charge from his local carrier.
The caller then automatically gets a call back from the switch he dialed, which provides him a dial tone from the U.S. company. Many European customers use this service to phone each other, finding it cheaper to route their calls through the U.S. than using local service.
The settlement fees the FCC is trimming are about the only way a foreign company generates income from a callback customer.
Cliff Rees, president of Telegroup, Inc., another international phone company based in Fairfield, said the FCC order not only will reduce phone rates, but it will raise the profile of alternative calling services.
“Anything that broadens awareness of international telephony services we perceive as being good,” Rees said. “It reminds me of the early days of long-distance competition in the U.S. when people thought what MCI was doing must be illegal.
“Until people become aware of the rapid migration to open markets, it’s hard to get a toehold in some of these countries.”
