| BUSINESSWEEK ONLINE : OCTOBER 11, 1999 ISSUE | ||||||||
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| SPECIAL REPORT
Dialing Abroad Will Never Be the Same Again Spurred by more efficient technology, deregulation, and a dizzying wave of startup activity, the $60 billion business of international phone calls has seen prices fall by as much as 80% in the past three years. That has been a boon for consumers, but telephone companies are reeling. For decades, they have relied on bilateral ''settlement'' agreements to compensate each other for calls that begin in one country and end in another. But the old way is crumbling fast. Here's why: 1. CALLBACK: THE SHOT HEARD 'ROUND THE WORLD In 1991, a method emerged to get around high rates. Because overseas calls from the deregulated U.S. were cheaper than calls into the U.S., startups took advantage of the gap, offering ''callback services.'' A customer in Japan would dial a special U.S. number supplied by the service and hang up after a few rings, avoiding the charge for a call. Then, the U.S. number would call back and supply a dial tone to the Japanese user. From there, the caller could dial anywhere in the world at low U.S. prices. SAVINGS TO CONSUMERS: As much as 90% below typical international phone rates. IMPACT ON THE PHONE COMPANIES: It cost non-U.S. phone monopolies billions of dollars in lost revenues. And it skewed global calling patterns, greatly increasing the number of outbound minutes from the U.S.--and helping drive up U.S. settlement payments by 63% from 1991 to 1997. 2. INTERNATIONAL RESALE: THE GREAT LIBERALIZER Countries around the world are now allowing a scheme known as International Simple Resale. Here, owners of private leased phone lines between countries--including carriers like AT&T and big corporate phone users like IBM--can resell leftover space on their lines to local phone companies. This boosts the amount of international capacity and lowers prices. And calls carried on these lines aren't subject to settlement fees. Sweden, for example, authorized resale in 1996, and prices for calls from the U.S. have since fallen 46%, to as low as 39 cents a minute. SAVINGS TO CONSUMERS: As much as 90% below typical international phone rates. IMPACT ON THE PHONE COMPANIES: Resale has put tremendous revenue pressure on phone companies around the world that used to have a lock on incoming traffic. 3. INTERNET TELEPHONY: THE WAVE OF THE FUTURE Early Internet telephone schemes required a PC at both ends of the line, but now calls can go from one phone to another thanks to gateways that link the Net to the phone system. A bonus: No settlement fees are paid. That leads to big savings. A Net call from the U.S. to Brazil costs telcos just 15 cents--half the official settlement rate of 30 cents. International voice-over-Internet traffic has nearly tripled in the past year, but it's still a fraction of the total. SAVINGS TO CONSUMERS: If they're willing to put up with some quality problems, customers can save 90% on the cost of international calls. IMPACT ON THE PHONE COMPANIES: They're facing the prospect of a huge cut in international revenues. What's more, Net calling adds pressure to the movement to reduce or wipe out settlement rates. DATA: FEDERAL COMMUNICATIONS COMMISSION, OVUM LTD., PULVER.COM, ATLANTIC-ACM, COMPANY REPORTS _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Dialing for Pennies TABLE: Dialing Abroad Will Never Be the Same Again Coping with the Revolution TABLE: Third World Backlash A Failure to Communicate TABLE: The Trouble with Global Plans ONLINE ORIGINAL: The FCC's Kennard: Fighting for Lower Long-Distance Rates INTERACT E-Mail to Business Week Online | |||
