The Cost of Calling Home

has to pass in transit. Often, too, inter­
national facilities, such as the transatlantic
cable systems, are jointly owned, oper­
ated and maintained.

The bilateral operating agreements be­
tween international telecommunication
carriers, which set out the conditions and
prices for services offered, have tradition­
ally been based on a framework set down
by the international Telecommunication
Convention, its Regulations and the relevant
Recommendations of the International
Telegraph and Telephone Consultative
Committee (CCITT).

Although the institutional and account­
ing frameworks for international telecom­
munications have remained stable, import­
ant changes have occurred in inter­
national telecommunication markets. A
substantial amount of capacity is being
added to the major international traffic
routes, those between Europe and North
America, and between North America and
South East Asia (about 60% and 20% of
world traffic respectively). The TAT-8
(Transatlantic) fibre optic underwater
cable which began operation across the
Atlantic in 1988 has more than twice the
capacity of the existing copper-wire cables
in operation across the Atlantic (TAT-5, 6
and 7). Other transatlantic fibre cable
proposed or under construction will add
yet more capacity. TAT-9, for example, is
expected to double the capacity of TAT-8
across the North Atlantic but will only cost
20% more, resulting in lower average
costs per circuit.

Indeed, international capacity is grow­
ing faster than the traffic it is intended to
carry, a discrepancy which, combined
with technological developments which
are reducing costs, will put downward
pressure on the price of international
communications — although it remains
true that for most international calls the
highest cost is incurred by national trans­
mission and switching requirements rather
than by international transmission.

Yet international telephone traffic has
also grown rapidly even though its share
of total traffic is still small. Forecast
growth in outgoing telephone traffic for
OECD countries is estimated to be about
5.6% between 1987 and 1992, and in a
number of countries where new services
using the public switched telephone net­
work are expanding (fax is an obvious
example), this growth is likely to be much
higher. In contrast to the relative small
share accounted for by international traffic
in the total traffic carried by telecommuni­
cation operators, its share in the total rev­
enue earned from telephone traffic by
telecommunication administrations is
considerably higher. In 1987, for example,
international communications accounted
for about 14% of the revenue of Tele­
fonica in Spain but only 0.7% of total tele­
phone traffic.

International charges have almost al­
ways been high and, along with domestic
long-distance services, have been used
as a revenue source to cross-subsidise

Cost of peak-rate, three-minute call, local currency, June 1989
1979 = 1001
1. Adjusted for inflation.
Source: OECD

local telephone services. Nevertheless, as
Table 1 shows, the prices of international
dialled call charges have been substan­
tially lowered, particularly for transatlantic
routes. In many countries distortions in­
troduced by cross-subsidisation mean
that international prices will be difficult to
reduce, since telephone charges — local
call charges, national long-distance and
international call charges alike — will have
to ...