Accounting and SettlementsThe Basic IdeaWho pays who?Basic DefinitionsMore definitionsProportionate returnTransit RouteWhat can go wrong?Activism of the FCCExamples of Settlement RatesUS International Settlement Policy has been (ISP)International Simple Resale (ISR)Try to avoid one-way bypassRemoval of ISPRoutes exempt from ISPDefinition of market powerAvoiding settlementsAccounting and Settlements•Method for covering the costs incurred by each entity involved in providing an international call•Based on bilateral, route-specific negotiations between carriers at each end of the routeThe Basic IdeaAthens, OhioAthens, GreeceCosts at this end: access charges to Verizon, hauling call to Gateway switchCosts of international link (cable, satellite, etc.)Costs to OTE for terminating the callWho pays who?OU Student pays AT&T Collection Rate for the callAT&T pays Verizon access chargesAT&T pays Settlement Rate to OTE (accounting rate times 50%)Basic Definitions•Collection Rate: long distance charge the customer pays to the originating carrier•Accounting Rate: negotiated rate that theoretically reflects the cost of hauling the long distance call on that specific route•Settlement Rate: negotiated split of the accounting rate between originating carrier and the terminating carrier (usually 50/50)More definitions•Rule of proportionate return: carriers return traffic in the same proportion in which they receive it•Whipsawing: single provider at one end of the route seeking concessions from multiple carriers at the other end of the route•Transit routes: are taken for technical or economic reasonsProportionate returnAT&TMCISprintPTT/Carrier25%45%30%Transit RouteCountry CCountryBCountryACountry B = Transit RouteWhat can go wrong?•Asymmetrical traffic•Accounting Rate > Cost•Accounting Rate > Collection rateActivism of the FCC •US settlement deficit in 1996: $5.78B•US settlement deficit in 2000: $4B•US settlement deficits from 1985-2000: $52.8 B•IB Docket No. 96-261 (August 1997)–Benchmarks set for settlement rates•$0.15/minute for upper income countries•$0.19/minute for middle income countries•$0.23/minute for lower income countries–US carriers required to negotiate at or below benchmarks•transition periods of one to five years depending on economic status of countryExamples of Settlement Rates•As of 10/5/05 (still the same in January 2012):–Afghanistan: $5.15–Burma: $3.75–Chad: $2.43–Vietnam: $1.19–Kyrgyz Republic: $2.00 (Benchmark $.23)–Iraq: $2.00–North Korea: $2.92US International Settlement Policy has been (ISP)•Non-uniform accounting rates allowed but FCC and competitors must be informed•Waiver required from FCC for accounting rates that diverge in structure from the norm•Settlement rate must be 50/50•US carriers not to negotiate exclusive rates and not to get more than proportionate returnInternational Simple Resale (ISR)•FCC policy to encourage ISR as way to undercut accounting and settlement system•To avoid one-way bypass, FCC limits routes on which US carriers may provide ISR:– For WTO Member countries, only where settlement rates for at least 50% of traffic on route is at or below benchmark, or foreign market allows equivalent resale–For Non-WTO member, only where 50% of traffic is at benchmark rates and foreign market offers equivalent resaleTry to avoid one-way bypassAT&TOTEAT&T is not allowed to terminate trafficIn Greece* using resale, so cannot avoidPaying settlement rates.If OTE were allowed to terminate traffic inThe US using resale, it could avoidPaying settlement rates.*this is just an illustration; ISR is now allowed in GreeceRemoval of ISP•FCC Docket No. CC 99-73 (May 1999), in order to encourage lower settlement rates, allows removal of ISP:–For settlement arrangements between US carriers and foreign carriers that lack market power;–For all settlement arrangements on routes where US carriers are able to terminate at least 50% of the traffic at rates at least 25% below benchmark rate.Routes exempt from ISP•In 2003, there were only 16 routes•Canada, Denmark, France, Germany, Hong Kong, Ireland, Italy, The Netherlands, Norway, Sweden, UK, Saudi Arabia, Monaco, Bermuda, Bosnia/Herzegovina, Algeria•March 11, 2004, FCC added more routes, including all of the routes approved for ISR•As of January 2012, 38 countries were still listed as subject to ISPDefinition of market power•A foreign carrier lacks market power if it possesses less than a 50% market share in each of the following foreign markets:–International transport facilities or services, including cable landing station access and backhaul facilities–Inter-city facilities or services–Local access facilities or services on the foreign endAvoiding settlements•VoIP•Cross border service