International Settlement Rates and U.S. Exportation of Procompetitive Deregulatory Principles After the WTO Agreement on Telecommunications Services

13 Pages Posted: 23 Mar 2007

See all articles by Paul W. MacAvoy

Paul W. MacAvoy

Yale School of Management (Deceased); Yale University, Yale Graduates Energy Study Group (Deceased)

J. Gregory Sidak

Criterion Economics, L.L.C.

Date Written: October 1997

Abstract

On February 15, 1997, seventy countries working within the framework of the World Trade Organization agreed on a multilateral reduction of regulatory barrier to competition in international telecommunications services. The signatory nations to the WTO agreement, representing markets generating 95 percent of the $600 billion in global telecommunications revenue, are now legally bound to open their telephone markets to competition. Within months, however, the Federal Communications Commission injected controversy into the new multilateral arrangement by proposing to dictate the prices that other nations may allow their domestic telephone companies to charge to international long-distance carriers for terminating incoming calls from the United States. Those charges for terminating access, know as settlement rates, involve billions of dollars annually and are set pursuant to an international regime that is one of the more arcane niches in the foreboding sprawl of telecommunications regulation.

Our focus in this paper is not on such matters of jurisdiction and international comity, but rather U.S. domestic economic policy. As a matter of regulatory economics, the FCC's settlement rates order harms the very U.S. consumers that it purports to protect. In that sense, the order cannot be said to be in the public interest. It is true, as the FCC said, that the agency need not rely on multilateral efforts alone to lower prices for U.S. consumers making international calls. But there is a superior alternative to the FCC's policy of bilateral reciprocity. To achieve lower prices for U.S. consumers making international calls, the FCC should adopt a unilateral policy of opening U.S. outbound markets to entry by foreign carriers before proceeding to require foreign countries to place their domestic rate structure for terminating access services under FCC jurisdiction.

Keywords: WTO, World Trade Organization, Settlement Rates

Suggested Citation

MacAvoy, Paul W. and Sidak, J. Gregory, International Settlement Rates and U.S. Exportation of Procompetitive Deregulatory Principles After the WTO Agreement on Telecommunications Services (October 1997). Yale SOM Working Paper No. 51. Available at SSRN: https://ssrn.com/abstract=971120 or http://dx.doi.org/10.2139/ssrn.971120

Paul W. MacAvoy

Yale School of Management (Deceased)

Yale University, Yale Graduates Energy Study Group (Deceased)

J. Gregory Sidak (Contact Author)

Criterion Economics, L.L.C. ( email )

1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)

HOME PAGE: http://www.criterioneconomics.com

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