Accounting 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 route
The Basic Idea
Athens,
Ohio
Costs at this
end: access
charges to
Verizon,
hauling call to
Gateway
switch
Athens,
Greece
Costs of
international
link (cable,
satellite, etc.)
Costs to OTE
for terminating
the call
Who pays who?
OU Student pays
AT&T Collection
Rate for the call
AT&T pays
Verizon access
charges
AT&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 reasons
Proportionate return
MCI
25%
45%
AT&T
30%
Sprint
PTT/
Carrier
Transit Route
Country
A
Country
B
Country B =
Transit Route
Country
C
What can go wrong?
• Asymmetrical traffic
• Accounting Rate > Cost
• Accounting Rate > Collection rate
Activism 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 country
Examples 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: $2.92
US 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
return
International 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
resale
Try to avoid one-way bypass
AT&T is not allowed to terminate traffic
In Greece* using resale, so cannot avoid
Paying settlement rates.
AT&T
OTE
If OTE were allowed to terminate traffic in
The US using resale, it could avoid
Paying settlement rates.
*this is just an illustration;
ISR is now allowed in Greece
Removal 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 ISP
Definition 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
end
Avoiding settlements
• VoIP
• Cross border service providers