Telecom/1996-04-telecom-walnutcreek.iso/reports/caribbean.telecom.report

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Date: Fri, 28 Apr 1995 08:37:45 -0500
From: TELECOM Digest (Patrick Townson) <[e-mail]>
Message-Id: <[e-mail]>
To: [e-mail]
Subject: A Caribbean Telecom Potpourri


A special report too large for a regular issue of the Digest is submitted
here for your review over the weekend which details telecom services in
the Caribbean. I found some of it quite interesting and hope you will also.

PAT

  From: John Ferguson <[e-mail]>
  Subject: A Caribbean Telecom Potpourri
  Date: 23 Apr 1995 21:56:58 GMT
  Organization: via On-Ramp, Dallas, TX

PREAMBLE

There has been much discussion recently in the "Bimshire Telecom
System" thread, in soc.culture.caribbean, about "natural monopoly"
control of strategic/essential services such as Telecommunications and
Electricity.  This post contributes some background information about
some of these services in the Caribbean region.

Strong arguments have been made that the markets for these services in
the region are too small to support open competition.  Others have
called for regional entities to band together in unison to fight off
foreign domination and control of these services.  And, there are
those who see benefits in limited foreign investment and control.
Full State control, mixed control, non-competitive, and competitive
private ownership, all exist to some extent in the region.  The trend
in recent years is certainly towards the latter two.

The concept of economies of scale and the law of diminishing returns
cannot be ignored when considering how to provide these essential
public services.  Nonetheless, we should not be blinded by the
practices of the past, into believing in a status quo of "exclusive
natural monopolies" that may no longer apply. We must use good
judgment tempered by intelligent economic inquiry, and compelling
scientific evidence, to decide the future of these services in the
region.  Also, what works for one country may not necessarily work for
all.

What follows here is a potpourri of information about the provision of
"essential services" in the Caribbean region, covering a range of
seemingly unrelated topics, mostly on telecommunications.

These are the topics you'll be reading about here:

1.0  GRENADA TELECOMMUNICATIONS LTD (GRENTEL)
2.0  GRENADA PUBLIC TELECOMMUNICATIONS ACT, 1989
3.0  GRENADA ELECTRICITY SERVICES  LTD (GRENLEC)
4.0  BROADCASTING SERVICES
5.0  CARIBBEAN TELECOMMUNICATIONS OPERATING COMPANIES
6.0  CANTO - WHO ARE THEY?
7.0  A SHORT HISTORY: WHERE WE CAME FROM, WHERE WE ARE NOW
8.0  TELECOM TARIFFS, TRADE DEFICITS, AND CALLBACK SERVICES
9.0  CALLING CARDS, COLLECT CALLS, & COUNTRY DIRECT SERVICES

1.0  GRENADA TELECOMMUNICATIONS LTD (GRENTEL)

The following applies to Grentel's charter to provide
telecommunications services in the State of Grenada (including
Carriacou & Petit Martinique). Grentel is a new company formed by the
merger, in 1989, of the Grenada Telephone Company (internal telephone
systems) and Cable & Wireless (WI) Ltd (international
telecommunications systems).

Grentel is 70% owned by C&W and 30% owned by the Government of
Grenada.  The initial distribution of assets was 51% Government and
49% C&W. In 1992, the Herbert Blaize Administration sold 21% of its
share in the company back to C&W to raise money to pay Civil Servants'
salary increases and back pay, in a negotiated settlement of their
often tenuous labour dispute.

This occurred after desperate appeals (from the Grenada Government to
the US Government) for financial assistance had failed.  The US
Government decided, correctly perhaps, that it should not establish a
precedent funding such recurrent expenditure, but rather, only capital
development projects.

2.0  GRENADA PUBLIC TELECOMMUNICATIONS ACT, 1989

SCHEDULE

TELECOMMUNICATIONS SYSTEM AND SERVICES TO BE PROVIDED EXCLUSIVELY BY THE
COMPANY

Circuits for radio, submarine or terrestrial cable, for the provision of
the following public or private national or international services:

1.
(a) Telephone service (including cellular service)
(b) Telegram service
(c) Telex service
(d) Data, teletex, and facsimile service
(e) Electronic mailboxing service (data and voice)
(f) Packet-switched or circuit switched data services
(g) Video-conferencing service
(h) Dedicated circuits or leased circuits for:-
      (i) Telegraph, data or facsimile, and
      (ii) Video (except radio circuits within the State for broadcasting)
(i) Multipoint distribution (MDS) and multiple multipoint distribution
systems (MMDS) other than that in the public broadcasting service
(j) Paging service
(k) All telecommunications services routed in transit via the State; and

2.  All other:
(a) international circuits for the provision of public or private
telecommunications, and
(b) fixed point-to-point circuits for the provision of public or private
telecommunications within the State.


Section 8 of the Act:
(1) The Company shall pay to the Government an annual fee at the rate of
3% of its net revenue, payment being made in arrears, each installment to
be made within 60 days of the submission of the Company's Annual Accounts
pursuant to section 13(5).

(2) For the purposes of this section, "net revenues" shall mean the net
proceeds of all billings to customers (including subscribers) within
Grenada less all out payments to other foreign administrations and
national bodies for traffic originating in Grenada which terminates in or
transits other territories plus all payments received from other foreign
administrations and national bodies for traffic originating in other
territories which terminates in or transits Grenada.

[Source: Grenada Public Telecommunications Act, 1989.]

This Act does not stipulate a period for which the joint Company is
granted its exclusive licence. Instead, "if the Company be (sic)
unwilling or unable to provide or to continue to provide all or any
such systems and services within a reasonable time and at a reasonable
charge, then the Minister (of Communications) shall be entitled to
licence some other person so to do..."  Furthermore, "no person shall
otherwise than through the telecommunications system of the Company,
transmit within Grenada, or transmit from or receive in Grenada, any
message by telecommunications or permit a message to be so
transmitted."

Did I hear "until perpetuity do us part" somewhere in there?  :-)

Note: It very likely that the Telecommunications Acts (or companion
legislation) in most of the "C&W territories" closely resemble this one.
But, there I go again, speculating irresponsibly!  :-)


3.0  GRENADA ELECTRICITY SERVICES  LTD (GRENLEC)

In 1994, the Government of Grenada sold 50% of its ownership in
Grenada Electricity Services to WRB Enterprises of Tampa, Florida, for
EC$15M.  Under the Electricity Supply Act of 1994, the new joint
Company was granted "exclusive right to generate, transmit, distribute
and sell electricity for consumption in Grenada, Carriacou and Petit
Martinique until 2073. (The Government may choose to revoke the
Company's license in 2048 if it gives the Company two years notice. If
this stipulation is invoked, however, the Government must repay all
investors its portion of the assets at the time the license is
revoked.)"

[Source: Prospectus, "Offer For Sale", Grenada Electricity Services
Limited (Grenlec), 1994]

Those are not typos: it's an 80 year license with the option to revoke
it after a mere 55 years!  By its own account, Grenlec had 24,455
customers in 1993, with 82% of the country electrified. Generating
capacity was 21MW in 1993 with peak demand at 13.25 MW.

Unless Grenlec plans immediately to replace the old overhead line
plant, and the somewhat new generators, and to bury all new line plant
underground, and electrify the remaining 18% of the country, it seems
unconscionable that they need an 80 year exclusive license to get this
done, to recover their investment, and to make a reasonable profit.

Alas, I'm not an economics expert, so perhaps I'm missing a vital
point here. I'm also not familiar with the Legislative Acts for the
provision of Electricity Services in other Caribbean countries.


4.0  BROADCASTING SERVICES

Broadcasting services (radio and television) in the region are not
considered Public Telecommunications services and are usually covered
under separate legislation.  Most countries now have a combination of
State and privately operated broadcasting services. Some have Cable
Television systems with channels received via satellite (and locally) and
retransmitted over national coaxial or fiber optic networks.


5.0  CARIBBEAN TELECOMMUNICATIONS OPERATING COMPANIES

The following listing shows the ownership and operation of Public Service
Telecommunications companies in the Caribbean area.

(Note: * indicates that ownership may have changed recently)
[Abbreviations: Int - means internal landline telephone service; Ext -
means external long distance (LD) service via coaxial/fiber optic
cable, satellite, microwave, or other radio transmission; State -
government owned; NA - not available]

ANGUILLA
Int: C&W (100%)
Ext: ditto

ANTIGUA & BARBUDA
Int: Antigua Public Utilities Authority (100% State) *
Ext: C&W (100%)
Note 1: A private company provides Cable TV service
Note 2: C&W may be operating the local phone service now

ARUBA
Int: Setar NV (100% State)
Ext: ditto

BAHAMAS
Int: Bahamas Telecommunications Corporation (100% State) *
Ext: ditto

BARBADOS
Int: Barbados Telephone Company (75% C&W, 25% State)
Ext: Barbados External Telecommunications (85% C&W) *
Note: It is reported that BET is now 100% C&W (1995)

BELIZE
Int: Belize Telecommunications Ltd (100% State) *
Ext: ditto

BERMUDA
Int: Bermuda Telephone Company (100% State) *
Ext: C&W (100%)
Note: A local company provides internet access service

BRITISH VIRGIN ISLANDS
Int: C&W (100%)
Ext: ditto
Note: Locally owned companies provide Cellular & Cable TV services

CAYMAN ISLANDS
Int: C&W (100%)
Ext: ditto

CUBA
Int: 100% State (company name NA)
Ext: ditto

CURACAO
Int: Setel Servisio di Telecommunication NV (100% State)
Ext: ditto

DOMINICA
Int: C&W (100%)
Ext: ditto

DOMINICAN REPUBLIC
Int: Codetel (% NA) *
Ext: ditto
Note: There is foreign ownership in Codetel, probably by GTE

FRENCH GUIANA
Int: France Telecom (100% State)
Ext: ditto

GRENADA (including CARRIACOU & PETIT MARTINIQUE)
Int: Grentel (70& C&W, 30% State)
Ext: ditto
Note: A locally owned company provides Cable TV service, after receiving
the "blessing" of Grentel to offer this service.  See Section 1 (h) (ii)
of the Telecom Act above.

GUADELOUPE (including ST MARTIN, ST BARTHELEMY, & MARIE GALANTE)
Int: France Telecom (100% State)
Ext: ditto

GUYANA
Int: Guyana Telecommunications Corporation (% NA) *
Ext: GUYINTEL (% NA) *
Note: There is some private ownership in GuyTelCo and C&W had past
interests in GUYINTEL.

HAITI
Int: Telecommunications d'Haiti (% NA) *
Ext: ditto

JAMAICA
Int: Jamaica Telephone Company (100% TOJ)
Ext: JAMINTEL (100% TOJ)
Note 1: Telecommunications of Jamaica (79% C&W, 21% State)
Note 2: A private company engineered UWI/Mona's internet access

MARTINIQUE
Int: France Telecom (100% State)
Ext: ditto

MONTSERRAT
Int: C&W (100%)
Ext: ditto
Note: A private company provides Cable TV service *

NETHERLANDS ANTILLES (BONAIRE, SABA, ST EUSTATIUS & ST MAARTEN only)
Int: Lands Radio NV (100% State)
Ext: ditto

PUERTO RICO
Int: Puerto Rico Telephone Company (% NA) *
Ext: includes private operators of LD, Cable TV, and Cellular services
Note: C&W/Western Union once had LD interests in this market

ST KITTS & NEVIS
Int: SKANTEL (65.68% C&W, 34.32% State)
Ext: ditto
Note: A private company provides Cable TV service *

ST LUCIA
Int: C&W (100%)
Ext: ditto
Note: C&W also provides Cable TV service

ST VINCENT & THE GRENADINES
Int: C&W (100%)
Ext: ditto
Note: A private company provides Cable TV service *

SURINAME
Int: Telesur NV (100% State) *
Ext: ditto

TRINIDAD & TOBAGO
Int: Trinidad & Tobago Telephone Company (100% TSTT)
Ext: TEXTEL (100% TSTT)
Note: Telecommunications Services of Trinidad & Tobago (51% State, 49%
C&W)

TURKS & CAICOS ISLANDS
Int: C&W (100%)
Ext: ditto

UNITED STATES VIRGIN ISLANDS (ST CROIX, ST JOHN, & ST THOMAS)
Int: Virgin Islands Telephone Company (% NA) *
Ext: includes private operators of LD, internet and Cellular services
Note 1: C&W/Western Union once had LD interests in this market
Note 2: Private companies provide Cable TV services

General Note:  The US domestic rules permitting alternate residential
long distance service (or equal access) apply in Puerto Rico and the
USVI.  However, not as many alternate carriers are available there, as on
the mainland.

[Sources: CANTO Directory, 1990; C&W Reports & Annual Accounts 1994; and
other miscellaneous data]


6.0  CANTO - WHO ARE THEY?

CANTO is the Caribbean Association of National Telecommunications
Organizations, formed in 1984, and comprises members who represent the
telecommunications operating authorities in the region. Its Secretary
General is Felipe Noguera of Trinidad & Tobago.

"The purposes of the Association shall be the establishment of a forum
through which Caribbean Telecommunications Organizations may facilitate,
on an on-going basis, the exchange of information and expertise
pertaining to telecommunications, to help generate inputs for orderly
growth policy formation and to consider matters of mutual interest to its
members engaged in providing  telecommunications service in the territory
of any Caribbean country."  -  Section 2, General Purposes, Constitution
of CANTO


7.0  A SHORT HISTORY: WHERE WE CAME FROM, WHERE WE ARE NOW

Very few people seem to realize that telecommunication services were
available in the Caribbean long before many parts of the developed world.
In 1837, Thomas Cooke and Charles Wheatstone of England claimed the
world's first patent - for the Electric Telegraph.  In 1851 the first
submarine telegraph cable was laid across the English Channel, connecting
London with Paris. In 1865 India was linked by submarine telegraph cable
to Europe. In 1866 the first successful Trans-Atlantic Telegraph cable
opened for service (earlier attempts in 1857 failed).  Also in 1866, a
submarine telegraph link was established between Florida and Cuba.

In 1872 the first telegraph links between London and Jamaica, Panama,
Puerto Rico, St Thomas, Tortola, St Kitts, Antigua, Guadeloupe, Dominica,
Martinique, St Lucia, St Vincent, Barbados, Grenada, Trinidad and (then)
British Guiana came into commercial service.

 From "The Barbados Times", March 9,1872:

"The Telegraph Company have given notice that the cable is laid and in
working order all along the line from Havana to Demerara and through the
States to Newfoundland and from there to the UK; and the communication
being completed, messages can be forwarded from this island to any part
of the world."

Within four months, however, the first public dissatisfaction had been
expressed. Again, from "The Barbados Times", July 6, 1872:

"Complaints are becoming rife in these islands about the inconvenience
which has been occasioned to the mercantile community and others by
growing carelessness or incompetence on the part of the Telegraph
employees. Owing to the exhorbitant rate of the tariff, messages must
be necessarily condensed as much as possible to avoid incurring a
heavy expense."

[Source: "Girdle Round the Earth", Hugh Barty King, Heinemann, 1979]

The Colonial Office in London made it a priority to have instant
communication with Britain's prized possessions in the Caribbean, one of
the sources of her increasing wealth, through the export of sugar, rice,
tobacco, coffee, cocoa and spices. (Apparently, better prices for these
commodities could be secured in European markets by using instant
communication.) The cost of laying these cables was borne by the Colonial
governments of the participating territories, with some subsidies from
the Colonial Office in London.

 From day one, telegraph services in the Caribbean and in most parts of
the world came under State ownership and control and were considered an
extension of the State's provision of the Postal Service and later the
Telephone service. That's the reason for the term PT&T (Post, Telegraph &
Telephone) in most of Europe, until recently.

Earlier in this century, several territories began to extend franchises
and licences to private companies to build, operate and maintain the
increasingly sophisticated internal and external networks required for
the provision of public telecommunication services.  Cable & Wireless
captured many of these, but American companies did secure short-lived
licences to provide local telephone service in Jamaica, Barbados, Grenada
and Trinidad in the 60s and 70s. Some countries have retained national
control of their local telephone services while the overwhelming majority
have formed some relationship with a foreign entity for the provision
external services.

In 1891 the first submarine telephone service was started between London
and Paris. In 1896 Marconi patented wireless radio communication but
it wasn't until 1926 before the first short wave radio-telephone link
across the Atlantic. Limited channels of SSB shortwave radio provided
long distance radio-telephone communications for many years until the
advent of multichannel tropospheric scatter, microwave/UHF, and
satellite facilities linked in some areas to submarine telephone
cables. And, it was only in1956 that the first Trans-Atlantic
telephone cable (TAT-1) was put into service.

In 1965 a tropospheric scatter system was built, which linked Tortola
with Antigua, St Lucia, Barbados, Trinidad and Guyana. Islands
in-between were linked to these gateways by VHF or UHF multichannel
links. A submarine coaxial telephone cable was laid between Tortola
and Bermuda in 1966 which carried most of the telegraph and telephone
traffic in and out of the Caribbean.  By the early 70s through the 80s
and 90s, higher capacity and better quality analog and now digital
microwave links were built between the islands and digital satellite
links were established with Western Europe and North America.

When you hear your Caribbean elders talking about "sending and
receiving cables" (i.e. telegrams) in the old days, think about where
we have come in less than 40 years, from those courier delivered
telegrams, to international direct dialing, fax, and now the internet.
This post itself would have cost several hundreds of dollars to send
if it was one of the first messages across the Atlantic. In fact, the
first one, transmitted in December 1865, from Washington, DC to Paris,
cost over 2000 pounds sterling for a 4000 word message.  At seven
words a minute it took nearly ten hours to be transmitted!  This post
alone, minus the message headers, is 5545 words (according to
Microsoft Word) and was transmitted to my network news server in less
than ten seconds, at an immeasurably small cost.  Furthermore, it's
point-to-multipoint distribution worldwide vs point-to-point.

All of the old electromechanical Strowger and Crossbar telephone switches
in the Caribbean have been replaced in recent years by the most advanced
digital computer-controlled switches, capable of providing basic POTS,
and additional services such as call-hold, call-waiting, 3-way calling,
call forwarding, virtual numbers with distinctive ringing, line hunt
groups, caller ID, multi-party conferencing, voice mail, paging, cellular
phones, fax/modem data and ISDN, among many other features.

Today we have come full circle with the laying of fiber optic cables
throughout the islands which will complement, but perhaps eventually
replace, many of the fixed wireless links.  Alternate satellite routes
will continue, but wireless usage will probably be dominated by local
cellular and paging services.


8.0  TELECOM TARIFFS, TRADE DEFICITS, AND CALLBACK SERVICES

One subject I didn't get to elaborate on in earlier posts was
international telecommunications tariffs and how they relate to the
contentious issues of annual trade surpluses (primarily for developing
countries), and trade deficits (for the US and other developed
countries), and why this situation has given rise to the proliferation of
so-called Callback services in the last year.

I'll introduce the subject this way. On May 11, 1994, the FCC ruled that
International Callback services are lawful, and granted "Section 214"
applications to three operators.  Section 214 essentially says that they
must get a licence to resell international switched voice services. They
buy in bulk from established carriers at discount and hope for volume
usage to pay their fixed costs and make a profit. They are not, as some
would have you believe, skimming the cream off someone else's milk. They
do operate with lower overhead in terms of equipment (a small PBX with
leased trunks and lines) and, hopefully, fewer staff per (N) subscribers
compared to the carriers. But, they don't get to keep everything they
collect.

AT&T, with support from MCI, Sprint, and Comtelca/Intel (a Central
American group of Telecom Administrations), has filed a petition for
reconsideration, asking the FCC to reverse itself and declare Callback
illegal.  The US carriers argue that "Code Calling" constitutes usage of
US international carrier facilities for which they are not being
compensated.  Comtelca/Intel argues that the FCC ruling violates ITU
regulations which require operating agreements between US (Callback) and
foreign telecommunications carriers and administrations. Furthermore,
Callback is prohibited by national laws in some Central American
countries (Costa Rica, Belize, Peru, and Venezuela) and apparently in
many other countries.

Because of these challenges, the FCC ruled on September 12, 1994, to
expand the scope of the callback proceeding by seeking additional
public comment, and advice from the State and Justice Departments. The
State Department's advice is being sought on the issue of international
law and the Justice Department's advice is being sought on AT&Ts
argument that Callback violates the Federal wiretap statute (i.e. in
the use of Code Calling).

[Source: "Computer Telephony", February 1995 and May/June 1994]

This challenge raises an important point, for me at least.  What if I
have Caller ID (which I do) and someone calls me from Grenada and I don't
answer, but I see who's calling?  I then call her back because it's
cheaper for me.  Didn't the Grenada caller use international carrier
facilities in her call attempt and not pay for it?  Did she violate the
same Federal wiretap statute that AT&T is complaining about?
Far-fetched? International Caller ID is coming; it's already available
from Puerto Rico. Even without Caller ID, international callers sometimes
use this technique, at a specified time of day and number of rings, to
signal an overseas correspondent to call them back. Manual Callback!
Doesn't everyone know this trick already?

There are two basic methods of providing Callback. In the first one,
using Code Calling, a subscriber in, let's say Aruba, places a call to a
Callback provider's number in the US.  She hangs up after a specified
number of rings without the phone being answered.  During that brief
interlude, the telephone network transmits Automatic Number
Identification (ANI) signals which are part of the now standard SS7
signaling network. This information is captured at the Callback switch,
compared with a local database to verify that the caller is an authorized
user, and the switch then calls her back in Aruba. She enters her
authorization code, is validated, and then receives a US dial tone,
prompting her to place a call anywhere in the world.  Her call accounting
data is recorded in the switch and she is billed to her US or perhaps
other national credit card.

In the second Callback method, Completed-Call Callback, a user places a
call to a US Callback number and lets it ring until answered. He is
prompted to enter an authorization code or account number and the phone
number where he can be reached, similar to using a fax-back service. He
hangs up, and if the data he supplied is validated, he is called back and
presented with US dial tone.  He then calls onwards to another party
anywhere in the world and is later billed to his credit card.

Neither the US nor the national carriers are compensated for the initial
short Code Call, but they are, for the initial Completed-Call Callback
call.  However, after the Callback company pays its domestic carrier for
it's LD service and this carrier makes its international settlements,
everyone, including the foreign national carrier, the US carrier and the
Callback company, gets part of the revenue of the second call.  No one
seems prepared to admit this openly.

But, you ask, how can this call be cheaper that using the US carrier or
the foreign national carrier?  Simple: bulk discounts for buying
international trunk access, low administrative overheads, and efficient
billing, etc.. It is at best a marginal business if the Callback company
can get a large enough pool of subscribers.

As long as there are huge differences between the rates US carriers are
allowed to charge third parties (Callbacks, large Corporations, etc.) for
bulk services (they are controlled by local, state and federal tariffs),
and the collection rates they charge to their end users, and as long as
foreign national carriers charge inordinately high rates to their local
subscribers, there will be an opportunity for Callback to exist and
thrive, and ordinary people will continue seeking any means of reducing
their phone call charges, legitimate or not.

In the absence of international agreements, and local laws in foreign
countries to address this issue, many telecommunications administrations
have resorted to "cat and mouse" methods to thwart Callback services.
New digital switches are capable of being programmed to deny access to
specific numbers anywhere in the world. So, Callback access numbers are
being blocked daily all over the world, as foreign administrations
surreptitiously track them down by tracing "suspicious" local calling
patterns, and by using other clandestine "intelligence" gathering
techniques.

It is up to local interests in foreign countries to decide if these
practices are themselves legal, and within the framework of national
laws. I would certainly be appalled, and moved to pursue a legal
challenge, if I lived in a country where the local telephone company
barred my access to specific, and desired, foreign telephone numbers.

If these countries want to pass laws barring Callback that's one thing,
but when telecommunications administrations bar these numbers themselves
with extremely thin or non-existent legal backing, and without prior
public notification, that's another matter entirely.  It's left to be
seen how much longer they can continue to get away with these most
unethical practices.

Callback is also provided within the US as an alternate carrier service.
Any attempts to use such blocking tactics are probably illegal here, or
could have serious legal repercussions.

The solution to this "problem" is, of course, finding an equitable and
mutually agreeable mechanism for the settlement of international
telecommunications tariffs.  Several recent scholarly works provide some
suggestions and insights into this issue, through the use of economic
pricing models.  I'll try to present some of them in a future post, as
time permits.


9.0  CALLING CARDS, COLLECT CALLS, & COUNTRY DIRECT SERVICES

Before we regard Callback companies as pariahs, outlaws, or parasites who
feed of the fruits of others, let's take a look at the payment for
telecommunication services with international calling cards, credit
cards, and reversed charges.  Say you're visiting Grenada and you make a
call to New Jersey with your Visa card (or MasterCard, American Express,
etc.).  How did you pay for it?  You paid Visa in $US in the US, but
nothing directly to Grentel, right?  But Visa in turn paid their
designated carrier (say MCI) who in turn accounted for this call in their
international settlements with Grenada.  Grentel did eventually receive
part of the payment you made for this call.

The same happens if you called collect to your home in New Jersey, or
used a calling card from Sprint, or USA Direct from AT&T.  In each case
you paid for the call in the US and Grenada received its money through
the international settlements system.  You could have paid for the call
locally in Grenada using a local prepaid calling card, coins, cash over
the counter, or through a hotel bill.  Grenada would then have to pay a
portion to the US carrier(s) transporting and finally terminating your
call in New Jersey. Does Grenada get the same revenue from the call
regardless of the method of origin and payment?  Absolutely not. The
reason must be prefaced with an explanation.

First, we must define collection, accounting, and settlement rates, which
are at the nucleus of the controversy over international
telecommunications trade surpluses and deficits.  Collection rates are
the amount charged to you by your local carrier.  Accounting rates are
the amount agreed between two administrations for the provision of
services to each other.  The settlement rate is the amount by which the
accounting rate is split between the two administrations.

Hypothetical Example:  Let' say Grenada charges EC$4.00/minute for calls
to the US and the US (through AT&T) charges US$1.00/minute for calls to
Grenada.  These are their respective collection rates.  Let's say both
administrations agreed that it cost US$0.80/minute to transport this call
between end points. [In reality, Special Drawing Rights (SDRs) are used
as the "reference" currency.]  This is the accounting rate. Finally, both
administrations agree on a settlement rate of say 50/50 which means that
they pay each other US$0.40/minute per call.  This means that AT&T keeps
US$0.60/minute and pays US$0.40/minute to Grenada for each call and
(assuming US$1.00=EC$2.70) Grenada keeps EC$2.92/minute and pays AT&T
EC$1.08/minute.  The accounting and settlement rates are usually fixed by
internationally negotiated agreements through the ITU.  The collection
rates are set independently by each administration and are raised above
the accounting rate to ensure that each administration can cover its
additional costs for billing, collection, local call origination and
termination and transport over long distance facilities.  High collection
rates ensure that an administration retains a higher percentage of
revenue collected, but where competitive prices exist, call volume and
resulting revenue may drop.

If you made the call in Grenada through Grentel, they got to keep
everything, except the settlement rate with AT&T.  When you used the
country direct, calling card, credit card, or collect call method,
Grentel only got the settlement rate, but the same facilities were used.
AT&T (USA Direct), Visa (MCI), Sprint (calling card) or New Jersey Bell
(collect) took the lion's share for that call.  Why does Grentel allow
this?  Tourists and visitors make more calls if allowed to used these
methods since it's difficult to make calls otherwise if you're not a
resident with a local phone account.  The choice is either a lost call
opportunity or one gained with lower average revenue.

In 1983, AT&T charged US$5.99 for a 3-minute country direct call from the
UK to the US but paid British Telecom only US$0.90 for the settlement.
"Country direct services, a market that US carriers lead, often benefit
foreign carriers by generating new traffic and increasing their
settlement receipts. But they can also detract from the foreign carrier's
ability to market their own services and derive more revenue from
customers."

[Source: CommunicationsWeek International, May 10, 1993]

Who's in control here?  Are Callback companies in as much control?  They
don't own LD facilities and landlines, they lease them.  They buy those
international calls from US carriers at bulk rates.  Those carriers are
responsible for making the necessary international settlements.  Callback
companies must keep their administrative overhead low (the only cost of
production under their control) in order to make a profit.  Are they
doing something that's vastly different to AT&T and the other established
US carriers with their country direct services?  Get all the facts first
before making your conclusion. Find out what I haven't told you, and when
you do, tell me too!

Arguably, many foreign countries do have exhorbitant collection rates
that are out of step with the actual cost of providing service.  US
carriers have also exploited country direct services in recent years to
increase the revenue they can keep from their collection rates.
International traffic flows remain asymmetrical and deficit payments are
still made to developing countries and to some developed countries like
Germany.  But this does not mean US carriers are losing money. It's like
paying a commission to foreign carriers on sales generated by the
existence of their very markets: no sale, no commission, no profit
margin, and vice versa.

On January 16, 1995, AT&T increased its collection rates for calls to
most of the Caribbean by double digit percentages.  Assuming that
collection and settlements rates remain unchanged, AT&T will retain a
higher percentage of the revenue collected for these calls.  If annual
call volumes remain unchanged despite increased prices (elasticity of
demand) this year, AT&T will partially offset its deficit with Grenada.
If call volumes decrease due to these higher prices, Grenada's income
from international settlements will decrease.  If this happens
consistently over the next few years there will either be structural
adjustment to recognise this revenue shift or an escalation of rates in
Grenada to help offset the shortfall in foreign earnings.

CANTO announced at its last meeting in Grenada in February 1995 that it
plans to introduce a Caribbean Calling Card this year that can be used
for country direct services from anywhere in the world.  This card would
be different to the prepaid calling cards already in existence, which are
used interchangeably in most CANTO territories, regardless of differences
in local currency.  If you can't beat them, I guess you must join them!

Developing countries rely heavily on the hard currency generated by
international settlements to fund the expansion and modernization of
their telecommunications infrastructure.  Many developed countries
believe that the accounting and settlement rates do not reflect true
operating costs and should be lowered substantially.  Developing
countries argue that the cost of providing local services, and their
"half" of international services is much higher than in developed
countries and should be raised in some cases.  The truth may lie
somewhere between these two extreme positions.  Failure to resolve this
dispute amicably, and expeditiously, will continue to perpetuate harmful
adversarial relationships between foreign and domestic administrations.

             _____________________________________

Disclaimer:  This information is provided "as is" and no attempt is made
to represent absolute truth and accuracy. It is a mixture of established
facts and the fiction of my own opinions. I have provided references when
I have quoted from the works of others. If readers know of any factual
errors or have updates, useful comments or constructive criticisms,
please post them or send me email.  Otherwise, please don't bother me
with drivel.  :-)


John C.V. Ferguson    Dallas, TX, USA    [e-mail]