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Call-Back Services Put Telecom Giants on Hook

When Siegfried Nottelmann's phone bill dropped 50 percent in a single month, his phone company wanted to know what happened.

"I told them we had a new system," the soft-spoken director of a small German shipping company says defiantly. After years of humbly accepting the mix of high prices and less-than-Germanic efficiency offered by Deutsche Telecom, he found a way to ditch the monopoly. A phone-company salesman even came knocking to ask for his business back.

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So what had Mr. Nottelmann done? He had signed up with an American company for an obscure phone service dubbed "call-back," which allows people who live in countries with high phone rates to place international calls from low-cost markets like the United States.

What started in the late 1980s as a way for enterprising GIs stationed overseas to call home on the cheap has shaken up the once-sleepy world of international telecommunications. From humble beginnings, call-back reached an estimated $450 million in sales by 1995 and may hit the $1 billion mark this year. In effect, it has exported deregulation around the world.

Unlike imports that arrive in a shipping container, a dial tone from a low-cost country cannot be seized at the border or be forced to pay a tariff - a cause of consternation for monopolies.

Now, many countries are trying to clamp down on call-back.

But call-back providers say their service not only cuts prices for consumers and businesses but is fostering healthy competition.

"When you break a monopoly, you break the monopoly paradigm," says Holland Taylor, chief executive officer of USA Global Link in Fairfield, Iowa, one of the largest call-back providers. "You shatter the notion that government has the moral right to restrict free commerce and trade."

The US Federal Communications Commission, long an advocate of competition, has sided with the call-back companies, ruling their practices legal in America in 1994. With few exceptions, the FCC has promoted the spread of such services worldwide.

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Power to the people

"Technology is giving power to the customers," says Tom Wasaluski of the FCC, summing up the agency's view on the spat.

And customers are letting their fingers do the walking - to call-back services.

In Argentina, 60 percent of international calls are now handled by foreign call-back companies, an Argentine telecommunications policymaker wrote recently.

Most call-back business is being grabbed by nimble niche players, although giant AT&T Corp. offers the service.

Most US providers claim they can save customers up to 70 percent by selling them inexpensive American phone time. Given the real cost of an international call - usually only a few pennies a minute - they can readily afford to undercut national monopolies.

"Call-back created a general awareness that there was something out of whack with the existing system," says Cliff Rees of Telegroup, a call-back company also based in Fairfield, Iowa. "People [abroad] could begin asking, 'Hey, why is it that our so-called protectors are charging us $1 per minute to the US when I can get it for 29 cents?"

"People had always thought the interests of the [national phone monopoly] and the country were the same - sort of like we used to say, 'What's good for GM is good for America,' " Mr. Taylor says. That has begun to change, he says. Many countries that once tried to clamp down on call-back now accept it, prodded by popular resistance to curbs.

Leonard Waverman, a telecommunications analyst in Toronto, says governments of developed countries have come to view high international phone rates as a hidden tax on their domestic economies. "Business says, 'Hey, you want us to be globally competitive. Internet and the global telecommunications revolution are the biggest things going, and American firms have a huge advantage with low phone rates.' " Most developed countries in Europe and Asia have grudgingly accepted call-back as a benefit to long-term economic health.

But developing countries in Africa, South Asia, and Latin America, which rely on inflated long-distance rates to subsidize expansion of their local phone networks, balk at giving up hard cash for abstract theories of economic development. Yet these countries risk falling further behind if they resist while developed countries reap increasing benefits from liberalized service.

Some say this justifies FCC pressure on reluctant countries to accept competition. "There is a genuine belief that, by promoting liberalization abroad, other countries will benefit," Taylor says.

Ban considered

But at the June meeting of the International Telecommunications Union, many countries - predominantly developing ones - pushed for an outright ban on call-back. Some, like China, have already passed laws against it, forcing call-back companies underground. "If the ITU worked on majority vote," says Taylor, a delegate to the convention, "Call-back would already be outlawed, because most of the member countries are against it."

But because the ITU operates by consensus, a ban on call-back is unlikely as long as the United States supports it. A resolution was eventually drafted saying countries may ban call-back - something they are actually free to do without the ITU's blessing.

In the end, observers say, advancing technology will outpace any efforts to preserve monopolistic markets, making the fate of call-back a moot point. "Call-back is just the first of many alternatives that are out there," Mr. Wasaluski says. "In the future, there will be so many pressures on these phone monopolies, that they will have to respond to the needs of their customers."

How Overseas Call-Back Works

Say you are managing a joint venture in Vladivostok and want to get a better deal on international calls than the one the local telephone company offers - $6 per minute with a three-minute minimum. You sign up with an American call-back company that offers you a rate of 95 cents per minute. To begin saving rubles, you dial the call-back number when you want to make an overseas call - and then hang up after one ring. The Russians can't charge you for the call, because you hung up before anybody answered. Meanwhile, the call-back firm's computer knows you've called and rings you in Vladivostok. When you pick up the phone, you hear an American dial tone. Now you're free to call your supplier in Seoul, dialing as if you are calling from the US.

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