As the World Shrinks, So Do Prices on International Calls

The price of a telephone call to other countries is about to take a plunge.

But don't expect your phone bills to get lower right away.

One reason is that people are talking more on the phone - especially long distance. International telephone calls have jumped from 4 billion minutes in 1975 to more than 60 billion in 1995.

And people in many countries are waiting for a chance to talk at all: Some 43 million would-be callers are on official waiting lists for telephone hook-ups in the developing world, according to the Geneva-based International Telecommunication Union (ITU).

Thanks to a booming telecommunications market, new technology, and a global commitment to privatization, many may not have much longer to wait.

The world telecom industry is growing at twice the rate of the global economy. By 1998, it should be a $1-trillion industry worldwide; and by 2000, the world's combined base of fixed-line and mobile telephones will be around 1 billion, ITU analysts say.

In 1950, a three-minute phone call from Boston to London cost about $12. That price dropped to about $3 in the 1960s, thanks to a new submarine cable across the Atlantic. Phone rates stayed at about the same level until the early 1980s, when competition from industry newcomer MCI briefly set off a price war with world leader AT&T.

Since then, new technologies, such as fiber optics, as well as satellite and microwave links, have made distance nearly irrelevant in determining the price of a call, industry analysts say. Costs today are determined more by who runs the network infrastructure, access costs, and who controls cables and lines.

New competition in a telecommunications industry once dominated by government-owned monopolies is driving costs down even further.

New markets

In February, 69 nations representing 94 percent of the global telecom market signed a historic agreement to open their markets to competition. The World Trade Organization (WTO) agreement sets rules and standards for competition in a wide range of telecommunications, including satellite systems, cellular phones, and data transmission.

Six other nations subsequently agreed to join the pact, which must be ratified by Nov. 30.

Commenting on the agreement, US Trade Representative Charlene Barshefsky predicted that "the average cost of international phone calls would drop by 80 percent" over the next few years. Before the pact, only 17 percent of the telecommunications market was open to American companies; now, US firms would have access to nearly all markets, she added.

"It is difficult to be very precise in these matters, but telecom liberalization could mean global income gains of some $1 trillion over the next decade or so," adds Renato Ruggiero, director-general of the Geneva-based WTO, which will police the accord.

The new accord will open up fast-growing markets in Asia, Latin America, and Africa to international investors, industry analysts say. For developing nations, such investment would provide a significant boost to their economies.

The accord, backed by the WTO, may also give investors additional confidence to enter these new markets. It aims to ensure that foreign investors will be treated fairly in traditionally closed markets.

In addition, the agreement locks in rules and procedures. If any member flouts the terms of competition, or treats a foreign investor unfairly, it can be challenged through WTO dispute procedures.

Since 1984, when the US broke up its nationwide Bell Telephone Co., some 44 public telecommunications operators around the world have been privatized. Almost immediately, phone rates began to drop.

For example, average prices for telephone services fell by 63 percent in Britain and 41 percent in Japan, and long-distance prices fell by 66 percent in Finland after deregulation in the late 1980s, according to a new report released by the Paris-based Organization for Economic Cooperation and Development (OECD).

The 15-member European Union is committed to competition among its own telecom services this year. As of Jan 1, 1998, consumers in the EU will be able to choose their own provider for long-distance calls. On June 27, European telecom ministers set a calendar for selecting service providers.

In Europe, there were significant differences in phone rates between countries that had opened their markets and those that had not. Before Germany's state monopoly, Deutsche Telekom, was privatized in 1996, a national long-distance call in Germany cost four times the price of a comparable call in Britain, where telecoms were fully privatized.

Last month, Dutch telecom charges were cut by 10 percent, five days before KPN, the country's privatized post-and-telecommunications utility, opened to full competition.

Until recently, a strong national telecom was viewed as just as much a public responsibility as a strong national defense. French officials, for example, have long defended a public telecom monopoly on the grounds that equal access to communication is the right of every citizen, and that only a state-owned telecom could ensure that right.

But even in France, the global trend away from national monopolies is proving hard to resist. In a legislative hearing in April 1996, France Tlcom president Michel Bon urged the legislature to move quickly to privatize France Tlcom. "All other countries, regardless of the political orientation of their governments, have renounced monopolies, and France can't remain isolated," he said.

France's new Socialist government has yet to commit itself on whether to privatize its national monopoly. In a July 3 televised interview, Prime Minister Lionel Jospin described France Tlcom as "a national jewel" and refused to comment on its fate. French public-sector unions, as well as Mr. Jospin's Communist and extreme-left coalition partners, reject privatizing France Tlcom and insist that such a move would slash jobs and undermine the "logic of public service."

Other national telecoms have had to cut the work force after privatization. But early job cuts have been offset by employment gains in new companies, according to a new OECD study on regulation. In the United States, jobs in the traditional telecommunications sector are at the same level today as before deregulation. But jobs in related information and copyright industries grew from 3 million in 1977 to 5.9 million in 1994.

The prospect of facing new competition is also pushing government-owned telecoms to behave more like their private counterparts. By 1998, France Tlcom, which has had among the highest phone costs in Europe, will have cut its international long-distance rates by more than 60 percent in three years. "The prospect of new competitors and mergers ... is pushing all telecoms to lower their rates," says Alain-Louis Mie, a France Tlcom spokesman.

New rates on hold?

But industry analysts warn that such an agreement will not immediately ensure lower prices. "The WTO agreement will accelerate the trend toward lower prices, but the industry is very 'cartelized' and it will take a while for competition to break this down," says Tim Kelly, chief analyst with the Geneva-based ITU.

While international phone charges are falling, many telecoms in developed countries hiked their access charges, such as the fee for installation or subscription. In Europe and most of the rest of the world, phone companies are also raising charges for local calls.