FCC Targets International Phone Rates

Federal regulators on Tuesday approved new rules that potentially could save U.S. consumers and businesses billions of dollars by allowing U.S. and foreign telephone carriers to negotiate lower international calling rates.

For Southern Californians, the new rules could eventually lead to substantial savings in calls to family and business associates in Canada, Latin America and Asia. While international calls are a small portion of the total calls made by Americans, Californians are among the top international callers in the country.

Analysts say the changes may spark a reduction in international phone rates that could rival the 40% cut in domestic toll calls over the last decade. The Federal Communication Commission’s new rules only apply to countries whose telephone markets are open to competition. That is currently a small group, so the change is unlikely to immediately drive down the cost of most long-distance calls.

But as other countries join Canada, Britain and Sweden in opening up to competition, the impact could grow substantially. Mexico plans to open its long-distance telephone market on Jan. 1, 1997, and most countries in the European Union will officially open their state-controlled telephone markets one year later. Other countries will inevitably follow their lead.

“I think the [FCC] thinks that if you can get one country to lead the way and lower prices, it can become a [model] for other countries,” said Leonard Waverman, a telecommunications expert who is director of the Center for International Studies at the University of Toronto.

The FCC calculates that 16 billion minutes--the equivalent of 30,441 years--of long-distance service were billed to the U.S. last year. Even if the FCC fails to achieve the degree of hoped-for price-cutting, any reduction is sure to have a meaningful impact, analysts said.

“If the U.S. can use its leverage to get other countries to adopt a pro-consumer and pro-competitive policy, this could significantly reduce international rates,” said Mark Cooper, director of research for the Consumer Federation of America in Washington.

Although people who call family and friends internationally would benefit, the bulk of the savings would go to big multinational corporations, according to Regina Costa, telecommunications research director for the consumer watchdog group Toward Utility Rate Normalization in San Francisco.

The rule changes override the current FCC requirement that foreign and U.S. carriers equally split the compensation they receive for routing international calls. This waiver clears the way for U.S. long-distance telephone companies to negotiate lower international calling rates.

International calling rates now bear little relationship to the actual cost of providing long-distance service, industry experts said. According to the FCC, the average per-minute cost of all international calls originating in the U.S. is 99 cents. That varies from 35 cents to Canada and 90 cents to Mexico to $1.02 to Japan and $1.31 to the Philippines. The average price of a long-distance call within the U.S. is a comparatively low 16 cents per minute.

“The big question is why does it cost five times more per minute to call internationally than to call domestically?” said Ken Stanley, an economist in the FCC’s international bureau.

In part, the answer is that international transmission facilities that route calls to the correct telephones are slightly more expensive than their domestic counterparts. There is also a small charge for accessing a gateway through which all international calls must pass.

But the most expensive component of an international call is the fee that foreign countries charge for completing calls placed to phones inside their borders--fees “two to three times higher than they should be under any reasonable assumption of what’s appropriate,” Stanley said.

Many markets have been openly hostile to lower rates. The FCC, for example, was forced to intervene in a rate dispute between AT&T; and Argentina nine months ago after regulators in the South American nation briefly shut down AT&T;’s long-distance circuits.

Some observers doubted that the FCC will have any more luck compelling foreign governments to deregulate their phone industries.

“Historically, we have not had great influence with foreign phone companies,” said Thomas Hazlett, a former chief economist at the FCC who serves on the advisory council of Consumer Alert, a group based in Washington. “They have very cheap domestic rates, and they make it up by having horrendously expensive foreign tolls. That system is inherently incompatible with foreign competition.”

Mexico, El Salvador and Guatemala are working on ways to prepare for competition by changing their rates so that prices more accurately reflect costs. But that would almost certainly lead to higher domestic calling prices for citizens in those countries.

“As you might suspect, it’s a hugely explosive political issue,” Hazlett said.

But others believe that once a critical mass of countries opens its markets, the path to competition will become unavoidable.

“It’s certainly going to be a tough thing to have reform enacted in many of these countries, but I think it’s inevitable,” said Bruce Raabe, senior equity analyst with Collins & Co. in the San Francisco Bay Area.

Tuesday’s rule change was the first in a number of aggressive steps the FCC is seeking to help bring down rates.

The agency next month will seek public comment on a proposal to set benchmarks for charges U.S. carriers pay foreign telephone monopolies to complete international calls from the U.S. These rates, FCC officials said, would better reflect actual costs.

Shiver reported from Washington and Kaplan from Los Angeles.