The imbalances of telephone traffic for the United States

Abstract

The US posts a large and growing deficit in international telephone services, a phenomenon often blamed on the accounting rate system. Using data for international calls between the US and 148 foreign destinations between 1991 and 1997, this paper finds that the increasing payment deficit for the US is associated with decreasing accounting rates. In other words, the international revenue settlement is related more to imbalances in telephone traffic than to accounting rates. The econometric model shows that growing asymmetries in teledensity, market concentration, and income levels between the US and the rest of the world explain the imbalances. Therefore, the appropriate solution to the payment deficit in telephone services is to focus on long-term economic factors that determine the flow of traffic.