The international revenue settlement debate

Abstract

The revenue settlement process in international telecommunications, that is used by the majority of carriers, is the accounting revenue division procedure (ARDP). The formula for the net-settlement which is central to revenue settlement, is a model of simplicity. However, it is often ignored that the process is based on equal sharing of the accounting revenue, between two carriers who are exchanging international telephone traffic between their respective countries. In particular, the provision of equal sharing of the accounting revenue is not compatible with a competitive global market. A further crucial element of the settlement process is the so-called accounting rate. The net-settlement is linearly dependent on the accounting rate, but changes in the level of the accounting rate cannot eliminate the provision of equal revenue sharing. In fact, the proclaimed aim of reducing accounting rates toward cost, while at the same time preserving the provision for equal sharing of the accounting revenue, will most certainly lead to a subsidy from lesser developed countries to developed countries, regardless of the volume of telephone traffic exchanged, even if the payer of the net-settlement is the carrier of the developed country. On the other hand, removal of the provision of equal sharing of the accounting revenue from the ARDP would obliterate the entire process, and with it the opportunity offered to both carriers to simultaneously earn settlement revenues beyond the revenue requirement.