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CALL-BACK, CASH-BACK?
Article
prepared by Dr Tim Kelly*, International Telecommunication Union,
for Global Telecoms Business, August/September 1996 edition.
Call-back
brings enormous benefits to telecommunication users in terms of lower prices for
international telephone calls, particularly in developing countries. It also
provides an important source of revenue, via the accounting rate process, for
local Public Telecommunication Operators. So why are developing country
governments so opposed to call-back?
The simplest ideas are
usually the most effective. If you ask your local Public Telecommunication
Operator (PTO), how to reduce your bill for international telephone calls, they
will probably regale you with all sorts of clever tricks with complicated
sounding names like "international virtual private networks" or
"international simple resale". Most of these options assume that you
make an awful lot of international calls. But if you just want to call Auntie
Bertha in Boston once a week, then the PTO might insist you pay their full
advertised rate, which might be a lot more than Auntie Bertha's PTO charges her.
So that's where call-back comes in. You can, of course, call Auntie Bertha and
ask her to call you back, or reverse the charges. Telephone users have been
doing that since Alexander Graham Bell made his first call. But Auntie Bertha
might not want to pay for the call. Instead, you could use a public call-back
service and get a computer to do the call re-routing for you. That way, you pay
a lot less for your call, and Auntie Bertha doesn't need to pay anything.
How it works
The reason why your local PTO
won't tell you about call-back is because its a service which is usually offered
in competition to them and can potentially offer substantial savings relative to
their standard tariffs. To call from the United Kingdom to the United States',
for instance, typically costs less than US$ 0.25 per minute with a call-back
provider compared with BT's standard peak rate charge of more than US$ 0.50 per
minute. Most call-back operations route traffic via the United States, where
markets are more liberalised and where access to transmission capacity at
wholesale prices is more readily available. The "classic" call-back
service relies on uncompleted call signalling systems. Customers in a foreign
country, who have pre-subscribed to the service, dial a US telephone number and,
after a certain number of rings, they hang up. The US call-back company (or
rather, its computer) then initiates a call in the opposite direction to the
foreign telephone number. When the foreign caller answers, he or she receives a
US dial tone from the switch at the reseller's US location. The customer can
then place a call in the United States or to a foreign destination. The customer
does not pay for the initial uncompleted call, but instead pays the usage fees
charged by the call-back service provider for the successful call.
Ban it, or back it?
While uncompleted call
signalling, or code calling, is the most common form of call-back, there are
many other types some of which use leased lines, "800" freephone
numbers, call conferencing or other facilities. A recent ITU working group on
call-back identified some nine different types of call-back, at least two of
which are downright fraudulent. These two types, known as call bombardment (or
hot polling) and answer suppression, interfere with the billing mechanism of the
PTO, so they effectively "steal" the call from the PTO. These two
types of call-back were banned by the Federal Communications Commission, the US
regulator, earlier this year and the ITU Council at its meeting in June 1996
called upon ITU members to suspend the activities of those call-back companies
which specifically use these two methods. But, by implication, the other seven
forms of call-back are legitimate, and the ITU Council recognised this by
stating that "call-back ... may be attractive for users".
The ITU had been under
pressure from some countries to ban call-back altogether, by declaring that it
infringes the International Telecommunication Regulations, an international
treaty signed in 1988. Contrary to these wishes, the ITU Council pointed out
that one of the purposes of the ITU is the "offering of services at lowest
cost", which call-back helps to fulfil. The Council reaffirmed that it is
the "sovereign right of each country to regulate its telecommunications and
as such it may permit, prohibit or otherwise regulate call-back in its territory".
To date, some 26 countries have made statements concerning the legality of
call-back in their territory, mostly to ban it. In all of these countries, the
main national PTO has a monopoly over the provision of international
telecommunication services and perhaps this is the key to understanding their
objections: call-back is a challenge to their monopoly. There is a certain irony
to this in that it is the PTOs themselves who are the main users of alternative
calling procedures which reverse the routing of the call, for instance through
calling card and country-direct services. But the development of call-back has
introduced new players into the market in direct competition with the PTOs and
it is now threatening the generous margins they enjoy on international
telecommunications.
How significant is
call-back?
It is difficult to measure
the size of the market for call-back because, in a country's traffic statistics,
it appears as an incoming call from the country hosting the service (usually the
United States) rather than an outgoing call from the origin country. Industry
estimates show that there were perhaps 600 million minutes of call-back traffic
in 1995, equivalent to some 1 per cent of total telephone traffic, or some 4 per
cent of US international outgoing traffic. If one assumes that the average price
of a call-back call is around US$ 0.45 per minute (or about half the cost of an
average international call routed through a traditional PTO), then call-back is
a US$ 270 million business worldwide. Not bad for a business which didn't exist
until a few years ago. And it is growing fast: call-back traffic has increased
at least tenfold between 1993 and 1995.
It is difficult to determine
whether call-back is likely to be a long-term or a short term phenomenon. It
thrives because of imbalances in the cost of international calls between
countries and also because of the gap between the cost of providing telephone
service (approximated by the accounting rate) and the price charged to consumers
(the collection charge). This gap is widening, which suggests that call-back
will be with us for some time to come. While PTOs might not agree, the overall
effect of call-back on the telecommunications industry has been positive,
particularly for end-users (see Table). For developing countries, the effect of
call-back is more difficult to determine, but even here the overall effects
appear to have been beneficial (see Box).
In favour of call-back |
Against
call-back |
| Call-back
and other “alternative calling procedures” have done much to bring
about price reductions in
international call charges to individual users. |
A
few call-back operators have proved to be fly-by-night
operators who trade under a particular name only long enough to
collect subscription fees and then move on, or change their name. |
| In
countries which do not permit infrastructure competition in international
service or which place restrictions on market entry, call-back provides an
important source of competition to
established PTOs with all the benefits which that brings. |
Call-back
operators make little investment in
new network capacity in contrast to the PTOs which should use revenues
to build, modernise and extend networks. |
| The
companies that provide call-back services are typically small and
medium-sized enterprises, many of which are new start-ups. The
telecommunications sector has undoubtedly benefited from the entrepreneurship
and service innovation that these companies have brought to the market. |
The
practice of call-back challenges
the legal monopoly of PTOs in countries where no official competitors
have been licensed. Call-back may also reduce the revenue stream of those
PTOs. |
| The
provision of call-back brings benefits primarily to residential
consumers, especially to immigrants, refugees, and foreign students
who are often among the poorest members of society. By contrast, PTO
offerings tend to benefit mainly businesses and tourists. |
Some
call-back operators are guilty of false
or misleading advertising because they just quote the discounts
compared with fictional PTO tariffs rather than the real price. |
| There
is growing evidence to suggest that call-back is generating extra traffic, by persuading users to make additional calls, or
longer calls, than they would do on other more expensive services. |
It
is sometimes argued that call-back adversely affects network quality
because of the use of uncompleted
signalling especially if techniques such as
call bombardment are employed. |
| Call-back
also permits calls between
countries than have no direct traffic links (e.g., Israel and several
Arab States). |
Most
call-back operators come from one country (the United States) and their profits may be repatriated. |
| Box:
Call-back: a boost for development?
It is often alleged
that call-back is a problem for developing countries because it deprives
the local Public Telecommunication Operator (PTO) of a proportion of the
revenue it derives from international telecommunication services which is
needed to develop the national telecommunication network. While call-back
may lead to a reduced opportunity for the national monopoly PTO to sell
its services, it does not necessarily lead to a loss of revenue. That is
because of the operation of the accounting rate system whereby PTOs
compensate each other (through settlement payments) for terminating their
calls. Because call-back reverses the routing of a call, the PTO of the
origin country will receive rather than make a settlement payment.
Consider the following
case where a resident of a developing country spends US$ 10 on making a
call direct via a national PTO (at say US$ 2.00 per minute: a 5 minute
call) and the same amount with a call-back company (at say US$ 1.33 per
minute: a 7.5 minute call). If the accounting rate with the distant
country is US$1.20 per minute, then the settlement payment is US$0.60 per
minute. In the first case, the settlement payments out of the country are
US$3.00 (5 minutes multiplied by 60 cents). In the second case, the
settlement payments into the country are US$ 4.50 (7.5 minutes multiplied
by 60 cents). While the PTO of the developing country may seem to be
losing out (it retains only US$ 4.50 instead of US$ 7.00), in practice it
may have gained because it is not obliged to pay out any cash to the
distant PTO, and because the cash it receives will be in the form of hard
currency, usually US dollars. Furthermore, the local PTO incurs no direct
costs in billing for a call-back service or in debt collection.
For many developing
countries, settlement payments are now a major form of telecommunication
revenue. As shown in the figure, in several countries of Latin America and
the Caribbean, net settlement payments from just one country, the United
States, already make up more than half of overall telecommunications
revenue. In Africa too, where call-back is popular due to the high price
of international calls, net settlement payments from the United States
have tripled in value in just five years. A high percentage of this
windfall has been poured back into network development, as the equipment
import figures show.
|
Net settlement payments
between the United States and selected Caribbean countries, 1994, and African
countries, 1990-94
Source: ITU/TeleGeography
Inc., "Direction of Traffic, 1996" (forthcoming).
Of all the different
"alternative calling procedures", call-back is certainly the most
suited to the needs of developing countries. Some alternative calling procedures
stimulate traffic without bringing financial benefits to the local PTO (this is
the case, for instance, with Internet telephony, international simple resale and
other bypass systems). Others bring financial benefits to the local PTO (via the
settlement payment mechanism) but do not necessarily stimulate traffic by
offering lower prices (for instance, calling card traffic, country-direct
services). Only call-back performs the trick of both stimulating traffic and
raising cash for the local PTO. Better still, it is particularly aimed at
residential consumers rather than the business users who are the usual
beneficiaries of discounted tariffs.
So this, then, is the message
for developing countries. Before criticising call-back operators, consider the
alternatives. Call-back works to the advantage of developing countries because
it operates within the traditional accounting rate system. If the accounting
rate system crumbles, then the US$ 5 billion or so in settlement payments from
developed countries to the developing world which are made each year will also
disappear. For developing countries, call-back may be the thin but attractive
end of a very large and unattractive wedge.
Notes
The following countries had made statements, published in the ITU Operational
Bulletin up to 10 June 1996, concerning the legality of call-back in their
territories: Algeria, Bahrain, Burundi, China, Columbia, Djibouti, Ecuador,
Egypt, Honduras, Kazakhstan, Kenya, Kuwait, Kyrgyzstan, Latvia, Malaysia,
Morocco, Niger, Portugal, Qatar, Thailand, Turkey, Uganda, Viet Nam, Yemen.
* Dr Tim Kelly is Head of
Operations Analysis in the Strategic Planning Unit of the ITU in Geneva. The
views expressed in this paper are his own and do not necessarily reflect the
opinions of the ITU or its membership.
Source: International
Telecommunication Union
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