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Telecom traffic and investment in developing countries : the effects of international settlement rate reductions

Author

Listed:
  • Wallsten, Scott J.

Abstract

Developing countries, which received about $35 billion in net settlement payments from the United States telecom carriers between 1985 and 1998, were upset by the Federal Communications Commission's (FCC) decision to slash rates, because lower rates mean lower payments. They claim that the payments help finance telecom investment, and that the FCC's decision will therefore harm their telecom sectors. The author uses a panel data set for 178 countries from 1985 to 1998 to testhow changes in settlement rates affect telecom traffic and investment. He finds that rates are significantly negatively correlated with traffic, with the greatest effects in the poorest countries. In other words, reduced settlement rates spur telecom traffic from developing countries to the United States. And while there is a statistically significant correlation between settlement payments and telecom revenues in developing countries, he finds no correlation between the payments and the number of telephone mainlines or imports of telecommunications equipment. In short, there is no evidence that the payments are invested in telecom networks.

Suggested Citation

  • Wallsten, Scott J., 2000. "Telecom traffic and investment in developing countries : the effects of international settlement rate reductions," Policy Research Working Paper Series 2401, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2401
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    References listed on IDEAS

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    1. Marius Schwartz & David Malueg, 1998. "Where Have All the Minutes Gone? Asymmetric Telecom Liberalization, Carrier Alliances, and Gaming of International Settlements," Industrial Organization 9808002, University Library of Munich, Germany.
    2. Carlos A. Primo Braga & Emmanuel Forestier & Peter A. Stern, 1999. "Developing Countries and Accounting Rates Reform : A Technological and Regulatory El Niño?," World Bank Publications - Reports 11499, The World Bank Group.
    3. Ergas, Henry & Paterson, Paul, 1991. "International telecommunications settlement arrangements : An unsustainable inheritance?," Telecommunications Policy, Elsevier, vol. 15(1), pages 29-48, February.
    4. Gary Madden & Scott J. Savage, 2000. "Market Structure, Competition, and Pricing in United States International Telephone Service Markets," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 291-296, May.
    5. Melody, W. H., 2000. "Telecom myths: the international revenue settlements subsidy," Telecommunications Policy, Elsevier, vol. 24(1), pages 51-61, February.
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