The accounting rate system was developed as a way to allocate revenue for international telephone services. The system is a series of arrangements between national operators in which the operators jointly provide international calls and divide the revenues from such calls between them.
The accounting rate system provides a set of agreed prices for interconnection of international calls. The originating carrier charges the customer making the call a retail rate, and is charged the accounting rate for terminating the international call. As their name suggests, accounting rates do not always reflect costs.
If traffic flows along a route are balanced, the accounting rate system does not generate significant cash flows. However, for many less-developed countries, traffic on international routes is unbalanced — more calls are terminated in these countries than originate from them. As a result, the accounting rate system produced considerable revenue inflows to many less-developed countries.
Moving Away From Accounting Rates
The accounting rate system has come under pressure in recent years.
The presence of competitive long distance providers has made it necessary for providers in other countries to deal with more than one correspondent. This has opened the gates to different arrangements, in search of lower prices.
Carriers exploit numerous arbitrage opportunities to offer customers rates that are well below international accounting rates.
The system has also come under regulatory pressure. In 1997, the United States Federal Communications Commission acted to reduce these accounting rates by prohibiting United States-based carriers from paying rates above certain benchmark levels.
The accounting rate system has now been largely replaced by cross-border interconnection. Carriers directly negotiate rates to terminate traffic, in some cases with long-term contracts, in other cases on a short-term or spot basis. Electronic exchanges have emerged that enable trading of international voice, data, and mobile capacity. Arbinet is an example of such an exchange. Arbinet claims that more than 10.4 billion minutes of traffic were transacted through its trading platform in 2004.
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