"In the Matter of International Settlement Rates, IB Docket No. 96-261." Now, if this title doesn't interest you, perhaps its $4 billion punch line will.

That's the amount that could be shaved from U.S. phone bills if the Federal Communications Commission follows through on its bold proposal to cut international phone rates paid by U.S. users.

In this proposal, the FCC is telling telephone companies overseas that American carriers will no longer pay monopoly-based rates to complete phone calls originating in the U.S. (Monopoly-based rates are the reason the average international call costs $0.99 per minute, compared to the average domestic long distance charge of $0.16.) Within four years, a set of cost-based rates will be phased in, and American carriers will be barred from paying rates higher than these "benchmarks."

This will end the double-whammy paid by American consumers in their international phone bills: artificially high per-minute charges, and the year-end settlements paid by American carriers to foreign carriers. These settlements, based on the imbalance between outbound and inbound calls, are now about $4 billion higher than they would be under competitive rates -- and they are passed to consumers.

It would seem reasonable that American consumers not be forced to subsidize noncompetitive phone companies overseas, right?

Not so, according to phone companies and governments around the world who have flooded the FCC with statements opposing rate reform. They contend that the FCC's initiative is unfair because it is unilateral, and will abruptly choke off revenue streams that are used to subsidize rural service or to finance transitions from domestic telecom monopoly to competition.

There's no disputing the criticism that the FCC is acting unilaterally. But years of efforts to reform international rates through multilateral negotiations, at the International Telecommunications Union in Geneva and elsewhere, have failed to produce results.

The FCC will evaluate public comments on its proposal and make its decision this summer. The Commission should hang tough in the interest of telecom consumers around the world, who will see these benefits:

Lower rates. When the FCC's rate reform is implemented, Americans calling overseas will see their rates drop immediately. So will consumers overseas. The rates charged by "callback" companies (U.S. companies that sell U.S. dial tone to phone users in countries with monopoly-based rates) will fall. This will benefit callback users, and it will give monopolists a sharper incentive to cut rates to preserve their market share. The FCC's reform could have other ripple effects. Some officials in Latin America are considering ways to reduce the rates on intra-regional traffic.

Greater competition. By eroding the disproportionate power -- and profits -- of monopoly carriers, rate reform will give governments a new incentive to accelerate the transition to competitive markets.

Fair competition. Cost-based rates will ensure a level playing field in international telecom competition. The global telecom accord signed in February in Geneva commits sixty-nine nations to permit foreign carriers to compete in their domestic markets. Fair competition can't take place if consumers and carriers in competitive markets are compelled to subsidize overseas monopoly carriers -- whom they are then committed to admit into their domestic markets as full competitors in all telecom services.

Economic opportunity. A survey of Asia and Latin America published by the World Bank showed that competitive markets experience greater growth in telecom employment and greater growth in "teledensity" (phone lines per capita) than monopoly markets. When telecom services are available and affordable, all sectors of society can reap the economic and social benefits of the information revolution.

The FCC is undoubtedly using the heavy hand of its regulatory power to achieve international rate reform. But its Chairman, Reed Hundt, is acting wisely to provide a counterweight to the power of telecom monopolies, and to promote competitive markets.

It's a paradox that the transition to competition needs to be spurred by the exercise of some additional regulatory power. But this is one regulation that consumers around the world should cheer.
 

The author is Senior Fellow at the Alexis de Tocqueville Institution
and editor of the Latin America telecom website InfoAmericas 2000 (www.infoamericas.org)