International Telecommunications, Settlement Rates, and the FCC

This paper models settlement arrangements between international telecommunication carriers. The FCC in the U.S. claims these arrangements cost U.S. consumers billions of dollars annually, largely to subsidize foreign carriers in low-income countries. A model is given which makes sense of this claim, as well as the role of costs, competition, and income disparities in settlement rate determination. Findings are tested using data spanning 17 years and 167 countries. Some implications are drawn for the FCC's recently proposed settlement rate caps, as well as for proposals for multilateral solutions. [JEL: L43, L96, K23] I would like to thank Douglas Galbi and John Panzar for useful comments, and Richard Edlin and Sarah Russell for research assistance. I gatefully acknowledge the nancial support of the Center for Research in Network Economics and Communications. All errors are mine.