Foreign Calls Add $4 Billion to Trade Gap : Communications: Telephone companies abroad charge U.S. counterparts dearly for completing calls, experts say.

WASHINGTON —  America pays too much to call abroad--$4 billion too much, according to regulators searching for ways to cut the nation’s international phone bill.

Although the cost of international calls has dropped dramatically over the years, foreign carriers--many of them government-owned monopolies--continue to charge U.S. phone companies seven to 30 times the actual cost of completing international calls, experts say.

The results are big profits for both foreign and U.S. carriers and an estimated $4-billion contribution to the U.S. trade deficit--a dollar drain exceeded only by the yearly trade deficits in the automobile, petroleum, electronics and apparel industries.

In recent years, the U.S. trade deficit has ranged from $70 billion to $150 billion.

“This is an area our government needs to focus on,” said Wendell R. Harris, head of the Federal Communications Commission’s international common carrier division.

“We were talking about going to war with the French over $300 million worth of grapes,” he noted, citing a recent trade dispute between Washington and Paris over wine imports. “The deficit we’re talking about here is $4 billion.”

The dispute is over an arcane set of figures called “accounting rates.” Accounting rates compensate long-distance carriers for the cost of routing international calls. The rates, which are negotiated on a country-by-country basis, in most cases are split equally between the domestic and foreign carriers handling the calls.

When a call is placed from New York to Paris, for instance, AT&T;, MCI or Sprint would collect an accounting charge of, say, 50 cents per minute for taking the call halfway across the Atlantic Ocean. France’s long-distance phone carrier would be paid the same amount for taking the call to its destination in Paris.

Although one influences the other, the accounting rate is not the same as the amount billed to the telephone user who places the call. In fact, many foreign phone carriers charge considerably more for international calls originating in their countries than U.S. carriers charge for the same calls originating here.

In other words, it can cost more to call from Paris to Los Angeles than from L.A. to Paris. Indeed, in a limited survey conducted in 1988, the FCC found that the average price for an international call to the United States was about $1.70 a minute--about 30% more than the cost of making a comparable outbound call.

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Partly as a result of the differing charges, there are about twice as many calls placed from the United States to foreign destinations as vice versa. The result: America’s growing telephone trade deficit.

Currently, about 75 cents of each $1 in accounting charges collected on international calls goes to foreign telephone companies, U.S. carriers say.

According to the FCC, the trade gap has doubled in the last four years as international calling has mushroomed. Almost all economic activity involves global telecommunications in some fashion, noted Washington lawyer Gregory C. Staple, who edited Telegeography 1992, an industry reference book. Americans now spend almost twice as much time calling abroad each week as they did during all of 1969, he added.

But the FCC’s ability to do anything about the high cost of international calling is limited.

The FCC could order U.S. carriers to pay their foreign counterparts lower fees. Instead, regulators have relied mostly on jawboning, fearing that foreign carriers might retaliate against U.S. phone companies and cut off service if forced to cut rates.

In reports scheduled to be filed with the FCC today, AT&T;, MCI Communications, Sprint Corp. and other U.S. long-distance phone carriers are expected to disclose that they have made only marginal progress in their own two-year campaign to get foreign carriers to lower their accounting rates.

“Many phone companies overseas are state-owned and are often both the regulator and provider of phone service,” said John M. Scorce, director of international regulatory affairs for MCI. In many instances, he said, U.S. carriers “just don’t have the clout and leverage to convince foreign telephone companies to reduce their accounting rates.”

Foreign phone companies, in any event, don’t see lower rates as being in their best interest.

Unlike their U.S. counterparts, many foreign carriers depend on phone revenue to subsidize other government activities, such as postal or tourism services. High international dialing rates also help hold down the price of domestic dialing, experts say.

“International and local (rates) are interlinked, so in order to lower international rates you would have to increase local rates--and that’s politically difficult to do,” said Dimitri Ypsilanti, an economist who heads the telecommunications section of the Organization of Economic Cooperation and Development in Paris.

Said one telephone executive who requested anonymity: “When you talk to (foreign carriers) about adjusting their accounting rates, they say, “We don’t want anybody messing with our cash cow.’ ”

U.S. carriers, meanwhile, may lack a strong incentive to squeeze their foreign counterparts. After all, they share in the sums generated by high accounting rates, said Howard S. Jonas, who runs a discount telephone company out of a former funeral home in Bronx, N.Y.

Jonas is one of a handful of resourceful entrepreneurs who have seen an opportunity in the artificially high international rates.

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For about $200 a month, his firm, International Discount Telecommunications Corp., lets customers place calls from abroad--at rates as if the calls originated in the the United States. A caller in Pakistan, for instance, can use IDT to call Los Angeles or Paris.

It works like this: A caller dials an IDT machine in the United States, hangs up and waits for the machine to call back. Using the telephone key pad, the caller then instructs the machine in New York to place a call.

According to Jonas, the price of outbound calls would drop by half and the cost of calls into the United States would fall more than 50 cents a minute if accounting rates reflected the true cost of telephone service.

America Calling

Despite the high cost, Americans spend billions of minutes on the phone each year calling abroad. These were the busiest international telephone routes in 1991.

(millions of minutes of phone calls) Canada: 3,300 Mexico: 1,500 United Kingdom: 1,200 Germany: 791 Japan: 550 Source: Federal Communications Commission