Discussion Papers

Friedrich Schwandt

Das Europäische Accounting Rate-Abkommen: TEUREM
Nr. 141 / Januar 1995

Summary

An accounting rate agreement is an intermediate price system under which one domestic carrier compensates a foreign carrier for transmitting telephone calls on its network. Accounting rate agreements are the cornerstone of the international regulatory framework for crossborder telephony. The original concept of accounting rates was that it should represent the average costs for the end-to-end traffic unit of an international telephone call. However, accounting rates have often not been modified in line with the major cost reductions that have been occured with telecommunications infrastructure in recent years. The actual relationship between accounting rates and costs depends on the institutional framework of the accounting rate system.

This report focuses on the characteristics of the accounting rate agreement of the „Tariff Group for Europe and the Mediterranean Basin“ (TEUREM). The TEUREM system regulates the crossborder telephony between all European Telecommunications Organizations. The paper shows why TEUREM accounting rates are lower than rates for comparable connections of different agreements but higher than their estimated average costs.

Relatively balanced intra-European incoming and outgoing traffic has facilitated the introduction of cost studies on the basis of three elements of costs - transmission, switching and the extension of calls over the national network. TEUREM accounting rates are based on these cost studies that are periodically reviewed. On the contrary, non-European accounting rates are bilaterally negotiated without any relation to their underpinning costs. Although TEUREM accounting rates are based on costs they are not identical with them. Even in a situation with balanced traffic European Telecommunications Organization have other incentives to keep rates above costs. Within certain national price regulations high accounting rates can legitimize high collection charges. Further, high accounting rates can hinder arbitrage competition between national markets.

The accounting rate influences to a large extent the marginal costs of an international call because it represents the input price to the originating carrier of using the terminating carrier’s network. Consequently, the higher the accounting rates, the higher the collection charges are likely to be. Intra-European collection charges are characterized by different price-costs distortions. On the contrary to intercontinental rates, TEUREM accounting rates are only partly responsible for these distortions. Their main sources are various national market regulations.

Only German language version available.

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