other PTTS to do business with non-monopoly carriers. The UK government and regulatory institutions, staunch advocates of international telecommunications competition, are applying pressure to European administrations (and to British Telecom) to arrange for Mercury to have adequate interconnection arrangements in other European countries.
They have also applied enormous political pressure, successfully, to allow Cable and Wireless participation in international telecommunications traffic to and from Japan. The United States government is applying similar pressure to ensure the gradual dismantling of monopoly arrangements on many international routes.
Because of the interplay between parties at the A and B end of each international telecommunications link, there are some distinctive features of the introduction of competition into this market which will gradually have to settle into a new equilibrium as these older arrangements are phased out. The fact that it can cost a different amount to make a call from A to B than from B to A gives rise to the possibility of arbitrage by reversing the direction in which a call is made; in practice there is little evidence of this behaviour despite the opportunity having existed for many decades. When bringing pressure to bear on distant PTTS to allow interconnection with two competing carriers, arrangements must also be made to ensure that accounting rates for settling the division of customer revenues between the A and B end carrier are made on the same terms with each of the two competitors. In general, the system for international settlement of division of customer revenues from an international call, a somewhat archaic set of arrangements inherited from the nineteenth century (in which settlements are, to this day, still denominated in gold francs) will undergo some strain as the extent of international network competition increases. This is neither surprising nor dismaying. It is common for somewhat anomalous and perhaps economically inefficient practices to remain in force while competitive pressures do not act on a market. If the addition of Hong Kong to the growing group of countries introducing international competition results in more pressure for reform of these arrangements, the pressure is probably to be welcomed.
5.8.3 Concluding comments
All this being said, we noted earlier that the case for international competition is persuasive but not overwhelming. If it were determined that a single company should operate the international services of Hong Kong on a monopoly basis, while network competition is introduced internally, there is a strong case for granting the licence for this
In this international gateway to neither of the two internal operators. way, the advantages of economies of scale in gateway operation could be exploited without introducing a bias in the treatment of either of the two internal carriers. Any cross-subsidy which was desired between international and local revenues could be monitored and regulated without affecting the relative positions of the two internal competitors. We emphasize that this is not a scenario which this report recommends.
5.9
REGULATORY IMPLICATIONS
We draw attention here to the principal implications of moves towards telecommunications network competition for the regulatory process.
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