Traditional and Non-Traditional Determinants of Accounting Rates in International Telecommunications

The accounting rate system currently in place is used to reimburse telephone companies around the world for terminating calls originating in foreign countries. Increased competition in more liberalized countries has led to imbalances between traffic originating in these countries and traffic coming in from less liberalized countries, leading to huge settlement payments being made to less liberalized countries. Some variation in accounting rates across countries can be explained by traditional factors such as the actual cost of terminating calls. Our results suggest that accounting rates are also significantly affected by non-traditional factors such as the extent of government regulation, the level of corruption, and the like. These findings support the need for consideration of these factors in reforming the accounting rate system currently in place.