The imbalances of telephone traffic for the United States

The US posts a large and growing deficit in international telephone service s, a phenomenon often blamed on the accounting rate system. Using data for international calls between the US and 148 foreign destinations between 199 1 and 1997, this paper finds that the increasing payment deficit for the US is associated with decreasing accounting rates. In other words, the intern ational revenue settlement is related more to imbalances in telephone traff ic than to accounting rates. The econometric model shows that growing asymm etries in teledensity, market concentration, and income levels between the US and the rest of the world explain the imbalances. Therefore, the appropr iate solution to the payment deficit in telephone services is to focus on l ong-term economic factors that determine the flow of traffic. (C) 2001 Else vier Science Ltd. All rights reserved.