Developing Countries and Accounting Rates Reform : A Technological and Regulatory El Ni??o?

New technology and the liberalization of telecommunications markets are putting increasing stress on the accounting rates regime -- the system used by telecommunications carriers to settle their international traffic accounts. While operators in most countries acknowledge that the current system is unsustainable, many developing countries have resisted the pressures for radical change, arguing that it will cause an unbearably large drop in their operations' profitability. Many depend heavily on international revenues to subsidize network development and public services. Several of the most vulnerable countries derive up to 50 percent of their telecommunications revenues from international settlements. And for about thirty countries changes to the settlement regime will have a significant effect on current account and fiscal balances. In several of these countries the telecommunications sector is characterized by distorted pricing structures, ineffective policies, and a monopoly service provider. This Note briefly reviews the growing pressures on the current arrangements, analyzes the countries most affected, discusses the future of international telephony pricing, and outlines new sources of assistance to help developing countries make the transition.