ABSTRACT
This chapter shows that the operation of the proportionate return rule provides a major, and perhaps the main source of profit for carriers selling call-back minutes. The rule provides for the transfer of incoming International Direct Dial (IDD) minutes and the associated hugely profitable settlement credits, from the other competing carriers, to the carrier selling call-back minutes. In this regard, the rule is not even-handed. The higher the market share of the carrier selling call-back minutes, the less well they do under the rule, so much so that under some circumstances selling call-back minutes at an apparent profit can actually impose losses on the carrier. Counterintuitively, the impact of a call-back service on the financial position of the monopolist in the country where the call-back service is offered will in many cases be positive. The explanation for this result is found by observing cost and revenue streams, and by taking note of the various elasticities and feedback effects wherever there is an increase in traffic. For this operator, the situation is slightly more favorable in a two-country model with call-back than where call-back minutes are terminated in a third country. The policy recommendation suggested in this chapter is to require carriers in B (the United States) to make periodic balancing payments that nullify the artificial incentives to sell call-back minutes created by the proportionate return rule.
