Follow the Money From Africa to AT&T

True-size-of-Africa“Commercial agreements” with giant companies not always fair.
African governments are losing tax revenue as communications shifts from telephone to Internet. The gain is mostly going to giants like France Telecom and AT&T, huge corporations that in “commercial agreements” have enormous power. Some of what the telcos save is returned to consumers in lower prices; some becomes higher profits.

At ITU/WCIT, the Africans are trying to recover that revenue by a (presumably modest) “boundary tax” on termination. The U.S. is fighting back, demanding our companies not pay. That’s an ordinary mercantile fight over national interest that the State Department is portraying as a battle of principle. B______ . It’s part of a century-long battle between North and South over “terms of trade.”

Other things being equal, terminating charges are anti-consumer. Reducing mobile termination rates is saving European consumers billions. So the ETNO proposal for their telcos to tax the net is a very bad idea. Deutsche Telekom has a “terminating monopoly” on 12M German homes, enormous market power.

If Canal+ or Amazon wants to sell TV over the net in Germany, they are virtually forced to pay whatever DT asks.

True-size-of-Africa“Commercial agreements” with giant companies not always fair.
African governments are losing tax revenue as communications shifts from telephone to Internet. The gain is mostly going to giants like France Telecom and AT&T, huge corporations that in “commercial agreements” have enormous power. Some of what the telcos save is returned to consumers in lower prices; some becomes higher profits.

At ITU/WCIT, the Africans are trying to recover that revenue by a (presumably modest) “boundary tax” on termination. The U.S. is fighting back, demanding our companies not pay. That’s an ordinary mercantile fight over national interest that the State Department is portraying as a battle of principle. B______ . It’s part of a century-long battle between North and South over “terms of trade.”

Other things being equal, terminating charges are anti-consumer. Reducing mobile termination rates is saving European consumers billions. So the ETNO proposal for their telcos to tax the net is a very bad idea. Deutsche Telekom has a “terminating monopoly” on 12M German homes, enormous market power.

If Canal+ or Amazon wants to sell TV over the net in Germany, they are virtually forced to pay whatever DT asks.

Broadband customers tend to stay with one provider for 5-10 years, so DT has an effective monopoly. Only a small portion of what DT collects will go to consumers in lower prices or increased investment and most will go to DT shareholders.

The reduction in European mobile termination rates has provided strong evidence of the “terminating monopoly” effect. Deutsche Telekom and others argued that basic rates would go up as much as the roaming rates go down, so the reductions wouldn’t help consumers. There’s substantial economic literature on access monopolies. With perfect competition, the two-sided market theory suggests consumers wouldn’t be aided. But with market power the opposite is true.

In reality, telco after telco has explained that MTR reductions have reduced their profits significantly. Shareholders rather than consumer cover most of the fall. Deutsche Telekom has just complained that Germany’s recent MTR cut would cost the carriers $500M in profits. I wrote that story “Deutsche Telekom: Johann Homann Saves German Consumers $500M by Reducing MTR”

No one has proposed a better way for African nations to recoup the revenue lost on declining phone service, so it might – or might not – be worth accepting a termination charge.

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