Watching old black and white movies about office life I was always impressed that the big boss had four or five telephones on his desk, usually all ringing at the same time. Little did I realise that each instrument was connected to a different telephone company and that these phone companies had no way of passing calls to each other

Watching old black and white movies about office life I was always impressed that the big boss had four or five telephones on his desk, usually all ringing at the same time. Little did I realise that each instrument was connected to a different telephone company and that these phone companies had no way of passing calls to each other. Many telephones on the desk, seemed to me some kind of status symbol. What I was really seeing was the inability of phone companies to interconnect with each other!

What surprises some people, is that well before the dawn of the movies, interconnect, at the international level, was already a functioning concept.

International interconnect

Established in 1865 following the first International Telegraph Convention in Paris, the International Telecommunication Union (ITU) is the body that co-ordinates global telecom networks and services, and was set up The ITU devised a settlement mechanism, called the Accounting Rate System, in the 1860s, to account for the transfer of telegrams from one country to another. It was then extended to handling international phone calls between national operators.

The Accounting Rate System was set up in much the same way as the international postal services, which is not surprising since the same organisation invariably managed postal, telephone and telegraph services – hence the term PTT to describe the national operator in a country.

Interconnect and the postal services

Still in the 19th Century, the postal service was the dominant government-owned, two-way communication process. Letters had a point of origination, and a point of termination. And who did all the terminating? The humble postman, of course.

When (for example) the UK postal service sent a bag of letters to Australia, it was an Australian postman who had to march across the desert and deliver it. And when the Australian postal service reciprocated, a UK postman had to climb a Scottish mountain to do the same. Neither postal service received any money from the original price of the stamp, and hence the problem of how to pay the postmen arose.

A simple system of mutual accounting and compensation was created, by which the number of items delivered by each side was added up and compared. If the numbers were equal, no payment was made by either party. However, if one country delivered more than the other, then its postal service calculated the excess of items and sought compensation, in line with pre-agreed rates.

Today, the Accounting Rate System works in much the same way. The Accounting Rate itself is the rate agreed for each minute of traffic between the operator that initiates a call and the other operators involved in delivering the call. The Accounting Rate is set using a major currency e.g. US dollars, Euros or SDRs (Special Drawing Rights, a currency made up from a basket of major currencies).

A Declaration

Settlement statements are “declared” by the operator that originates the traffic, in other words, each operator tells the other operators how much traffic it has sent. Many operators do not itemise their international calls but simply keep a count of the calls and minutes sent to each destination. Even if calls are itemised, the originating number is often lost as the call moves from one operator to another so it is not always possible to identify the originating operator. The statement received is ‘netted off’ against the statement sent and if there is an imbalance, one party pays the other the difference.

Arbitrage

Logically, the traffic between any two operators should be fairly equal in both directions. However, this is rarely the case because of Arbitrage and other mechanisms, like the use of Call-back and Calling Cards, that reverse the direction of the call and cause an imbalance in traffic flows.

Arbitrage is the mechanism of using price differentials between different markets or operators to generate additional revenue for one or more parties in a call chain normally at the expense of other parties within the call chain.