On the Impact of Call-Back Competition on International Telephony

In this paper we build a simple three-country model to evaluate the impact of "callback" on international telephony. The effects on both accounting rates and collection prices are studied. Callback frms exploit arbitrage opportunities in collection prices among countries, rerouting calls that originate in countries with high prices for international phone calls via countries with low prices. Contrary to what is commonly perceived, we show that callback tends to magnify the distortions associated with the current accounting rate regime. In particular callback puts upward pressure on low price countries' accounting rates and on collection charges. Callback companies are assumed to enjoy a volume price discount on each rerouted call; we show that the larger the price discount offered to callback companies, the higher the prices for international calls in the country hosting callback.