International telecommunications routes

Telephone companies in different countries use a variety of international telecoms routes to send traffic to each other. These can be legal (or 'white') routes or other arrangements the industry calls grey routes, special carrier arrangements, settlement by-pass and other euphemisms.

Before the telecoms industry deregulation that started in the 1980s, most telephone companies were owned or regulated by their governments: even countries with many domestic phone companies usually had a regulated international carrier. These carriers used settlement routes to handle traffic between them.

For example, BT and the Australian carrier Telstra send each other traffic over a satellite link or by submarine communications cable. Telstra terminate calls to Australians from British callers, while BT terminate calls in the UK from Australians. At the end of the year Telstra and BT add up the traffic, measured in minutes, they have sent each other and settle net: if BT had sent more minutes to Telstra than vice versa, BT would pay at the settlement rate for the excess minutes. Settlement rates can be in the range of $0.10 - $2 per minute, depending on the countries involved. If the traffic balanced, neither company pays the other anything.

The amount of money involved in the settlement rate system is considerable. In 2003, American telephone companies made payments of three billion dollars to telephone companies and governments across the world.

The settlement route arrangement is also known as the accounting rate system. The accounting rate is the sum of the two settlement rates. The collection rate is what the subscriber pays.

Telecoms carriers can obtain traffic to make up a shortfall, or send traffic on other routes, by trading with other carriers in the wholesale or carrier-to-carrier market. A carrier needs a point of presence where they can interconnect with other carriers, usually in a carrier hotel such as 60 Hudson Street in New York or Telehouse in London by using a fiber ring to link their switches. This is an easy way of doing business, but it does mean that the other carriers in the market have partial visibility of what each other is doing.

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