Internet Telephony and the International Accounting Rate System

This paper attempts to provide an economic framework for assessing why and how Internet telephony may a ect the international accounting rate system in particular, and communication over circuit switched networks in general. It reviews the regulatory treatment of Internet telephony, and compares the costs and prices of making international calls over the Internet and the public switched telephone network (PSTN). It argues that Internet telephony is unlikely to prove central to the downfall of the international system; other technologies, such as resale, will play a larger role. The paper also suggests a general framework in which to analyse competition between networks (such as the Internet and the PSTN). This framework indicates that di erences in the preferences of end users for congestion will drive networks to specialise.