Brian Micklethwait over at Samizdata asks some questions on why it is so much more expensive to make telephone calls to some countries than others.

Firstly, here is a map of the world, which has been rescaled so that the distance of a place on the map is proportional to the cost of calling the country from the UK. This is for 1998, and the effect has become even more dramatic since then.

Secondly, I blogged on this very question in August. However, that was before I had many readers, so I will largely repeat myself now. The cost of calls has mostly very little to do with international bandwidth (although it has something to do with it when calling places that have to be reached by satellite rather than fibre optic cable, but there are not many such places left) and everything to do with the charges made by the telephone companies for terminating international calls in the country you are calling .

The (simplified) answer to Brian's main question is this. Back in the bad old days, international phone calls were governed by what was called the "settlements" system, in which countries had bilateral treaties, and agreed to charge the same amount for calls in each direction. If there were more calls made from country A to B than from B to A, then a "settlement" was made of the number of minutes of imbalance times a "settlement rate" per minute, as defined in the treaty. Settlement rates varied from country to country, and the more backward the country generally the higher the rate, but they were always far more than the cost of domestic calls.

Since then, we have had deregulation of telephone calls in some countries. If A deregulated but not B, the margins of phone companies in country A were eroded and calls got cheaper, but the settlement rate still provided a floor under the cost of calls to B. This sort of thing is still the case when you are calling Nigeria or the Ukraine from the UK.

If you have deregulation of telephone companies in both A and B, then telephone companies in country B are unable to charge any more for terminating international calls than they are for terminating domestic calls. In this case, you get international calls that are comparable in cost to domestic calls, as is the case when you call Australia, the US, or most of Europe. How low the cost of calls actually is still depends on what those domestic terminating charges actually are, which in turn depends on how efficient and competitive is the domestic market in that country. This is why calls to other EU countries vary in cost, even though deregulation has occurred in all those countries.

A final observation is that a few years ago, the US unilaterally lowered the settlement rates its carriers paid to telephone carriers in many of the worst foreign countries, and simply told them to accept the lower rates or they wouldn't be able to receive phone calls for the US any more. This is one reason why international calls from the US are cheaper than from many other places. Other countries have done similar things, but not always as successfully, as no other country has as much leverage as the US.

As for calls to mobiles, it used to be the case that it cost the same to call a mobile in country B as it did to call a fixed phone in country B. In the days of settlements, this was fine and everyone was making money, as the settlement charge was easily greater than the terminating charge that the mobile operator in country B charged for domestic calls. However, with the end of the settlements system, and the rapid fall in the cost of international calls to deregulated destinations, the cost of a "standard" international call is often less than the termination charges charged by a mobile operator in country B. For a brief while, this meant that telephone companies were losing money on international calls to mobiles, and also that it could be cheaper to (say) call a mobile in London from Hong Kong than to call that same mobile from London. Over the last year or so, this situation has changed, and international calls to mobiles in other countries now usually cost more than international calls to fixed phones in the same country. There are still a few anomalies, but this bug in the system is now largely ironed out.