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For decades the world’s telephone companies, nearly all state-owned monopolies, have jointly set the rates for international calls.  Now a handful of nimble, privately owned telephone discounters are using loopholes in regulations written to protect national telephone monopolies to undercut the cartels high prices. Eventually, that could lead to the break-up of the cartel itself.
The small firms leading the trend are interesting for the way they do business rather than for the amount of business they do. But because their activities expose monopoly overpricing so dramatically, they could help to bring about changes that are vastly out of proportion to their size.
The American market for international calls is more open to competition than those of most other countries, so calls out of America are usually far cheaper than the calls into it. The discounters exploit this difference by routing calls from foreign subscribers to computerized switches in America, undercutting normal rates by a third or more.
One technique, known as ring-back, involves giving a customer in, say, Paris a free telephone number to a computerized switch in America. When the customer calls, the switch automatically calls him back and puts him through to his American destination.  Since the call technically originates with the switch, France Telecoms monopoly on outgoing calls remains unbroken but the caller in Paris is charged American rates.  A second technique, called third-country calling, involves routing international calls via America to take advantage of cheap American rates on the second leg of the journey. On intercontinental calls the saving is usually so great that it more than makes up for the extra distance traveled.
One of the best-known discounters, 2(1/2)years old International Discount Telecommunications (IDT), uses third-country calling to provides calls between countries whose own telephone companies are not on speaking terms, such as Syria and Israel , and Iraq and Kuwait. Today’s small discounters may be short-lived.
But if the small discounters do go out of business, it will be because they have launched a trend. This year, American established international carriers have started touting for business from overseas customers themselves. In April American Telephone & Telegraph (AT&T) launched a third-country calling service of its own. Dubbed World Connect, the service lets customers use a personal identification number to call from 45 different countries of the world via switches in America. Customers pay call charges in dollars, along with their normal domestic bills. In June AT&T’s biggest rival, MCI, launched a similar service, called World Reach. Both products supplement the firms long-establishes call-home services, which make it easier for traveling Americans to call home. Though AT&T and MCI both hotly deny selling international calls to foreigners explicitly, some foreign carriers certainly fear this.  Neither AT&T nor MCI has been allowed to offer its new services in Japan, Australia, Spain, Italy, Brazil, Argentina or Mexico. The small discounters have run into similar problems.