BT tries to plug a net deficit

British giant moves to redress a revenue imbalance with US companies. Dawn Hayes reports
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The Independent Online
British Telecommunications is one of several telephone companies that have started lobbying against an Internet "trade deficit" with their US counterparts that is expected to reach as much as pounds 1.6bn by the year 2000.

Huge demand from consumers around the world means telephone companies are having to invest more in telephone lines to the US because some 75 per cent of content on the Internet is located in US computers.

However, they are making lower returns on that investment than they would make from providing traditional telephone services.

Unlike telephone systems around the world, where companies pay half the cost of an international telephone line and the company at the other end pays the other half, Internet lines must be paid for in full by the originator, said Michael Mingues, head of information systems at the United Nations' telecommunications development bureau.

BT Internet product manager, Peter Berry, said BT has started talks with US companies. "We have begun discussions with our partners in the US about splitting the costs,'' said Mr Berry.

Telstra, the dominant Australian telephone company, has complained to the US Federal Communications Commission that it will lose some $10m this year alone by investing in telephone lines to the US to cope with demand for Internet services.

Non-US phone companies also complain they are hit on the revenue side as well. In the traditional telephone world when a US phone company sends more traffic to the UK than it receives, the first company must hand over some of the revenue to the British company that delivers the call.

US authorities say that system has kept consumer prices artificially high. By contrast, in the Internet world, there are no such reciprocal payments. Since most routes lead to the US for Internet services, non- US telephone companies are missing the returns on their investments.

"The problem is we need the US more than they need us,'' said Keith Mallinson, an analyst at Yankee Group Europe, a telecommunications consultancy.

"The network access points for the Internet are mainly in the US, so it's going to run a surplus because they're getting most of the in-payments."

The cost imbalance is expected to get worse for non-US companies as people start using the Internet to make ordinary voice calls, which will eat into what currently constitutes some 90 per cent of telephone companies' revenues.

"If this is a small problem today, it's going to be a huge problem in future because of the rate at which the industry is expanding,'' said Sean Phelan, managing director of Multimedia Mapping, a UK-based company that sells maps on the Internet.

The number of people using the Internet in Europe alone is expected to grow to 35 million by the turn of the century, compared with 8.9 million in 1996, according to International Data Corp of Framingham, Massachusetts.