C&W said it will take the issue to a Washington court by the end of the year. The dispute centres on settlement fees, a 130-year-old revenue- sharing system developed originally among governments, that keeps the cost of international phone calls artificially high. They are charged by a domestic phone company to carry a call from overseas to its destination.
The dispute has arisen because competition has driven down US call prices, and US consumers make more international calls than they receive. As a result, US phone companies pay companies elsewhere more to connect international calls from the US than they receive, which resulted in a $5.7bn (pounds 3.5bn) deficit last year.
The dispute comes only a year after 69 countries agreed to open up the $1,000bn global telecommunications market to competition as part of a World Trade Organisation accord.
The US Federal Communications Commission said it will legally enforce lower charges on US international phone companies from next January. That means they will be legally prohibited from paying more than 23 cents per minute to foreign phone companies. In some developing countries, those rates are as much as 80 cents per minute now.
"Everything above 6 to 8 cents is pure profit," said Diane Cornell, head of the US Federal Communications Commission's international telecommunications bureau. "We think settlement fees should be standardised at between 6 cents and 8 cents per minute worldwide."
However, C&W and phone companies around the world say the US is overstepping the mark.
C&W has more to lose than most phone companies because it owns stakes in some 70 phone companies around the world, many of them in developing countries. According to an FCC study, the cost to US phone companies of making calls to Hong Kong exceeded the real cost of those calls by 714 per cent in 1996. That year, Hong Kong reportedly received more than six times as much traffic from the US than it sent back.
Developing countries receive about $10bn per year from settlements, according to the International Telecommunications Union - more than from international development banks in the first half of this decade.
The FCC said it will enforce benchmarks of 15 cents per minute, 19 cents per minute and 23 cents per minute according to how developed competition is in each country.
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