Settlement charges have long been a major source of foreign exchange for developing countries' PTTs and hence for their governments and any crooked officials who may be dipping into the money stream. In some underdeveloped nations, they have been the major - verging on the only - source of such income. But not for long.
Nowadays, a Dane who makes lot of international calls will subscribe to a service such as ITL's Kallback. He makes a trigger call to Kallback's computer in Seattle, which, since it is an incomplete call, costs him nothing. The computer phones him back within a few seconds. He then punches in the number he wants to call in Pakistan, and the computer in Seattle places the call for him and makes the connection. Since Pakistan's PTT has no way to know that the call originates in Denmark, it assesses the lower AT&T settlement charge. The total settlement charge ends up being much less than what the Dane would have paid if he'd dialed Pakistan directly. In other words, two calls from the US, one to point A and one to point B, are cheaper than one direct call from point A to point B.
KDD, like many other PTTs around the world, has tried to crack down on callback services by compiling lists of the callback numbers and blocking calls to those numbers. When I talked to Eric Doescher, ITL's director of marketing, I expected him to be outraged about such attacks. But it soon became evident that if he ever felt that way, he long ago got over it and now views all such efforts with jaded amusement. "In Uganda," he said, "the PTT blocked all calls to the 206 area code. So we issued numbers from different area codes. In Saudi Arabia, they disabled touch-tones upon connection so our users were unable to place calls when the callback arrived - so we instituted a sophisticated voice recognition system - customer service reps who listened to our customers speaking the number and keyed it into the system." In Canada, a bizarre situation developed in which calls from the Yukon and Northwest Territories to the big southeastern cities like Ottawa and Toronto were actually cheaper - by a factor of three - when routed through Seattle than when dialed directly. In response to the flood of Kallback traffic, Canada's Northern Telecom had human operators monitor phone calls, listening for the distinctive pattern of a trigger calclass="underline" one ring followed by a hang-up. They then blocked calls to those numbers. So ITL substituted a busy signal for the ringing sound. Northern Telecom, unwilling to block calls to every phone in the US that was ever busy, was checkmated.
In most countries, callback services inhabit a gray area. Saudi Arabia and Kenya occasionally run ads reminding their people that callback is illegal, but they don't try to enforce the law. China has better luck with enforcement because of its system of informants, but it doesn't bother Western businesspeople, who are the primary users. Singapore has legalized them on the condition that they don't advertise. In Italy, the market is so open that ITL is about to market a debit card that enables people to use the service from any pay phone.
So settlement charges have backfired on the telcos of many countries. Originally created to coddle these local monopolies, they've now become a hazard to their existence.
KDD carries all the baggage of an old monopoly: it works in conjunction with a notoriously gray and moribund government agency, it still has the bad customer-service attitude that is typical of monopolies, and it has the whole range of monopoly PR troubles too. Any competitive actions that it takes tend to be construed as part of a sinister world domination plot. So KDD has managed to get the worst of both worlds: it is viewed both as a big sinister monopoly and as a cringing sidekick to the even bigger and more sinister AT&T.
Michio Kuroda is a KDD executive who negotiates deals relating to submarine cables. He tells of a friend of his, a KDD employee who went to the United States two decades ago to study at a university and went around proudly announcing to his new American acquaintances that he worked for a monopoly. Finally, some kind soul took him aside and gently broke the news to him that, in America, monopoly was an ugly word.
Now, 20 years later, Kuroda claims that KDD has come around; it agrees now that monopoly is an ugly word. KDD's detractors will say that this is self-serving, but it rings true to this reporter. It seems clear that a decision has been made at the highest levels of KDD that it's time to stop looking backward and start to compete. As KDD is demonstrating, fat payrolls can be trimmed. Capital can be raised. Customer service can be improved, prices cut, bad PR mended. The biggest challenge that KDD faces now may stem from a mistake that it made several years ago: it decided not to land FLAG.
35° 11.535' N, 139° 36.995' EIDC Cable Landing Station, Miura, Japan
The Miura station of IDC, or International Digital Communications Inc., looks a good deal like KDD's Ninomiya station on the inside, except that its equipment is made by Fujitsu instead of KDD-SCS. At first approximation, you might think of IDC as being the MCI of Japan. Originally it specialized in data transmission, but now that deregulation has arrived it is also a long-distance carrier. This, by the way, is a common pattern in Asian countries where deregulation is looming: new companies will try to kick out a niche for themselves in data or cellular markets and hold on by their toenails until the vast long-distance market opens up to them. Anyone in Japan can dial an international call over IDC's network by dialing the prefix 0061 instead of 001 for KDD. The numerical prefixes of various competing long-distance companies are slapped up all over Tokyo on signs and across rear windows of taxicabs in a desperate attempt to get a tiny edge in mindshare.
Miura's outer surroundings are quite different from Ninomiya's. Ninomiya is on a bluff in the middle of a town, and the beach below it is a narrow strip of sand chockablock with giant concrete tetrapods, looking like vastly magnified skeletons of plankton and intended to keep waves from washing up onto the busy coastal highway that runs between the beach and the station. Miura, by contrast, is a resort area with a wide beach lined with seasonal restaurants. When we were there we even saw a few surfers, hunting for puny waves under a relentless rain, looking miserable in black wetsuits. The beach gives way to intensively cultivated farmland.
Miura is the Japan end of NPC, the Northern Pacific Cable, which links it directly to Pacific City, Oregon, with 8,380 kilometers of second-generation optical fiber (it carries three fiber pairs, each of which handles 420 Mbps). Miura also lands APC, the Asia-Pacific Cable, which links it to Hong Kong and Singapore, and by means of a short cable under Tokyo Bay it is connected to KDD's Chikura station, which is a major nexus for transpacific and East Asian cables.
When FLAG first approached KDD with its wild scheme to build a privately financed cable from England to Japan, there were plenty of reasons for KDD to turn it down. The US Commerce Department was pressuring KDD to accept FLAG, but AT&T was against it. KDD was now caught between two sumo wrestlers trying to push it opposite ways. Also in the crowded ring was Japan's telecommunications ministry, which maintained that plenty of bandwidth already existed and that FLAG would somehow create a glut on the market. Again, this attitude is probably difficult for the hacker tourist or any other Net user to comprehend, but it seems to be ubiquitous among telecrats.
Finally, KDD saw advantages in the old business model in which cables are backed, and owned, by carriers - it likes the idea of owning a cable and reaping profits from it rather than allowing a bunch of outside investors to make all the money.