World's cheapest international phone calls

Britain will benefit from being the switching centre for the world's telephone services

Imagine a world where you don't need to think of the price of a phone call, wherever the person you are calling happens to be. That freedom happens already on the Internet, but imagine that it will extend to ordinary voice traffic too. Friends in America? Relations in New Zealand? Pick up the phone. There is a revolution in international phone traffic coming and it is coming to Britain first.

Did you know that already more international telephone calls are made from London than from any other city on earth? In a way this is unsurprising: London is, by most measures, the world's largest international financial centre and it is the most important international hub for the world's airlines, so why not phone calls too? But it is important because it is the base from which the country is making one of those big strategic pitches for global business, a pitch to route the world's international telecommunications business through the UK.

From the end of this year any company that wants to run international calls in and out of the UK will be allowed to do so. Nearly 50 have applied and it seems most, maybe all, will get licences. Britain is the first country in the world to do this, to open its entire international phone traffic to anyone who wants to provide the service. These companies can put in their own kit, lay their fibre-optic cables, build their exchanges ("switches" in the jargon of the trade), and sell their services to whoever they want. The resulting competition will be a collapse of international call charges. Do not expect that to happen immediately, but over two or three years we will move to a position where it will cost very little more to call California than Canterbury. All the present devices that exist to get round high international charges, like Internet telephony and call-back systems, will no longer be needed. Indeed the voice telephone network will become like the Internet, a seamless global system.

We can, as a country, try to gain this advantage because for the time being physical location still matters in telecommunications. A generation ago a telephone exchange was the size of an office block; now you can fit a decent-sized one on the back of a lorry. Maybe in another 10 years' time, when switches are the size of suitcases, the way calls are routed won't matter. But by then, according to the consultancy Analysys, we will have exploited the first mover advantage: a vicious circle where, because most traffic is routed through the UK, more and more comes here. True, the present duopoly - BT and Cable & Wireless - will find themselves squeezed, but the prize of getting in first, and therefore achieving sufficient critical mass to be unassailable, is deemed to be worth it. It is the telecom equivalent of the City's Big Bang 10 years ago: we open up to everyone and thereby gain international market share, but at the expense of loss of local control.

So this is big in business terms for the UK. But the phenomenon of very cheap international phone calls also matters enormously for the rest of the world. The fact that we will be able to call family abroad for little more than the price of a local call is one of the least important changes - nice but not something which will change the face of the earth. Here are five other, bigger consequences.

One: any telephone-based service - such as banking, data processing, electronic publishing - can be located anywhere in the world where the human capital exists to carry it out. So countries, regions or cities that have lots of clever, well-educated people will be able to exploit this resource even if their physical location has worked against them in the past. Being on the fringe will no longer matter: expect, for example, north/south differences in the UK to narrow, with wealth determined by who you are, not where you are.

Two: expect small companies to prosper at the expense of large. True, there are enormous forces for agglomeration in the telecom industry itself, witness the planned merger of BT and MCI, but for users of the service, very cheap calls help the small. The lower the cost of an international phone call, the lower the entry barrier into exporting any phone-based service - be it advice, entertainment, information, shopping or any other interactive gimmick that entrepreneurs of the future can dream up. Enter the niche global player.

Three: expect a boom in international free-phone numbers. In America close to half the voice calls are now to free-phone numbers as businesses use this to sell and distribute their products seamlessly across the nation. The same thing is going to happen to commerce internationally. A business will simply have one number for customers to ring from anywhere in the world. It will be free to the customers and very cheap to the business. Result: a further globalising of business.

Four: the English language will gain further ground, as a result of the previous point. Ring a Swedish company and if you get the voice mail rather than the person the message will be in English as well as Swedish. The more business takes place over the international phone lines, the more the common language of business will dominate. Of course English is an open standard - anyone can use it - but this should be some advantage to Anglophone countries.

Finally, expect this particular bit of deregulation to be seen, in 20 years' time, as the most important single economic decision this Government has made. We are gaining a central role in creating the high-tech infrastructure for the next century. People rightly criticise UK infrastructure. But the world's new infrastructure is not roads and airports, certainly not railways. It is telecommunications. In a world where manufacturing (and increasingly service) technology crosses national boundaries in a matter of weeks, achieving a comparative advantage in international telecommunications is the most important thing any government can do.