Development of a copper access and switched access cost model

This document describes a possible cost model for these types of access, meaning that other such models may exist. Models developed in this connection would be very similar. As has been done above, we will discuss copper access and switched access separately, recalling their earlier definitions:

• Copper access: the tranche between the main distributor and the customer’s residence.

• Switched access: the part of the telephone exchange or other switching node directly associated with access.

The total costs of a service comprise the direct and indirect costs associated with its operation plus the depreciation of the assets used to provide the service.

Cost model structure

For a moment, let us leave aside depreciation of company assets and examine the structure of the costs associated with copper access and switched access.

Costs originate in source cost centers. A cost center is a department, management office, or any other company operational unit where company costs are actually generated. All expenditure made by the company originates in cost centers.

The costs of each such center must be distributed among a series of activities that are defined within the company.

The diagram below shows a model of costs associated with copper access and switched access and, based thereon, how costs associated with the types of telephone access are obtained.

We will now discuss some aspects of the cost model presented in the above diagram to gain a better understanding of how it is developed and the function of each of the components involved.

Cost center

As mentioned above, a cost center is any company operational unit in which costs are generated.

In principle, all company costs are distributed among the different cost centers, meaning that if the costs associated with all cost centers are added together, total company expenditure would be obtained. However, in reality, there are exceptions, as costs such as payments made to the power company for power consumption are not assigned to any cost center, these being assigned directly to an intermediate cost group.

Activity

Once costs have been assigned to cost centers, each center must distribute them among the different activities carried out within the company. To do this, all activities carried out must be identified.

The list of activities and corresponding descriptions must include all relatively important tasks whose existence is justified. This means that we will define an activity such as “maintaining non-critical switching,” but we will not define activities at lower levels, such as “changing subscriber module,” as this activity is included within “maintaining non-critical switching,” already defined.

Hundreds of activities may be defined within one company. Activities directly related to the costs of copper access and switched access usually include:

• Planning copper access network

• Designing copper access network

• Implementing copper access network

• Maintaining copper access network

• Planning non-critical switching

• Designing non-critical switching

• Implementing non-critical switching

• Maintaining non-critical switching

• Planning power generating plant

• Designing power generating plant

• Implementing power generating plant

• Maintaining power generating plant

• Planning generator

• Designing generator

• Implementing generator

• Maintaining generator

• Planning ducts

• Designing ducts

• Implementing ducts

• Maintaining ducts

• Planning air conditioning system

• Designing air conditioning system

• Implementing air conditioning system

• Maintaining air conditioning system

• Planning grounds and buildings

• Designing grounds and buildings

• Implementing grounds and buildings

• Maintaining grounds and buildings

• Planning fire detection system

• Designing fire detection system

• Implementing fire detection system

• Maintaining fire detection system

The above are examples of activities directly related to the costs examined herein. Such activities may in turn be subdivided by geographical area, multiplying them by the number of geographical areas to be considered.

Many activities are included in those defined herein as support activities. Examples are:

• Training course coordination

• Wage calculation and payment

• Material resource procurement

• Human resource recruitment

• Relations with banking institutions

• Cleaning service management

• Transportation management

Corporate activities are a third group. These are tasks related to the company’s corporate activities that are not directly or indirectly related to the services provided. They include:

• Activities related to the company’s board of directors and general management

• Activities related to the regulatory body and to all other organizations–national and international

• Corporate marketing tasks, that is, all aspects of the company’s image as a whole

Drivers

When company costs have been distributed among its different activities and cost groups defined, it must be determined how activity costs are distributed among the different items (intermediate groups, end groups, end network services, end customer services, etc.).

Costs of activities are associated with intermediate cost groups through the use of “drivers,” defined below.

Drivers indicate the percentage of the activity that is assigned to the corresponding item. Some activities are assigned entirely to a single item, as in the case of the activity “planning copper access,” 100% of which is assigned to the “copper access” end costs group. Other activities are distributed among more than one item. The sum of the drivers corresponding to such activities must always be 100%.

Support activities are distributed among very many items. The above diagram assumes that such activities are distributed among intermediate costs groups and the corporate group. They may, however, be assigned to other types of item, which may include other activities.

In some cases, it may be rather difficult to determine drivers. We discuss below how this is done.

Aldo Castaña
Engineering and technology University
Catholic University of Uruguay