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The objective of this guide is to
support National Regulatory Authorities (NRAs) in
the implementation of cost accounting models and in
the development of regulatory policies. The guide
refers to the use of best practices and is divided
into a step-by-step approach to building a cost
accounting model. Since cost accounting models and
accounting separation are ex ante obligations
imposed on Significant Market Power (SMP) operators,
this guide also provides a methodology to help
identify markets, SMP operators and the different
typologies of anticompetitive behavior, which should
be carried out prior to the imposition of ex ante
regulation.
The findings and recommendations
of the guide aim to assist ITU Members in their
ongoing activities in this field, in particular,
with regard to the requirements of cost accounting
and accounting separation, to pave the way for a
regulatory policy that encourages investment in
infrastructure and reaches a sustainable level of
competition. In this regard, it is important from a
regulatory perspective, as well as from a business
perspective, that prices reflect the costs incurred
to provide services.
The guide starts, in section 1,
with a description of the legal framework in which
NRAs need to be based on in order to impose
obligations on cost accounting and accounting
separation to the designated SMP operators. In
particular, this section provides brief look at the
situation in different Latin-American countries like
Argentina, Ecuador, México and Nicaragua, and
specific references to the European framework is
also provided.
Once the legal framework is
defined, the guide continues, in section 2, with a
description of a methodology for market analysis and
the different markets that make up the telecom
sector. It is important to understand this section,
because it will be the starting point for including
within the cost accounting model the regulated
services provided by the designated SMP Operators.
In section 3, the guide presents
the objectives of cost accounting models. Of
particular interest is the objective which defines
cost accounting as a tool for both the regulator and
the operator which is obliged to make the results
available under a specified model.
Subsequently, section 4 presents
the following parameters which define the cost
accounting models: (i) the accounting principles,
(ii) the services included within the accounting
separation obligation, (iii) the accounting periods,
(iv) the criteria for asset valuation, (v) the cost
standards, (vi) the types of accounting models, and
finally, (vii) the internal transfer charges.
In this regard, the fulfillment
of the accounting principle of causality is of
particular importance, as it is associated to the
allocation of incomes and costs to the different
activities and services based on causal drivers. In
addition, the criteria for asset valuation is
explained in detail. This criteria enables the
estimation of capital expenditure linked to the
provision of different regulated services and will
also allow the definition of the accounting model:
Historic, Current or LRIC. A specific benchmark on
this issue is provided for the EU-25 and for each of
the 18 markets included in the former Recommendation
2003/311/EC, of February 11, 2003.
Section 5 of the guide then
illustrates the difference between a top down and a
bottom up model and the steps to be followed in the
definition and implementation of each model.
Particular attention is drawn to the method used by
the big five economies in Europe (France, Germany,
Italy, Spain and United Kingdom) in the setting of
wholesale services like: interconnection, Local Loop
Unbundling, Wholesale Broadband Services, and
Wholesale Line Rental among others. The guide also
presents a description of the costing models defined
by the FCC, the World Bank and the International
Telecommunications Union (COSITU).
Section 6 focuses on the key
levers of costing models: (i) the Weighted Average
Cost of Capital (WACC), and (ii) the asset lifespan.
In particular, a detailed description is given of
the methodology to be followed by the NRAs in the
estimation of WACC and the impact that asset
lifespan might have on the final costs allocated to
the different services.
The guide provides a step by step
description on the incomes and costs allocation
phases for a top down model in section 7. This
section also provides the templates for the
aforementioned incomes and costs allocation.
Finally, section 8 presents the
usages of costing models to identify anticompetitive
behaviour such as: (i) price squeeze, (ii) predatory
prices, (iii) anticompetitive bundling, and (iv)
cross-subsidies. Then, the guide concludes with
specific recommendations addressed to NRA to better
implement this methodology.
This guide was written in the
framework of the Operational Plan of the
Telecommunication Development Bureau (BDT) of the
International Telecommunication Union (ITU) and a
free copy of this guide is available at: http://www.itu.int/ITU-D/finance/.
The following Workshops will be organized in
coordination with CITEL in Buenos Aires, Argentina:
Telecommunication Development
Bureau
International Telecommunication Union
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