Regulatory accounting in the telco industry, instruments and success factors.
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Peter KLUNE, London 21st November 2007 Page 1 Regulatory Accounting Peter KLUNE London, 21 st November 2007
Transcript
1. Regulatory Accounting Peter KLUNE London, 21 st November
2007
2. Agenda
Introduction of Telekom Austria Group
Legal framework and requirements
Instruments in use
Success factors and issues to consider
3.
Austrias leading telecommunications company
Main business segments:
wireline - market share of ~ 57%
wireless - market share of ~ 39 % (in Austria)
International operations in several eastern European
countries
Revenues FY 06: EUR ~ 4.8 billion
Employees: 15,428 (end of Dec. 2006)
Act. market capitalization: ~ EUR 8,7 billion
Shareholder Structure
Free float ~ 73%
Republic of Austria ~ 27%
Introduction of Telekom Austria Group Belarus Austria FL Slovenia
Bulgaria Croatia Macedonia Serbia Kosovo Czech Republic
4.
Liberalization of the Austrian telecommunications market since
the beginning of 1998
Austrian telecommunications market is one of the most
competitive in Europe:
With 38 fixed line providers the Austrian market is very
competitive. Following the mergers of UTA&Tele2 and
UPC&Inode the most important wire line market players in
Austria are: Telekom Austria, Tele 2, and UPC.
With 4 mobile network operators (mobilkom austria, T-Mobile
Austria/tele.ring, one, Hutchison) and 3 service providers (Yesss!,
eety and eTel) Austria still has one of the highest concentrations
of mobile providers in Europe.
Internet - approx. 200 service providers currently registered
as ISPA members
Competitive Landscape in Austria
5. Agenda
Introduction of Telekom Austria Group
Legal framework and requirements
Instruments in use
Success factors and issues to consider
6. Regulatory framework - wireline segment Residential
customers Retail level Business customers Wholesale level Leased
lines M1 Access M3 National Calls M4 Intern. Calls M11 ULL
Interconnection Leased lines M8 Call origination M9 Call
Termination M10 Transit services M13 Terminating segments M14 Trunk
segments M2 Access M5 National Calls M6 Intern. Calls M7 Minimum
set of leased lines no remedies Voice services No remedies M12
Broadband Access No remedies
7. Different accounting rules per segment
The remedies are defined specifically on a per market base
(dependent on the competitive situation and the aim of regulatory
intervention)
This leads to different cost accounting rules per segment
Retail level
Voice Services
Leased lines
Wholesale level
Interconnection
ULL
Broadband Access -> Retail minus
Accounting separation obligation for all listed markets
Universal Service Calculation -> historic costs (but higher
level of detail)
-> FL-LRAIC -> Historic costs -> Planned costs
8. Historic costs versus FL-LRIC
Based on historic costs
Fully allocated costs (FAC)
Usually top down modelling based on companies accounting
information
Based on existing resources, network infrastructure and network
topology
Cost allocation often based on activity based costing
Asset re-evaluation usually based on MEA concept; current cost
accounting (CCA)
Assumptions on efficiencies (efficient service provision)
All costs are potentially variable (in the long run)
Only incremental costs are relevant
Usually modelled bottom up
Network topology
Green field approach
Scorched node approach
Mark-up for common costs
HCA FL-LRIC
9. Challenges of retail-minus approach
Determine margin and gap
Monitor gap, based on changes in retail pricing and/or product
mix
Evaluate effects on gap due to permanent price changes and
promotions
Adopt WS-pricing if necessary to ensure appropriate gap
weighted average retail price ARPU Retail Minus ULL Bitstream
avoidable costs add. costs Margin target WS-price actual WS-price
GAP 1 GAP 2 weighted average wholesale price ADSL costs based on
ULL business case
10. Intern. comparison of methods in use Different types of
price control methods, used in EU member countries grouped per
market Different types of cost bases, used in member countries
grouped per market Source: Regulatory Accounting in Practice 2007,
ERG Report, April 2007 Wholesale markets Retail markets Wholesale
markets Retail markets
11. Accounting separation
Objective
Provide a higher level of detail of information than that
derived from the statutory financial statements, to prevent
discrimination in favour of an operators own activities and to
prevent unfair cross-subsidy.
Obligations
Disaggregation of costs, revenues and capital employed (profit
and loss statement) between regulatory entities (markets).
Provision of Volume and cost driver information
Average cost per Unit
12. Reporting requirements (1/2)
13. Reporting requirements (2/2)
14. Agenda
Introduction of Telekom Austria Group
Legal framework and requirements
Instruments in use
Success factors and issues to consider
15. Instruments used at Telekom Austria to fulfil the various
regulatory requirements FL-LRIC top down calculation USO-costing
e.g. public payphones Accounting separation Retail-minus
calculation for bit-stream access One integrated core model which
allows several variations FAC/HCA
Use of technical platforms (switching, ATM, IP, etc.) for cost
aggregations and further allocations to products which are commonly
used by controllers and technicians.
Platform costs are assigned to products based on a network
model (usage of network elements)
Use product structure (product definition) used by marketing
and sales people as far as possible. Specific regulatory needs
(aggregation and/or disaggregation is done in a separate step
Cost allocation based on activity based costing. Activities and
internal products are similar to the ones used by the controlling
department (IT-products, customer care processes, etc.)
Cost allocations must be retraceable in a transparent way
Reconciliation of cost input with legacy system and annual
report
Build your own regulatory model to overcome limitations of
financial accounting and controlling systems and structures
The regulatory focus (cost causation, margin squeeze test,
avoid cross subsidy, etc.) is different from controlling purposes
(budgeting, plan/actual comparison, etc.)
Therefore build your own model but use existing structures as
much as possible
Ensure predictability of costs and revenues (e.g. retail
minus)
Scenario analysis must be possible (e.g. useful lifetime)
22. Issues to consider regarding regulatory reporting
Obligation to deliver monthly data on a quarterly base makes it
sometimes difficult to reconcile these figures with annual
values.
Ensure consistency. Coordination with other reporting
requirements such as capital market reporting is necessary
To provide the level of detail which is necessary, the use of
different source systems is necessary. This makes reconciliation
sometimes difficult.
NRA do collect data over a long period. Therefore actual
figures must be consistent with the historic development. Graphic
representation (charts) enable you to realise deviations much
easier than based on huge tables
The usage of the data for other proceedings requires approval
by TA
23. Lessons learned regarding relationship with authority
Try to establish a climate of trust and confidence
Develop a discussion culture
Discuss and agree structure of reporting, cost modelling, etc.
in advance
Show them what they need but not more
Try to be at least one step ahead
Ensure early involvement in product development process
(pricing)
24. Thank you for your time Questions? Peter KLUNE Regulatory
Affairs TELEKOM AUSTRIA AG Lassallestrae 9 A-1020 Austria E-Mail
[email_address] Phone +43 (0)59059 1 16012 Fax +43 (0)59059 91
16012 Mobile +43 (0)664 629 61 76
25. Appendix: helpful links and related documents
COMMISSION RECOMMENDATION ON ACCOUNTING SEPARATION AND COST
ACCOUNTING SYSTEMS UNDER THE REGULATORY FRAMEWORK FOR ELECTRONIC
COMMUNICATIONS, 21.9.2005 (
http://ec.europa.eu/information_society/policy/ecomm/doc/info_centre/recomm_guidelines/acc_separ_ca/recom_en.pdf
)
Regulatory Accounting in Practice 2007, ERG Report, April 2007
( http://www.erg.eu.int/documents/docs/index_en.htm )
Guidelines for implementing the Commission Recommendation C
(2005) 3480 on Accounting Separation & Cost Accounting Systems
under the regulatory framework for electronic communications, ERG
common position ERG (05)29 (
http://www.erg.eu.int/documents/docs/index_en.htm )