Costing Methodologies and Tariff Policies in The Bahamas. Kandice Davis Economist

Transcription

1 Costing Methodologies and Tariff Policies in The Bahamas Kandice Davis Economist Date: March

2 Overview of Bahamian Market Bahamas Telecommunications Company Ltd. ( BTC ) is presumed to have SMP in: Fixed voice services Mobile voice and mobile data services Cable Bahamas Ltd. ( CBL ) is presumed to have SMP in: Pay TV services High-speed data services and connectivity 2

3 Table 1: BTC's and CBL s SMP Markets - Retail and Wholesale BTC - Retail Products (1) Fixed telephony access and local calling (2) Domestic long distance calling (DLD) (3) Domestic fixed calls to rated numbers (4) International long distance international calling (5) Broadband internet access in specified areas (6) Retail National leased lines (7) Mobile access (8) Local mobile calling (9) Domestic long distance mobile calling (10) International long distance mobile calling (11) Mobile data (internet, SMS and MMS) CBL - Retail Products (1) SuperBasic TV package (2) Digital TV packages (3) Retail national leased lines (4) Broadband internet access BTC - Wholesale Products (1) Fixed intra-island call termination (2) Fixed inter-island call termination (3) Mobile call termination (4) SMS termination (5) Termination to directory inquiries (6) Termination to ancillary services [ (7) Termination to local emergency numbers or services (8) Call transit (9) Termination to freephone numbers (10) Termination to operator assistance facilities (11) Access to the broadband and transmission networks (12) Wholesale national leased lines CBL - Wholesale Products (1) Access to the broadband and transmission networks (2) Wholesale national leased lines 3

4 Regulatory Obligations Imposed on BTC and CBL Accounting Separation and Cost Accounting Regulation of Retail Pricing for SMP Operators - Rules 4

5 Cost Accounting Methodology: HCA + FDC URCA predefined the cost accounting framework. Fully Distributed Cost ( FDC ) based on Historical Cost Accounting ( HCA ) Separated accounts prepared using HCA Cost of each product or service calculated using FDC General principles of accounting separation process: Cost Orientation Transparency Non-discrimination Cost-effectiveness Depreciation Straight Line Method 5

6 Activity Based Costing Allocation of costs to individual products or services are undertaken using Activity Based Costing ( ABC ). ABC allocates costs based on the level of activity required to produce an individual product or service. Less arbitrary and more relevant than alternative methodologies. Costs can be allocated to: Direct costs Indirect or shared costs Common costs (Common costs and their allocation are reported separately for review by URCA). 6

7 Cont d URCA established the Weighted Average Cost of Capital for BTC and CBL: Fixed voice (BTC) % Mobile voice and mobile data services (BTC) % High speed data services and connectivity (CBL) % Pay TV (CBL) % Auditing Standard Annual independent audit. Audit opinion properly prepared in accordance with (PPIA) URCA s A/S and C/A Guidelines. 7

8 Profit and Loss Statement Annual Reporting Format Statement of Mean Capital Employed (MCE) MCE shows the capital employed in supplying a product or service and Return on Capital Employed Statement of Reconciliation identify and explain any difference between separated accounts and statutory accounts Network components and unit cost information for BTC s wholesale/interconnection products Independent Audit Report 8

9 Purpose To inform assessment of cost-oriented wholesale charges To inform ex-ante competition assessment Overcome the information asymmetry between the regulator and dominant operators Support retail price regulation 9

10 Tariff Policies: Rules-based Retail Regulation The Bahamas is yet to adopt a formal price control regime (e.g., RPI-X% or RoR) The Rules-based approach is designed with two major objectives in mind: - protect consumers from excessive/monopolistic charging; and - militate against dominant operators engaging in anti-competitive behaviour. 10

11 Cont d A rules-based approach was determined to be the most appropriate approach due to data limitation It is an interim measure and the operators have been urging URCA to migrate to price caps. Price Regulated Services are subject to the Rules. Fixed voice, mobile data and voice and Pay TV. 11

12 Approval Process An SMP operator has to obtain URCA s written approval before: Making temporary (for promotions that last longer than 1 day) or permanent price changes Changing non-price terms and conditions that may affect the consumer s effective price Introducing new services that fall within an SMP market Withdrawing or discontinuing existing services URCA ensures price increases are not excessive and are affordable if it is a USO service. URCA ensures price decreases do not involve predatory pricing, margin squeeze, and/or undue discrimination. 12

13 The Way Forward URCA is presently assessing the state of competition in key retail markets (i.e., market review). The outcome of the market review could lead to a formal system of price control. In the meantime, URCA is in the process of revising the Retail Pricing Rules to: Provide operators more flexibility Align Rules with changing market conditions Provide more clarity to the Rules 13