HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed?
EXPERT LEVEL TRAINING ON
TELECOM NETWORK COST
MODELLING
FOR THE HIPSSA REGIONS
Arusha
15-19 July, 2013
David Rogerson, ITU Expert
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed?
Session 11: The regulatory
process for cost accounting and
cost modeling – what is involved
and how should it to be
addressed?
HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Agenda
Aims and objectives for this session
Identify
key steps
Review
best
practice
Discuss
possible
challenges
Review
how to
implement
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
What are the key steps in cost-based regulation?
Brainstorm in your
groups what are the key
practical steps that
need to be taken to
ensure that cost
accounting and cost
modelling is successful.
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Cost modelling steps – six of the best
Legal basis
Methodology
Data sourcing
Consultation
Timelines
Confidentiality
Spot the link with the 7 habits described in Session 4!
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Legal basis
 Before regulatory action is taken you must make sure
there is sufficient legal basis for it.
 Check for:
 The extent to which costing methodology is constrained
 Which operators/services are open to cost-based regulation
 Any prior determinations that need to be made (e.g.
determination of dominance; evidence of failed commercial
negotiations).
 Ideally the law will give:
 direct justification for cost-based termination rates, but for
other services market analysis may be required
 A clear framework for key processes such as public
consultation and data protection (confidentiality)
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Methodology
 The legal framework on its own is unlikely to be
sufficient to establish cost-based rates.
 A separate regulation on a costing methodology is
usually helpful to determine how the legal
requirements will be met in practice
 The methodology should cover the key issues
described in sessions 5 and 7:
 Cost FAC, LRIC, Pure LRIC etc.
 Bottom-up, Top-down, Hybrid or benchmark?
 Consult and decide on the methodology before
starting the cost model work.
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Data sourcing
 Appropriate data sources will depend on the type of
model being constructed.
 Top-down models are best constructed by the
operators so the methodology needs to be more
carefully specified and data inputs verified against the
audited accounts.
 Obtain confirmation from the auditors that this has been
done.
 Bottom-up models can be built by the regulator (or its
consultants) but they need data from operators to be
effective.
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Data sourcing for bottom-up models
Best source
Alternatives
Coverage and
subscribers
Operator
Other operators with
market share adjustment
Traffic
Operator
Other operators with
market share adjustment
Network design
parameters
Operator
Benchmarks
Unit equipment costs
Equipment
suppliers
Operator data or
benchmarks
Operating expenditure
Efficient operator
benchmarks
Cross-check with
operator data
Mark-up (common
costs)
Efficient operator
benchmarks
Cross-check with
operator data
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Consultation
 Stakeholders (both those being regulated and those
paying regulated charges) deserve to be involved in
the regulatory process.
 The best way to achieve this is through a formal
public consultation process.
 There could be up to four separate consultations:




To agree the methodology
To request relevant data
To review the cost model and results
To allow for comments on the proposed prices.
 A report on the consultation should indicate who said
what and include responses and action points.
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Timelines
 Without strict project management, cost modelling
work can easily result in major delays.
 It is always in the interests of some stakeholders to seek
delay and they will find many ways to achieve it
 It is important to:






Establish target dates and deadlines
Build in some contingency
Be realistic
Publicise the schedule
Enforce the schedule (especially with external stakeholders)
Keep the momentum up.
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Confidentiality
 Operators often try to derail the process by
demanding respect for the commercial confidentiality
of their data.
 This is a reasonable request regulators should:
 Disallow “blanket” claims of confidentiality – specific and
justified requests only
 Provide as much transparency as possible. Options include:
 Publish models with averaged data: useful but hard to
guarantee full data confidentiality
 Publish the models with “dummy” data: allows the model’s
integrity to be checked, but not to verify the results
 Publish results and methodology but not the model itself.
 Do not let confidentiality unreasonably slow-down or
stop the process.
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Group discussion and presentations
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HIPSSA Cost model training workshop:
Session 11: The regulatory process for cost accounting and cost modeling – what is involved and how should it to be addressed
Consider and discuss in groups
 Reflect on the situation in
the country you come from:
 In which of the areas is your
regulatory regime of cost
accounting and cost
modelling working best and
what makes it effective?
 In which of the areas is your
regulatory regime least
effective, and why? What
could be done about it?
 Share your thinking with
others in your group.
Legal basis
Methodology
Data sourcing
Consultation
Timelines
Confidentiality
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