HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
EXPERT LEVEL TRAINING ON
TELECOM NETWORK COST
MODELLING
FOR THE HIPSSA REGIONS
Arusha
15-19 July, 2013
David Rogerson, ITU Expert
1
HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
Sessions 13/14 – using the
training cost model as part of a
hypothetical regulatory procedure
to establish costs and prices for
mobile termination.
2
HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
Agenda
Aims and objectives for these sessions
Describe
the
scenario
Explain the
exercise
Session 13
Work in
groups
Present and
discuss
findings
Session 14
3
HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
Background to the exercise
 TRAN has published its draft decision on mobile
termination rates.
 Telecom and Normcell to receive 15cpm
 Mobilco to receive 20cpm, 18cpm, 15cpm for the years
2013, 2014 and 2015 respectively.
 The decision notice indicates that these rates have
been based on the ITU Mobile Telco Bottom-up
LRIC Training Model and data submitted by the
operators.
 A soft-copy of this model is available but data sources have
not been revealed.
 Opinions have been sought from the industry before
TRAN reaches its final decision.
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HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
The ITU Mobile Telco LRIC training model
A. Model Design
1.Coverage
4. CAPEX
and Direct
OPEX
5. Indirect
OPEX
10. Markups
7. Network
costing
9. LRIC
11. LRIC+
B. Control Panel
C. Reference
Lists
2. Traffic
6. Network
design
D. Reconciliation
E. Graphs
3. Network
design
parameters
Key
8. Routing
factors
Cells
Summary Sheets
Input Sheets
Calculation sheets
Direct input into the model
Inputs copied from other worksheets
Calculation cells
Output cells copied to other worksheets
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HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
The response from Mobilco
 This is a fair and reasonable decision based on a
best-practice model and local data.
 Mobilco thanks the TRAN for its efforts and fully
supports its decision.
 If Mobilco can be of any further assistance please do
not hesitate to ask.
6
HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
The response from Telecom
 International best practice is tending away from
asymmetrical termination rates, so why is TRAN
proposing to introduce it now?
 Mobilco has plenty of advantages as a new entrant
(e.g. it can use the latest technology) and does not
require further regulatory protection.
 Telecom would be willing to accept a one-year 20%
asymmetry (18cpm versus 15cpm) but does not believe that
any further asymmetry is justified.
 In a competitive market all operators have to accept the
price of the most efficient operator.
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HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
The response from Normcell
 This is a totally unreasonable decision that has come
out of the blue and is likely to destroy our business.
 Normcell will lose out in two ways:
 it will have to pay higher asymmetrical rates with the smaller
operator (Mobilco)
 it will not benefit from paying lower asymmetrical rates to the
larger operator (Telecom)
 Normcell offers two possible ways forward:
 Fully symmetrical rates are applied to all operators based on
best practice approaches
 Asymmetric rates are calculated for all operators based on
their market share
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HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
Normcell’s approach 1: low symmetrical rates
 Best practice regulation involves setting very low and
symmetrical mobile termination rates:
 E.g. European Commission requires rates to be based on
“pure LRIC” and to fall to 1.5 Euro cents per minute in 2015.
 Current EU rates are below 3 Euro cpm on average.
4
3.5
3
2.5
2
1.5
1
0.5
0
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HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
Normcell’s approach 2: full asymmetry
 There is more to asymmetry than just market share,
and it involves all operators.
 Normcell’s view is that traffic, coverage and cost of
capital all vary based on scale as follows:
Telecom
Normcell
Mobilco
Subscriber market share 2013
67%
28%
5%
Subscriber market share 2015
60%
24%
16%
Relative traffic levels (all years)
100%
75%
75%
Relative rural coverage (all years)
100%
80%
80%
WACC
14%
16%
18%
10
HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
Normcell’s proposed WACC calculations
Variable
Rf
Dp
Be
Rm - Rf
Debt %
Equity %
Tc
Description
Risk free rate
Corporate debt premium
Equity Beta
Market Risk premium
Corporate tax
Calculation Description
Rd
Cost of debt
Re
Cost of equity
Pre-Tax WACC as calculated
Telecom
7.00%
2.00%
1.20
5.00%
40%
60%
25%
Normcell
7.00%
2.50%
1.40
5.00%
30%
70%
25%
Mobilco
7.00%
3.00%
1.60
5.00%
20%
80%
25%
Value
9.00%
17.33%
14.00%
Value
9.50%
18.67%
15.92%
Value
10.00%
20.00%
18.00%
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HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
Your task
GROUP WORK EXERCISE 4
Each WG is a CEAT team reporting to the Board of TRAN.
1. Propose changes to the model inputs so as to justify
symmetric rates below 3 Euro cpm (10cpm in local
currency) as in Normcell’s proposed approach 1.
2. Determine the level of MTR asymmetry implied by
Normcell’s proposed approach 2.
3. Make and justify a recommendation to the Board of
TRAN on its final Decision. Include in your presentation
a proposed response to each of the three operators.
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HIPSSA Cost model training workshop:
Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices
for mobile termination
Reporting format - MTRs
2013
2014
2015
Telecom
Normcell
Mobilco
All costs to be shown in local currency cents per minute
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