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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.

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Presentation on theme: "HIPSSA Cost model training workshop: Sessions 13-14: using the training cost model as part of a hypothetical regulatory procedure to establish costs and."— Presentation transcript:

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 EXPERT LEVEL TRAINING ON TELECOM NETWORK COST MODELLING FOR THE HIPSSA REGIONS Arusha July, 2013 David Rogerson, ITU Expert 1

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 Sessions 13/14 – using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices for mobile termination. 2

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 3 Agenda Describe the scenario Explain the exercise Work in groups Present and discuss findings Aims and objectives for these sessions Session 13Session 14

4 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. 4

5 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 5

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 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

7 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. 7

8 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 8

9 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  Current EU rates are below 3 Euro cpm on average. 9

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 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: 10 TelecomNormcellMobilco Subscriber market share %28%5% Subscriber market share %24%16% Relative traffic levels (all years)100%75% Relative rural coverage (all years)100%80% WACC14%16%18%

11 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 11

12 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 12 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 Determine the level of MTR asymmetry implied by Normcell’s proposed approach 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.

13 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 Telecom Normcell Mobilco 13 All costs to be shown in local currency cents per minute


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