Regulatory Accounting Roundtable 2008

Cost recovery, transparency and consistency, cost model auditing and simplification in cost accounting are the priorities for the industry and main challenges for the years to come, according to participants to the Regulatory Accounting Roundtable 2008 (RAR08), a high level meeting organized by OFCOM last week.

Last week I had the pleasure of chairing the RAR08, European experts and a delegation from NTC Thailand actively participated to the discussion on the future trends in regulatory accounting policy.

Delegates agreed that a priority for NRAs was to promote transparency and confidence with stakeholders and reduce the incentives of SMP operators to have subnormal cost recovery from regulatory activities.

An interesting presentation came from GSMA, they believe, as I wrote in this blog some time ago, that pricing mechanisms for interconnection should be tailor made for the situation product and market. A standardized pricing mechanism is one solution, but certainly not the best in log term.



Another issue emerged, may be just a trend, many operators agreed that a solution for all our problems in cost accounting and interconnection might be introducing in Europe a regulatory environment that promotes a pricing mechanism similar to Bill & Keep. However, nobody could answer in full to my questions regarding drawbacks of the system:

1) is it possible to have an open market with Bill & Keep? Bill & Keep might promote competition within existing players with same traffic volume, but might reduce competition from new entrants that will face (at least in the short term) much higher termination costs that current players.

2) how should unbalances in traffic volumes be handled? Can small operator ‘profit’ from Bill & Keep or is it (as it is in the internet world) a system advantage only for large players?

3) One operator argued that it will be happy to introduce Bill & Keep on a bilateral basis with the incumbent, but that probably smaller operators will be not able to have the same conditions as the others in the market.

I believe that Bill & Keep might become new barrier to entry in the market, what do you think?

I think that if we introduce Bill & Keep as it is, we might end up with a cost based termination rate valid for small players, that will not be able to ‘play’ a role or enter the market, while existing mid and large operators will be able to have a cost advantage and may-be a sustainable competitive advantage.

Julio Villalobos from SVP Advisors, gave us an open minding presentation on the complexity of the auditing process for regulatory cost modeling. I believe that auditing will be one of the most important activities in the future to come (with the new commission’s recommendation on interconnection due to see the light very soon) and that the importance to validate regulatory cost modeling will arise very soon when interconnection price will collapse. We have time to think about this issue!

Finally, I have to speak about the change in trend from small mobile operators. I wrote about this issue in this blog before. My friend John Blackmore from H3G explained that mobile termination rates based on LRIC and large common costs give suboptimal results now, in time of full coverage and small growth of the market.

I fully agree with him, that usually too many irrelevant costs are included, under full competition firms can only recover their marginal costs of producing the extra output. Common and joint costs should be therefore not recovered by this ‘monopoly’ product.

Why should we subsidize mobile operators, usually large and very rich, with fat-cat termination rates? We can if there is a long-term regulatory objective (e.g. coverage or low retail rate), but sometime at cost distorting the market.

Good point John, did you speak with the commission recently?

Presentations files can be found here

www.regulation.tk