Seminar on rate and cost analysis in telecommunications services

One of the most important challenges facing regulatory bodies is determining or verifying the costs of telecommunications services, in which cost analysis proves to be extremely important. Regulatory bodies use cost analysis to establish and approve prices for both consumers and competitors in order to promote sound competition.

Current commercial conditions in the provision of telecommunications services (in terms of increased competition and the need for developing infrastructure, meeting social commitments, harmonizing technologies, and ensuring a regulatory framework) make cost analysis essential. Regulators depend on cost data and principles to assess and carry out the following objectives, among others: industrial development; promotion of investment; innovation and cost recovery by operators of the provision of services; support for social goals; establishment of networks and services in high-cost areas and prevention of exclusion of low-cost users; promotion of competition through interconnection charges, capacity resale, and disaggregation of network elements; establishment of mechanisms against anticompetitive prices, price controls, and productivity factors; and promotion of separate bookkeeping to prevent cross-subsidies.

Establishing telecommunications costs is usually controversial and complex owing to the various methods of analysis, concepts, definitions, interpretations, and data sources that have to be used. It is generally the type of problem and the purpose of the cost analysis that determine the method to be applied.

In most telecommunications cost-analysis cases, various hypotheses are used that consider the accounting cost, based on the operator’s expense statements (recorded historical costs) and/or engineering costs, which are primarily related to future management decisions and/or economic costs to determine a cost-efficient structure (prices providing optimal benefits for producers and consumers).

Moreover, since telecommunications is a capital-intensive sector, capital costs are essential for determining telecommunications costs. An important point in this regard is that regulatory bodies have to measure capital costs correctly in order to assess the financial viability of the operators subject to regulation.

With a view to clarifying costing and cost-setting concepts and developing an overview of the use of cost analysis, the seminar on Rate and Cost Analysis in Telecommunications Services has been developed from a twofold perspective. First, it is geared toward the economic theory and practice of telecommunications rate regulation and cost setting; and second, it will take a financial approach focused on the efficient operational management of a company providing telecommunications services.

The seminar will be 24 hours in length (three consecutive days) and will cover aspects of both theoretical and practical (applied models) cost analysis and price setting. Active interaction among participants will be encouraged through the presentation and discussion of four basis topics on the agenda: 1. Cost Analysis from an Economic Standpoint 2. Cost Analysis from a Financial Standpoint 3. Ceilings and Floors of Final and Interconnection Charges 4. Calculation of Cost-Based Interconnection Charges.

Participants will be sent study materials in hard copy and on CD with an extensive bibliography, a list of Internet sites of interest, additional articles, and glossaries. At the end of the seminar, they will fill out written evaluations as a means of summarizing the ideas examined.

Julian Mulia
Director Links and Projects
Comisión Federal de Telecomunicaciones
(COFETEL)