1. COSITU Khurshid M Ashraf Niyaz Omantel/ITU The ITU model for the calculation of telecommunication services costs, tariffs and interconnection charges

2. COSITU ITU Model for the Calculation of Costs, Tariffs and Rates for Telecommunication Services It is a practical tool which automates the calculation of: costs (historical or current) for all telecommunication services, rates related to the exchange of international traffic:  distribution rates,  settlement rates,  termination rates, interconnection rates between local operators; tariffs for national and international telephone services taking into account the impact of universal service obligations. It can be used for both fixed, internet, and mobile services.

3. COSITU – Principle Users COSITU is a tool for calculating costs, tariffs and rates for telephone services. It is also useful as a policy-making tool for regulators and public authorities in developing countries. Independently of network configuration, COSITU can be used by various categories of fixed and mobile operators: 1. Vertical operators managing international and national traffic with complete geographical coverage 2. National operators with urban and interurban area coverage 3. National operators with urban area coverage only

4. COSITU – Cost Methodology Historical costs: Based on the cost price of equipment and services. Current costs: Take account of the changing environment: falling prices of telecommunication equipment, currency depreciation. COSITU utilizes current costs as confirmed on the relevant market.

5. COSITU – Costing Principles Transparency: The open availability of information used in the cost derivation process in order to allow comprehension of the final rate from the vantage point of an external analyst. Practicability: The ability to implement a costing methodology with reasonable demands being placed on data availability and data processing in order to keep the costing exercise economical yet still useful. Causality: The demonstration of a clear cause-and-effect relationship between service delivery, on the one hand, and the network elements and other resources used to provide it, on the other hand, taking account of relevant cost determinants (cost inducers).

6. COSITU – Costing Principles Contribution to common costs: Costing methodologies should provide for a reasonable contribution to common costs. Efficiency: The provision of a forecast of cost reductions that result from a more efficient combination of resources.

7. COSITU – Stages of cost-orientated charging allowed by this model

8. COSITU – Calculates Services Cost  Local/Urban  Trunk/Inter-urban  International Outgoing  Incoming International  Outgoing Sub-regional  Sub-regional incoming  International to International/Transit  International to Sub-regional  Sub-regional to Sub-regional  International to National  National to International  Outgoing National  Incoming National – Single Transit  Incoming National – Double Transit  National to National

9. COSITU – Calculates Services Cost For Operator ‘A”

10. COSITU – Calculates Endogenous Cost National boundaries of networks and the bases for interconnection Within a given jurisdiction, the interconnection points set the network boundaries. Costs incurred within the boundaries of a network are endogenous costs, which the operator is at liberty to improve itself. Except for transit charges identified at transmission, payments to other correspondents for terminal traffic are exogenous costs which are not counted in determining costs at boundaries.

11. COSITU – Calculates Endogenous Cost

12. COSITU – Routing Table  The routing table is an essential instrument for cost-orientated charging,  It allows allocation to every service, according to the intensity of demand it places on each one, part of the resources needed for its production,  The cost driver used by COSITU is traffic volume (adjusted by the geographical correction coefficient) for network component cost allocation.

13. COSITU – Routing Table  On the basis of the routing table, COSITU allocates to services their share of each cost component,  The resulting cost of a service is divided by the corresponding real traffic volume in order to obtain the unit cost of the service,  At this stage, the COSITU server allows an online comparison with other telephone network operators,  The costs here are endogenous intrinsic costs which do not take into account the specific requirements of States.

14. COSITU – Software Requirements The COSITU program can be installed on any computer running one of the following operating systems:  Windows 98  Windows 98 SE  Windows ME  Windows NT  Windows 2000  Windows XP or any later version Important Note – If you are running Windows 98 first edition, Internet Explorer 5.0 or a later version must be installed for you to be able to install COSITU.

15. COSITU – Data Input The following sources of information can be used: Analytical i.e. where the user has detailed accounting data General accounting i.e. where the user has less detailed data about costs. Business Plan data

16. COSITU – Session Setting screen

17. COSITU – Traffic Input Screen

18. COSITU – GSM Network Input

19. COSITU – Cost Distribution Matrix

20. COSITU – Direct Cost Distribution

21. COSITU – Other Direct/Shared Cost Distribution

22. COSITU – Tariff/Simulation Screen

23. COSITU – Determination of Cost-based tariffs This function is used to rebalance tariffs. Tariff rebalancing involves modifying the domestic rates until a zero access deficit is obtained; so it involves theoretical tariffs that are cost-based. In real life this would involve a gradual adjustment, typically one spread over several years, in order to make the most of the efficiency benefits that are the result of"price demand elasticity" and maximize the economies of scale that can be obtained thanks to the natural growth in the volume of traffic at constant tariffs.

24. COSITU – Interpretation of results  All of the results obtained by this model will be "endogenous" tariffs pre-tax.  They do not take into account either the interconnection charges paid to other local operators or the settlement fee paid to international operators (for outgoing international communications).  In order to determine the tariffs that would apply to users, "exogenous" charges must be added to the tariffs that the model has worked out.

25. COSITU – ITU Server Results obtained from use of the software can be benchmarked by means of the COSITU Server. The categories for benchmarking are: – Teledensity – Region – Development For more information: http://www.itu.int/ITU-D/finance/COSITU/index.html

26. COSITU – ITU Support

27. Assistance to Member States and/or Sector Members can be provided by the means of: Seminars, training workshops ITU Trained Experts in the Region Direct assistances through Regional COE

28. COSITU – ITU Contact Ms. Carmen Prado-Wagner Market, Economics and Finance Unit International Telecommunication Union Tel: +41 22 730 6350 / 5791 Fax: +41 22 730 5484 E-mail: carmen.prado@itu.intcarmen.prado@itu.int

29. COSITU Thank You for Your Attention Q&A