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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 EXPERT LEVEL TRAINING ON TELECOM NETWORK COST MODELLING FOR THE HIPSSA REGIONS Arusha 15-19 July, 2013 David Rogerson, ITU Expert 1
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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 Sessions 13/14 – using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices for mobile termination. 2
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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 3 Agenda Describe the scenario Explain the exercise Work in groups Present and discuss findings Aims and objectives for these sessions Session 13Session 14
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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 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
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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 5
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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
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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 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
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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 8
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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. 9
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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: 10 TelecomNormcellMobilco Subscriber market share 201367%28%5% Subscriber market share 201560%24%16% Relative traffic levels (all years)100%75% Relative rural coverage (all years)100%80% WACC14%16%18%
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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 proposed WACC calculations 11
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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 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 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 201320142015 Telecom Normcell Mobilco 13 All costs to be shown in local currency cents per minute
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