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EXPERT LEVEL TRAINING ON TELECOM NETWORK COST MODELLING FOR THE HIPSSA REGIONS Arusha

EXPERT LEVEL TRAINING ON TELECOM NETWORK COST MODELLING FOR THE HIPSSA REGIONS Arusha 15-19 July, 2013 David Rogerson , ITU Expert. Sessions 13/14 – using the training cost model as part of a hypothetical regulatory procedure to establish costs and prices for mobile termination.

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EXPERT LEVEL TRAINING ON TELECOM NETWORK COST MODELLING FOR THE HIPSSA REGIONS Arusha

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  1. EXPERT LEVEL TRAINING ON TELECOM NETWORK COST MODELLING FOR THE HIPSSA REGIONS Arusha 15-19 July, 2013 David Rogerson, ITU Expert

  2. 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 Aims and objectives for these sessions Session13 Session14

  4. 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.

  5. The ITU Mobile Telco LRIC training model

  6. 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.

  7. 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.

  8. 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

  9. 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.

  10. 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:

  11. Normcell’s proposed WACC calculations

  12. Your task GROUP WORK EXERCISE 4 Each WG is a CEAT team reporting to the Board of TRAN. • 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. • Determine the level of MTR asymmetry implied by Normcell’s proposed approach 2. • 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. Reporting format - MTRs All costs to be shown in local currency cents per minute

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