Trends in Economics and Finance

Volume I:  Cost, Tariff and Interconnection Rate Calculation Methodology
and Application to Case Studies

This publication is aimed in particular at network operators and regulatory authorities in developing countries who do not have very detailed data at their disposal on their costs or on the development of prices in their market.

• The first part describes a model for the calculation of telephone service costs, tariffs and interconnection taxes.

• The second part shows how the application of this model in different situations (case studies) allows for the identification of national political demands concerning universal service obligations.

Foreword

The whole question of tariffs is crucial to the development of telecommunications, since it is tariffs that will mercilessly make or break anyone setting out in this sector. Negotiating tariffs or rates is hence a delicate matter, whether for the new operator entering a liberalized market and fearful of finding itself lumbered with excessively high interconnection charges, or for the regulator wishing to set low tariffs for national calls without compromising the rules of competition among the various operators.

The question is also a much debated one because the nature of the costs on which tariffs are supposed to be based can differ greatly:

• Are they historical?

• Are they current?

• Are we looking at economic costs?

• Are we looking at average costs?

To what extent do they reflect the genuine impact of a causal relationship with the volume of service provided?

Many other questions may be raised in this regard. Various cost concepts exist and are formulated in models (LRIC, LRAIC, FLEC, TELRIC, TSLRIC, CCA, FDC, etc.). Each concept presupposes the availability of a quantity of data without which the results obtained would be no more than vague estimates, however complex the models used.

For the purposes of this publication, a cost concept was deliberately chosen that takes account of the data that may be found in almost all developing countries. By implementing the principles set forth therein, a response may be found to the following concerns:

1. calculation of costs and tariffs pertaining to urban and long-distance telephone services;

2. calculation of costs and tariffs pertaining to international telephone services;

3. calculation of settlement rates for incoming international calls;

4. calculation of interconnection charges between local telecommunication network operators, whatever the origin and whatever the destination;

5. calculation and distribution of the cost of universal service obligations;

6. determination of the impact of universal service policies and formulation of associated policies.

The second part of the report sets forth the results emerging from typical case studies carried out on the basis of the aforementioned principles (with a view to serving as a methodological guide), as well as those produced by a case study relating to aggregate data from eight African countries representing the different situations prevailing there (with a view to providing mean comparative values).

These case studies show, in real terms, how to address tariff rebalancing, how such rebalancing affects or enhances service consumption, and the ways in which it relates to the determination of other tariffs, bearing in mind the desire on the part of States to protect underprivileged consumers.

The ITU-D membership, particularly members from developing countries, had called for the publication of such a document, and it is our hope that what they find in it will meet their expectations.

 

Catalogue Price:	CHF 50.-
Member States and Sector Members:	- 15%
Administrations of Least Developed Countries:	- 80%
Electronic copy via Electronic Bookshop (No discount): - http://www.itu.int/itudoc/itu-d/publicat/trendsv1.html	CHF 50.-    (English, French, Spanish and Russian editions are available)
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