The Hashemite Kingdom of Jordan§ستشارات/استشارات في... · 5 According to TRC’s dedicated capacity markets review published 21 December 2010,3 Orange Fixed shall

The Hashemite Kingdom of Jordan

Telecommunications Regulatory Commission (TRC)

Public Consultation on Top-Down Cost Accounting System for

Dedicated Capacity and Narrowband Markets

August 2013

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Content

1 Introduction ........................................................................................................ 4

1.1 Aim and Scope of Consultation ............................................................................ 5

1.2 The Public Consultation Process .......................................................................... 6

2 Definitions .......................................................................................................... 8

3 Legal Framework.............................................................................................. 11

3.1 Telecommunications Law ................................................................................... 11

3.2 Statement of Government Policy ........................................................................ 11

3.3 TRC Market Review Decision ............................................................................ 12

4 Cost Accounting System ................................................................................. 14

4.1 General Accounting Principles ........................................................................... 14

4.2 Scope and Content of the Cost Accounting System ........................................... 15

4.2.1 Cost model ......................................................................................................... 15

4.2.2 Cost Assessment ............................................................................................... 16

4.3 Cost Standard .................................................................................................... 17

4.4 Historic Cost Accounting and Current Cost Accounting ...................................... 19

4.5 Capital Maintenance ......................................................................................... 21

4.6 Depreciation and Costs of Capital ...................................................................... 23

4.7 Operational Expenditure .................................................................................... 26

4.8 Mark-Ups ........................................................................................................... 28

4.9 Top-Down Modelling Procedure ......................................................................... 30

4.9.1 Determine Homogenous Cost Categories .......................................................... 31

4.9.2 Current Cost Accounting Asset Register (AR) .................................................... 32

4.9.3 Apply CCA Depreciation and the Cost of Capital (WACC).................................. 32

4.9.4 Group Cost Category by Activity and Network Elements .................................... 33

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4.9.5 Determine Service Routing Factors .................................................................... 34

4.9.6 Determination of Mark-Ups ................................................................................ 35

4.9.7 TRC Proposal on Cost Modelling Procedure ...................................................... 35

5 Specifications for the Implementation for Specific Markets ......................... 37

5.1 Services to be Modelled for Retail Narrowband Markets .................................... 37

5.2 Services to be Modelled for Retail Dedicated Capacity Markets ......................... 39

6 Procedural Issues ............................................................................................ 43

6.1 Time Frame and Approval Procedure................................................................. 43

6.2 Publication and Confidentiality Issues ................................................................ 45

6.3 Data Integrity and Maintenance.......................................................................... 46

7 Miscellaneous .................................................................................................. 48

8 Summary of Consultation Questions ............................................................. 49

9 Draft Instructions ............................................................................................. 51

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1 Introduction

TRC took decisions in market analysis procedures thereby designating operators that

enjoy significant market power (SMP) in 2010 and 2011 on several markets. TRC

levied remedies to be implemented in the relevant Jordanian telecommunications

markets by these operators.

According to TRC’s fixed narrowband markets review decision (No 9-15/2011),

published 1 November 2011, Orange Fixed has been obliged in the markets for

“Retail Fixed Telephony Access” and “Retail Fixed Domestic Telephony Calls” to

charge below or equal to a price cap for the following retail fixed telephony and

domestic sets of services, whether for residential or non-residential customers: 1

Connection and monthly fees for the following types of services: PSTN, ISDN-

BRA and ISDN-PRA

Call tariffs for local, national fixed to mobile calls and calls to service providers

(including dial-up connections to internet service providers)

The basket of services included in any price caps to be regulated will be based on

the price cap mechanism currently in place. For the currently applicable price cap

regime TRC Board Decision No (2005/43-19) and Annex 5 of the amended and

restated License Agreement between TRC and Jordan Telecommunications

Company are applicable. The determination of the price cap and related issues are

outside the scope of this consultation.

Orange Fixed (as the Dominant Operator with the obligation to provide a top down

cost model based on fully allocated costs)2 shall provide a suitable top-down cost

accounting system based on accounting rules and reporting formats specified by

TRC. The accounting rules and reporting formats to be used (e.g. model principles)

shall be subject to a public consultation process. This document including draft

specifications is an element of this process for consultation with market participants.

1 Chapter VI Point 4.3 of the regulatory decision on the fixed narrowband markets review, 1 November

2 For the purpose of facilitated reading, the terms “Orange Fixed” and “Obliged Licensee” are used

interchangeably in the sequel throughout this document.

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According to TRC’s dedicated capacity markets review published 21 December

2010,3 Orange Fixed shall charge cost based prices for:

Retail local/national dedicated capacity up to /including 2 Mbps.

Retail international dedicated capacity up to/including 2 Mbps.

The appropriate cost standard applied shall be that of FAC (Fully Allocated Costs,

FAC model). For this purpose, Orange Fixed shall build/design a suitable top-down

cost accounting system based on accounting rules and reporting formats to be

specified by TRC after a consultation procedure with the industry.

This document is structured as follows: After the introduction in section 1 the relevant

terms and expressions are defined in section 2, followed by the legal background

which is presented in section 3. In section 4 the general accounting principles

applicable to all markets using top down FAC are discussed whereas in section 5 the

market specific principles are outlined. The procedural issues are covered in section

6 and miscellaneous aspects in section 7. A summary of consultation questions is

presented in section 8. Finally, in section 9 the draft instructions are included.

1.1 Aim and Scope of Consultation

The scope of this consultation is to present the draft regulatory decision by which

TRC intends to set principles for providing top-down cost accounting system

according to the market review decisions for retail narrowband markets and the retail

dedicated capacity markets. The cost accounting system shall be based on the

accounting rules and reporting formats (“model principles”) which will be defined by

the end of this consultation process.

The aim of the consultation is to provide a basis for discussion and to consult the

relevant issues with the industry. All interested parties are invited to provide

comments as stated below.

TRC considers adopting top-down cost accounting principles (“model principles”) as

explained in this document. For the retail dedicated capacity markets this should be a

FAC model as already determined by the market review decision, for the narrowband

3 Chapter VI Point 2.3 of the regulatory decision on the dedicated capacity markets review,

21 December 2010.

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markets. TRC outlines in this consultation document why FAC should be applied

likewise. Section 9 contains the draft regulatory decision, which will specify the

legally binding obligations after its adoption.

In case that in the future other markets are regulated and / or other Licensees are

obliged to provide top-down cost accounting systems, TRC may according to this

decision decide to apply the principles of this decision to other markets and Obliged

Licensees.

1.2 The Public Consultation Process

Following the publication of this consultation document, interested parties are invited

to provide comments and observations to the TRC. In the document, there are

chapters describing major issues and consultation questions on which the TRC

seeks input from the industry. Interested parties are invited to respond to the

consultation questions. Thereby, it would facilitate TRC’s task of analysing responses

if all comments were referenced to the relevant numbers of the consultation

questions.

TRC is aware that some of the issues raised in the public consultation document

might require that respondents provide confidential information in support of their

comments. Respondents are therefore requested to identify clearly any such

confidential material and to include it in a separate annex to their response.

Following the deadline for receiving comments, TRC will post the comments of all

parties on its website for further comments, subject to confidentiality considerations.

Interested parties will have an additional 10 days in which to provide input on any

issues that are raised in the comments submitted by other parties.

Based on this consultation document, all operators and other stakeholders are invited

to provide their answers to the questions as well as comments and proposals to TRC

no later than:

19 September 2013.

The submissions of the operators and other stakeholders are to be provided to the

following address:

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Telecommunication Regulatory Commission

P. O. Box 941794

Amman 11194

Jordan

TRC will analyse the incoming comments as these are submitted and will take them

into account before adopting and publishing the final decision.

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2 Definitions

The following terms and expressions shall have the meaning assigned to each of

them as stated here unless the subsequent text states another definition. The

definitions are in line with terms and definitions used in other regulatory

documents, e.g.: TRC Decision No (a-b/2009) issued on 27 September 2009

and the Accounting Separation Instructions.

“Activity based costing” is a cost method that identifies activities in an

organization and assigns the cost of each activity with resources to all products

and services according to the actual consumption by each.

“Asset register” is a listing of information relating to various aspects of an asset

portfolio used for accounting purposes.

“Cost accounting system” is a system which enables the determination of costs

derived from each service and, within a service, the costs concerning the different

forms of service provision and the costs concerning the different stages of the

production process including cost models and cost assessments.

“Cost assessment” is the determination of costs for products or services based

on a cost model using a set of predefined inputs.

“Cost model” is an electronic calculation tool into which inputs are inserted and

which calculates costs based on the inserted inputs using various algorithms.

“Current Cost Accounting (CCA)” is an accounting convention based on

current values, where assets are valued and depreciated according to their

current replacement cost.

“Dominant Licensee” is a Licensee which has been designated as having a

dominant position in a market.

“Equi-proportionate mark-up” is the allocation of the costs to services based on

each service’s proportion (share) of the total costs.

“Financial Capital Maintenance (FCM)” is an approach to measure a

company’s capital. When measuring the capital, FCM ensures that the financial

capital of the company is maintained in current price terms. Capital is assumed

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to be maintained if shareholders' funds at the end of the period are maintained in

real terms at the same level as at the beginning of the period. In this approach,

revenues become profits after a sufficient amount has been provided to maintain

the financial value of the asset (or the business).

“Fully Allocated Costs” is a costing methodology where the costs are

categorized as direct and indirect costs which are split into joint and common

costs; then those are divided among a firm’s various products and services

where the direct costs are directly assigned to the cost-causing service.

“Licensee” is a person who has acquired a License in accordance with the

provisions of the Telecommunications Law.

“Modern Equivalent Asset (MEA)” is a valuation method based on what it

would cost to replace an old asset with a new one that is technically up to date

and state of the art. This asset has the same service capability, allowing for any

differences both in the quality of output and in operating costs. For the

replacement cost valuation to be appropriate it is not necessary to expect that

the asset will actually be replaced.

“Obliged Licensee” is the licensee who has the obligation to provide a top-

down cost accounting system to be decided by TRC in the future with regard to

FAC models or according to TRC’s fixed narrowband markets review decision

(No 9-15/2011), published 1 November 2011 or the TRC decision on the

dedicated capacity markets review published 21 December 2010.

“Profit & Loss statement” is a financial or accounting statement that indicates

how the revenue is transformed into net income. It displays the revenues

recognized for a specific period, and the cost and expenses charged against

these revenues, including depreciation and amortization of various assets and

taxes.

“Telecommunications Law” is the Telecommunications Law No.(13) of 1995

and its amendments.

“Top-down” is the method of modelling costs based on the historic statutory

accounts for the Licensee as a starting point.

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“Transfer charge” is the price for internal usage of the dominant operator

network shall be equivalent to the charge that would be levied if the product or

service (network usage) were sold externally rather than internally.

“TRC” is the Telecommunications Regulatory Commission.

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3 Legal Framework

3.1 Telecommunications Law

According to Article 6(b) of the Telecommunications Law No. 13 of 1995 and its

amendments, the TRC has the competence and responsibility

“to establish the basis for regulation of the telecommunications and

information technology sectors, in accordance with the established general

policy".

TRC has to

“stimulate competition in the telecommunications and information technology

sectors, relying on market forces, and so regulating them as to ensure the

effective provision of telecommunications and information technology

services and to ensure that its regulation is sufficient and effective to forbid

or curtail illegal competitive practices or prevent any person with a dominant

position in the market from abusing his position, and to take all necessary

actions in this regard” (Article 6(e)).

The law also sets out in several provisions that retail prices should be just and

reasonable (Articles 6(a), 6(d)).

These provisions provide a legal framework that aims to ensure high quality services

and fair retail prices by encouraging competition. Competition will be stimulated and

consumers protected by efficient retail regulation, which prevents the abuse of a

dominant position in the market.

3.2 Statement of Government Policy

The Statement of Government Policy 2012 on the Information & Communications

Technology & Postal Sectors, Article 39, states that TRC shall continue with the

efforts to promote an environment with effective competition as set out in the

Statement of Government Policy 2007.4 Further, Article 41 states that TRC shall

4 Therefore, the Statement of Government Policy 2007 are not overruled with respect to the goals to

achieved but its contents is reconfirmed to a great extent.

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continue to take all steps necessary to promote new entrances in the market and in

Article 46 it is determined that TRC shall continue to mitigate the effects of

dominance.

The Statement of Government Policy 2007 as is referred to in the Statement of

Government Policy 2012 on the Information & Communications Technology & Postal

Sectors determines the legal framework in more detail. Article 47 of the Policy from

2007 refers to the principle of cost-orientation for wholesale prices, and the usual

safeguards to ensure cost orientation in practice:

“The Government encourages the TRC to analyse critically those parts of

the market where operators have or maintain dominance and ensure that in

each case there are cost-oriented wholesale remedies (that is,

interconnection and access arrangements), as well as other appropriate

regulatory provisions, in place to mitigate that dominance. The Government

recognises that this requires the prior analysis and definition of relevant

retail and wholesale markets, with appropriate levels of specificity. Given its

critical importance to this ICT policy, the Government encourages the TRC

to conduct a market review of broadband access as a priority. The TRC also

should ensure that accounting or other forms of separation are imposed

where appropriate on dominant operators; and that steps are taken to

ensure that no margin squeeze or cross subsidies exist in vertically linked

markets. These requirements should be no more burdensome than is

required to ensure fair competition and should be imposed primarily on

dominant operators. Any unjustified regulation of non-dominant operators

should be removed in recognition of their lack of dominance.”

Retail prices must be fair and neither hamper competition nor abuse end-users. Cost

oriented prices for these services serve that purpose and to that end top-down cost

accounting systems are supportive tools to implement remedies.

3.3 TRC Market Review Decisions

The TRC regulatory decision (No 9-15/2011) on the fixed narrowband markets review

of 1 November 2011 designated Orange Fixed as dominant licensee in the market for

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retail fixed narrowband services (i.e. the market for retail fixed telephony access

connections and the market for retail fixed domestic telephony calls). 5

Chapter VI, Point 4.3 of this market review decision specifies the obligation to charge

below or equal to a price cap. Further, Orange Fixed shall prescribe a suitable top-

down cost accounting system.

The TRC regulatory decision (No 10-25/2010) on the dedicated capacity markets

review of 21 December 2010 designated Orange Fixed as dominant licensee in the

market for retail local and national dedicated capacity services up to/including 2

Mbps and the market for retail international dedicated capacity services up

to/including 2 Mbps. 6TRC obliged Orange Fixed to provide its services on non-

discriminatory terms, to provide separate accounts and to charge cost based prices.

Chapter VI, Point 2.3 of this market review decision specifies the obligation to charge

cost based prices for the two retail markets in which Orange Fixed has been

determined to enjoy a dominant market position.

Irrespective of these decisions, the current consultation and the subsequent decision

intend to address also future decisions of TRC with respect to cost accounting

systems for Obliged Licensees.

5 Regulatory decision on the fixed narrowband markets review, 1 November 2011.

6 Regulatory decision on the dedicated capacity markets review, 21 December 2010.

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4 Cost Accounting System

4.1 General Accounting Principles

When the cost accounting documents are prepared, general principles should be

regarded in order to guarantee that the information is reliable and valid. These

general principles have been identified by benchmarking with other countries and are

regarded as reasonable and appropriate. These principles are necessary to enable

TRC to assess the accuracy and correctness of the information. It is also important

that these principles are fulfilled in order to enable TRC to carry its duties and

functions.

The cost accounting system must be capable of reporting regulatory financial

information to TRC in order to demonstrate full compliance with regulatory

obligations. The following general financial reporting principles are proposed:

Relevance: The information is relevant if it has the ability to influence

economic decisions and is provided in time to influence those decisions.

Reliability: The information is considered reliable when it represents faithfully

what it purports to represent, it is free from deliberate or systematic bias and

from material error, it is complete, its basis of preparation is carried out in an

objective (fair) way and it has a degree of caution (i.e. prudence) applied in

exercising judgement and making the necessary estimates.

Comparability: The information is comparable when it is consistent over time

in the way in which the Obliged Licensee prepares and reports financial

information, under consideration that reasonable and justified improvements

are made over time.

Materiality: The information is material when it is of relevant significance and

importance of a particular matter in the context of the preparation, presentation

and audit of financial information. A matter is material if its omission or

misstatement might reasonably influence the regulatory decision and economic

decisions.

Causality: The assignment of costs and revenues to each activity, asset

element or service should be made through the cost and revenue drivers.

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Objectivity: Generators of costs and revenues must be objective and

quantifiable through sufficiently reliable statistical, census or sample

calculations related directly or indirectly to the services and information

procedures.

Transparency: The cost attributed to each activity, asset element or service

should be susceptible to being disaggregated into the various components of

which it is formed.

Auditability: The cost accounting system shall establish adequate

interrelations with the external financial accounting records of the operator and

with the information and statistical systems on which the cost drivers for

allocating costs and revenues to services are based in order to facilitate the

auditability of cost accounting.

TRC proposal on general accounting principles:

TRC proposes that the cost accounting system must be capable of reporting

regulatory financial information to TRC in order to demonstrate full compliance with

regulatory obligations. The general financial reporting principles proposed are

Relevance, Reliability, Comparability, Materiality, Causality, Objectivity,

Transparency and Auditability

Consultation question:

i. Do you agree with these general accounting principles?

4.2 Scope and Content of the Cost Accounting System

The cost accounting system defined in this consultation consists of a cost model and

a cost assessment. These are defined in the following subsections.

4.2.1 Cost model

Cost models are electronic tools which are established to calculate the costs based

on inputs and algorithms. Cost models can be developed with different software

packages and in different programming languages (e.g. MS Excel, OpenOffice,

Matlab, C++). In order to safeguard transparency, i.e. that the cost model is

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comprehended by TRC, the cost model must be an electronic tool provided in MS

Excel including:

Input fields which can be altered by the user. Examples of these input data are

the transfer prices, the total OPEX separated between regulated and

unregulated as well as retail and wholesale services. Further the fixed asset

register and the Obliged Licensee account ledgers are relevant as input. Any

changes to the input fields must be reflected in the output of the cost model.

Algorithms used to calculate costs based on the input parameters inserted in

the model, including e.g. the allocation of all retail cost between relevant

services, the retail support asset CAPEX for the modelled services, the OPEX

by using ABC to allocate the cost in accordance to the cost driver and cost

causation, and the calculation of the regulated retail service costs by adding

the retail service cost calculated by the model to the relevant transfer prices.

Output fields including at a minimum the total costs of the relevant services and

costs per unit charged for.

The Obliged Licensee must provide a model documentation including a manual.

This shall contain the description of the cost model provided and include text,

graphs, pictures, diagrams etc. showing how the cost model calculates the costs,

definitions of the input and the output variables of the model, and the stages of the

flow of data from being inputs to becoming outputs. Hence the obliged licensee

must provide sufficient documentation to TRC in order to facilitate cost assessment

and approval of the cost model in a reasonable time. Based on the manual, TRC

should be in the position to review and verify the inputs and modify them when

necessary. When the cost model is updated by the obliged Licensee, a full detailed

description of the changes should be included in the model documentation.

4.2.2 Cost Assessment

The cost assessment involves inserting the input into the cost model in order to

produce cost results. Hence, the cost assessment should consist of an assessment

based on the cost model. It should be provided as a text document including

graphs, pictures, diagrams etc. providing evidence for all the inputs used as well as

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the output of the cost model including the total costs of the assessed services and

the cost per charging unit for the assessed services.

As additional requirement, the Dominant Licensee can be obliged to provide a

reconciliation statement which explains the differences between the cost

assessment and the accounting separation or statutory accounts. As the model is

derived from the statutory accounts, this would provide a “quality check” and

increase transparency for TRC

Consultation questions:

ii. Do you agree on the definition and the specifications of the cost model and

the cost assessment?

iii. Do you consider necessary to include a reconciliation with the statutory

accounts and / or accounting separation results? If so, should it be mandatory

upon the Dominant Operator or ordered by TRC on ad hoc basis?

4.3 Cost Standard

The choice of cost standard refers to the way costs are determined to be relevant

and how relevant costs are to be treated. The most relevant cost standards for

regulatory purposes are long run incremental costs (LRIC) and fully allocated costs

(FAC, also referred to as fully distributed costs, FDC).

According to the market review decision on the retail dedicated capacity markets

(Chapter VI, Point 2.3) the fully allocated costs are defined as the relevant cost

standard for the cost accounting system. This means that the costs shall be made up

of the summation of direct and allocated costs for a customer, a type of customers,

product, or product group in which none of the firm's joint and common costs are left

unallocated.

According to the ICT regulatory toolkit, regulatory accounting in combination with

FAC is where all costs, including joint and common costs, are fully allocated to

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all the operator's services/products according to a specified

distribution/allocation key. The costs of a given service/product are composed of

direct volume-sensitive costs, direct fixed costs and a share of joint and common

costs.7

In the TRC decision on Accounting Separation, FAC was defined as “a costing

methodology where the costs are categorized as direct and indirect costs which are

split into joint and common costs; then those are divided among a firm’s various

products and services where the direct costs are directly assigned to the cost-

causing service”.

With regard to the retail narrowband services, the cost standard is not defined in the

market review decision. This means that other cost standards can be used instead of

FAC.

The most predominantly used alternative to FAC is LRIC. LRIC is a forward-looking

cost standard that is commonly used by telecommunications regulators to set cost-

based prices8 and it has been implemented in Jordan for e.g. certain mobile

interconnection services.9 According to international best practice FAC is the most

widely used cost standard in the retail markets in those cases where regulation has

been imposed and the tariffs shall be based on cost accounting systems.10 Although

TRC has not explicitly determined that FAC should be used for the narrowband

markets, international experiences as well as the competitive situation in Jordan

make FAC the most suitable cost standard to be applied for narrowband markets. For

Jordan an advantage of using FAC also for the retail narrowband markets is that the

same cost standard would be used for both the retail narrowband and the retail

dedicated capacity markets. Further, as FAC is based on the total costs actually

incurred by Orange Fixed, FAC has the advantage that it will provide TRC with a

result showing the actual profit realized by Orange Fixed for regulated services. If

TRC regards these costs to be inefficient, it has the ability to account for

7 ICT Regulatory Toolkit, URL: http://www.ictregulationtoolkit.org/en/Section.3566.html

8 See e.g. BEREC, BoR(10) 48, p. 20 and p. 26.

9 See TRC ”Notice requesting comments on the construction of TSLRIC+ models for the costs of interconnection services”, 11 June 2009, Annex B. Forward Looking LRIC can be defined as “a cost standard commonly used to set regulated prices, It comprises of several elements such as forward-looking incremental cost, where the increment is defined as the total volume of a service, based on a long-run time perspective, i.e. reflecting the costs that a network operator would incur when entering the market in order to provide the services for the future.”

10 Please refer to BEREC Report, Regulatory Accounting in Practice 2012, 27 September 2012, p. 37.

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inefficiencies when determining the price cap based on the cost accounting system

results.

Based on these considerations, TRC proposes FAC to be used not only for the retail

dedicated capacity services but also for the retail narrowband services.

TRC proposes the following definition:

“Fully Allocated Costs a costing methodology where the costs are categorized

as direct and indirect costs which are split into joint and common costs; then

those are divided among a firm’s various products and services where the

direct costs are directly assigned to the cost-causing service.”


iv. Do you agree on the definition and description of FAC? If not please state

how the definition should be altered in your opinion and motivate why.

4.4 Historic Cost Accounting and Current Cost Accounting

The FAC cost standard can be implemented by two types of asset valuations. Either

the assets are valued according to the book values, which is referred to as historic

cost accounting (HCA) or based on the current value of the assets, which is referred

to as current cost accounting (CCA).

The idea of current cost accounting is to value the assets at the current values and

not based on historic values. Current cost accounting was originally developed to

remedy the limitations of historical cost accounting in a world of changing prices

either due to inflation or rapid technological change. The main regulatory impact is

that it requires the Obliged Licensee to record the value of assets to reflect their

“value of the business” which, by implication, should result in a net asset cost base

and measures of profits similar to that expected under fully competitive market

conditions. 11

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Please refer to e.g. ERG Common Position: Guidelines for implementing the Commission Recommendation C (2005) 3480 on Accounting separation & cost accounting Systems under the regulatory framework for electronic communications, ERG (05)29.

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TRC proposes to implement CCA as a principle in order to be able to derive sufficient

information from the accounting system and additionally it can be referred to as best

practice:

The requirement to only provide cost accounting based on HCA would have a

set of negative consequences. One is that in case HCA is used, the results of

the cost accounting system will change from year to year depending on where

the Obliged Licensee is in the investment cycle, e.g. when networks are not

upgraded for a number of years but then upgraded to a significant extent in a

specific year, the cost would fluctuate from year to year, making the results

unreliable.

Internationally, both HCA and CCA are typically used for retail markets.12

As described above, current cost accounting was originally developed to remedy the

limitations of historical cost accounting in a world of changing prices due to inflation

and rapid technological change. Hence, although CCA implies extra effort to the

Obliged Licensee, it is proportionate due to the benefits and because it is widely used

elsewhere. Further, CCA has been defined to be used for the accounting separation13

and it is also proposed by TRC to be used for the top-down cost models for the

markets for wholesale physical infrastructure access, wholesale broadband access

and wholesale dedicated capacity markets.

The question is if both CCA and HCA should be used in parallel. TRC regards it

necessary for the regulated operator(s) to provide the top-down model based on

HCA accounts as well. Preparing both HCA and CCA does not imply extensive

additional effort as the valuation of assets based on HCA is already conducted when

the statutory accounts are compiled. Further, there is an additional value derived

from the cost accounting system based on HCA because this makes the submission

more auditable.

When preparing the CCA valuation, there are different calculation issues to deal with.

The TRC decision on LRIC for interconnection contains the principle of MEA. Other

valuation methods consist of absolute valuation, indexation and the book values. The

following can be said about the valuation methodologies:

12

BEREC Report, Regulatory Accounting in Practice 2012, 27 September 2012, p. 14: “In retail markets CCA and HCA seem to be used in similar proportions, with a prevalence of CCA.”

13 TRC, Accounting separation instructions issued on the 9 December 2012.

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Absolute valuation is suitable for assets for which prices are changing but

experience little changes in technology as long as the prices are officially

available or can be proven by invoices. This is especially the case where the

assets or parts thereof have been renewed recently.

Indexation is also suitable for assets for which prices are changing but

experience little changes in technology and when a good index is available.

This is especially true for buildings, network sites, civil works, safety/energy/air

conditioning appliances and in general antenna infrastructure.

For assets that experience extensive changes in technology, i.e. assets that

became obsolete, MEA is the most suitable method.

Book Value (historic) for immaterial, short life-span and for not-regulated

assets.

TRC proposes the following cost base:

The Obliged Licensee shall prepare the cost accounting system based on Current

Costs Accounting (CCA) as cost base and support this by Historic Cost Accounting

(HCA).

The valuation of the assets for CCA shall be according to the modern equivalent

asset valuation (MEA), absolute valuation, indexation and the book values.


v. Do you agree that HCA and CCA with the different valuation methods

described above including absolute valuation, indexation, MEA and book

values are the appropriate valuation methods of non-network and network

element assets, respectively?

4.5 Capital Maintenance

The capital maintenance concept refers to the way of measuring the value of the

operator’s capital in case the CCA is used for the asset valuation. The capital can

either be viewed in operational terms (i.e. as the operator’s capacity to produce

goods and services) or in financial terms (i.e. as the value of the shareholders’

equity).

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In cost models both FCM and OCM can be used. Operational Capital Maintenance

(OCM) represents an approach to measure a company’s capital. When measuring

the capital, OCM considers the operating capability of the company and ensures that

this is maintained. Capital maintenance under this approach requires the company to

have as much operating capability – or productive capacity – at the end of the period

as at the beginning. In this approach, revenues become profits after a sufficient

amount has been provided to maintain the physical capability of the asset.

The alternative to OCM is FCM (Financial Capital Maintenance). When measuring

the capital, FCM ensures that the financial capital of the company is maintained in

current price terms. Capital is assumed to be maintained if shareholders' funds at the

end of the period are maintained in real terms at the same level as at the beginning

of the period. In this approach, revenues become profits after a sufficient amount has

been provided to maintain the financial value of the asset (or the business).

The main adjustments to be made under FCM are:

Revaluation of fixed assets: The gross book value of assets is valued to take

account of specific price changes in the prices of assets and changes in

technology.

Supplementary depreciation: The depreciation charge for the period is

calculated on the basis of the current asset valuations. This ensures that the

current cost of fixed assets consumed during the period is charged against

revenue. For each asset, or group of assets, the depreciation charge can in

some cases be calculated using the same accounting policies (e.g. asset lives,

depreciation profiles) as used for the preparation of historic costs.

Supplementary depreciation is the difference between the historical cost

depreciation and the current cost depreciation charge. It may be positive or

negative depending on whether the value of assets is rising or falling. It is a

charge against profits in the profit and loss account.

Holding gains/losses: treatment in terms of profit and loss needs to be further

adjusted to take account of holding gains or losses that arise due to the effect

of asset-specific price changes on the current cost value of assets and the

effect of general inflation on shareholders' funds.

23

As FCM is the capital maintenance concept defined in the Accounting Separation

decision of TRC this is proposed to be used for the top-down cost accounting

systems for the retail markets as well. Thereby, consistency checks between the top-

down cost data and the accounting separation data are enabled and the regulatory

burden on the Obliged Licensee is reduced. Further, FCM considers more influencing

factors on the valuation and takes the view of the shareholders’, which should in

most cases be more investor-friendly.

TRC proposes the following capital maintenance concept:

The Obliged Licensee must prepare the cost accounting system measuring the value

of the operators capital according to the “financial capital maintenance” (FCM)

approach.

The main adjustments to be made under FCM are:

Revaluation of fixed assets: The gross book value of assets is valued to take

account of specific price changes in the price of assets and changes in

technology.

Supplementary depreciation: The depreciation charge for the period is

calculated on the basis of the current asset valuations. Supplementary

depreciation is the difference between the historical cost depreciation and the

current cost depreciation charge.

Holding gains/losses: Treatment in terms of profit and loss needs to be

further adjusted to take account of holding gains or losses that arise due to the

effect of asset-specific price changes on the current cost value of assets and

the effect of general inflation on shareholders' funds.


vi. Do you agree that FCM is the right capital maintenance concept?

vii. Do you agree on the adjustments to be made under FCM?

4.6 Depreciation and Costs of Capital

Capital investments and other one-time non-recurring costs need to be annualised in

order to take these expenditures into account over the complete economic lifetime of

24

the asset. Different methods have been developed, of which the most common

methods include the annuity and the tilted annuity method (see below), straight line

depreciation (depreciating the value of the asset with a fix annual amount throughout

the entire lifetime of the asset), tilted straight line depreciation (straight line

depreciation adjusted for annual price changes) and economic depreciation

(depreciating the asset according to the economic value of the output of the asset).

For wholesale interconnection rates in Jordan, the tilted annuity formula is used to

annualise investments and one-time costs. TRC sees no reason to implement

another method for the retail markets. Having several cost models with different

annualisation methods imply higher costs to the regulated operator, without any

obvious advantage to the implementation of regulation. Further, in order to avoid

arbitrage in the modelling approach, it is vital to only use one annualisation method

and the tilted annuity formula or the standard annuity formula are widely used

internationally together with the economic depreciation methodology. As the latter

implies more complexity and requires a significant amount of input data on demand,

TRC regards the tilted annuity formula to be more suitable for the wholesale access

markets in Jordan. TRC also proposes that the cost model integrates the tilted

annuity formula, as also the standard annuity (without tilt) can be calculated using the

tilted annuity formula (by setting a in the formula below to “0”).

When using the tilted annuity formula it is to be regarded that this approach delivers

the annualised expenditures also including the depreciations. Therefore, the

depreciation included in the tilted annuity formula must be regarded when applying

the capital maintenance concept as described above.

The tilted annuity formula is as follows:

n

r

a

arIC

1

11

)(

Whereas: C = Annualised expenditures

I = Investment (or non-recurring one time expenditures)

a = Annual tilt adjust, reflecting annual changes to I

r = Cost of capital rate, typically assessed using the WACC formula

n = Economic lifetime of the investment (number of years)

25

In a top-down model, the I is given by the value of the asset register. The “a” reflects

the annual changes in asset values and is applied in case of a current cost

accounting system. The economic lifetime of the asset, “n”, reflects the number of

years for which the asset will be used in the network.

The cost of capital rate, “r”, reflects the return on investment required by the equity

and debt providers. This is typically determined based on the WACC formula, where

the return on equity calculation is based on the Capital Asset Pricing Model (CAPM).

The cost of capital rate or WACC is determined by TRC for interconnection and other

services as well. TRC proposes that the same WACC is used for determination of

costs and prices for the retail narrowband markets and the retail dedicated capacity

markets as for other regulatory decisions. The reason for this is that the WACC

calculated for the wholesale markets are referring to the entire regulated operators

and having another WACC for other retail or wholesale markets would mean that the

regulation would be inconsistent. Further it would imply that the regulated operator

would be incentivized to invest more in some markets than in others, depending on

which WACC would be used for which market. This would mean that the regulation

would set out where to invest instead of the regulated operator based on market

conditions.

When it comes to the economic lifetime of the assets, it is important that these are

consistent. This implies that the same lifetime for the same asset must be used

across all cost accounting systems provided by the Obliged Licensee to TRC.

TRC proposes the following annualisation method and cost of capital:

The capital expenditures and one-time costs shall be annualised based on the tilted

annuity formula. The cost of capital rate shall be determined by TRC.


viii. Do you agree that the tilted annuity formula is the best suited formula for the

annualisation of capital expenditures and one-time costs?

ix. Do you agree that the same WACC can be used as for other regulatory

purposes?

26

x. Which asset lifetimes do you think are appropriate for billing systems, IT

infrastructure for customer care, office space and buildings, customer

premises equipment etc.?

4.7 Operational Expenditure

Operational expenditures refer to recurring costs required to run and maintain the

network, to set up the services and to sell/provide these to the customers as well as

common and overhead costs. Ideally, the cost model should use cost values based

on the data from the financial accounting of the Obliged Licensee. The operational

costs are then defined and allocated in the cost model to network elements and

products based on cost drivers. The operational costs can be estimated from the

tasks and processes required to operate the network., i.e. by using an event-based

approach (confer Activity Based Costing) whereby the costs are driven by the

number of times an event occurs – such as a repair of a cable and the time (and

hence cost) to repair it. This approach can be applied for a number of costs, while for

some of the costs, this approach is complicated and efficient operational costs are

not easy to define.

Given the difficulties involved, it may for some parts of the costs be more appropriate

for operating costs to be estimated at a more aggregated level. It is common to

model the operational costs as a percentage of equipment capital costs. Whichever

approach is used, allowances will be made for the limitations that occur.

Indirect operational costs are those that are required for the network to function and

can include costs such as power, accommodation and maintenance. Because these

are often difficult to model, they may be estimated based on a mark-up on direct

operational costs. However, where possible, costs should be modelled directly.

Different cost models have different cost centres for the modelling of the operational

expenditures. Possible cost centres can be e.g.:

Cost of personnel according to different categories (technical staff,

administrative staff and managing staff)

Ancillary labour costs

Office space and office equipment

Vehicles

27

Tools

IT

Operations and maintenance contracts

Overhead and common costs

etc.

TRC proposes the following regarding the modelling of operational expenditures:

The Obliged Licensee must provide a cost accounting system including operational

and common costs considering:

1. The operational expenditures and the common costs shall be those of the

Obliged Licensee’s operations.

2. The operational expenditures and the common costs shall be determined

directly or based on an activity based costing methodology if possible,

otherwise if not possible,

3. the operational costs shall be determined based on mark-ups on direct costs.


xi. Do you agree that these principles should apply for the operational costs?

xii. Which cost categories do you consider to be required for operational

expenses?

28

4.8 Mark-Ups

According to the definition of FAC, common and overhead retail costs are allocated

based on the ABC methodology. Therefore there is typically no need to add any

mark-ups for these types of costs (joint and common costs) as they are already

accounted for.

Figure 1 Activity based costing and common costs

29

As an example, the common overhead costs for the CEO of the company can be

allocated as a part of the costs per employee, which costs are then in turn allocated

directly or indirectly to the products on which the employees are working.

In Jordan though, mark-ups for joint and common costs have been used previously

within FAC models. In case the Obliged Licensee has not implemented an ABC

system, the use of a general mark-up such as EPMU instead of an allocation within

an ABC system reduces the burden on the Obliged Licensee. As Accounting

Separation has though been prescribed for several operators in Jordan including the

Obliged Licensee in the retail narrowband and retail dedicated capacity markets, an

ABC system can be used to allocate all relevant costs. As the use of ABC results in

more accurate results as the allocation of costs is based on the principle of cost

causation instead of a general (EPMU) mark-up, this is the optimal option. Therefore

TRC proposes that no mark-up shall be applied.

TRC proposes the following:

The Obliged Licensee shall not apply any mark-up.


xiii. Do you agree that a mark-up is not justified as the FAC standard includes all

costs of the Obliged Licensee? If you do not agree, why and for which costs

should a mark-up be applied?

30

4.9 Top-Down Modelling Procedure

Cost models can be designed either top-down or bottom-up. According to the market

review decisions,14 the costs in this case shall be modelled top-down.

The following figure shows the approach for modelling top-down:

Figure 2: Overview of the approach for top-down modelling (the references in brackets

refer to the sections in the text below)15

This approach is based on two stages of which the first one is the classification of

costs and the second one the calculation of service costs:16

1. Classification of costs: The classification of costs shall be based on the

Obliged Licensee’s accounts. The first step is to identify the relevant costs in

that the Obliged Licensee’s cost shall not include any cost related to irrelevant

business entities. Then the Obliged Licensee’s cost shall be separated

between wholesale and retail services. After that the retail cost is derived to

calculate the cost of the regulated retail services only. While the classification

of costs is made, the annual costs from the Obliged Licensee’s accounting

14

Chapter VI, Point 4.3 of the regulatory decision on the fixed narrowband markets review, 1 November 2011 AND Chapter VI Point 2.3 of the regulatory decision on the dedicated capacity markets review, 21 December 2010.

15 TRC ”Notice requesting comments on the construction of TSLRIC+ models for the costs of interconnection services”, 11 June 2009, Annex B.


31

information, including annual operational expenditures (OPEX) and assets shall

be identified and classified. A detailed classification of retail assets and OPEX

into predefined categories shall be performed based on the cause of the cost

items specified in the asset register and the profit and loss statement. The

costs for the network shall be separated from the costs for providing the retail

services and common costs.

2. Calculation of service costs.. The retail model will calculate the retail cost for

the regulated retail services by allocating the costs of the retail activities (e.g.

marketing, sale, customer care and its support assets) into all retail services.

Thereafter the calculated retail cost of the regulated services is added to the

network costs based on transfer prices where applicable. Three types of retail

cost are included in this calculation, i.e. OPEX, depreciation/annualisation of

CAPEX and return on capital employed (if this is not included in the

annualisation calculation).

The classification of costs should be based on the service provider’s accounts and,

where applicable, any separated accounts that may be required in accordance with

the pricing regulations, which provide detailed charts of assets and operating

expenditure using cost accounting methods.17

The development of a top-down model requires the tasks and considerations as

described in section 4.9.1 to 4.9.6.

4.9.1 Determine Homogenous Cost Categories18

This step groups costs that have similar characteristics into individual cost

categories, also called homogenous cost categories or cost pools. The level of

homogeneity is determined by the need to identify individual cost drivers (demand,

minutes, lines, etc.). For asset costs asset groups used in the Asset Register are

important in order to identify the various asset types used (e.g. billing systems and

customer databases etc.).

17

TRC ”Notice requesting comments on the construction of TSLRIC+ models for the costs of interconnection services”, 11 June 2009, Annex B.

18 Compare TRC ”Notice requesting comments on the construction of TSLRIC+ models for the costs of interconnection services”, 11 June 2009, Annex B.

32

All costs that have a single cost driver can be grouped into the same category. For

instance, staff salaries and overtime payments have the same driver so they can be

combined into one category.

However, the staff costs in two different divisions will have different cost drivers and

therefore there would be two separate cost categories. The category or asset groups

will be used to identify how to re-value the asset if needed.

4.9.2 Current Cost Accounting Asset Register (AR)19

Depending on the principles used to establish the top-down model the assets needs

to be re-evaluated. In case the historic cost accounting (HCA) is used and the

accounting is based on book values, then this stage is not necessary. When current

cost accounting (CCA) is used, i.e. the assets shall be valued according to current

value instead of the values at which the asset was acquired, then a current cost

accounting asset register (AR) needs to be created. Thereby, the historical asset

values are converted into the current cost accounting values, making the

depreciation reflecting the forward-looking costs of the operator.

The Asset Register should use either Financial Capital Maintenance or Operational

Capital Maintenance (see section 4.5).

4.9.3 Apply CCA Depreciation and the Cost of Capital (WACC)20

Capital costs are defined at this stage. These are found by multiplying the average

net asset valuation for the year with the cost of capital (WACC). Depreciation, when

calculated from the re-valued assets using CCA process, should also be considered.

A discussion on WACC is included in section 4.6.

19



33

4.9.4 Group Cost Category by Activity and Network Elements21

Once homogeneous cost categories have been identified and fixed assets have been

re-valued, the next step is to determine the activities using the cost categories and to

attribute the costs to different network elements, sub-element, products and other

“cost pools,” based on the activity driver. A cost pool is a collection of costs that are

related to the same object. For the top-down cost accounting system for wholesale

physical network infrastructure, ducts, copper wires and operations staff may all

relate to the same physical metallic access segment cost pool, for example and this

physical metallic access network cost is used as an input network transfer price for

the cost accounting system for retail dedicated capacity and retail fixed narrowband

markets.

Activity based costing (ABC) is to be used as the basis for the allocation stages. ABC

assumes that activities cause costs and that cost objects (such as services or

network elements) create the demand for activities. ABC is conceptually a multi-

stage costing system, with two stages of processing. The initial cost elements are

termed resources. In the first stage, cost resources are allocated to activities. In the

second stage, the costs of activities are allocated to the cost objects based on the

activity driver (how the activities relate to cost objects such as network elements).

To assign the costs of each activity to products or services requires identification of a

cost driver for each category. The cost driver should explain the costs of that activity

and should be quantifiable – the number of metallic paths or the number of

subscribers are examples of readily quantified cost drivers for network elements. In

addition, the cost driver should be measurable in a way that enables it to be identified

with individual products or services.

Operational activities (staff) drivers may be determined by tasks, time, staff numbers

etc. These activities may relate to other operational departments. These supporting

activities must be allocated first (IT support is one example). The operational

activities of the supported department then define how the full costs of the

operational department should be allocated.

21


34

This step in the modelling process must ensure accurate allocation and

disaggregation of costs to enable the individual products and services to be charged

in the later steps.

4.9.5 Determine Service Routing Factors22

The top-down model calculates the cost of services from the network element costs

(for which there are no transfer prices) using allocation keys or product volumes. This

determines the unit cost of using each element and then calculates the product cost

resulting from using the network elements deployed by the product.

The allocation keys for the model identify the relationships between the costs of

network elements and the costs of services. Allocation key tables identify the

average usage of network elements by the services provided by the service provider.

The tables identify the average frequency at which services use different network

elements within the network. The tables must be transparent and include all relevant

network elements and other costs on the one axis and all services using the network

elements and causing the costs on the other axis.

All costs within the model will be directly or indirectly related to the volume of output

whereby indirect costs shall be allocated to specific cost pools for non-relevant costs.

Certain costs are directly related to those volumes, whereas others will only have an

indirect relationship through other intermediate cost drivers. However, the method for

calculating the service cost is always the same, which is to:

identify the cost driver volume associated with the service;

derive the cost driver volume of the particular cost category;

calculate the associated cost of adding the cost category to the service (cost

allocation).

When the cost accounting system is used for retail services there is no need for

the use of a routing table for network costs as long as the costs of the network

elements are embedded in the transfer charges, which are used as an input in

the cost accounting system for the retail markets.

22


35

Instead of the routing table and routing factors, a matrix table can be used, which

shows the specific retail cost categories and network elements (transfer

charges).23

4.9.6 Determination of Mark-Ups24

For a top-down FAC model the common and the overhead retail cost are typically

recovered as operational expenditures allocated within the ABC methodology. In

these cases no mark-up should apply. A discussion if any other mark-ups in spite of

this shall be applied is contained in section 4.8 above.

4.9.7 TRC Proposal on Cost Modelling Procedure

TRC proposes the following regarding the modelling to be undertaken by the Obliged

Licensee. The Obliged Licensee must model the costs in two stages as described in

the beginning of section 4.9 including the classification of costs and the calculation of

service costs.

The Obliged Licensee must establish the top-down model by applying the following

steps:

1. Determine homogenous cost categories;

2. Transform the asset register from historic cost accounting into current cost

accounting;

3. Determine the depreciation and the cost of capital (as specified and adopted by

TRC);

4. Group cost category by activity. Thereby, Activity Based Costing (ABC) is to be

used as the basis for the allocation stages;

23

Relevant network elements are e.g. the line cards in the fixed switches as these are not included in the wholesale offers. Line card costs can be recovered only from Retail Fixed Telephony Access service and therefore need to be modeled explicitly in the cost accounting system for the fixed narrowband markets.


36

5. Determine service allocation keys, applying these and calculating the costs of

each of the services.


xiv. Do you agree on the method to model the costs top-down as described

above, including the usage of Activity Based Costing for the allocation of

costs? If not please state how the definition should be altered and motivate

why.

37

5 Specifications for the Implementation for Specific Markets

5.1 Services to be Modelled for Retail Narrowband Markets

The market review decision for narrowband markets explicitly addresses the

following services as a part of the retail narrowband markets in which Orange Fixed

has been deemed dominant and obliged to provide a top-down cost accounting

system:

Fixed telephony access connections:

For residential and non-residential customers based on PSTN

For residential and non-residential customers based on ISDN-BRA

For residential and non-residential customers based on ISDN-PRA

Fixed domestic telephony calls:

For residential and non-residential postpaid customers:

Local calls

National calls

Calls to service providers

TRC proposes that the cost accounting system shall provide the costs per access

line for the fixed retail telephony access connections in the three categories listed

above and the costs per minute for the fixed domestic telephony calls for the three

call types as listed above.

Further, for the retail fixed access connections the costs per access line for the

following price positions needs to be included in the results of the cost accounting

system:

The one-time fees for new customers

The monthly fees

In order to provide the sufficient costing data for these services and price positions,

the top-down cost model must differentiate the costs based on different cost

categories. Thereby, for retail services, the question is how to deal with the network

costs. One alternative would be to establish the cost model calculating all the

network costs based on different cost categories, such as e.g.:

Cost of transmission links

38

Cost of RSS

Switch block

Switch processor

Ports/Cards on RSS side of switch

Site preparation

NMS

Air condition

Back-up power syste

Local exchange security system

Power supply unit (PSU)

Cost of buildings

The second alternative is to rely on the wholesale tariffs where these are available.

This means e.g. that the costs of an outgoing call which is terminating in another

Jordanian network is based on the wholesale tariff (transfer charges) for wholesale

fixed call origination plus the additional non-network costs applicable to provide the

retail service and the cost of terminating the call in the network of the alternative

network operator. Relevant wholesale tariffs for the retail narrowband markets would

be derived from the following reference offers:

Reference Interconnection Offer of Orange Fixed (“Jordan Telecommunications

Company “JT” Reference Offer for Traffic Termination, Traffic Origination and

Traffic Transit”)

Reference Unbundling Offer of Orange Fixed (“Jordan Telecom Reference

Unbundling Offer”)

Non-network CAPEX and OPEX cost categories to be regarded are:

Cost of marketing, product management and advertising

Cost of sales activities and the sales organisation

Cost of installation of services (in addition to network costs based on transfer

prices)

39

Cost of customer premises equipment

Costs of retail customer care

Costs for retail billing platform

Cost of different add-on services, e.g. the cost of line cards in the local

switching

Overhead and common costs for retail services

TRC proposes to implement the second alternative, by which the wholesale prices

are used as a reference for the relevant network costs as far as possible. This

ensures that there is a consistency between wholesale and retail prices.

TRC proposes the following services to be included:

The cost accounting system must provide cost results for all main services and price

positions as listed above. With regard to network costs for which wholesale tariffs

exist, these shall be used as the relevant input for the cost accounting system.


xv. Do you agree that these services and cost categories should be included in

the top-down cost accounting system?

5.2 Services to be Modelled for Retail Dedicated Capacity Markets

The market review decision states that Orange Fixed is a dominant licensee and

shall provide the cost accounting system for the retail local and national dedicated

capacity services up to/including 2 Mbps and the retail international dedicated

capacity services up to/including 2 Mbps. In detail, the following services need to be

included in the accounting system provided by Orange Fixed:

Local dedicated capacity, where side A and B (referring to the two sites which

are connected by the dedicated capacity service) are located in the same

Governorate. The costs are to be differentiated by the following bandwidths:

64 Kbps

128 Kbps

256 Kbps

40

512 Kbps

1 Mbps (1024 Kbps)

2 Mbps (2048 Kbps)

National dedicated capacity, where side A and B (referring to the two sites

which are connected by the dedicated capacity service) are located on two

different Governorates. The costs are to be differentiated by the following

bandwidths and tariff zones as offered by Orange Fixed:

64 Kbps Zone 1 Zone 2 Zone 3 Zone 4




1 Mbps (1024 Kbps) Zone 1 Zone 2 Zone 3 Zone 4

2 Mbps (2048 Kbps) Zone 1 Zone 2 Zone 3 Zone 4

International dedicated capacity, where side A is located in Jordan and side B

is located outside of Jordan. The costs are to be differentiated by the following

bandwidths and tariff zones as offered by Orange Fixed:

64 Kbps

41

128 Kbps

256 Kbps

512 Kbps

1 Mbps (1024 Kbps)

2 Mbps (2048 Kbps)

TRC proposes that the cost accounting system shall provide the costs per dedicated

capacity connection/line in the categories listed above. For each dedicated capacity

connection/line the costs for the following price positions needs to be included in the

results of the cost accounting system:

The one-time fees for installation

The monthly fees

The one time fees for transferring the one end of the leased line or transferring

both ends

In order to provide the sufficient costing data for these services and price positions,

the top-down cost model must differentiate the costs based on different cost

categories. Thereby, for retail services, the question is how to deal with the network

costs. One alternative would be to establish the cost model calculating all the

network costs based on different cost categories, which will lead to a cost different

than the cost calculated by the cost accounting systems for wholesale markets and

this will not make the Obliged Licensee able to be compliant with the non-

discriminatory obligation.

The second alternative is to rely on the wholesale tariffs where these are available.

This means that the cost of a dedicated capacity is based on the wholesale tariff for

wholesale dedicated capacity plus additional costs incurred to provide the retail

service. Relevant wholesale tariffs for the retail dedicated capacity markets would be

derived from the “Jordan Telecommunications Company “JT” Dedicated Capacity

Reference Offer”.

Non-network cost categories to be regarded are:

Costs of marketing, product management and advertising

Costs of sales activities and the sales organisation

Costs of installation of services (in addition to transfer prices, if applicable)

42

Costs of customer premises equipment

Costs of retail customer care

Costs for retail billing platform

Lost revenues due to bad debt

Costs of different add-on services, if any

Overhead and common costs for retail services

TRC proposes to implement the second alternative, by which the wholesale prices

are used as a reference for the relevant network costs as far as possible. This

ensures that there is a consistency between wholesale and retail prices.

TRC proposes the following services to be included:

The cost accounting system must provide cost results for all main services and price

positions as listed above. With regard to network costs for which wholesale tariffs

exist, these shall be used as the relevant input for the cost accounting system.


xvi. Do you agree that these services and cost categories should be included in

the top-down cost accounting system?

5.3 Services to be Modelled for Other Markets

Should TRC in the future decide to oblige further Licensees with respect to cost

accounting systems, the same principles as laid down in this document shall apply.

Additionally, TRC will develop specifications for the relevant services similar to

sections 5.1 and 5.2 above.

43

6 Procedural Issues

6.1 Time Frame and Approval Procedure

The market review decision25 does not state the time frame for the Dominant

Licensees to provide top-down cost accounting systems, i.e. cost models and cost

assessments. Internationally it is either typical that the cost models and cost

assessments are provided annually or within regulatory procedures regarding the

regulatory approval of the related tariffs.

For Jordan, TRC regards it vital to create a regulatory environment characterised by

stability and regulatory certainty. Therefore, TRC will set prices on the basis of the

cost accounting systems for at the least one year if these prices will not lead to

distortions in the market.

After the Dominant Licensee has provided the top-down cost accounting system,

TRC will review it before it is regarded as final in order to assure that the results

provided have been assessed according to this decision. Further, TRC will have the

right to require changes to the top-down cost accounting system provided in case of

non-compliance. Further, TRC has the option to require the Obliged Licensee to align

the cost accounting system to international best practice. It is regarded as sufficient

to give the Dominant Licensee one month time as a maximum to implement the

changes requested by TRC. TRC must also be able to require additional information

and clarifications in order to be able to fully understand the cost accounting system

provided.

In procedures where TRC has to decide on the prices that the Obliged Licensee may

charge for retail narrowband and retail dedicated capacity services, TRC shall use

the data of the cost accounting system as a basis of its calculations. If though no

sufficient and reliable cost accounting system is established which is fully compliant

to the requirements set out in this decision, and which leads to plausible and

consistent results, TRC must have the ability to approve the prices in order to

facilitate competition in the market. An interim alternative method typically consists of

benchmarking, i.e. comparisons with prices for similar services in other countries or

markets.

25

The regulatory decision on the fixed broadband markets review from 14 July 2010

44

TRC proposes:

The Obliged Licensee is obliged to submit the cost accounting system including the

cost model and the cost assessment and eventual other supporting documentation to

TRC for the first time until 31 December 2013. The Obliged Licensee shall submit

updated versions until this decision will be withdrawn or amended by another market

review decision of TRC. The first submission shall cover the year 2012 and the

Obliged Licensee shall submit updated versions every year. This shall include the

results for the previous year.

TRC will examine the submitted cost accounting system and will either approve the

submission or may require changes, if the submission is not compliant with the

requirements set out in this decision.

TRC has the right to require the Obliged Licensee to answer questions on the

submitted cost accounting system documents, to provide access to all relevant

documents or to prepare additional supporting documents, whenever this is

necessary to examine compliance with regulatory obligations. TRC has the right to

require the Obliged Licensee to submit documents or data in electronic form.

When TRC requires changes or additional information, it will set a deadline of one

month as a maximum to submit the amended version or the required information.

TRC may set a shorter or longer deadline, if this is adequate considering the amount

of work needed to fulfil the request.

In procedures where TRC has to decide on the prices that the Obliged Licensee may

charge for retail narrowband and dedicated capacity services, TRC shall use the data

of the cost accounting system as a basis of its calculations.

As long as the Obliged Licensee has not submitted a cost accounting system which

is fully compliant to the requirements set out in this decision, TRC may use

alternative methods to calculate the Obliged Licensee’s retail charges for dedicated

capacity and to determine the price cap for retail narrowband services. Thereby, TRC

should predominantly extend the approval of existing charges or use the prices or

costs of operators in other countries, which provide similar services in comparable

markets (benchmarking).

45


xvii. Do you agree that the top-down cost accounting system must be provided

every year?

xviii. Do you consider it appropriate for TRC to implement transition periods/glide

paths in case the tariffs would otherwise have to be changed significantly.

When do you regard a transition period/glide path appropriate and to what

extent?

6.2 Publication and Confidentiality Issues

The cost accounting system provided is sensitive to the Obliged Licensee as it

contains extensive financial information including costs, revenues, asset values etc.

However, a certain level of transparency is required to ensure competition. In

particular, it is of interest for alternative operators, whether the cost accounting

system has been verified by TRC, and that the cost accounting system provided

reflects the actual costs.

The principle of transparency is acknowledged in Jordanian legislation, for example

in several articles of the Statement of Government Policy 2007. On the other hand,

article 47 of the Policy also states that “these requirements should be no more

burdensome than is required to ensure fair competition”. It follows, that TRC should

not oblige operators to publish more potentially confidential information than

necessary for ensuring fair competition.

In principle, the cost accounting system and the related information should therefore

be treated confidentially, but exceptions may be made as far as necessary to ensure

fair competition. Such exceptions include, but are not limited, to the outputs of the

top-down cost accounting system related to retail narrowband and dedicated capacity

services.

TRC proposes:

TRC treats the cost accounting system and related information, in particular

numerical data about costs, and other undisclosed business issues as confidential.

With regard to descriptive documents about the applied methodologies and

principles, the Obliged Licensee shall inform TRC whether such documents contain

46

information that shall be treated as confidential business issues. In such cases, the

Obliged Licensee shall also provide a version without confidential information that is

suitable for publication.

After TRC has examined the provided cost accounting system as submitted

according to this decision (“model principles”), TRC publishes a statement informing

market players that the Obliged Licensee has submitted the cost accounting system

and the outcomes of the cost modelling assessments with regard to costs of the

services relevant for tariff regulation. TRC also publishes descriptive documents

without confidential information as far as necessary to inform market players about

the applied principles and methodologies.

In exception of the principle of confidentiality set out here, TRC may publish general

costing data directly related to services and products for which the Obliged Licensee

is required to charge cost-based prices or for services for which a price cap

regulation is applied. When TRC applies this exception, it has to take into account

the economic and legal interests of the Obliged Licensee versus the interests of other

market players and the public interest to ensure fair competition.


xix. Do you agree that the information must generally be treated confidential and

that TRC should be able to publish cost accounting system information only in

certain cases?

6.3 Data Integrity and Maintenance

In order to provide TRC with the ability to analyse the data and to compare the

development of the accounting system data, it is important to safeguard the data

integrity and maintenance. It must therefore be the responsibility of the Obliged

Licensees’ legal representative to ensure the data is presented in the information

system of the Obliged Licensee. Data integrity must also be assured through the

availability of electronic or paper based support records or systems that enable TRC

to perform tests and verifications.

Further, it is important that information is kept for a suitably prescribed period in line

with national legislation (e.g. statute of limitations), allowing the costs, revenues and

47

outputs to be traced and the evaluation of the effects on costs of applying possible

different criteria and methods.

TRC proposes that:

The Obliged Licensee shall preserve sufficient records to provide an adequate

explanation of all information as submitted according to this decision (“model

principles”) for a period of four years from the date on which the documents have

been delivered to TRC. The records can be kept in electronic or in paper form as

adequate.


xx. Do you agree that the Obliged Licensee should keep the records for four

years’ time in order to enable an audit or to derive information on the

development up to four years back in time?

48

7 Miscellaneous

The market review decision states that TRC should consult the specific accounting

rules and reporting formats with the industry.


xxi. Do you see any reasons to add any further issues to those dealt with in this

document?

49

8 Summary of Consultation Questions

i. Do you agree with these general accounting principles? .............................. 15

ii. Do you agree on the definition and the specifications of the cost model and the cost assessment? ...................................................................... 17

iii. Do you consider necessary to include a reconciliation with the statutory accounts and / or accounting separation results? If so, should it be mandatory upon the Dominant Operator or ordered by TRC on ad hoc basis? ......................................................................................... 17

iv. Do you agree on the definition and description of FAC? If not please state how the definition should be altered in your opinion and motivate why. ....................................................................................................... 19

v. Do you agree that HCA and CCA with the different valuation methods described above including absolute valuation, indexation, MEA and book values are the appropriate valuation methods of non-network and network element assets, respectively? ...................................... 21

vi. Do you agree that FCM is the right capital maintenance concept? ............... 23

vii. Do you agree on the adjustments to be made under FCM? ........................... 23

viii. Do you agree that the tilted annuity formula is the best suited formula for the annualisation of capital expenditures and one-time costs? .................................................................................................................... 25

ix. Do you agree that the same WACC can be used as for other regulatory purposes? .......................................................................................... 25

x. Which asset lifetimes do you think are appropriate for billing systems, IT infrastructure for customer care, office space and buildings, customer premises equipment etc.? ............................................... 26

xi. Do you agree that these principles should apply for the operational costs? .................................................................................................................... 27

xii. Which cost categories do you consider to be required for operational expenses? ........................................................................................ 27

xiii. Do you agree that a mark-up is not justified as the FAC standard includes all costs of the Obliged Licensee? If you do not agree, why and for which costs should a mark-up be applied? ........................................ 29

xiv. Do you agree on the method to model the costs top-down as described above, including the usage of Activity Based Costing for the allocation of costs? If not please state how the definition should be altered and motivate why............................................................................... 36

50

xv. Do you agree that these services and cost categories should be included in the top-down cost accounting system? ....................................... 39

xvi. Do you agree that these services and cost categories should be included in the top-down cost accounting system? ....................................... 42

xvii. Do you agree that the top-down cost accounting system must be provided every year? ........................................................................................... 45

xviii. Do you consider it appropriate for TRC to implement transition periods/glide paths in case the tariffs would otherwise have to be changed significantly. When do you regard a transition period/glide path appropriate and to what extent? ............................................................... 45

xix. Do you agree that the information must generally be treated confidential and that TRC should be able to publish cost accounting system information only in certain cases? ...................................................... 46

xx. Do you agree that the Obliged Licensee should keep the records for four years’ time in order to enable an audit or to derive information on the development up to four years back in time? ........................................ 47

xxi. Do you see any reasons to add any further issues to those dealt with in this document? ........................................................................................ 48

51

9 Draft Instructions

The Hashemite Kingdom of Jordan

Telecommunications Regulatory Commission

Regulatory instructions on the top-down Fully Allocated Cost accounting

system

TRC Board Decision No. <...> Date <...>

Article (1) Aim and scope

a) The TRC regulatory decisions on the market review on dedicated capacity

markets and the fixed narrowband markets review of 21 December 2010 and

1 November 2011 designated Orange Fixed as dominant licensee in the retail

markets for (1) local and national retail dedicated capacity services up

to/including 2 Mbps, (2) international retail dedicated capacity services up

to/including 2 Mbps, (3) the market for retail fixed telephony access connections

and (4) the market for retail fixed domestic telephony calls.

b) Amongst other obligations, chapter VI point 2.3 of the decision on dedicated

capacity market obliged Orange Fixed,

1. to charge cost-based prices for retail local/national DC up to/including

2 Mbps and for retail international DC up to/including 2 Mbps, based on

fully allocated costs (FAC); and

2. to establish a suitable top-down cost accounting system based on

accounting rules and reporting formats specified by the TRC.

c) Amongst other obligations, chapter VI point 4.3 of the decision on retail fixed

telephony access and retail fixed domestic telephony calls contains obligations

on price regulation and the obligation for Orange Fixed to provide a top-down

cost accounting system for

1. connection and monthly fees for the following types of telephony access

services (PSTN, ISDN-BRA and ISDN-PRA); and

52

2. call tariffs for local, national, fixed to mobile calls, and calls to service

providers (including dial up connections to internet service providers).

d) TRC has the right to decide to apply this decision to other markets and Obliged

Licensees.

e) These instructions contain the accounting rules and reporting formats for the top-

down cost accounting system and shall come into effect as of the date of its

approval by the Board of Commissioners.

Article (2) Definitions

The following terms and expression shall have the meanings assigned thereto

hereunder, unless the context indicates otherwise. Any words and phrases not

defined hereunder shall have the meanings ascribed thereto in the

Telecommunications Law and the Regulations issued pursuant thereto.

“Activity based costing” is a cost method that identifies activities in an

organization and assigns the cost of each activity with resources to all products

and services according to the actual consumption by each.

“Asset register” is a listing of information relating to various aspects of an asset

portfolio used for accounting purposes.

“Cost accounting system” is a system which enables the determination of costs

derived from each service and, within a service, the costs concerning the different

forms of service provision and the costs concerning the different stages of the

production process including cost models and cost assessments.

“Cost assessment” is the determination of costs for products or services based

on a cost model using a set of predefined inputs.

“Cost model” is an electronic calculation tool into which inputs are inserted and

which calculates costs based on the inserted inputs using various algorithms.

“Current Cost Accounting (CCA)” is an accounting convention based on

current values, where assets are valued and depreciated according to their

current replacement cost.

53

“Dominant Licensee” is a Licensee which has been designated as having a

dominant position in a market.

“Equi-proportionate mark-up” is the allocation of the costs to services based on

each service’s proportion (share) of the total costs.

“Financial Capital Maintenance (FCM)” is an approach to measure a

company’s capital. When measuring the capital, FCM ensures that the financial

capital of the company is maintained in current price terms. Capital is assumed

to be maintained if shareholders' funds at the end of the period are maintained in

real terms at the same level as at the beginning of the period. In this approach,

revenues become profits after a sufficient amount has been provided to maintain

the financial value of the asset (or the business).

“Fully Allocated Costs” is a costing methodology where the costs are categorized

as direct and indirect costs which are split into joint and common costs; then those

are divided among a firm’s various products and services where the direct costs are

directly assigned to the cost-causing service.

“Licensee” is a person who has acquired a License in accordance with the

provisions of the Telecommunications Law.

“Modern Equivalent Asset (MEA)” is a valuation method based on what it

would cost to replace an old asset with a new one that is technically up to date

and state of the art. This asset has the same service capability, allowing for any

differences both in the quality of output and in operating costs. For the

replacement cost valuation to be appropriate it is not necessary to expect that

the asset will actually be replaced.

“Obliged Licensee” is the licensee who has the obligation to provide a top-

down cost accounting system to be decided by TRC in the future with regard to

FAC models or according to TRC’s fixed narrowband markets review decision

(No 9-15/2011), published 1 November 2011 or the TRC decision on the

dedicated capacity markets review published 21 December 2010.

“Profit & Loss statement” is a financial or accounting statement that indicates

how the revenue is transformed into net income. It displays the revenues

recognized for a specific period, and the cost and expenses charged against

54

these revenues, including depreciation and amortization of various assets and

taxes.

“Telecommunications Law” is the Telecommunications Law No.(13) of 1995

and its amendments.

“Top-down” is the method of modelling costs based on the historic statutory

accounts for the Licensee as a starting point.

“Transfer charge” is the price for internal usage of the dominant operator

network shall be equivalent to the charge that would be levied if the product or

service (network usage) were sold externally rather than internally.

“TRC” is the Telecommunications Regulatory Commission.

Article (3) General specifications

a) The Obliged Licensee is obliged to establish top-down cost accounting system

for retail narrowband markets and the retail dedicated capacity markets. The

cost accounting system shall include a cost model and cost assessment and

shall be based on the rules and principles specified in these instructions.

b) The cost accounting system must be capable of reporting regulatory financial

information to TRC in order to demonstrate full compliance with regulatory

obligations. The following general financial reporting principles are proposed:

relevance, reliability, comparability, materiality, causality, objectivity,

transparency and auditability.

c) The Obliged Licensee is obliged to provide the cost model as an electronic tool

provided in MS Excel including:

1. Input fields which can be altered by the user. Any changes to the input fields

must be reflected in the output of the cost model.

2. Algorithms used to calculate costs based in the input parameters inserted in

the model.

55

3. Output fields including at a minimum the total costs of the relevant services

and costs per unit charged for.

d) The Obliged Licensee is obliged to provide a sufficient model documentation

including a manual. This shall contain the description of the cost model provided

and include text, graphs, pictures, diagrams etc. showing how the cost model

calculates the costs, definitions of the input and the output variables of the

model, and the stages of the flow of data from being inputs to becoming outputs.

When the cost model is updated by the Obliged Licensee, a description of the

changes shall be included in the model documentation.

e) The Obliged Licensee is obliged to provide a cost assessment based on the cost

model. It shall be provided as a text document including graphs, pictures,

diagrams etc. providing evidence for all the inputs used as well as the output of

the cost model including the total costs of the assessed services and the cost

per charging unit for the assessed services.

f) The cost accounting system shall be based on FAC.

g) The Obliged Licensee must model the costs in two stages:

1. Classification of costs: The classification of costs shall be based on the

Obliged Licensee’s accounts. The first step is to identify the relevant costs in

that Obliged Licensee’s cost shall not include any cost related to irrelevant

business entities. Then the Obliged Licensee’s cost shall be separated

between wholesale and retail services. After that the retail cost is derived to

calculate the cost of the regulated retail services only. While the

classification of costs is made, the annual costs from Obliged Licensee’s

accounting information, including annual operational expenditures (OPEX)

and assets shall be identified and classified. A detailed classification of retail

assets and OPEX into predefined categories shall be performed based on

the cause of the cost items specified in the asset register and the profit and

loss statement. The costs for the network shall be separated from the costs

for providing the retail services and common costs.

2. Calculation of service costs. The retail model will calculate the retail cost for

the regulated retail services by allocating the costs of the retail activities

(e.g. marketing, sale, customer care and its support assets) into all retail

56

services. Thereafter the calculated retail cost of the regulated services is

added to the network costs based on transfer prices where applicable.

Three types of retail cost are included in this calculation, i.e. OPEX,

depreciation/annualisation of CAPEX and return on capital employed (if this

is not included in the annualisation calculation).

h) The Obliged Licensee must establish the top-down model by applying the

following steps:

1. Determine homogenous cost categories.

2. Transform the asset register from historic cost accounting into current cost

accounting.

3. Determine the depreciation and the cost of capital.

4. Group cost category by activity. Thereby, activity based costing (ABC) is to

be used as the basis for the allocation stages.

5. Determine service allocation keys, applying these and calculating the costs

of each of the services.

Article (4) Asset valuation, capital maintenance and annualisation of costs

a) The Obliged Licensee must prepare the cost accounting system based on

historic cost accounting and current cost accounting (CCA) as cost base, with

valuation of the assets according to the modern equivalent asset valuation

(MEA), absolute valuation, indexation and the book values.

b) The Obliged Licensee must prepare the cost accounting system measuring the

value of the operator’s capital according to the financial capital maintenance

(FCM) approach.

c) The main adjustments to be made under FCM are:

1. Revaluation of fixed assets: The gross book value of assets is valued to take

account of specific price changes in the price of assets and changes in

technology.

57

2. Supplementary depreciation: The depreciation charge for the period is

calculated on the basis of the current asset valuations.

3. Holding gains/losses: Treatment in terms of profit and loss needs to be

further adjusted to take account of holding gains or losses that arise due to

the effect of asset-specific price changes on the current cost value of assets

and the effect of general inflation on shareholders' funds.

d) The capital expenditures and one-time costs shall be annualised based on the

tilted annuity formula.

e) The cost of capital rate shall be as determined by TRC.

Article (5) Networks and services

a) The cost accounting system must provide cost results for all services and price

positions that are offered in the markets mentioned in Article (1)a.

b) The Obliged Licensee must provide a cost accounting system which is based on

network and technologies as implemented to provide the relevant services. With

regard to network costs for which wholesale tariffs exist, these shall be used as

the relevant input for the cost accounting system.

Article (6) Operational expenditures and common costs

a) The Obliged Licensee must provide a cost accounting system which including

operational and common costs considering:

1. The operational expenditures and the common costs shall be those of the

Obliged Licensee’s operations.

2. The operational expenditures and the common costs shall be determined

directly or based on an activity based costing methodology if possible,

otherwise if not possible

3. the operational costs shall be determined based on mark-ups on direct

costs.

58

Article (7) Procedure

a) The Obliged Licensee is obliged to submit the cost accounting system including

the cost model and the cost assessment and eventual other supporting

documentation to TRC for the first time until 31 December 2013. Obliged

Licensee shall submit updated versions until this decision will be withdrawn or

amended by another market review decision of TRC. The first submission shall

cover the year 2012. The Obliged Licensee shall submit updated versions every

12 months. This shall include the results for the previous year.

b) TRC will examine the submitted cost accounting system and will either approve

the submission or may require changes, if the submission is not compliant with

the requirements set out in this decision.

c) TRC may require Obliged Licensee to answer questions on the submitted cost

accounting system documents, to provide access to all relevant accounting

documents or to prepare additional supporting documents, whenever this is

necessary to examine compliance with regulatory obligations. TRC may require

Obliged Licensee to submit documents or data in electronic form.

d) When TRC requires changes or additional information, it will set a deadline of

one month to submit the amended version or the required information. TRC may

set a shorter or longer deadline, if this is adequate considering the amount of

work needed to fulfil the request.

e) In procedures where TRC has to decide on the prices that the Obliged Licensee

may charge for retail narrowband and dedicated capacity services. TRC shall

use the data of the cost accounting system as a basis for its calculations.

f) As long as the Obliged Licensee has not submitted a cost accounting system

which is fully compliant to the requirements set out in this decision, TRC may

use alternative methods to calculate the Obliged Licensee’s retail charges for

dedicated capacity and to determine the price cap for retail narrowband services.

Thereby, TRC shall predominantly extend the approval of existing charges or

use the prices or costs of operators in other countries, which provide similar

services in comparable markets (benchmarking).

59

Article (8) Publication and Confidentiality

a) TRC treats the cost accounting system and related information, in particular

numerical data about costs, and other undisclosed business issues as

confidential.

b) With regard to descriptive documents about the applied methodologies and

principles, the Obliged Licensee shall inform TRC whether such documents

contain information that shall be treated as confidential business issues. In such

cases, the Obliged Licensee shall also provide a version without confidential

information that is suitable for publication.

c) After TRC has examined the provided cost accounting system as submitted

according to this decision (“model principles”), TRC publishes a statement

informing market players that the Obliged Licensee has submitted the cost

accounting system and the outcomes of the cost modelling assessments with

regard to costs of the services relevant for tariff regulation. TRC also publishes

descriptive documents without confidential information as far as necessary to

inform market players about the applied principles and methodologies.

d) In exception of the principle of confidentiality set out here, TRC may publish

general costing data directly related to services and products for which the

Obliged Licensee is required to charge cost-based prices or for services for

which a price cap regulation is applied. When TRC applies this exception, it has

to take into account the economic and legal interests of the Obliged Licensee

versus the interests of other market players and the public interest to ensure fair

competition.

60

Article (9) Records

The Obliged Licensee shall preserve sufficient records to provide an adequate

explanation of all information as submitted according to this Regulatory Decision for a

period of four years from the date on which the documents have been delivered to

TRC. The records can be kept in electronic or in paper form as adequate.

Documents

The Hashemite Kingdom of Jordan§ستشارات/استشارات في... · 5 According to TRC’s dedicated capacity markets review published 21 December 2010,3 Orange Fixed shall