Economic Role and Costing p2

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THE ROLE OF ECONOMICSAND COST-BASED OF

INTERCONNECTION

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The Role of Economics

Economic of design of networks

- Decentralized control mechanisms

- Management of networks as‘holistic’ view

Economic Incentives rather than hardwiredrules

- Manage the flow of vehicle traffic during rushhours

Distributed control dynamically to



The Role of Economics

Economic performance with widermeasures:

- flexibility in the use of the network

- the ability to adapt (adaptability)

- customize the service to the particularneeds of the customers.

Prices: resource scarcity and congestion cost

Overprovision or Control?



Pricing: Control andSignalling

By increasing prices an operator can reducedemand, reduce congestion, and ensure thatservices are provided to the users that benefit

most and are most willing to pay.

Pricing as mechanism => operatorcommunicates with his users and gives themincentives to use the network efficiently.

the value of services to users and providestability and robustness



Tariff and Charges

A tariff design => incentive compatible

if it induces customers to choose tariffs thataccurately reflect their actual usage plans,

and while doing so increases the aggregateutility of all users.

Charges should be simple, but notsimplistic; understandable, implementable and competitive.



Tariff and Charges

Tarif Kartu As

Tarif Panggilan (Voice & Video Call) Tarif Promo

Ke Sesama Telkomsel (Kartu As,simPATI, KartuHALO)

Rp.13/dtk

Nelpon 1 menit GRATIS 1menit (berlaku kelipatan)

Ke Operator Lain -

Ke PSTN & Fixed Wireless -

Tariff design



Tariff and Charges

TUJUAN TARIF (Rp) CATATAN

PEAKOFF-PEAK

Sesama Esia(On Net)

50 50

Interlokal(pakai01010)

50 50Tarif per

menit

Telepon Rumah

Dalam Kota 250 250

Antar KotaZona Dekat(<200km)

1000 636Tarif per

menit

Antar KotaZona Jauh

(>200 km)

2091 1091Tarif per

menit

Tarif Panggilan Esia Postpaid

Telepon ke Ponsel (Jakarta & Bandung)

Dalam Kota 636 636 Tarif per menit

Antar Kota ZonaDekat (<200 km)

1727 1182 Tarif per menit

Antar Kota ZonaJauh (>200 km)


Telepon ke Ponsel

Dalam Kota 636 636 Tarif per menit

Antar Kota ZonaDekat (<200 km)


Antar Kota, zona>200 km




Who Should Pay the Bill?

Users of telecommunications services appreciate the simplicity and predictability offlat rate charging. Yet flat rate charging is not

fair to all customers and can lead to a waste ofresources.

Efficiency is greater when the charge takesaccount of actual usage. Waste is reducedand resources are reserved for the customersthat value them the most.



Interconnection Advantage

Networks of different operators areconnected.

Creating larger networks from smaller ones iskey to unleashing the power of networkexternalities.

Interconnection is a service provided among

networks to extend their services to largercustomer bases.

Motivating to interconnect in order to

achieve truly competitive markets for-



Charge, Price and Tariff

Charge : the amount that is billed for aservice.

Price : amount of money associated with a

unit of service; this is used to compute thecharge.

Tariff: general structure of prices and charges.

Tariff = a + pT

a is a price for setting up,



Flat Rate versus UsageCharging

Flat-fee tariff => can give the wrongincentives, wasting network resources.

Usage charging => Customer chooses

greatest satisfaction and value-for-money.

Is a simple usage charge enough?

A tariff that has the right incentives should take

account of the fact that resource reservationis costly in itself, independently of the costof the actual resources consumed.



Costing: InterconnectionCharges

Top-down interconnection charging:Operating expenditure

Fixed Asset expenditure

Long term (multi-period) liabilities

Depreciation

Current asset

Current liabilities



Costing: InterconnectionCharges

Cost data sources are used to producefinancial statement:

Profit and Loss account

Balance sheet

Working capital account

Free cash flow statement



Operating Expenditure

Recurring cash outlays for each accountingperiod.

At operator Profit & Loss account

Example:

Maintenance, Engineer salaries, Electrical

power, Transportation.



Depreciation

Non cash expense that reflect a cost ofcapital allowance at operator Profit & Lossaccount

Reflect the fact that if a fixed asset has a lifeexpectancy of several years then the value ofasset should be written off over life time ofasset.

Represent consumption of asset throughtime.

Depreciation cost based on the cost of fixed

asset.





Return on Capital Employed(ROCE)

Proportion of net book value of fixed asset orthe cost of capital.

If an operator subject to regulatoryconstraints on its retail and wholesale(interconnection) charges earns a rate of

return that less then its cost of capital thenit will be unable to rise new capital (debt anequity) in order to finance operations.

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Economic Role and Costing p2