National & regional experiencse

Dr. Musab Barakat Ahmed Ali PhD.;FCCA;FCMI

Chartered Certified AccountantPracticing firm Barakat&co

Senior partner & CEOConsultant

National Telecommunication Corporation (Sudan

The views expressed in this paper are those of the author and do not necessarily reflect the opinions of the ITU or its membership. Dr Kelly can be contacted at Tim.Kelly@itu.int.

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AgendaAgendaBackgroundMechanism /road mapThe purpose of the Accounting Separation

GuidelinesThe purposeapplication

* This will be the subject of separate presentations.2

AgendaAgendaSaudi experienceOmanQatarItalyUSA AT&TUK flash

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PreamblePreamble11

Structural and functional separation of telecommunications operators is being considered in many parts of the world following the U.K. adoption of Openreach

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PreamblePreamble22

“The operational separation of Telecom is a key part of the government’s strategy to deliver a more effective telecommunications sector. It will underpin increased competition and efficient investment for the long-term benefit of all New Zealanders,” Communications Minister David Cunliffe

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Mechanism/RoadmapMechanism/Roadmap

Structural separation should include

a time-line detailing the milestones, key dates and stages

Consultation paperResponses WorkshopPosition statementGuidelines/ determinationApplication

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The purpose of the Accounting The purpose of the Accounting Separation GuidelinesSeparation Guidelines

complementary activity - encouraging good practice to the respect to

accounting separation

to provide specific guidance on how:

to prepare and present separated accounts the instruction to Designated Service Provider on

how to submit information and reports to the regulatory body

- to provide instruction on preparation of regulatory accounting systems & Accounting Separation systems

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ApplicationApplication

These Guidelines will apply to all Designated Service Providers.

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Saudi ExperienceSaudi Experience11

Article 12 of the Bylaw includes “the level of segregation of telecommunications services for accounting and regulatory purposes as may be determined by the Commission”.

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Saudi ExperienceSaudi Experience22

the creation of a favorable atmosphere to promote and encourage fair competition in all fields of telecommunications

the level of segregation of telecommunications services for accounting and regulatory purposes as may be determined by the Commissio

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Saudi ExperienceSaudi Experience33

The Accounting Separation Policy of 2004 required STC to separate its accounts on the basis of four pre-defined business segments: fixed, mobile, data and other

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Saudi ExperienceSaudi Experiencepurpose 4purpose 4

verify a Designated Service Provider’s adherence to its obligations of non-discrimination, objectivity, cost–based

pricing and transparency set down in the Bylaw;

ensure the Designated Service Provider’s compliance with specific obligations imposed on it by the CITC;

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Saudi ExperienceSaudi Experiencepurpose 5purpose 5

understand a Designated Service Provider’s costs and revenues at the required level of detail; identify and prevent abuses of dominance or other anticompetitive practices by a Designated Service Provider; and/or

ensure implementation of any associated objectives of the Act.

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Time scheduleTime schedule11

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First quarter 2004 Issue of policies

Third quarter 2004 Saudi telecom provide plan & draft of how they will execute the accounts separation

Third quarter 2004 Issue of unaudited accounting statements for the year2003

First quarter 2005 Saudi telecom to provide the final method of A S results

Second quarter 2005 The regulatory body endorse the procedures

Time ScheduleTime Schedule22

Second quarter 2005

Second quarter 2005 S T issue unaudited F S for the year 2004

Second quarter 2006 Issue of audited accounts for the year 2005

Second quarter 2006 Issue of A S statements for the year 2005

Second quarter 2007 Issue of audited accounts for the year 2006

Second quarter 2007 Issue of A S statements for the year 2006

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Oman ExperienceOman Experience11

Oman TRA issued Consultation Paper SMP

Remedies

All current Class I license holders are classified as Notified Operators

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Oman ExperienceOman Experience22

The activities and services had been classified as follow:

Retail fixed voice

1. Access

2. Local &national voice

3. International voice

4. Telephone service

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Oman ExperienceOman Experience33

Retail data

1. Retail leased lines

2. Dial up internet

3. Broad band internetWhole sale fixed voice

1. Call origination

2. Call termination

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Oman Experience Oman Experience 44

Wholesale infrastructure

1. Wholesale unbundled access

2. Wholesale unbundled line rental

3. Wholesale broad band access

4. Wholesale terminate segment of leased lines

5. Wholesale trunk segment of leased lines

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Oman ExperienceOman Experience55

Mobile market

1. Access of call origination

2. Voice call termination on individual mobile network

3. wholesale International roaming

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OmanOman The response to the A/S 6 The response to the A/S 6

Oman took the initiative very early in the region

Omantel group is providing fully segmented costing analysis for

Fixed lineCellular based on

1. Top-down FDC

2. LRIC model

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OmanOman The response to the A/S 7 The response to the A/S 7

Oman took the initiative very early in the region

Omantel group is providing fully segmented costing analysis for

Fixed lineCellular based on

1. Top-down FDC

2. LRIC model

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OmanOman The response to the A/S 8 The response to the A/S 8

1. Separate regulatory accounts ( Annually)

2. Investigative costing studies (rare)

3. FDC/LRIC modeling interconnect tariff approval (annual)

4. Tariff rebalancing ( annual)

5. Product price approval ( each product)

6. Corrective (occasional)

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QatarQatar11

Information and Communication Technology (ictQATAR) issued Regulatory Accounting System Instructions in August 2010 (ICTRA 08/10),

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Qatar 2Qatar 2Since then, QTel has developed a

Regulatory Accounting System (RAS) based on the financial year (FY) 2009. ictQATAR has reviewed the regulated accounting separation system and the information supplied. ictQATAR has developed their needs for cost and revenue data.

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Qatar objectives 3Qatar objectives 3The RAS is a supporting tool to assist

ictQATAR to meet it general objectives to develop competitive telecommunications markets in QATAR and promote competitive services

The RAS provides a platform for additional analysis to assist with decisions on such issues as costing and pricing

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Qatar objectives 4Qatar objectives 4The RAS is a supporting tool to assist

ictQATAR to meet it general objectives to develop competitive telecommunications markets in QATAR and promote competitive services

The RAS provides a platform for additional analysis to assist with decisions on such issues as costing and pricing

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Qatar objectives 5Qatar objectives 5 to provide an initial basis for price

controls – retail and wholesale. To provide some information for

evaluation for anti-competitive behavior investigations and evaluations of price squeezes

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Qatar objectives 6 Qatar objectives 6 evaluation of new wholesale products’

costs, cross subsidizations and cost/profit trends;

To enhance transparency to ictQATAR and the industry of the status of services, costs and margins being made, and so assist with competitive market developments

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Qatar roadmap 1Qatar roadmap 1In preparation for these RAS Orders,

ictQATAR held two rounds of consultation

1. The first consultation (from 23 October 2012 until 29 November 2012) provided details of the RAS system, the methodology to be applied and the expected RAS outputs

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Qatar roadmap 2Qatar roadmap 2The second consultation (from 23 January

to 7 February 2013) allowed additional constructive comments to be made by all parties to assist ictQATAR with the finalization of the RAS Orders

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Qatar instructions 9Qatar instructions 9These RAS Orders are formal Instructions

to QTel to comply with the following

1. Prepare and participate in the further development of the RAS as approved by ictQATAR

2.Meet the timelines for the RAS implementation process according to the timelines setout.

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Qatar instructions 10Qatar instructions 10

Prepare and submit written reports, plans and responses to information requested from ictQATAR as part of the RAS

4.Apply the RAS information in its own business systems and practices that relate to price setting and to demonstrate the application and implementation of the RAS system and information;

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Qatar instructions 11Qatar instructions 115.Guarantee the performance of its RAS

obligations . providing a Performance Bond

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Telecom Italia’s Operational Telecom Italia’s Operational Separation model: main Separation model: main

features features Italy 1Italy 1Creation of a separated business unit –

Open Access – providing SMP access services both internally and externally.

Physical separation of Open Access and Telecom Italy Wholesale staff and management

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Telecom Italia’s Operational Telecom Italia’s Operational Separation model: main Separation model: main features features Italy 2Italy 2

Separated incentive schemes and separated code of conduct for Open Access and Telecom Italy Wholesale staff and management.

Logical/physical separation of information systems.

Technical equivalence for both existing and forthcoming SMP access services based on the equivalence of output concept.

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Telecom Italia’s Operational Telecom Italia’s Operational Separation model: main Separation model: main

features features Italy 3Italy 3Economic equivalence based on internal

contracts and internal transfer charges consistent with regulated wholesale prices.

Governance of the equivalence model ensured by the Supervisory Board.

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US the master case 1US the master case 1The experience of separation approaches

in the United States over the last 35 years can be good start to think about functional &operational separation in telecom

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US the master caseUS the master caseBreakup of AT&T 2Breakup of AT&T 2

1984 wittnesed the broke up AT&T, which was at that time the largest telecommunications company in the world

The main issue that led to the breakup was that AT&T had used its control of bottleneck local telephone networks to foreclose12 competitors and to cross subsidize its potentially competitive markets, primarily long distance and manufacturing

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US the master caseUS the master caseBreakup of AT&T 3Breakup of AT&T 3

1984 wittnesed the broke up AT&T, which was at that time the largest telecommunications company in the world

The main issue that led to the breakup was that AT&T had used its control of bottleneck local telephone networks to foreclose12 competitors and to cross subsidize its potentially competitive markets, primarily long distance and manufacturing

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US the master case Breakup US the master case Breakup of AT&T 4of AT&T 4

The underlying theory for the breakup of AT&T was based on two basic assumptions .

Firstly, that the division between local exchange and long distance was a natural business boundary such that markets and companies could be unambiguously divided accordingly

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US the master case Breakup of US the master case Breakup of AT&T 5AT&T 5

Secondly, the provision of local telephone lines was a natural monopoly

The observations from the breakup of AT&T included:

(1) In markets as dynamic and unpredictable as telecommunications, there is a strong risk that business line divisions will be overtaken by market and technology changes;

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US the master case Breakup of US the master case Breakup of AT&T AT&T

2)Artificial industry boundaries can lead rivals to invest heavily in the regulatory and political processes in order to gain regulatory advantage

(3) Regulatory imposed barriers to competition delay important changes that would benefit customers

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US the master case Breakup of US the master case Breakup of AT&T AT&T

(4) Regulatory battles over separation boundaries can diminish new entrants‟ resources favor entrants that are effective in the regulatory arena rather than those that are effective in the marketplace

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US the master case Breakup of US the master case Breakup of AT&T AT&T

Behavioral rules are more effective than separation measures. While structural or functional separation were often justified ex ante as necessary for bringing about the benefits of competition, actual experience showed otherwise.

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U K Flash 1U K Flash 1In the UK, British Telecom created

Openreach BT in 2005 to operate all its access networks. This spurred a new wave of investment and infrastructure-based market entry as evidenced by the explosion of local loop unbundled lines in UK which jumped from less than 100,000 in June 2005 to 6.2 million by November2009.

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U K Flash 2U K Flash 2The UK experience shows a major benefit

of functional versus structural separation is the ability to adjust the boundaries of separation over time for example to allow Openreach to offer active-based fiber products

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referencesreferencesBlowers, A. (2007). Functional separation –

The UK „Openreach‟ Model. Presentation at ANACOM‟s 10th Seminar, Lisbon, Portugal. (Available at http://www.anacom.pt/content.jsp?contentId=562609.

Prieger, J. E. (2002). Regulation, innovation, and the introduction of new telecommunications services. The Review of Economics and Statistics, 84(4), 704-715.

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ReferencesReferences

Workshop on “Policy for Next Generation

Networks: European and US

Perspectives”

MIT, Cambridge, 27th March 2009

Safdar Imam ;presentation Dubai

Senior costing analyst Oman telecom

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