Letter | Wednesday, 16 July 2008

Letter

Bottom-up costing methodology “best practice”

Further to the article entitled ‘Go irked by MCA decision to reduce rates’ published on 9th July 2008, the MCA would like to forward its position in respect of certain issues.
With respect to the use of a bottom-up costing methodology and its considerations of efficiency, the MCA would like to clarify that this approach is regarded as best practice in Europe and was the subject of an extensive consultation with GO which started back in 2005. The European Commission has recently reiterated this principle by publishing a draft recommendation which reinforces the importance of this approach since truly cost oriented termination rates will increase competition to the benefit of consumers.
The rationale behind adopting the principle of an efficient operator is to mimic the price in a competitive market which does not result in inefficient costs being transferred to third parties. From a competitive point of view, this is very important as the interconnection rates are applicable to all fixed-line operators and not only to the incumbent operator. The efficiency principle was also upheld by the Communications Appeals Board in 2007 when it ruled in favour of the MCA to include efficiency adjustments for GO’s calculated rates.
Furthermore, as also stated in the decision on interconnection rates in question, the changes in the cost model used to calculate the revised interconnection rates were limited to those resulting from the extension of the cost model to incorporate leased lines. In turn, the latter extension was amply consulted by the MCA during various interactions where a large volume of information was exchanged between the MCA and GO. In this respect, all changes to the cost model were documented and submitted for GO’s comments and were also the subject of various consultative meetings with GO. For this reason, the MCA feels that it adhered adequately with the required transparency principles as also testified by the other operators’ comments reported in the article.
It is also worth pointing out that until July 2004, GO’s (then Maltacom) local fixed termination rate at 5.6 Euro cents per minute was the highest in Europe, well above the average of 0.65 Euro cents at the time. The MCA believes that the continued cost-orientation of interconnection rates is a crucial factor to enhance competitive conditions. As stated by the European Commission, this principle supports a stable and balanced regulatory environment which provides efficient investment incentives, promotes a level playing field between operators, and facilitates further reductions to the benefit of European consumers.
Mandy Calleja
Communications Coordinator
Malta Communications Authority