IIR’s Telecoms Cost Accounting and Profitability producer, Mindy Emsley recently gained the thoughts of John Frederiksen, Vice President TDC A/S in relation to the conference for ”Telecoms Cost Accounting & Profitability”, 3 – 5 December 2012 in London.
Q1. How are you managing the impact of new regulation on your cost models?
We are – as an incumbent with SMP status – currently in a dialogue with the national regulatory telecom authority on how to adjust the LRAIC model that are used to calculate the costs for interconnection, raw copper (ULL), Bit Stream Access (BSA) etc. The model is revised more fundamentally each 3rd year, but structural adjustments are sometimes made in between. The model is updated each year with new data.
We make changes to our own cost models every half year.
Q2. What strategies do you think will encourage joint investment in NGA – in order to promote risk sharing and fairly distribute the costs?
The important problem regarding NGA investments is the uncertainty about future demand. So the more you can obtain guarantees for future revenue by agreements with other operators, the better. But it needs to be arranged on a voluntary basis.
Q3. What approaches do you think will help operators best manage margin squeeze and ensure that all the operators in the market place can achieve an effective price-cost margin?
It is necessary to have a tool to currently analyze profitability for your products – today it is mainly the broadband products. These profitability calculations shall be made in a way so that it includes different levels of the value chain from upstream to downstream. Thereby it can be scrutinized both by the operators and by the regulator how the margins are for different players on the market place. In that connection cost definitions are important.
Q4. How can interconnection models evolve in the increasingly complex value chain?
Two quite different regimes are being merged in these years: In the Internet world “peering” is the preferred model with addition of transit agreements, while in the traditional telecommunication world payments between networks for origination and especially termination have been the dominant regime. It will of course be much simpler if every network generates its own revenue from its own subscribers (Bill-and-Keep). But it is not necessarily the optimal solution seen from a theoretical economic point of view. The trend is, however, probably in the direction of smaller interconnection payments, based on simple criteria.
Q5. How can operators balance the profitability of legacy and new fixed access services during a period of migration?
Probably for a rather long period of time, we will see parallel access networks for broadband solutions: copper, coax, fibre and mobile wireless etc. The consequence of that is that penetration rates will not be very high for any of these solutions, and thereby will unit cost be higher for use of the network. At the same time it is a difficult decision for operators how fast new solutions shall be introduced, when cannibalization of legacy products also are taken into account.