Declaration on the analytical accounting system of PT Comunicações (2004)
Statement on the analytical accounting system of the fixed telephone service, the leased line service and the interconnection service of PT Comunicações, S.A., for the 2004 financial year
1. Since 2000, PT Comunicações, S.A. (PTC) has been declared as an undertaking with significant market power in the market for fixed telephone networks and/or the fixed telephone service, in the market for leased lines and in the interconnection market;
2. As such, in accordance with article 34 of the Regulations for the Operation of the Fixed Telephone Service (ROFTS: Decree-Law No. 474/99 of 08 November) and article 28 of the Regulations for the Operation of Public Telecommunications Networks (ROPTN: Decree-Law No. 290-A/99 of 30 July) [under the transitional arrangements set out in point a) and b) of paragraph 2 of article 122 of Law No. 5/2004 of 10/02 - LEC], in the 2004 financial year, PTC was bound to comply with the tariff principles set forth, requiring the implementation of an analytical accounting system suitable for this purpose (article 35 of ROFTS and article 29 of ROPTN);
3. Likewise, in the 2004 financial year, with respect to interconnection between public telecommunications networks, PTC was required to keep separate accounts for the interconnection activity on the one hand, and for other activities, on the other, and to keep an analytical accounting system (AAS) for the interconnection activity, pursuant to articles 9 and 15 of Decree-Law No. 415/98 of 31 December (under the transitional arrangements set forth in point f) of paragraph 2 of article 122 of the LEC);
4. Under paragraph 2 of article 35 of the ROFTS, paragraph 2 of article 29 of the ROPTN and paragraphs 2 and 3 of article 15 of Decree-Law No. 415/98, it is incumbent upon ICP-ANACOM to approve this system and publish a declaration on an annual basis certifying the compliance of the adopted AAS;
5. Moreover, under the Concession Agreement, PTC is bound to keep an AAS which is appropriate to the application of the established tariff principles, whereas it is incumbent upon ICP-ANACOM to grant approval to the methodology to be used in the implementation and use of the system and to verify and declare upon its compliance (article 18 of the Concession Bases, approved by Decree-Law No. 31/2003 of 17/02);
6. In December 1996, and subsequent to the definition by ANACOM of the general principles of the accounting system of PTC, the operator officially notified ANACOM that it has implemented an AAS in respect of the Public Telecommunications Service Contract;
7. Since then, ICP-ANACOM has conducted audits of this system;
8. The audits were performed by bodies which are independent of PTC;
9. In respect of the recently concluded audit with reference to the 2004 financial year, a declaration was drawn up stating the system's conformity with the applicable provisions, wherein the auditors concluded that the analytical accounting system (AAS) is in compliance with said provisions, except for: ( i) the fact that the provision of services between activities is generally not included in the AAS of PTC, although as a whole the Company has attempted to follow the methodology for calculating ABC costs; (ii) the low level of integration of supporting computer applications; (iii) the methodology used in the separation of business areas, especially in the separation of assets and liabilities; (iv) the parameters used in the calculation of cost of capital, which subsequent to the BDO review would present a cost shortfall of 25.3 million euros; (v) the costs improperly included in AAS of PTC, specifically administrative and marketing costs arising from the PT DECO agreement and the costs resulting from the duplication of financial costs in the calculation of the cost of capital, resulting in an overstatement of the total costs of the AAS of 52.3 million euros; (vi) the weaknesses detected at the level of support and justification for the allocation of income in the profit and loss statements of the various products; and (vii) the incorrect classification in common costs of the costs arising from the transfer of the former Marconi.
10. Regarding the reservations referred to in paragraph 9, ICP-ANACOM notified PTC of its position in a separate and specific document, and issued determinations and recommendations with a view to effecting improvements to the AAS of PTC.
11. Notwithstanding paragraph 10, specific mention is made of situations associated with the cost of capital and the duplication of financial costs, which may have significant impact on the AAS of PTC and which are being examined in greater depth in ongoing studies on the cost of capital and on curtailment, which examination may lead to determinations and/or recommendations where appropriate,
ICP-ANACOM declares that the results of the accounting system of PTC for the 2004 financial year, excepting the aspects identified above, were produced in accordance with:
a) The rules set out in article 34 of ROFTS, under the terms of point b) of paragraph 2 of article 122 of the LEC, in relation to fixed telephone networks and the fixed telephone service;
b) The provisions of article 28 of the ROPTN, under the terms of point a) of paragraph 2 of article 122 of the LEC, with respect to the leased line service, and
c) Articles 9 and 15 of Decree-Law 415/98, under the terms of point f) of paragraph 2 of article 122 of the LEC, with respect to interconnection.
This is without prejudice to any conclusions and recommendations which may result from ongoing studies on the cost of capital and curtailment, as well as from the consultation to be launched shortly on the overall review and critical analysis of the model implemented by PTC for the formulation of the results of the analytical accounting system.