Declaration on the analytical accounting system of PT Comunicações (2005)

Decision of 16.12.2009 / Published on 22.12.2009

Declaration on the analytical accounting system of the telephone service at a fixed location, the leased line service and the interconnection service of PT Comunicações, S.A. with reference to the 2005 financial year

Whereas:

1. By determinations of the Management Board of ICP-ANACOM of 08/07/2004 and 08/07/2005, PT Comunicações, S.A. (PTC) was declared as an undertaking with significant market power in the following markets:

• Markets of narrowband access to the public telephone network at a fixed location and of telephone services at a fixed location;

• Leased lines retail market and the wholesale markets for terminating and transit segments of leased lines;

• Wholesale market for call origination and termination on the public telephone network at a fixed location;

2. As such, by determinations of the Management Board of ICP-ANACOM of 14/12/2004, 08/07/2005 and 17/12/2004, the following obligations were imposed, respectively, on PTC

• To maintain an analytical accounting system which enables the verification of the price regulation measures imposed with respect to the markets referred to in 1.a) pursuant to paragraph 5 of article 85 of Law No 5/2004 of 10/02 (LEC);

• Develop and implement an appropriate system of cost accounting in the leased lines retail market pursuant to paragraph 3 of article 83 of the LEC, and implement a system of cost accounting and accounting separation in the leased lines wholesale markets, pursuant to article 71 of the LEC;

• To implement a system of cost accounting and accounting separation in the markets for interconnection on the public telephone network at a fixed location pursuant to article 71 of the LEC;

3. Under paragraph 6 of article 85, paragraph 6 of article 83 and paragraph 1 of article 76, all of the LEC, it is incumbent upon ICP-ANACOM to issue and publish, on an annual basis, a declaration on the compliance of the analytical accounting system with the provisions referred to in 2;

4. With respect to the leased lines market, by force of the provisions set out in point a) of paragraph 2 of article 122 of the LEC, until the determination of 08/07/2005, the system provided for in article 28 of the Regulations for the Operation of Public Telecommunications Networks (ROPTN: Decree-Law No 290-A/99 of 30/07) shall apply, according to which, PTC, as an undertaking declared as having significant market power in these markets since 2000, is required to comply with the stipulated tariff principles, whereby it is required that an analytical accounting system be implemented which is suitable for the application of article 29 of the RERPT;

5. Moreover, under the Concession Agreement, PTC is required to have an accounting system which is appropriate to the stipulated tariff principles, whereas it is incumbent upon ICP-ANACOM to approve the methodology to be used in the implementation and use of the system, as well as to verify and declare its conformity (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 the PTC, the operator officially notified ANACOM that it had implemented an analytical accounting system 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 2005 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 costs improperly included in the AAS of PTC, 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 32 million euros (vi) common costs which represent 10.4% of total costs, which does not comply with the limit set by Recommendation 98/322/EC; (vi) deferral, in the regulatory accounting, for 15 year of the benefit, to the amount of €109.8m, generated by changing the method for calculating the liabilities in respect of past services, which does not seem to be acceptable according to the regulatory framework, namely according to Recommendation of 98/322/EC; (vii) 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 (viii) 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 2005 financial year, excepting the aspects identified above, were produced in accordance with:

a) The rules set out in paragraph 5 of article 85 of the LEC, with respect to narrowband access to the public telephone network at a fixed location and the publicly available telephone services at a fixed location;

b) The provisions of article 28 of the ROPTN, under the terms of point a) paragraph 2 of article 122 of the LEC, and the provisions of paragraph 3 of article 83 and in article 71 of the LEC, with regard to the leased line service; and

c) The provisions of article 71 of the LEC, in relation to call origination and termination on the public telephone network at a fixed location.

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.