In compliance with previous determinations issued by ANACOM, CTT have used the Weighted Average Cost-of-Capital (WACC), on the basis of the Capital Asset Pricing Model (CAPM), to determine the rate of cost of equity, as method to establish the cost-of-capital rate.
Parameters involved in the calculation of the cost-of-capital rate, as well as the calculation methodology, as submitted by CTT to ANACOM together with CAS results that are sent on a regular basis.
In the scope of postal regulation, the European Committee for Postal Regulation (CERP) has strengthened the understanding that WACC (Weighted Average Cost-of-Capital) is the most appropriate method to determine the cost-of-capital1, as this is a methodology widely used in other fully or partly liberalized sectors, but still subject to regulation (e.g. electronic communications, electricity, gas, etc.)
As such, and although ANACOM already considers it more appropriate to use the CMPC/CAPM methodology to determine the cost-of-capital rate, so that its regulatory decisions on the one hand, involve a correct opportunity cost for investors and, on the other, allow regulatory and pricing stability, both for regulated companies and for consumers, the determination of parameters such as: (i) the risk-free interest rate; (ii) the beta factor; (iii) risk premium; (iv) gearing2; (v) tax rate: and (vi) cost of debt capital, may be outdated in the light of the recent and significant changes at economic level (risk-free interest rate and risk premium), at the level of the European postal sector (benchmark of comparable companies for the purpose of the determination of beta and gearing) and at legislative level (tax rate).
1 "Recommendation on best practices for cost accounting rules III" (pg. 25) - CERP - 7 May 2009
2 Gearing - quotient obtained by dividing the average value of debt capital (average of the sum of medium- and long-term financing) by the average value of invested capital (average of equity + average of debt capital).
