Decision on the net costs of the universal service provision obligation as forssen for in Decree-Law no. 458 of 5 November
Background
1. Decree-Law no. 458/99, transposing Directive 98/10 of 26 February and Directive 97/33 of 30 June, lists a set of universal service provisions, as has taken place in the remaining Member-States (notwithstanding an evolution of the scope, in order to reflect advances in technology, market development and changes in user demand), as follows:
a) Connection to the fixed telephone network, at a fixed location, and access to the fixed telephone service to all users who request it;
b) Offer of sufficient public pay phones in public roads and in public places;
c) Making available telephone directories and an enquiry service, that include the telephone numbers of fixed telephone service subscribers and of mobile telephone service subscribers;
2. Pursuant to paragraph 3 of article 23 of Decree-Law no. 458/99, the services included in the Concession Agreement and not comprised in Decree-Law no. 458/99 shall remain as compulsory provisions of the concessionaire, and shall not be financed by the mechanism established for the universal service, but rather by the mechanism mentioned in article 21 of Decree-Law no. 31/03 of 17 February.
3. PT Comunicações (PTC), the entity that, pursuant to Decree-Law no. 219/00 of 9 September, succeeds Portugal Telecom as concessionaire, is designated, pursuant to article 23 of Decree-Law no. 458/99, as provider of the telecommunications universal service, for the period the concession agreement of the telecommunications public service is in force.
4. Within the current context, it is incumbent upon the providers of the telecommunications universal service to demonstrate the negative margins and to submit them to the approval of ANACOM, which shall be subject to a prior hearing to be carried out by ANACOM or by an independent authority appointed by the latter (Decree-Law no. 458/99, article 12).
5. As far as forms of financing are concerned, Decree-Law no. 458/99 establishes that, where justified, a compensation fund for the telecommunications universal service may be created, for which the entities that operate the telecommunications public networks and the providers of the fixed and mobile telephone service shall contribute.
6. Pursuant to Directive 2002/22 of 7 March, in order to effectively implement the mechanism of allocation of the net cost of the universal service obligations, the Regulatory Authority must determine that those obligations represent an unfair burden on the undertakings appointed for the provision of the universal service.
7. Within this context, the verdict of the European Court of Justice of 30 November 2000, as regards the Case C-384/99, opposing the European Commission to the Kingdom of Belgium, must be highlighted, namely as to the inclusion of intangible benefits in the calculation of the cost of the universal service and to the inclusion of costs related to additional services.
8. The verdict of the European Court of Justice, of 6 December 2001, as regards Case C-146/00, opposing the European Commission to the French Republic, must also be taken into account, regarding the consideration of costs of the universal service for the period prior to the liberalization, the inclusion of tangible and intangible benefits related to the provision of the universal service and the calculation method of the universal service costs.
9. In this context, it is also important to mention the European Commission Communication (COM 96 (608)) of 27 November on "assessment criteria for national schemes for the costing and financing of universal service in telecommunications and guidelines for the Member States on operation of such schemes", which also contributes with specific recommendations in this domain, for instance, as regards the adoption of efficiency criteria for the determination of the universal service costs.
10. Portugal Telecom, and subsequently PTC, submitted two letters to the National Communications Authority (ANACOM), including estimates and updates of estimates of the net costs incurred with the universal service obligations, respectively for the periods from 1996-1997 (except for the fixed telephone service for 1996) and from 1996-1999, regarding which that entity wished to be compensated.
In the light of the above and whereas:
11. The implementation of a financing system for the universal service net costs that required the allocation of those costs during the period prior to the liberalization is not considered justified, namely taking into account the competition level that existed at that time - a position which is compatible with the decision of 6 December 2001, of the European Court of Justice regarding the case C-146/00 (opposing the European Commission to the French Republic);
12. In 2000, there was no offering of local and regional calls under the regime of indirect access in the network of the universal service provider and so far no offering of calls has been made available under the regime of indirect access from public pay phones pertaining to the universal service provider;
13. The cost of the universal service obligations is calculated as the difference between the net costs, for an organization, resulting from the functioning of the universal service obligations and the functioning without such obligations (Decree-Law no. 458/99, article no. 13, paragraph 2), and (pursuant to the decision of 6 December 2001 of the European Court of Justice regarding the case C-149/00 opposing the European Commission to the French Republic) the calculation of those costs may only take into account accurate costs arising specifically and directly from the universal service provision, the attribution of inaccurate values to the different items of the universal service net cost not being allowed;
14. As far as the calculation of net costs is concerned, revenues and other tangible and intangible benefits arising from the universal service provision should be considered (Decree-Law no. 458/99, article 13, paragraph 6), pursuant also to the above-mentioned verdict;
15. The determination of the universal service net costs, according to the European Commission itself (COM 96 (608)), shall have to take into account the avoidable costs borne by an efficient operator. Therefore, the determination of the universal service net costs shall have to consider efficiency parameters in the performance of the service in order to ensure that costs arising out of inefficient and redundant investments made in the past shall not be regarded as universal service costs;
16. The calculation of the cost resulting from the universal service obligations shall be carried out based on prospective costs and income, pursuant to Directive 97/33 and also in compliance with the decision of 6 December 2001 of the European Court of Justice regarding the case C-149/00;
17. It is important to apply a coherent timeframe throughout the whole study process, in order to ensure the necessary analytical accurateness, avoiding namely the contrast between a short-term approach associated with the consideration of the existing network in the identification of the "unprofitable activities" (valued in accordance with the historic cost of assets) and a long-term timeframe for the determination of "avoidable costs" (to which some optimisation and efficiency patterns would be implicit), as has taken place in studies previously submitted to ANACOM;
18. The assignment of common costs and of part of joint costs in the determination of the universal service net costs shall be accurately reasoned and the universal service provider shall supply the data necessary to determine clearly the savings resulting from the allocation of costs between the services included in the universal service provision and the services not included in the universal service provision obligations;
19. The following shall be identified clearly, with the duly reasoning:
19.1) profitable areas and non-profitable areas;
19.2) profitable customers in non-profitable areas and,
19.3) non-profitable customers in profitable areas;
19.4) the profitability threshold of a customer below which a customer is considered non-profitable;
19.5) costs deemed avoidable as regards non-profitable customers;
19.6) the criteria to be adopted in the consideration of a non-profitable area.
20. Certain areas, categories of consumers or public pay phones may be deemed profitable provided that the operation thereof is expected to be economically sustainable in the short/medium term;
21. A sensitivity analysis must be carried out taking into account alternative scenarios, including, among others, tariff changes, efficiency gains and penetration of other services (i.e. mobile service, cable television) referring the possible effects both at the level of net costs and of the amount of customers/areas classified as "non-profitable", and - provided that there are no obstacles to the tariff rebalancing - the possible "access deficit" cannot be considered as regards the universal service net costs;
22. The impact on revenues of changes in demand resulting from the possible termination of the obligation to provide the universal service shall have to be weighed, as well as the effects of traffic replacement, understood as the percentage of calls originating and terminating in "non-profitable activities/customers" that, with the termination of the obligations resulting from the universal service provision, would still be made through other telephone lines;
23. The universal service net costs depend on the " average acceptable average remuneration rate of used capital" and the rate used in the estimate of the submitted costs must be clearly identified, the capital remuneration method according to the accounting value method being privileged, in compliance with the current regulatory practice;
24. As far as the modernization of the network is concerned:
24.1) the European Commission (COM(96) 608) explicitly refers that the costs associated with the normal network modernization should not be deemed as universal service costs;
24.2) the depreciation policy and criteria, with repercussions in the costs of services, included in the universal service obligations, must be clearly identified;
25. The above-mentioned recitals are hereby stated without prejudice to a possible future disclosure, by the European Commission, of specific guidelines on the methodology for the determination of the universal service net costs.
The Board of Directors of ANACOM, following the prior hearing of interested parties pursuant to the Code of Administrative Procedure, hereby determines:
1º - Not to apply any compensation mechanisms for the period prior to the full and effective liberalization of the telecommunications market, which took place on 1 January 2001, having regard to the fact that on the year 2000 there was no offering of local and regional call under the regime of indirect access in the network of the universal service provider.
2º - To request of PTC, if it so wishes, to submit a reasoned demonstration of possible net costs associated with the provision of the telecommunications universal service for the period regarding the full and effective liberalization of the telecommunications market.
