Conceptual Phases Conceptual Phases

• Identifying the fundamentals of the access Identifying the fundamentals of the access network in terms of: network in terms of:

1.UsageUsage

• Local Loop has Multi functionality: Local Loop has Multi functionality:

• Call termination Call termination

• Call origination Call origination

• Internet Internet

• Fax Fax

• Etc Etc

ContinuedContinued

• Facilities, in large measure are dedicated to Facilities, in large measure are dedicated to subscribers. subscribers.

• Intense competition, since prime goal of Intense competition, since prime goal of new entrants is to develop substantial new entrants is to develop substantial subscriber base. subscriber base.

• Interconnection at points of the access Interconnection at points of the access network is optional. network is optional.

2. Economics of Costing2. Economics of Costing

• Based on the principles of LEC Based on the principles of LEC • C = ƒ(EC = ƒ(Edd/N/Ndd)-ß)-ß• Where Where • C is unit cost;C is unit cost;• E is total expenditure;E is total expenditure;• N is number of lines; N is number of lines; • D is a distance factor; andD is a distance factor; and• ß is the efficiency factor as appropriately ß is the efficiency factor as appropriately

estimated. estimated.

3. Principal Cost driver/s3. Principal Cost driver/s

• Since distance is an important cost driver on Since distance is an important cost driver on the access network, country is zoned in the access network, country is zoned in terms of: terms of:

• Urban Urban • Sub-urban Sub-urban • Rural Rural • Remote rural Remote rural • The zoning matrix is not cast in stone and The zoning matrix is not cast in stone and

can be altered to suit the circumstances of can be altered to suit the circumstances of the country the country

4.Network Boundary4.Network Boundary

• Clear demarcation of the access network Clear demarcation of the access network from the conveyance network in order to from the conveyance network in order to identify the relevant network components. identify the relevant network components.

• At p2 Diagram 1, identifies the access At p2 Diagram 1, identifies the access network comprising transmission network comprising transmission components that link the MDF (at a remote components that link the MDF (at a remote or local switch) to customer premises. or local switch) to customer premises.

5. Network Technology5. Network Technology

• Most likely, in proportions of Copper,fibre, Most likely, in proportions of Copper,fibre, coax, or wireless technology as appropriate coax, or wireless technology as appropriate

• At diagram 3. p2, The for demonstrative At diagram 3. p2, The for demonstrative purposes, the model concentrates on copper, purposes, the model concentrates on copper, being the dominant access technology in being the dominant access technology in developing countries and therefore developing countries and therefore segments the access network in terms of: segments the access network in terms of: Feeder (primary and sub-primary Feeder (primary and sub-primary extensions); distribution and service access extensions); distribution and service access (drop, building, entrance and network (drop, building, entrance and network interface) interface)

6. Network Efficiency6. Network Efficiency

• Since the unit cost of the access network is Since the unit cost of the access network is invariably traffic insensitive, network invariably traffic insensitive, network efficiency is circumscribed largely by efficiency is circumscribed largely by economies of scale and to a lesser extent by economies of scale and to a lesser extent by factors relating to OPEX and capital cost. factors relating to OPEX and capital cost.

7. Accounting Modality7. Accounting Modality

• Total Cost = Total Cost =

• Annualized: direct costs + indirect costs + Annualized: direct costs + indirect costs + common cost + capital cost (inclusive of common cost + capital cost (inclusive of interest on debt and return to equity) + tax interest on debt and return to equity) + tax and exogenous expenses. and exogenous expenses.

• Such cost should be fully recovered by Such cost should be fully recovered by rentals or one off purchases. rentals or one off purchases.

Detail Costing IterationsDetail Costing Iterations

Estimating LEC Unit Access CostEstimating LEC Unit Access Cost

& &

Access deficit/surplus Access deficit/surplus

Step 1.Step 1.

• Collect network information re technology.Collect network information re technology.• Specify formula for estimating unit cost (LEC). Specify formula for estimating unit cost (LEC). • Specify bases for derivation of efficiency factor/s. Specify bases for derivation of efficiency factor/s. • Specify qualitative and quantitative formula for Specify qualitative and quantitative formula for

assessment of access deficit. i.e.difference. assessment of access deficit. i.e.difference. between cost per line and charge per line.between cost per line and charge per line.

Step 2.Step 2.

• Collect from operator/s data re: customer Collect from operator/s data re: customer connections and collate such in terms of:connections and collate such in terms of:

• UrbanUrban

• Sub-urban Sub-urban

• RuralRural

• Remote rural. Remote rural.

• Note that this classification is optional.Note that this classification is optional.

Step 3.Step 3.

• Collect and classify data in terms of Collect and classify data in terms of connections per zone to different types of connections per zone to different types of switchesswitches

• E.g. Urban and sub-urban customers are E.g. Urban and sub-urban customers are likely to be connected to LS, rural likely to be connected to LS, rural customers to remote switches and remote customers to remote switches and remote rural customers may be served with radio rural customers may be served with radio connections. connections.

Step 4Step 4

• Simulate average distance of connection per Simulate average distance of connection per customer in each geographic zone.customer in each geographic zone.

• The average of customer radius. The average of customer radius.

• This information may be accessed from the This information may be accessed from the operator. operator.

Step 5Step 5

• Collection of data to profile network facilities re: Collection of data to profile network facilities re: • Number of line cards Number of line cards • Non-sensitive parts of switch Non-sensitive parts of switch • Number, size and average distance of dedicated Number, size and average distance of dedicated

single pair of cables between customer premises and single pair of cables between customer premises and distribution point.distribution point.

• Number, size and average distance re multi-pair Number, size and average distance re multi-pair cables connecting DP to cable junction. cables connecting DP to cable junction.

• Number, size and average distance re: multi-pair Number, size and average distance re: multi-pair cables connecting CJs.cables connecting CJs.

Step 5 ContinuedStep 5 Continued

• Number of pillars for connections using Number of pillars for connections using RSS/RSUs RSS/RSUs

• Number, size and average distance of multi-pair Number, size and average distance of multi-pair cables connecting last CJ/Pillar to MDF. cables connecting last CJ/Pillar to MDF.

• Number and type of other equipment comprising Number and type of other equipment comprising the line side of connecting switch used exclusively the line side of connecting switch used exclusively for access. for access.

• Average trench length per geographic Area.Average trench length per geographic Area.• Number of service sharing trench. See (Tables I & Number of service sharing trench. See (Tables I &

II). II).

Step 6Step 6

• Establish accounting format re: Establish accounting format re: • Direct cost whether based on current or adjusted Direct cost whether based on current or adjusted

historical costing. historical costing. • Specify methodology for allocating shared costs.Specify methodology for allocating shared costs.• Specify methodology for arriving at factor/s for Specify methodology for arriving at factor/s for

common costs. common costs. • Specify methodology for estimating efficient Specify methodology for estimating efficient

OPEX. OPEX. • Specify methodology for estimating opportunity Specify methodology for estimating opportunity

cost of Capital.cost of Capital.

Step 7Step 7

• Estimate total component investment cost Estimate total component investment cost by zone: (Table III) by zone: (Table III)

Step 8Step 8• Estimate demand per zone in terms of Estimate demand per zone in terms of

current demand, Dcurrent demand, Daa and expected demand, and expected demand, DDpp. .

• DDa a = Ln + Ln* = Ln + Ln*

• Where Ln is number of existing lines in the Where Ln is number of existing lines in the zone.zone.

• Ln* is the unfulfilled request for line Ln* is the unfulfilled request for line installation in same zone.installation in same zone.

Step 8 ContinuedStep 8 Continued • Estimate:Potential/Expected demand, DEstimate:Potential/Expected demand, Dpp: :

• DDpp = D = Daaάά

• Where ά is the long run growth factor Where ά is the long run growth factor derived on the basis of time series or other derived on the basis of time series or other credible forecasting method as supplied to credible forecasting method as supplied to the regulator by the operator.the regulator by the operator.

• Total demand is therefore: Total demand is therefore:

• DDtt = D = Daa + D + Daaάά

• = D= Daa (1+ά). (1+ά).

Step 9: Adjustment for EfficiencyStep 9: Adjustment for Efficiency• Installed capacity over a specific time period is a Installed capacity over a specific time period is a

function of current installed lines plus a factor for function of current installed lines plus a factor for growth. i.e. growth. i.e.

• Optimal efficiency is:Optimal efficiency is:• Installed capacity (C)/total number of lines (DInstalled capacity (C)/total number of lines (D tt) = ) =

0.0.• Where USO and or political imposition are/is Where USO and or political imposition are/is

applicable the optimal efficiency becomes;applicable the optimal efficiency becomes;• Installed Capacity (including provision for USO) Installed Capacity (including provision for USO)

(C(C!! )/Total number of lines (D )/Total number of lines (Dtt) = 0 ) = 0

Step 9 Cost AdjustmentStep 9 Cost Adjustment

• Where:Where:

• CC!!/ D/ Dtt = λ = λ

• If, for example, λ = 1.15 then the cost of CIf, for example, λ = 1.15 then the cost of C !! should be adjusted by 15% or a factor should be adjusted by 15% or a factor thereof, thereof,

Step 10Step 10 AreaArea C!(1-λC!(1-λii)) DDtt C!(1-λC!(1-λii)/D)/Dtt

UrbanUrban C!(1-λ C!(1-λ ii))uu DDttuu C!(1-λ C!(1-λ ii))uu// DDtt

uu

SubSub

UrbanUrban

C!(1-λ C!(1-λ ii))ss DDttss C!(1-λ C!(1-λ ii))s s // DDtt

ss

RuralRural C!(1-λ C!(1-λ ii))rr DDttrr C!(1-λ C!(1-λ ii))rr/D/Dtt

rr

R/ruralR/rural C!(1-λ C!(1-λ ii))RR DDttRR C!(1-λ C!(1-λ ii))RR// DDtt

RR

Step 11: Estimate Average Unit Step 11: Estimate Average Unit Cost Cost

• Average unit cost may be derived by Average unit cost may be derived by estimating the weighted average unit cost estimating the weighted average unit cost WWgg for all zones: for all zones:

• WWgg = {[C!(1-λ = {[C!(1-λ ii))uu// DDtt ]]w1, w1, [C!(1-λ [C!(1-λ ii))ss// DDtt

]]w2,w2,

• [C!(1-λ [C!(1-λ ii))rr// DDtt ]]w3, w3, [C!(1-λ [C!(1-λ ii))RR// DDtt

]]w4w4}/4}/4

• Where Where w1 – w4 w1 – w4 are the respective weights are the respective weights

assigned to the different zones. assigned to the different zones.

Step 12. Derive Unit Step 12. Derive Unit Subscription Subscription

• By allocating other cost, Þ e.g.:By allocating other cost, Þ e.g.:

• Bad debtBad debt

• Tax (if not included in direct cost) Tax (if not included in direct cost)

• Etc. Etc.

• So Unit Subscription Cost SSo Unit Subscription Cost Sc c isis

• SScc= W= Wgg+Þ+Þ

Step 13Step 13

• Estimating Access deficit/Access Surplus Estimating Access deficit/Access Surplus @.@.

• @ = W@ = Wgg+Þ/Current Access charge +Þ/Current Access charge

• If @ > 1 the rebalancing factor is the value If @ > 1 the rebalancing factor is the value of @.of @.

• If @ is < 1 the access charge reduction If @ is < 1 the access charge reduction factor is the value of @. factor is the value of @.