The Infocomm Development Authority of Singapore (IDA) has rejected SingTel's tariff rebalancing proposal1 that sought to raise local fixed line telephone charges. This decision was arrived at after a careful review of SingTel's proposal...
Singapore, 24 September 2002 | For Immediate Release
The Infocomm Development Authority of Singapore (IDA) has rejected SingTel's tariff rebalancing proposal1 that sought to raise local fixed line telephone charges. This decision was arrived at after a careful review of SingTel's proposal, based on IDA's tariff filing and review processes established in the Telecom Competition Code2.
Based on the evaluation criteria set out in the Telecom Competition Code, IDA's review sought to determine whether SingTel had incurred any deficit in its provision of local fixed line telephone call services, using a costing methodology based on Forward Looking Economic Costs (FLEC) and Long Run Average Incremental Costs (LRAIC)3. This is a well-established principle used by telecommunication regulators to determine costs in the telecommunication industry when reviewing pricing of services which are not subject to competition.
IDA's audit and review concluded that SingTel had not incurred an overall deficit in its provisioning of basic local telephone services. In other words, its revenue more than covers its economic costs, including a reasonable return on capital used. IDA has therefore decided to reject SingTel's proposal to raise local fixed line telephone charges.
More details of the costing methodology utilised by IDA is contained in the Annex.
ISSUED BY CORPORATE COMMUNICATION DIVISION
INFOCOMM DEVELOPMENT AUTHORITY OF SINGAPORE
Notes to Editor:
1 Prior to market liberalisation, basic local telephone services were generally offered below costs. The resulting operating deficit incurred by the monopoly telecom operators was usually off-set from the revenues earned from providing highly profitable international call services. In most liberalised environments, prices of international calls have dropped substantially due to aggressive competition from new entrants. The cross-subsidisation from international to local services was thus no longer sustainable. Many countries have thus allowed the previous monopoly telecom operators to "rebalance" their local call tariffs to recover the costs of provision of such services. This is the concept of tariff rebalancing.
2 The Code of Practice for Competition in the Provision of Telecommunication Services (Telecom Competition Code), which came into effect on 29 September 2000, sought to define the boundaries for competitive conduct in a fully liberalised telecommunication environment. The Code is available under the 'Policy & Regulation' section of the IDA website https://www.imda.gov.sg/
3 Forward-Looking Economic Costs (FLEC) costs are the prospective costs an operator would incur, using the most efficient technology and best practices. Long Run Average Incremental Costs (LRAIC), which is a measure of FLEC, consists of all variable costs and those fixed costs that are directly attributable to the incremental change in service provisioning, and a share of indirect costs that are discernibly caused. FLEC, as opposed to historical costs, is the appropriate cost standard to use as it sends the correct economic signals to new entry and investment. In competitive markets, when an investment is made, the value of the asset depends on the use of the asset rather than its historical costs. If a new entrant is more efficient, the incumbent will need to respond by adjusting its prices; it cannot compete by pricing based on its historical costs. Thus, in a competitive market, players must look forward to set prices in order to compete and cannot look backwards to pricing based on the historical costs. FLEC costing principles have been recognised as an international best practice in the telecommunication industry.
About Infocomm Development Authority of Singapore
The Infocomm Development Authority of Singapore (IDA) is a dynamic organisation with an integrated perspective to developing, promoting and regulating info-communications in Singapore. In the fast-changing and converging spheres of telecommunications, information and media technologies, IDA will be the catalyst for change and growth in Singapore's evolution into a vibrant global info-communications technology centre. For more information, please visit https://www.imda.gov.sg/.
For media clarification, please contact:
Ms Dulcie Chan
Senior Manager, Corporate Communication
Infocomm Development Authority of Singapore
Tel: +65 6211 1999
Fax: +65 6211 2227
Ms Jennifer Toh
Manager, Corporate Communication
Infocomm Development Authority of Singapore
Tel: +65 211-0508
Fax: +65 211-2227
Annex: IDA'S Costing Methodology
i) IDA built a cost model to compute the costs incurred and revenues earned by SingTel, for the provision of fixed line local telephone call services. The cost model is based on Forward-Looking Economic Costs (FLEC) / Long Run Average Incremental Costs (LRAIC) principles. Only the costs and revenues directly attributable to the provision of fixed local telephone call services were included in order to ascertain if there was a deficit, or surplus, incurred in such provision by SingTel. Hence, costs and revenues attributable to other services, for example the provision of interconnection services and mobile communication services, were excluded.
ii) IDA's cost model uses a "bottom-up" approach. This means that the FLEC/LRAIC of an associated element in each category of network component (for example, the cost of a copper pair used in a local loop) is calculated first. The cost of that particular category of network component is then calculated as an aggregate of the FLEC /LRAIC of the various/relevant associated elements within the category. The following are examples of network components and their associated elements:
|Network Component||Associated Elements|
|Local Loop||Distribution point, building Main Distribution Frames (MDFs), ducts and trenches, manholes, copper pairs, optical fibres (where applicable) and fibre equipment (where applicable)|
|Switching Facilities||Remote switch, local switch, tandem switch, and transmission links between the switches|
iii) IDA conducted a cost audit of SingTel's operations and cost structures relating to the provisioning of fixed line local telephone call services based on IDA's costing model. Adjustments were made to SingTel's figures in its proposal to include appropriate revenue and cost items and to adjust costs to FLEC/LRAIC basis. IDA concluded that SingTel did not incur an overall deficit in the provisioning of fixed line local telephone call services.
iv) The main factors accounting for the difference between IDA's decision and SingTel's proposal are the adjustment of SingTel's operating expenses to the level of an efficient operator and the exclusion of certain cost items deemed to be unnecessary or irrelevant for the purposes of provisioning basic local telephone services.