Proceedings

LRIC models provide cost orientation of prices and, at the same time, a basis for
making investment decisions. ANCOM sets the prices after a reconciliation process of
bottom-up model developed by the regulatory authority with top-down model
implemented by the operator. To benefit from both models, practice uses a "hybrid"
model that involves reconciliation between bottom-up LRIC model and top-down
model.
(b) divisional performance measurement system
Even if internal transactions do not affect the overall performance of the organization,
performance assessment of each business unit should be discussed. The internal
transfers between business units are directed particularly from transport and access
network units to the "retail" division. The problem of determining the value of these
services is extremely important, in terms of assessing the performance of each
business unit.
The value of internal transfers it is settled differently, depending on business unit
located as provider (Decision no. 1380 / 2003). For transport network, the transfer
price is set on effective full cost basis, while for access network it is used the market
price determined on the basis of actual cost.
These transfer prices affect the profit of each division, so that performance
measurement of each division is distorted. In addition, financial measures used for
performance measurement are influenced by an indicator required by the regulatory
authority - the weighted average cost of capital.
In Romtelecom’s case, the weighted average cost of capital used to prepare the
financial statements of each business units, for reporting to the regulatory authority, as
well as for computing the costs of regulated services, is communicated by ANCOM
after reconciliation between it and Romtelecom during the consultation procedure to
develop hybrid model of LRIC. The resulting rate is 15.24% and it has been used
throughout the period 2004-2009.
The calculation of an indicator such as economic value added (EVA) will require
additional recalculation using a real weighted average cost of capital. Moreover, the
operating result after tax for each business unit is also affected by internal transfers.
(c) pricing services
Pricing services offered by operators that have a significant position on relevant
markets is a delicate issue. Sure, the regulator has imposed prices based on cost, in
order to promote competition in telecommunications markets. The price of
telecommunications services is considered as a variable that corresponds to the ratio
between what the customer is willing to pay and the utility he receives in relation to
that service (Kollmann, 2000).
Pricing is only a part of a much broader problem regarding the determination of what
services will be maintained and those which will be dropped, the capacity to be
installed and how available capacity will be allocated (Balakrishnan and
Sivaramakrishnan, 2002). Also, problem of pricing services becomes a highly
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