8.1 2015 Budget

Investment

The 2015 investment budget (Annex III - Table 5) is focused on the continued modernisation and re-equipping of ICP-ANACOM's monitoring and inspection activities and on the necessity of bringing ICP-ANACOM's information systems up-to-date, to ensure it retains the necessary means to keep pace with the transformations of the communications industry.

Total investment planned for 2015 is 3.229 million euros, representing an increase of 3 percent compared to the 2014 budget; this increase is due to the impact of new, one-off projects in 2015. The most important projects/investments planned in 2015 include:

• upgrade and modernisation of spectrum monitoring equipment, specifically: improvements to metallic towers, hardware upgrades in equipment supporting the SINCRER network, upgrade of existing spectrum monitoring and control infrastructure and acquisition of equipment for new radiocommunications systems;
• development of geo-referenced technological platform to support the SIC - Sistema de Informação Centralizado (Centralised Information System), providing legal compliance with Decree-Law No. 123/2009;
• renewal and upgrade of the computer system, both in terms of hardware (servers), and in terms of developing new applications to support ICP-ANACOM's core activities.

Income

The 2015 income budget (Annex III - Table 6) amounts to 78.193 million euros and results from the application of fees pursuant to prevailing legislation. The final figures also took into account each one of the characteristics of service; the income budget comprises the following situations:

(1) administrative regulation fees associated with electronic communications (representing 31.3 percent of total income); these are based on the principle of cost orientation, and to this extent, vary depending on the level of costs incurred by ICP-ANACOM in the regulation of electronic communications activities;

(2) fees associated with the use of spectrum frequencies (representing to 62.6 percent of total income), which stem from the occupation/use of a scarce public resource - use of the spectrum must be marked by efficiency, with fees charged from a "user pays" perspective;

(3) fees associated with the use of numbering (representing 2.2 percent of total income);

(4) administrative fees associated with the regulation of postal services (representing 1.9 percent of total income); these are based on the principle of cost orientation, and to this extent, vary depending on the level of costs incurred in the regulation of postal services;

(5) interest earned from the application of available financial resources (1.1 percent of total income);

(6) other fees and revenues that constitute residual income.

The legal framework governing the fees provided for in the 2015 Budget is as follows:

• fees arising from electronic communications Law - Current legislation is as follows:
  
  - LCE - Lei das Comunicações Eletrónicas (Electronic Communications Law - Law no. 5/2004 of 10 February, as amended by Law no. 51/2011 of 13 September) establishes the legal regime applicable to electronic communications networks and services and to associated resources and services; and Decree-Law no. 264/2009 of 28 September, establishes the regime applicable to the licensing of radiocommunications networks and stations, the supervision of the installation of the said stations and the use of the radio spectrum, together with the sharing of radiocommunications infrastructure;
  
  - Administrative Rule no. 1473-B/2008 of 17 December, as amended by Administrative Rule no. 96-A/2013 of 2 October and Administrative Rule no. 378-D/2013 of 31 December - supporting the new fee model, with basis in article 105 of the LCE.

The fees governed by these texts are those associated with the following:

- the issue of declarations supporting rights issued by ICP-ANACOM with regard to the exercise of the activity of supplier of electronic communication networks and services, allocation of rights of use of frequencies and allocation of numbering;

- exercise of activity of provider of publicly available electronic communication networks and services;

- use of frequencies;

- use of numbering.

• Fees in respect of the activity of postal service operator - the regulations which govern this activity are as follows:
  
  - Law no. 17/2012 of 26 April, establishing the regime governing access to and pursuit of the activity of provider of postal services in competition;
  
  - Administrative Rule no. 1473-B/2008 of 17 December, as amended by Administrative Rule no. 296-A/2013 of 2 October - giving basis to the collection of fees due in this context.
   
• ITED/ITUR fees - Fees of this category are governed by the following:
  
  - Law no. 47/2013 of 10 July, which defines the regime governing the construction of infrastructure which is suitable for accommodating electronic communications networks, the installation of electronic communications networks and ITUR - Infraestruturas de Telecomunicações em Loteamentos, Urbanizações e Condomínios (Infrastructures for telecommunications in housing developments, urban settlements and concentrations of buildings) and ITED - Infraestruturas de Telecomunicações em Edifícios (Telecommunications infrastructure in buildings) construction; the associated fees are set in Administrative Rule no. 1473-B/2008 of 17 December, as amended by Administrative Rule no. 296-A/2013 of 2 October.
• Remaining provisions of service - Due to their importance, reference is made to the following rules:
  
  - fees in respect of use of the amateur radio service - Decree-Law no. 53/2009 of 2 March lays down the rules that apply to amateur radiocommunications service, and Administrative Rule no. 1473-B/2008 of 17 December establishes the fees which are applicable in respect of this service, as amended by Administrative Rule no. 296-A/2013 of 2 October;
  
  - fees of the citizen's band (CB) service - Decree-Law no. 47/2000 of 24 March establishes the legal regime governing use of the Personal Radio Service - Citizen's Band (PRS-CB), which fees are set by Administrative Rule no. 1473-B/2008 of 17 December, as amended by Administrative Rule no. 296-A/2013 of 2 October;
  
  - Decree-Law no. 177/1999 of 21 May, which establishes the rules governing access to and exercise of the activity of provider of audiotext services, the fees for which were approved by Administrative Rule no 567/2009 of 27 May;
  
  - testing and calibration of equipment - the amounts included under this item refer to services provided by ICP-ANACOM in the context of the tasks assigned to it and result from the application of a specific tariff, as determined by its Management Board;
  
  - enforcement actions - this heading item comprises revenues resulting from enforcement actions, including applied fines and inspections.
   
• Interest and other similar income - sums recorded under this item essentially result from the gains obtained from interest on investments planned during the year.
• Other income and gains - this item includes the following income and gains:
  
  - Subsidies obtained from the European Union (EU) - these amounts relate to expenses incurred in travel to meetings and conferences within the EU, in accordance with the tasks assigned to ICP-ANACOM, in cases where travel expenses are reimbursed by the EU;
  
  - Other - this item covers income and gains of low value or of an occasional nature, including those arising from the sale of tender specifications, scrap, sale of goods, etc, as well as extraordinary items and accounting adjustments.

In the 2015 budget, income is expected to reach 78.193 million euros, an amount which exceeds expected income in the 2014 budget (by 8.6 million euros).  This increase in income stems from the following effects:

• review of fees in respect of the use of frequencies provided for in Administrative Rule no. 378 D/2013 of 31 December, which determined an increase of 10 million euros, marginally offset by a reduction in fees linked to the return of frequencies related to underutilized technologies (e.g. FWA);
• gradual growth in postal regulation fees, due to the progressive adjustment (five-year transitional period) provided for in Administrative Rule no. 1473-B/2008, as amended by Administrative Rule no. 296-A/2013 of 2 October;
• reduction of interest rates payable on financial applications, due to the assumption of a scenario of lower available surplus volumes and maintenance of low interest rates, according to market forecasts;
   
  Expenditure

In 2015, ICP-ANACOM will continue to promote measures of internal efficiency and expenditure rationalisation. However, because of the efforts to reduce costs made in recent years, the potential for further reductions is more limited. The expenditure budget, presented in Annex III - Table 7, totals 50.103 million euros.

In the 2015 budget, a budgetary rule is introduced that is more adjusted in terms of provision estimates for ongoing cases of litigation - this will have a significant impact on the budgeting of this item. To date, in order not to put excessive pressure on the annual fees payable by operators of electronic communications by adding values for provisions before they are confirmed (as only happens at the end of the year with the closure of accounts), it was decided to budget more conservative values for provisions. It is recalled that, until 2013, the regulation fees of each year were calculated based on the actual (average) values of provisions over the last four years, plus the amount budgeted in the year. As such, higher values for provisions would be budgeted before it could be confirmed whether these provisions would be effectively established at year-end, leading to an immediate hike in the fees payable and charged to operators. Because of this mechanism, more conservative estimates were used for provisions in the case of budgets prepared in previous years.

However, with the amendment introduced by Administrative Rule no. 1473-B/2008 of 17 December, as amended by Administrative Rule no. 296-B/2013 of 2 October, the amount budgeted for provisions no longer had relevance in terms of calculating regulation fees, given that, under these new rules, the average is determined based only on the actual values of the last 4 years. Therefore, and given that the budgeted values no longer have an impact on the calculation of regulation fees, from 2015, it was decided to adjust the budget estimate for this item to include the value of provisions considered as likely to be actually constituted (i.e., the increases in provisions forecast based on existing processes, pursuant to ICP-ANACOM's policy and rules on provisions). Provisions made with relation to new processes are not included in the budget, which considers the reinforcement of provisions for existing processes only. This change increases the budgetary assumption for provisions from one million euros (2014 budget) to 5.3 million euros (2015 budget).

In 2015, external supplies and services are seen at 11.193 million euros, which represents a decrease (-1.3 percent) compared to the budgeted amount in 2014 (Annex III - Table 7). This item is one that most reflects the savings derived from the cost-cutting measures that ICP-ANACOM has been implementing. Despite the decrease in expenditure across a range of items, stemming from additional measures to reduce costs, expenditure has increased on specialized work arising from ICP-ANACOM's need to fulfil certain legal obligations, including, in particular: the monitoring of Internet QoS (NETmede.pro project) and audits provided for under the Lei do Cinema (Cinema Law - Law no. 55/2012) to validate the self-assessment of cinema fees payable by cinema operators to ICA - Instituto do Cinema e Audiovisual (Cinema and Audiovisual Institute). The increase in travel and accommodation is associated with the fact that ICP-ANACOM is due to take over the chair of BEREC in 2015, requiring staff travel to coordinate at BEREC, whereas a portion of these expenses are reimbursable and are offset under the subsidies item under the income budget.

As regards personnel costs, the amount provided for in the 2015 budget (Annex III -Table 8) reflects approved staffing levels, which remain constant throughout the year. The main resource of a regulatory authority such as ICP-ANACOM are its people, so that is normal that personnel costs constitute the largest part of its cost structure, with the following major components and respective assumptions:

• remuneration of ICP-ANACOM's permanent staff and additional remunerations are budgeted in light of the application of the salary reduction, as stipulated under the law, which, at time of writing (August 2014) had approval; this translates into a temporary and progressive salary reduction of between 3.5 percent and 10 percent, as follows: 3.5 percent for monthly salaries of more than 1500 euros and less than 2000 euros; 3.5 percent on the value of 2000 euros with a further 16% on the total amount of salary exceeding 2000 euros, in the case of salaries of 2000 euros and above up to 4165 euros (giving an overall rate of reduction ranging between 3.5 percent and 10 percent); 10 percent for values greater than 4165 euros. On the other hand, a gradual reversal of the temporary salary reduction is expected, to the tune of 20 percent/year from 1 January 2015;
• post-employment benefits entail ICP-ANACOM's contribution to a Pension Fund, taking into account the payment of retirement pensions to a group of employees from CTT and also health care liabilities as regards retired ICP-ANACOM staff who came from CTT;
• charges on remunerations paid by ICP-ANACOM reflect contributions to social security made by application of the TSU - taxa social única (Single Social Tax);
• work accident insurance is extended to cover all employees;
• social action expenditure relates to expenses resulting from the agreement concluded with CTT, S.A. and Portugal Telecom, S.A., with regard to sickness prevention, hygiene and safety at work, and health insurance which extends to all ICP-ANACOM employees;
• the amount needed to cover training activities is as required for the development of staff competencies and to achieve stipulated levels of training.

In 2015, personnel costs are seen at 23.062 million euros, an increase of 4.9 percent compared to the 2014 budget. This increase reflects the assumptions of wage cuts used in preparation of the budget as known at time of writing (including wage restoration of 20 percent from 2015) and a slight increase in average permanent staffing levels over the 2014 forecast, as has been approved.

In the 2015 budget, depreciation and amortisation costs are seen at 3.203 million euros. This represents a decrease (- 8.5 per cent versus the 2014 budget) due to a slowdown in the pace of investment over the last two years.  The depreciation and amortisation of equipment held by ICP-ANACOM is calculated based on specific rates (as regards property transferred from CTT) or on the rates stipulated in Regulatory Decree no. 25/2009 of 14 September (as regards property acquired by ICP-ANACOM).

A further 90 thousand euros is included under impairment losses, in respect of net changes relating to impairments that affect receivables, primarily to cover possible difficulty in collecting sums due with regard to issued invoiced.

Finally, the Other expenses item in the 2015 budget is seen at 7.212 million euros (554.000 euros more than budgeted in 2014). This increase also stems from a legal obligation of ICP-ANACOM, whereby it is bound to contribute 6.25 percent of total fees to finance AdC - Autoridade da Concorrência (Portuguese Competition Authority); this contribution has increased between the 2014 budget and the 2015 budget by 600 thousand euros.

Other expenses include amounts allocated for the payment of contributions to international telecommunications and postal organisations, as well as expenses in respect of meetings and conferences related to ICP-ANACOM's assigned functions.

This item also includes the costs incurred in the pursuit of cooperation activities with Portuguese-speaking African countries (PALOP) and other cooperation activities with countries in Europe and other African countries, as well as with Brazil and Macau; the contribution to FPC - Fundação Portuguesa das Comunicações (Portuguese Communications Foundation) in the context of ICP-ANACOM's participation as founding entity; as well as various sponsorships awarded with basis in defined criteria to public and private entities, associations, etc. The budget also includes some low-value sums designated for the payment of certain taxes, financial expenses and losses and other extraordinary costs and losses as may occur in the course of ICP-ANACOM's activity.

In summary, it should be emphasised that, in 2015, further measures will be taken to cut expenditure and to adjust ICP-ANACOM's cost structure. The total expenditure planned for 2015 is 50.103 million euros. This level of total expenditure represents an overall increase compared to the 2014 budget (+12 percent), due in main part to the application of rules governing the budgeting of provisions (as explained above). Indeed, if provisions for ongoing litigation (whose increase versus the 2014 budget stems from the change in budgeting methodology) were excluded, the increase in other expenses in 2015, as compared to the 2014 budget, would fall to 3 percent. This increase is justified entirely by the increased budget for personnel costs, given that the envisaged scenario of cuts includes a restoration of salary cuts amounting to 20 percent in 2015, among other effects. As regards remaining expenditure, reductions are planned compared to the 2014 budget (in some cases maintenance in nominal terms), with a few cases of increased expenditure, as clearly highlighted and justified by the requirement for ICP-ANACOM to comply with additional legal obligations.

Profits

Based on the above estimates, Net Profit in the 2015 budget is forecast at 28.089 million euros (+14.6 percent versus the 2014 budget), as set out in Annex III - Table 8.