8.1 2016 Budget

Investment

The 2016 investment budget (Annex III - Table 5) is focused on the continued modernisation and re-equipping of ANACOM's monitoring and inspection activities and on the necessity of bringing ANACOM's information systems up-to-date, to ensure it retains the necessary means to keep pace with the transformations of the communications industry and to fulfil its assigned functions and responsibilities.

Total investment planned for 2013 is 3.201 million euros, representing a reduction of 1 percent compared to the 2015 budget. The most important projects/investments planned in 2016 include:

• upgrade and modernisation of spectrum monitoring equipment, specifically: improvements to metallic towers, hardware upgrades in equipment supporting the SINCRER network (stations not yet upgraded), upgrade of existing spectrum monitoring and control infrastructure and acquisition of equipment for new radiocommunications systems;
• conclusion, in early 2016, of the last phase of the development of the geo-referenced platform supporting the SIC, accomplishing legal compliance with Decree-Law no. 123/2009, with subsequent amendments;
• renewal and upgrade of the computer system, both in terms of hardware (servers), and in terms of developing new applications to support ANACOM's core activities.

Income

The 2016 income budget (Annex III - Table 6) 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; these are based on the principle of cost orientation, and to this extent vary depending on the level of costs incurred by ANACOM in regulating electronic communications activities (these fees represent around one third percent of total income);

(2) fees associated with the use of spectrum frequencies (representing 61.6 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 on a "user pays" basis;

(3) fees associated with the use of numbering (representing 2 percent of total income);

(4) administrative fees associated with the regulation of postal services; these are based on the principle of cost orientation, and to this extent vary depending on the level of costs incurred by ANACOM in regulating postal services (these fees represent 2.3 percent of total income);

(5) interest earned from the application of available financial resources (0.5 percent of total income);

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

The legal framework governing the fees provided for in the 2016 Budget is as follows:

• fees arising from the law of electronic communications - Current legislation is as follows:

- LCE - Lei das Comunicações Eletrónicas (Electronic Communications Law - Law no. 5/2004 of 10 February)¹, which 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, which establishes the regime applicable to the licensing of radiocommunications networks and stations, supervision of the installation of said stations and 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 as follows:

- the issue of declarations supporting rights issued by 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

- Decree-Law no. 47/2013 of 16 July, which defines the regime governing the construction of infrastructure which is suitable for carrying electronic communications networks, the installation of electronic communications networks and construction of telecommunications in housing developments, urban settlements and concentrations of buildings and in buildings; 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 payable for use of the amateur radio service - Decree-Law no. 53/2009 of 2 March lays down the rules that apply to use of the amateur radiocommunications service, and Administrative Rule no. 1473-B/2008 of 17 December (as amended by Administrative Rule no. 296-A/2013 of 2 October) establishes the fees which are applicable in respect of this service;

- 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 ANACOM in the context of the tasks assigned to it and result from the application of a specific tariff, as determined by its Board of Directors;

- 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 ANACOM, in cases where travel expenses are reimbursed by the EU;

- Other income - this item covers income and gains of low value or of an occasional nature, including as arising from the sale of tender specifications, scrap, sale of goods, etc, as well as extraordinary items and accounting adjustments.

In the 2016 budget, income is expected to reach 84.436 million euros, an amount which exceeds expected income in the 2015 budget (by 6.2 million euros). This increase in income stems from the following effects:

• Conclusion of the transitional arrangements provided for in Administrative Rule no. 291-A/2011 of 4 November, with respect to amounts payable on Terrestrial Electronic Communications Services (TECS), related to existing geographic restrictions on the operation of the 800 MHz band and consequently the withdrawal of the 50% discount on the amount of fees payable (in force until 2015). The end of this discount provides an additional 2.4 million euros.
• Increase in administrative electronic communications regulation fees, caused by the increase in litigation provisions; the amount forecast for 2016 is higher than expected for 2015, generating an increase of 3.4 million euros in administrative fees.
• Gradual growth in postal services regulation fees, due to the progressive adjustment mechanism (transition period of five years), as laid down in Administrative Rule no. 1473-B/2008 (amended by Administrative Rule no. 296- A/2013 of 2 October), with a positive impact of 0.4 million euros.
• Reduction of interest generated by financial investments, due to the assumption of a scenario of lower cash availability and persistence of low interest rates, according to market forecasts, determining a reduction of 0.5 million euros.
• Increased licensing associated with national DTT coverage and increased fixed service licensing will contribute to an increase of 0.5 million euros.

Expenses

In 2016, ANACOM will continue to pursue measures of internal efficiency and expenditure rationalisation. However, because of the reductions in costs achieved in recent years, the potential for further reductions has become more limited. The expenditure budget is presented in Annex III - Table 7.

In its 2016 budget, ANACOM continued to apply the more adjusted criteria introduced in the previous plan in terms of estimating provisions for ongoing cases of litigation. As such the value of all the provisions in respect of legal processes which were ongoing at the end of 2014 are included in the 2016 budget, representing an increase in provisions of 1.9 million euros, from 5.3 million euros (2015 budget) to 7.2 million euros (2016 budget).

In 2016, external supplies and services are seen at 11.466 million euros, which represents an increase (273 thousand euros) compared to the budgeted amount in 2015 (Annex III - Table 7). This item is one that generally most reflects the savings derived from the cost-cutting measures that ANACOM has been implementing. Despite the decrease in expenditure across a range of items, stemming from additional measures to reduce costs, there are other items where an increase in expenditure cannot be avoided, specifically building rents, which are subject to legally-imposed automatic updates. Meanwhile, new spending commitments have arisen as a result of legal obligations of various kinds to which ANACOM is bound, including, in particular, the monitoring of quality of service (QoS) on the Internet (NET.mede and NET.mede Pro) and the development of the SIC, whose implementation costs also explain the increase in the remaining sub-headings of supplies and services.

As regards personnel costs, the amount forecast in the 2016 budget (Annex III -Table 7) reflects approved staffing levels, which, in 2016, remain in line with 2015 levels. The main resource of a regulatory authority such as ANACOM is its people, so that it is natural that personnel costs constitute the largest part of its cost structure. The major components of these costs are as follows:

• Remuneration of ANACOM's permanent staff and additional remunerations, including application of the salary reduction stipulated under Lei do Orçamento de Estado (State Budget Law); 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 1,500 euros and less than 2,000 euros; 3.5 percent on the value of 2,000 euros with a further 16% on the total amount of salary exceeding 2,000 euros, in the case of salaries of 2,000 euros and above up to 4,165 euros (giving an overall rate of reduction ranging between 3.5 percent and 10 percent); 10 percent for values greater than 4,165 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; For 2016, a gradual reversal of the temporary salary reduction is expected from 01 January 2016, as occurred in 2015, with an additional reversal of 40% considered for 2016.
• Post-employment benefits include ANACOM's contribution to a Pension Fund, covering the payment of retirement pensions to a group of employees from CTT and also health care liabilities as regards retired ANACOM staff who came from CTT.
• Charges on remunerations paid by ANACOM reflect Social Security Contributions made by application of the TSU - Taxa Social Única (Single Social Tax).
• Work accident insurance is extended to cover all employees.
• Social action expenditure results 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 ANACOM employees.
• The sums needed to cover the various types of training activities as deemed essential for the development of staff competencies and to achieve stipulated levels of qualification among ANACOM staff operating in a sector that is increasing complex and demanding.

In 2016, personnel costs are seen at 23.696 million euros, an increase of 633 thousand euros compared to the 2015 budget. This increase reflects the assumptions on the restoration of salaries and the increase in expenditure stemming from the resource optimisation programme, whereas other items remain in line with 2015 levels.

In the 2016 budget, depreciation and amortization costs are seen at 3.261 million euros, reflecting the depreciation and amortisation of equipment held by ANACOM, calculated based on specific rates as laid down in legally approved rules.

A further 60 thousand euros is included under impairment losses, in respect of net changes relating to impairments that affect receivables, primarily to cover possible difficulties in collecting sums due with regard to issued invoices.

Finally, the other expenses and losses item in the 2016 budget is seen at 7.5 million euros, increasing 0.3 million euros from the sum budgeted in 2015 (Annex III - Table 7). This increase mainly results from a legal obligation of ANACOM, whereby it is bound to contribute 6.25% of total fees to the financing of AdC - Autoridade da Concorrência (Portuguese Competition Authority); this contribution has increased between the 2015 budget and the 2016 budget by 0.4 million euros, given the increase in revenues detailed above. The remaining sub-headings show reductions in expenditure.

This item includes sums allocated for the payment of contributions to international telecommunications and postal organisations, as well as expenses in respect of meetings and conferences related to ANACOM's assigned functions at an international level.

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, Brazil and Macau; the contribution to FPC - Fundação Portuguesa das Comunicações (Portuguese Communications Foundation) in the context of ANACOM's participation as founding entity; and various sponsorships awarded to public and private entities, associations, etc. The budget also includes some low-value sums designated for the payment of certain taxes, fees, financial expenses and losses and other extraordinary costs and losses as ANACOM may incur in the course of its activity.

In terms of overall spending, it should be emphasised that, in 2016, further measures will be taken to cut expenditure and to adjust ANACOM's cost structure. Total expenditure planned for 2016 is 53.203 million euros. This level of total expenditure represents an overall increase compared to the 2015 budget (+6 percent). However, excluding provisions for ongoing litigation, the increase in 2016, as compared to the 2015 budget, would fall to 3 percent. Also excluding other exogenous factors that have been explained above - wage restoration assumptions for 2016, increased contribution to AdC and new spending on legal obligations (e.g. NET.mede, NET.mede Pro, and the SIC, etc.) - expenditure would fall below 2015 budget levels.

Profits

Based on the above estimates, Net Profit in the 2016 budget is forecast at 31.233 million euros (+11.2 percent versus the 2015 budget), as set out in Annex III - Table 8.