AXON’s Audit Report
The establishment of avoidable costs in the access to each geographic area is based on the identification of relevant costs, the calculation of avoidable costs and the geographic breakdown of costs.
The calculation of avoidable costs - costs incurred by MEO which could be avoided where it was not under the duty to fulfil US obligations - is conducted on the basis of estimates of avoidability of cost components. The degree of avoidability of the cost of components is separately determined on the basis of avoidability ratios where the service was interrupted in an MDF area and for individual customers.
AXON indicates that, in the absence of disaggregated information on costs that are effectively avoidable, MEO opted, in order to calculate these avoidable costs, to use an approach based in Long Run Incremental Costs (LRIC), as the company considers that incremental costs provide a meaningful proxy for avoidable costs. This approach has in fact been used in previous years to establish CLSU.
Given that MEO does not hold a LRIC model to establish avoidable costs for the various services (at access and traffic levels), AXON refers in the audit report that MEO uses LRIC ratios vs. Fully Allocated Costs (FAC) based on external information provided by British Telecom (BT) and Eircom.
AXON further specifies in its report that, in this calculation, MEO also uses statistic regressions of operational and financial indicators of US operators from the United States of America (USA), based on data provided by the Federal Communications Commission (FCC).
AXON concludes that, according to its experience in similar contexts, avoidability ratios adopted by MEO to establish avoidable costs are reasonable. Moreover, AXON stresses that the main external data sources adopted, especially BT and Eircom, are deemed to be reputable and credible references.
Line taken by ANACOM
Bearing in mind ANACOM’s agreement with how MEO established avoidable costs in the scope of the determination of CLSU in previous years, and taking into account that the approach followed in the determination of 2014 CLSU is the same as that followed in the determination of CLSU from 2007 to 2013, as results from the audit report, ANACOM deems such approach to be sufficiently substantiated, and also avoidability ratios and the calculation of avoidable costs used by MEO to be appropriate.
