This section focuses on how unprofitable areas are determined, whereby the specificity of the calculation of 2014 CLSU (in particular as regards operational and financial inputs used in this calculation for the purpose of obtaining data for the January-May period of this year) has already been dealt with in chapter 3.1.
The methodology defines that the establishment of unprofitable areas takes place by identifying areas with negative profitability.
Subsequently, having stabilized the number of geographical areas classified as being potentially unprofitable, that is, areas that show negative profitability in a given year, the methodology defines the application of two additional criteria, in order to strengthen the model of determination of unprofitable areas and to increase its correspondence to reality: i) the criterion associated to multiannual profitability and (ii) the criterion of existence of an effective competition.
The first criterion, of multiannual profitability, consists in identifying unprofitable areas based on their profitability since 2007 up to year for which CLSU are determined, and only areas which remain unprofitable in all years concerned are deemed to be unprofitable areas.
The second criterion, of the existence of an effective competition, consists in excluding unprofitable areas where there are at least two collocated operators from the calculation of CLSU. The year for which a larger number of collocated operators per MDF is recorded, between 2007 and the year to which CLSU refer, is used as reference.
Moreover, taking into consideration that in the methodology for calculation of CLSU, in the establishment of unprofitable areas, costs associated to unprofitable public payphones are accounted for together with FTS costs, ANACOM established, in its determination of 22.07.2015 and for the purpose of the calculation of 2014 CLSU, that in these areas net costs for each of these offers (FTS and PPP) must be calculated in separate. As such, on the basis of results obtained separately for FTS and PPP, the proportion of each component in the net cost associated to unprofitable areas is then determined, this proportion being applied to broad results of the “area model” obtained in the calculation of profitable and unprofitable areas and of the net cost of the latter up to 31.05.2014, assuming that MEO would be the FTS and PPP USP, so as to establish the contribution of each of the components (FTS and PPP) to the net cost of unprofitable areas.
As regards the value of CLSU allocated to PPP, given that MEO only provided the service up to 08.04.2014, a pro-rata is performed taking into account the period up to which MEO was the PPP USP prior to the tender designation, which corresponds to multiplying the obtained value by 98/151 days.
AXON’s Audit Report
The audit report mentions that in the application of the criterion associated to multiannual profitability, MEO considered as unprofitable areas, in estimates submitted on 30.10.2015, areas which in preceding years had been considered to be profitable. Auditors thus recommended MEO to correct this situation and to recalculate CLSU. Auditors estimate the correction of this situation to have resulted in a decrease of CLSU by 9,062€.
AXON mentions also, in the same audit report, that MEO did correct this situation, when estimates for the calculation of 2014 CLSU were resubmitted (in calculations submitted both on 27.01.2016 and on 06.05.2016).
As regards the criterion of existence of effective competition, AXON refers that no area was excluded on account of the application of this criterion.
AXON further mentions that MEO applied correctly the calculation methodology established in determination of ANACOM of 22.07.2015, having established CLSU obtained separately for each of the components (FTS and PPP) and applied a pro-rata of PPP bearing in mind the date up to when MEO was the PPP USP.
AXON thus concludes that the approach followed by MEO in the establishment of unprofitable areas in resubmitted results is consistent with the methodology determined by ANACOM, including with provisions set out in decision of 20.06.2013, on the results of the audit to CLSU for the 2007 to 2009 period, where amendments were determined to multiannual profitability and competition criteria, and in decision of 22.07.2015, on the methodology of calculation to be applied for 2014.
Notwithstanding, AXON identifies some issues at the level of the reconciliation of inputs of the model with values in the CAS, concerning traffic volumes, values of access and traffic revenues as well as with the number of access lines, issues which are dealt with below in section 3.6.
Moreover, AXON identified, in the scope of the work on the reconciliation of inputs, a relevant situation concerning installation revenues considered in the model. According to clarifications provided by MEO, this corresponds to a calculation error, given that the company had failed to consider the effect of the five-year deferral in discounts of installations. This situation was corrected by MEO when it resubmitted estimates of calculation of 2014 CLSU, in calculations submitted both on 27.01.2016 and on 06.05.2016.
MEO comments
In its comments to the audit report, MEO confirmed the existence of situations identified by AXON on the application of the criterion of multiannual profitability and failure to defer, for a five-year period, the value of the discount allocated to installations for 2014, referring that it had corrected these situations in the calculation of 2014 CLSU submitted on 27.01.2016.
The company adds, in its comments to the chapter of the audit report on the model of unprofitable areas, that it had identified a mistake in table 4.14: Revenues per access services resulting from CAS and the Model of Unprofitable Areas, indicating that the CAS value on installation of leased lines with speed below 2Mbits is not correct, revenues for 64K leased lines not having been included.
Line taken by ANACOM
In the scope of the audit work to the area model, AXON identified two situations with impact at the level of CLSU calculation: the first associated to the application of the criterion of multiannual profitability, involving the determination of unprofitable areas (namely taking account of unprofitable areas which had been considered in previous years to be profitable) and another associated to the calculation of installation revenues (calculation error of the deferral to be considered). The audit report describes these occurrences and presents recommendations set out by auditors to rectify them, further mentioning that in the resubmission of CLSU values for 2014 MEO implemented the recommendations.
Taking into account that auditors validated the implementation by MEO of specific determinations laid down by ANACOM on 22.07.2015 as regards steps to be followed to establish CLSU in unprofitable areas for the FTS and PPP components, it is deemed that the approach followed by MEO is appropriate and in accordance with the methodology defined.
Finally, it is clarified that AXON corrected the mistake identified by MEO in table 4.14 of the audit report, a change which has no impact on conclusions.
