8.1. 2017 Budget

Investment

The 2017 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. This is essential to ensure ANACOM retains the ability to keep pace with the transformations of the communications industry and is able to fulfil its assigned functions and responsibilities.

Total investment planned for 2017 is 3.055 million euros, representing a reduction of 5 percent compared to the 2016 budget. The most important projects/investments planned in 2017 include:

• Upgrade and modernisation of spectrum monitoring equipment, specifically: equipment supporting the network of SINCRER - Sistema Nacional de Controlo Remoto das Emissões Radioelétrica (National System for Remote Control of Radioelectric Emissions) stations, and upgrade of existing spectrum monitoring and control infrastructure;
• Renewal and upgrade of the computer system, both in terms of hardware (servers), and in terms of software/applications supporting ANACOM's activities, as defined in the Strategic Plan for Information Systems (PESI 2015/2017).

Income

The 2017 income budget (Annex III - Table 6) results from the application of fees pursuant to prevailing legislation. The final figures also took into account each nature 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 33 percent of total income);

(2) Fees associated with the use of spectrum frequencies (representing 61.7 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) Administrative regulation 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);

(4) Fees associated with the use of numbering (representing 1.9 percent of total income);

(5) All other fees and revenues, including interest earned from financial applications in IGCP, which make up a residual proportion of income (1.1 percent of total income).

The legal framework governing the fees provided for in the 2017 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, as amended by Law no. 51/2011 of 13 September and as subsequently amended), 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;

– Legislation supporting the new fee model, with basis in article 105 of the LCE: 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, and instruction of the Secretary of State for Infrastructure, issued pursuant to the Lei do Orçamento de Estado (State Budget Law) for 2017, determining an increase in the fees governing the use of frequencies for terrestrial electronic communications services and fixed service – point-point and point-multipoint connections in frequency bands equal to or exceeding 1GHz (except (FWA).

The fees governed by these texts are as follows:

- The issue of declarations supporting rights issued by ANACOM with regard to 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 services operator - the regulations which govern this activity are as follows:

– Law no. 17/2012 of 26 April, establishing the regime governing access to and exercise 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;

• 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 comprises revenues resulting from enforcement actions, including applied fines and inspections, as determined by the Board of Directors.

• Interest and other similar income - sums recorded under this heading essentially result from income obtained from interest expected on financial applications in CEDIC - Certificados Especiais de Dívida de Curto Prazo (Special Certificates of Public Debt) over the course of the year.
• Other income and gains - this item includes the following income and gains:

– Subsidies obtained from the European Union - 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 heading 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 2017 budget, income is expected to total 90.778 million euros, an amount which exceeds expected income in the 2016 budget (by 6.4 million euros). This increase in income stems from the following effects: 

• Increase in administrative electronic communications regulation fees, caused by an increase in litigation provisions. The sum of these provisions forecast for 2017 is based on their actual value as at the end of 2015 and exceeds the sum forecast for 2016, generating an increase of 2.2 million euros in administrative fees;
• Increase in the fees governing the use of frequencies in accordance with the instruction of the Secretary of State for Infrastructure, issued pursuant to the Lei do Orçamento de Estado (State Budget Law) for 2017, determining an Increase in the fees governing the use of frequencies for terrestrial electronic communications services and fixed service – point-point and point-multipoint connections in frequency bands equal to or exceeding 1GHz (except (FWA), entailing an additional income of 5 million euros.
• 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 0.2 million euros;
• Reduction in fees related to use of frequencies, due to licence cancellations, among other things, resulting in a reduction of about 1 million euros.

Expenses

In 2017, ANACOM will continue to pursue measures of internal efficiency and expenditure rationalisation. Since such measures have already been implemented over recent years, the reduction potential is now naturally smaller with a focus on specific actions, especially: (i) renegotiation of insurance contracts, particularly vehicle insurance; (ii) renegotiation in respect of servers, with their replacement by more efficient mechanisms and lower costs; (iii) renegotiation of software contracts by reducing the number of licences and the respective amounts, and also a reduction in the amounts paid for the maintenance of applications; (iv) Extranet extended to complaints and covering statistical reporting, with estimated savings in terms of employee-hours spent on these functions; (v) reduction in fuel consumption; and (vi) reduction in spending on specialised works.

On the other hand, the trend in expenditure still reflects the impact of a number of exogenous factors, which are beyond the scope of ANACOM's management, such as changes in the value of provisions, restoration of salaries or the level of contributions defined by law (for example, to AdC).

Finally, expenditure in 2017 also reflects the decisions of the Board of Directors to strengthen staff in critical areas, to enhance the performance of the regulator. The expenditure budget is presented in Annex III - Table 7.

In 2017, external supplies and services are seen at 10.995 million euros, which represents a reduction (-471 thousand euros, -4 percent) compared to the budgeted amount in 2016 (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. As such, a reduction is expected in most lines of expenditure, particularly specialized work (less resources to consultants and other external service providers) and Maintenance and Repair (renegotiation of IT contracts).

As regards personnel costs, the amount forecast in the 2017 budget (Annex III -Table 7) reflects staffing levels approved by the Board of Directors, which, in 2017 exceeds 2016 levels by 15 staff members (418 personnel in 2017 versus 403 in 2016) and also reflects the full restoration of salary cuts over the year, whereas the scenario for 2016 still comprised salary reductions. The main resource of a regulatory authority such as ANACOM is its people - it is therefore 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 - for 2017, a complete reversal is forecast in this budget, from 1 January 2017, of the temporary salary reduction, whereas the 2016 budget provided for a reversal of 60% (20% in 2015 and an additional reversal of 40% in 2016);
• Charges on remunerations paid by ANACOM reflect Social Security Contributions made by application of the TSU - Taxa Social Única (Single Social Tax);
• Post-employment benefits include ANACOM's contribution to a Pension Fund, covering the payment of retirement pensions to a group of employees from CTT - Correios de Portugal, S.A. (CTT) and also health care liabilities as regards retired ANACOM staff who came from CTT;
• Work accident insurance (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, as well as all costs provided for under the ARCT collective employment negotiation;
• The sums required 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 increasingly complex and demanding.

In 2017, personnel costs are seen at 24.878 million euros, an increase of 1.040 million euros compared to the 2016 budget. This increase reflects the sums budgeted for the increase in staff from 403 to 418 and the full restoration of salary reductions in 2017, versus a budgeted restoration of only 60% in 2016.

In the 2016 budget, depreciation and amortization costs are seen at 993 thousand 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 50 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.

In the 2017 budget, ANACOM maintains the criterion introduced in the previous plan as regards estimated provisions for ongoing legal proceedings; this approach is considered to be more adjusted to reality for the purpose of budget forecasting and results in an increase in provisions of 2.700 million euros, rising from 7.200 million euros (2016 budget) to 9.900 million euros (2017 budget). The criterion is based on the actual values as at the end of 2015 (ongoing cases) to which current accounting policies are applied.

Finally, other expenses and losses in the 2017 budget, are seen at 7.253 million euros, falling 268 thousand euros from the sum budgeted in 2016 (Annex III - Table 7). This reduction reflects the partial decreases in most of the items, especially the legal obligation which applies a limit to ANACOM's contributions to the Foundations, which results in a reduction in the amount of the allocation granted to FPC - Fundação Portuguesa das Comunicações (Portuguese Communications Foundation) of 400 thousand euros. Meanwhile, the legal obligation to contribute 6.25% of total fees to finance AdC results in an increase of 100 thousand euros compared to the 2016 budget, due to the reported increase in income, as described above.

This item includes sums allocated for the payment of contributions to international telecommunications and postal organisations, as well as expenses incurred in respect of cooperation activities with Portuguese-speaking African Countries (PALOP) and other cooperation activities.

The total expenditure forecast for 2017 amounts to 56.070 million euros. This level of total spending represents an overall increase over the 2016 budget (+5%). However, excluding provisions for ongoing litigation, the variation in expenditure in 2017, as compared to the 2016 budget, would be cancelled out. Also excluding other exogenous factors (as explained above and which are beyond the scope of ANACOM's management) - salary restoration in 2017, increased contribution to AdC - expenditure would fall below 2016 budget levels (-1.2%).

Profits

Based on the above estimates, Net Profit in the 2017 budget is forecast at 34.709 million euros (+11.1 percent versus the 2016 budget), as set out in Annex III - Table 8.