COSTING OF TELECOMMUNICATIONS NETWORK SERVICES.

The Need for Telecommunications Service Cost Studies.

The provision of telecommunications services has become increasingly complex.  This complexity arises fron new technologies that permit the introduction of sophisticated new services, while at the same time the current regulatory environment is shifting towards privatization, liberalization, and competiton.

The telecommunications industry is extremely capital intensive.  As a direct result of growing competition and advancing technology, it is imperative to assure effective recovery of network investments. In order to efficiently manage the work, it is essencial to know the cost of providing the services being offered.  These costs are critical to ensure that appropiate bussines decisions are made, and that tariffs based on cost causation principles are designed to optimize the network cost recovery.

In addition, sound service cost studies will satisfy the regulators´needs for a basis to determine if the rates charged by the service providers are reasonable and effective in meeting regulatory and social objectives, such as promoting universal service, and identifying specific cost causation of competitive and non-competitive services.  The service cost analysis should be based on detailed modeling of the switching and transmission network and meet the needs of both the operating companies and the regulators.

Benefits of bellcore´s Telecommunications Network Cost Models:

Proper bussiness decisions in the telecommunications industry are becoming more and more critical, given the increased competition and the rapid technology changes taking place.  The Bellcore telecommunications network cost models can help you and your company make good business decisions in the three major areas:

• Performance Measurement Analyses.
• Tariffing
• Regulatory Requirements.

Performance Measurement Analyse:  This is a relatively new term in business vocabulary and it means any studies or analyses that are undertaken to support the measurement of how well the company is performing.  Accounting and financial reporting, although critical, is only part of your financial picture.  The Bellcore models provide the information necessary to complete your company´s picture by identifying the accurate incremental cost of each service.  This information will provide the underpinnings for many internal business decisions, some of which are listed below.

Profitability/contribution analyses by service, market segment or geographical serving area can be determined by using the bellcore cost models for the cost side of the analyses. Understanding your costs by these various segmentations gives you added information to make appropiate business decisions about removing optional services that are not profitable, identifying where pricing levels may need to be adjusted to maximize contribution, determining the apropiate pricing structure, or substantiating the need for multiple prices for geographical-based pricing.  These examples are just a small sample of the types of decisions that a good profitability analysis can support.

Long - range  planning:  allows you to perform "what - If" analyses that can help you determine the cost of new services or old services on new technology platforms; e.g., digital switches, fiber optic trunking facilities, etc.

Quantification of cross subsidizations among competitive/non competitive services will ensure that your prices will be self-supporting.

Tariff rebalancing of local loop, local calling, local distance calling, and international calling cannot be accomplished whitout understanding the cost of each of these services, and the bellcore models can provide this critical data.

Transfer pricing; can be established for telecommunications services "sold" to other business units (whether affiliates, subsidiaries, or strategic business units in the same company).

Competitive analyses; can be performed using the Bellcore cost models.  They can estimate the service cost levels at which competitors could enter the market, based on user-entered assumptions about the competitor´s network, such as an all fiber network or the deployment of a particular type of network hierarchy.

Service introduction analysis;  requires a complete understanding of the service´s costs, and the Bellcore models can provide this important aspect of the analysis.

Tariffing  -  The Bellcore models can assist you in identifying the appropiate cost "floor" for hundreds of services, some of the most important of which are listed below:

• Basic Voice Services
• Residential Premium Services
• Business Feature (PBX Connection and Centrex)
• Interconnection Rates for:
• Mobile Carriers
• Long-Distance Carriers
• Celular Personal 
• Communication Networks
• Cellular pagin Services
• Geographically Adjacent Carriers

Regulatory Requirements  -  Regulatory requirements vary tremendously from one area to another, but some of the most important issues that the Bellcore models can assist you with are listed below:

Open Network Architecture/ Provisioning requires both a tariff schedule/ structure and appropiate rates.

Universal Service Obligation  quantifications can be identified with the Bellcore cost models.

Cross Subsidization Issues can be addressed using the incremental costs that the Bellcore models provide.

Predatory Pricing Issues can also be minimized if the incremental costs provided by the Bellcore models are used as a cost floor.

In Summary,  the benefits of the Bellcore cost models can assist you in the strategically omportant issues of tariff rebalancing, interconnection charges, competitive assessment and performance measurements. t