Price Cap Plan 2008

• Jurisdiction: Barbados
• Court: Fair Trading Commission (Barbados)
• Judgment Date: 23 June 2008
• Docket Number: Document No.: FTC/UR/2008-03

Price Cap Plan 2008

Document No.: FTC/UR/2008-03

Fair Trading Commission

COMPLIANCE RULES AND PROCEDURES

Part 1 – Interpretation

1 Interpretation

“Actual Price Index” has the meaning as set out in Rule 6.2;

“Base year” means the initial year from which the quantities and rates for regulated retail services provided by the Company are used for compliance purposes, namely the period set out in Rule 8.1;

“Bundle Offerings” may either include a combination of regulated services or a combination of regulated and unregulated services.

“Commission” means the Fair Trading Commission;

“Exogenous factor (Z-Factor)” is a correction factor included in the price cap formula to adjust the PCI in response to an unforeseen event outside the control of the Company that negatively affects its income;

“going in rates” means the rates for the services in each Basket of the Price Cap Plan 2008 as at October 22, 2007;

“period” means a period during the Price Cap Plan 2008 as set out in Rule 4.1;

“Price Cap Index” has the meaning set out in Rule 6.3;

“price cap period” means the period during which the Price Cap Plan 2008 shall apply as set out in Rule 8.4;

“rates” has the meaning assigned to it by Section 2 of the Utilities Regulation Act CAP 282;

“Company” means Cable & Wireless (Barbados) Limited.

“Inflation Factor” means the Retail Price Index (RPI) as given by the Barbados Statistical Service.

2 These Rules apply to the implementation and operation of the Price Cap Plan 2008 applicable to the Company.

3 Where these Rules are silent on any matter of procedure in relation to Price Cap proceedings before the Commission, the procedure to be applied shall be determined by the Commission. The Commission may consult with the Company on such procedures to ensure that there are no conflicts with these Rules or the Utilities Regulation (Procedural) Rules 2003.

Part ii — The Price Cap Plan

4 General

4.1 There shall be established, a Price Cap Plan 2008 (PCP2008) which shall be applied by the Commission for a term of three (3) years and eight (8) months in the regulation of retail telecommunications services provided by the Company and which are deemed to be regulated services subject to the PCP2008. The periods of the PCP2008 are:

Period 1: August 1, 2008 through March 31, 2009 (bridge period)

Period 2: April 1, 2009 through March 31, 2010

Period 3: April 1, 2010 through March 31, 2011

Period 4: April 1, 2011 through March 31, 2012

4.2 Changes in the rates for a regulated telecommunications retail service subject to the PCP2008 will be deemed to be approved where the proposed change complies with the PCP2008.

4.3 It is not intended that the PCP2008 be amended. However, in exceptional circumstances where there is a need to amend the PCP2008 this shall be done pursuant to Rule 12 which sets out procedures for consultation between the Commission, the Company and other interested parties including the general public.

4.4 Going in rates for the PCP2008 shall be the rates existing on the start of the Review of Price Cap Mechanism 2005 (PCM2005) (i.e. October 22, 2007). The procedures for effecting and notifying price changes are set out in these Rules.

5

5.1 The services to be regulated under the PCP2008 will include only those retail services specified as being subject to regulation in the Statutory Instrument (S.I.) No. 5 — Telecommunications (Regulated Services) Order 2006 1 namely:

• (a) International telecommunications services;

• (b) Domestic voice telecommunications services; and

• (c) Leased circuits;

5.2 Subject to revision of the above referenced Telecommunications (Regulated Services) Order the following categories of services will be regulated under the PCP2008:

• (a) Residential fixed line access rental service;

• (b) Non-residential fixed line access rental service;

• (c) Non-residential and residential fixed line installation;

• (d) Domestic payphone service;

• (e) Value Added Services;

• (f) Residential and Business International Telephone Service

• (g) International cards;

• (h) International toll-free;

• (i) Domestic private leased circuits;

• (j) Call centre international calls;

• (k) Operator assistance;

• (l) Voicemail;

• (m) Business voice network service e.g. Centrex; and

• (n) Emergency.

5.3 The Minister responsible for telecommunications may conduct market reviews and determine that a particular service should no longer be regulated.

5.4 The list of categories of services set out at rule 5.2 shall be revised by the Commission on publication of a revised Telecommunications (Regulated Services) Order by the Minister. Where the Minister makes a determination that a telecommunications service included in the Price Cap Plan is an unregulated service, the Commission shall remove that telecommunications service from the PCP2008 and shall no longer require the service to be included in the Annual Compliance Filing for the next price cap period.

5.5 The following services shall not be subject to price-cap regulation:

• (a) wholesale telecommunications services (including):

  • (i) charges in respect of interconnection charges;

  • (ii) international simple resale.

• (b) bundled services as noted in rule 8.14

• (c) other retail services that are not identified as regulated in the Telecommunications (Regulated Services) Order, 2006 or any revised Telecommunications Regulated Services Order that may be issued by the Minister responsible for telecommunications.

Part III — The Price Cap Formula

6

6.1 The price cap formula shall remain applicable to the regulation of retail services provided by the Company which are deemed to be subject to regulation under the PCP2008. The price cap formula specifies that the actual price index (API), which represents change in prices charged by the Company for a specified basket of services (k), over a particular period (t), must be less than or equal to the Price Cap Index (PCI).

6.2 The Actual Price Index for each Basket is calculated as follows:

and alpha α is defined as follows:

Note a subscript of “0” indicates base year quantities and prices.

In the above equations

6.3 Price Cap Index for each Basket is calculated as follows:

Where “I” denotes Inflation factor as described in paragraph 7.2 below and “X” denotes the productivity factor described in paragraph 7.3

Where the Commission allows an exogenous factor within the PCP2008 the price cap formula would have to be rewritten as:

Where “Z” denotes the exogenous factor described in paragraph 7.4.

7

7.1 The price cap index (PCI) is composed of two basic components. These are the inflation (I) factor and productivity (X) factor.

7.2 Inflation Factor: The annualised inflation rate for Barbados published by the National Statistical Office shall be used as the Inflation I-Factor in calculating the price cap indices. This inflation rate is derived from the monthly Retail Price Index for Barbados. When filing updates to the PCIs, the Commission shall use the most recently published annualized inflation rate.

7.3 X-Factor: This was derived on the basis of an analysis of expected changes in the Company's productivity and other developments in the telecommunications market and will allow the Company an opportunity to earn a reasonable rate of return on its regulated services over the duration of the PCP2008.

7.4 Exogenous Z – Factor: The Company, in response to an unforeseen event which the Company considers may negatively affect its income, may apply to the Commission for an exogenous Z-factor to be included within the price cap formula. The Commission may allow this but only after conducting a public consultation on the issue.

7.5 The Commission will consider filings by the Company during the period only for wholly exogenous factors such as regulatory actions by the Commission or the government of Barbados, or other unforeseen circumstances which materially affect the Company's profitability.

7.6 Without limiting the generality of 7.4 and 7.5, the Commission has determined that a Z-factor adjustment shall be considered for inclusion in the PCI where any one of the following conditions are satisfied:

• a) The event is a legislative, judicial or administrative action which is beyond the control of the Company; or

• b) The event relates specifically to the telecommunications industry; or

• c) The event has a material impact on the regulated segment of the Company which is subject to the Price Cap Plan.

7.7 The Z-factor shall be set at zero for the calculation of the PCI until and unless a Z-factor adjustment is proposed to the Commission and accepted by the Commission in accordance with filing rules 9.7, 9.8 and 9.9 contained herein.

Part IV — Basket Structure and Pricing Constraints

8.1 For the purposes of revenue determination in paragraph 6.2 the base year for the PCP2008 shall be the period from April 1, 2007 to March 31, 2008.

8.2 The PCP2008 shall be applied to three baskets of regulated services. A detailed list of services and basket assignments is provided in Schedule 1. An example of the assignment of some service categories is set out below:

Basket 1: Residential fixed line access rental service and residential installation service;

Basket 2: Domestic voice telecommunications services — business access, installation, domestic payphone calls, and value added services, domestic private leased circuits, voice mail;

Basket 3: Other retail telecommunications services – Fixed outgoing international service, international payphone service, and international private leased circuits, Centrex, domestic leased circuits, and other services for which there is already substantive competitive pressure, or where there is decreasing demand due to advances in technology or which there is currently no tariff applied.

8.3 The list of services in the PCP2008 are identified in Schedule 1.

8.4 The PCP2008 shall apply for three...