FLSM user manual
Contents
1. The amount of data required depends on the choices the user makes in the B Dimensions amp Results worksheet The aim of this section is to guide the user through an initial use of the model and a first exploration of the results The user will then find that he she can make more changes and examine other options The detailed descriptions of the operation of the model are deferred to chapter 3 The user should track any changes to the model and utilise version control as appropriate As a minimum it is recommended that the user keep a master copy of the original model so they are always available in case changes are made that cannot be corrected or if the files are accidentally deleted The user should avoid using drag and drop to move input data since this may corrupt the flow of data in the model Other than that changing the input values has no damaging effect on the workings of the model However changes to the data can make the results misleading or incorrect Inputting inappropriate values e g inputting text in place of numbers can also cause errors in the calculations giving VALUE and DIV 0 errors Altering formulae is more serious and should only be done with care and after due study Changing the names of named arrays named cells or the names of worksheets is not recommended as this is very likely to give errors Note that the model uses Data Grouping to allow collapsed expanded views of the data To alter the view you n2. 1 multiplied by the average annual revenue per line divided by 12 Tables D 3 3 and D 3 4 calculates for each year ULLS and WLR s share of total revenue These proportions are used in the worksheet 7 Service Costs to allocate ducts and pipes costs to services Table D 3 6 ensures that the cost per band multiplied by total demand for each band is equal to the total revenue requirement for ducts and pipes and the average revenue per line is equal to table D 3 1 Table D 4 Copper cables costs per band This table calculates the cost of copper cables for each band The steps undertaken are the same as table D 3 but are applied to copper cables revenue Table D 5 Monthly indirect costs The monthly indirect costs are the costs that are constant for ULLS and WLR for all bands These are the total costs of all other asset classes in the model except for ducts and pipes and copper cables ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 6 Table D 6 Nominal monthly prices by band This table displays the nominal price of the four bands for ULLS and WLR for each year from 2009 10 to 2012 13 and the interim and final access determination prices 3 7 Worksheet E Allocation Factor Calc This worksheet shows the step by step calculation undertaken to obtain the cost allocation factors used in worksheet 7 Service Costs Table E 1 Summary of Inputs for Calculations Table E 1 1 contains the unadjusted cost allocation factors obtained from the A
3. Table 10 2 4 Tax Loss Carried Forward calculates any tax losses to be carried forward to the next year The values for the initial year YOO are those reported in table 4 2 For subsequent years the tax losses are any negative values generated in table 10 2 3 Table 10 2 5 Taxable Income includes carry over amounts calculates the taxable income which is the pre tax income from table 10 2 3 plus any tax loss a negative number carried forward from the previous year from table 10 2 4 Table 10 2 6 Tax Payable calculates the tax payable If the taxable income in table 10 2 5 is positive then the tax payable is the taxable income multiplied by the Corporate Tax Rate If the taxable income is 0 or negative no tax is payable If table 10 2 6 were used directly to calculate the revenue requirement including tax it would create a circular calculation the tax would be included in the revenue requirement which would then be used to calculate the tax In order to avoid this the model performs an alternative calculation in tables 10 2 7 10 2 8 and 10 2 9 to derive the tax allowance that should be included in the revenue requirement Table 10 2 7 Intermediate Tax Calculation calculates the tax payable in an alternative way It uses income without tax the RR or revenue requirement excluding tax from table 10 1 4 plus any additional income from table 10 1 7 plus any tax loss a negative number carried forward in table 10 2 4 less tax expenses fro
4. Table 3 3 requires inputs for the capital disposals in million AUD for each asset class at the beginning of each financial year Since the model assumes that the additions and disposals occur at the same point in time the model uses net additions additions less disposals Hence the user could enter net additions in table 3 2 and leave table 3 3 blank 3 12 Worksheet 4 Tax Parameters This is an input worksheet to provide the values for the Opening Tax Value and the tax depreciation parameters for each asset class in the RAB The tax values may be different from the regulatory values ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 2 1 The valuation date is 30 June of the year specified by the user in table 2 1 Regulatory Asset Base Opening Tax Value and Parameters This is the valuation date for the RAB regulatory values Table 4 1 Regulatory Asset Base Opening Tax Value and Parameters The numbers in this table are assumed by the ACCC to be equal to the RAB and linked to table 2 1 The user may input their own estimates but automatic reversion to the ACCC assumption is not possible Users should keep an original version of the model to enable this reversion Table 4 2 Tax Losses Carried Forward In this table the user specifies the tax loss at the Valuation year i e the end of the opening financial year to be carried forward to the next year A loss should be entered as a negative number Table 4 3 Additional Taxable Inco
5. all the data required for the tax calculations has been specified ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 2 Services The user can then turn to services If the default list is not adequate the user should edit the list of Services in worksheet C Masterlists In worksheet 5 Service Demands the user should specify the annual demand for each service This is done in table 5 1 Annual Demand for each Service The units of demand will normally be Lines Calls or Minutes For Local Call Service the user must complete table 5 2 Average Call Duration for Local Call Service for each relevant year Years not used are shaded out This completes the initial dataset required for the model Model results The user will see the results in terms of Service Prices displayed in worksheet B Dimensions amp Results The calculated prices are given in both real and nominal terms More details of the results may be found in worksheet 7 Service Costs table 7 2 Calculation of Service Revenues and Prices When changing the choices in worksheet B Dimensions amp Results the user should ensure that the relevant data has been entered in all sheets above Layout To aid understanding the worksheets are laid out consistently In particular values for a specific financial year generally appear in the same column in every sheet Years that are not used are shaded out This and other model conventions are further specified in worksheet A Model D
6. at the end of the financial year This procedure is called Rolling Forward the RAB It can be repeated for as many years as required The model makes provision for 12 years of roll forward Depreciation charges are calculated for each asset class The straight line method for depreciation is used throughout the FLSM However there is an option to use the diminishing value method for tax depreciation of new assets The model assumes that all new Core asset classes use the same depreciation type and similarly that all new CAN asset classes use the same depreciation type Operating costs and Overheads are also incurred during the year These costs must be specified for each specific asset class through the model inputs The revenue requirement generated from an asset class in a given financial year is taken to be the sum of the following items e The capital cost of the assets at the beginning of the year that is the regulatory value multiplied by the WACC e The depreciation charge for the asset class during the year e The operating costs and overheads allocated to the asset class in the year and e A proportion of the tax incurred in the year The revenue requirement is allocated to services using Allocation Factors An Allocation Factor is the proportion of the revenue requirement for a specific asset class to be allocated to a service That is for each service there is an allocation factor which is a fraction between 0 and 1 i
7. collected No additional calculations are performed in this section Table 8 1 1 Opening Regulatory Asset Base reports the opening RAB values from table 2 1 Table 8 1 2 Asset Class Additions reports the inputs on asset class additions from table 3 2 Table 8 1 3 Asset Class Disposals reports the inputs on asset class disposals from table 3 3 Table 8 2 Roll Forward of Regulatory Asset Base In this section the main calculation to roll forward the RAB occurs In Table 8 2 1 Net Additions the net additions are calculated by subtracting the values in table 8 1 3 from the values in table 8 1 2 before being multiplied by the half WACC adjustment factor The half WACC adjustment is made to net additions so that when included in the RAB roll forward process an appropriate return on capital is calculated from the assumption that net additions are incurred in the middle of the year Table 8 2 2 Opening RAB by asset class calculates the RAB value for each asset class at the beginning of each year The value is the closing RAB value at the end of the previous year calculated in table 8 2 4 below Table 8 2 3 Regulatory Depreciation reports the results of the detailed depreciation calculations in the following section The values are the depreciation charges for each asset class in each year They are the sum of the deprecation charges from the assets in the opening RAB in each year ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 2 5 Table
8. has the same structure with 3 parts e Tax Value at Beginning of Year For the initial year this is zero For later years it is simply the residual value at the end of the previous year e Tax Depreciation This is the calculation of depreciation for the assets each year The Life column shows the tax standard asset lives from table 9 1 1 The straight line depreciation charge is the tax value at the beginning of the year divided by the remaining asset life in that year The diminishing value method is the straight line rate as a percentage multiplied by the accelerator factor 150 or 200 depending on the option chosen e Tax Value at End of Year This is just the tax value at the beginning of the year less the depreciation charge 3 18 Worksheet 10 Tax Liabilities This worksheet calculates the tax values payable in the CAN and Core for each financial year The taxes are added to the revenue requirement excluding tax in worksheet 6 Revenue Requirement All calculations in this worksheet are performed with nominal values The basic tax calculation has the following steps 1 The nominal profit is calculated from the revenues i e the Revenue Requirement less operating costs and overheads less tax depreciation less interest payments 2 Taxis calculated on the profit adjusted for any tax loss carried forward or any additional taxable income 3 The tax payable is reduced by the value of imputation credits Under a vanilla
9. worksheet 10 Tax Liabilities are already in nominal terms Table 11 1 8 Debt end year reports the value of debt which is given by the end of year RAB from table 11 1 2 multiplied by the debt ratio Table 11 2 Equity Cash Flow Analysis Table 11 2 1 Capital Expenditure shows the capital expenditures in nominal terms For the initial year YOO the values are the total capital values from table 11 1 2 For subsequent years the values are the net additions from table 11 1 3 Table 11 2 2 Repayment of Debt calculates the differences in debt levels between years from table 11 1 8 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 3 1 Table 11 2 3 Residual Value of Equity calculates a residual value to be added to the cash flows for the calculations of internal rate of return in tables 11 2 4 and 11 2 5 The value for the equity remaining at the end of the period is calculated from the closing RAB value at the end of the period in table 11 1 2 multiplied by the Equity ratio or 1 minus the Debt ratio This is the residual value to be added to the cash flows It is shown in table 11 2 3 at the end of the last year Table 11 2 4 Pre tax Cash Flows calculates the pre tax cash flows The pre tax cash flow is the revenue table 11 1 4 less the operating cost and overheads table 11 1 5 less the interest payments table 11 1 7 less capital expenditures table 11 2 1 less debt repayments table 11 2 2 The first part of table 11 2 4 performs th
10. 1 Table 9 3 Detailed Roll Forward Calculations for Tax In this section each set of assets is rolled forward in time This exhibits the details of the contributions to the total depreciation charge for each asset class in each year There is a table for the opening RAB and for the net additions in each year The tables all follow the same structure ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 2 7 Table 9 3 1 Roll Forward of Opening Tax Value rolls forward the asset tax values in the initial opening RAB The table has 3 parts e Tax Value at Beginning of Year This is just the tax value at the end of the previous year from the third part below e Tax Depreciation This is the calculation of depreciation for the assets each year The Life column shows the tax remaining asset lives from table 9 1 1 The straight line depreciation charge is the tax value at the beginning of the year divided by the remaining asset life in that year e Tax Value at End of Year This is just the tax value at the beginning of the year less the depreciation charge The starting point YOO is the initial opening RAB tax values from table 9 1 1 The series of 12 tables 9 3 2 to 9 3 13 is used for rolling forward the net additions to the asset classes made in the relevant year The model makes provision for 12 years but only the years for the period specified by the user provide useful results the calculations for later years will be ignored Each table
11. 8 2 4 Closing RAB by asset class calculates the RAB value for each asset class at the end of each year The value is the RAB value at the beginning of the year from table 8 2 2 less the depreciation charge from table 8 2 3 plus net additions from table 8 2 1 The starting point YOO in table 8 2 4 is the opening RAB values from table 8 1 1 Table 8 3 Detailed Roll Forward Calculations In this section each set of assets is rolled forward in time This exhibits the details of the contributions to the total depreciation charge for each asset class in each year There is a table for the opening RAB and for the net additions in each year The tables all follow the same structure Table 8 3 1 Roll Forward of Opening RAB This table rolls forward the asset values in the initial opening RAB The table has three parts e Regulatory Value at Beginning of Year This is just the regulatory value at the end of the previous year e Regulatory Value at End of Year This is just the regulatory value at the beginning of the year less the depreciation The starting point YOO is the initial opening RAB values from table 8 1 1 e Depreciation This calculates depreciation The series of 12 tables 8 3 2 to 8 3 13 is used for rolling forward the net additions to the asset classes made in the relevant year All assets except land are depreciated each year Land appreciates by the inflation rate for that year The model makes provision for 12 years b
12. AB the model assumes that the valuation is at 30 June of the entered year that is at the end of the Australian financial year All the dates in the model are set from this date The main body of the table is used to input for each asset class e The Depreciated regulatory Value at the specified date in million AUD e Average Asset Life the average of the regulatory economic asset lives for the assets in the asset class e Remaining Asset Life the remaining average asset life for the assets in the asset class at the specified date In the last column of the table the Depreciated proportion of the asset class at the specified valuation year is calculated 3 11 Worksheet 3 Additions Disposals amp Opex The full title of this worksheet is Operating costs overheads and capital expenditure It is an input worksheet to provide the capital additions and disposals in the RAB for each year Table 3 1 Operating Cost and Overheads specified for each Asset Class Table 3 1 shows operating cost and overheads in million AUD that occur during each financial year for each asset class These costs and overheads are sourced from the worksheet F Opex allocations Table 3 2 Asset Class Additions Table 3 2 requires inputs for the capital additions in million AUD for each asset class at the beginning of each financial year Hence it indicates what new investments are made for the RAB each year Table 3 3 Asset Class Disposals
13. ACCC Fixed Line Services Model 20 April 2011 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL Contents 1 Introduction essseseeeesesesesesnanunamua ausus ananenenasesa uada ua uua unu 3 1 1 Purpose of this document ssssssssssssseseseenenenememenemene e eene 3 1 2 Purposesof the Model tote RR EU FERE ER DRE 3 2 Model Design ccccceceeeeeeeeeeeeeeeeeeeeeeeeuaeaeaeeeuseseeeeeeeeuauauauaeaeaeeseeeeeans 4 2 1 Model SCHEMAti Cif mm 4 2 2 MOde liOVErViOW PEE 6 2 3 Using the model ees tine ie miaa Daa aa mex wad dele Sale FR REX a TEREE 9 3 Model Operation cccceceescececeeeeeeeeeeeeeeeaeeeeeeseeeeeeueueueuauaeaeeeeeeeeaeaes 13 3 1 Introduction adaa an DI 13 3 2 Worksheet COVQE iiie eiesciqe t aniidae aA aree Esa a aa aaa 13 3 3 Worksheet A Model D SIQN c ccscceeeeeeseceneeesececaeeaeneceneeeeeesecqenaeas 13 3 4 Worksheet B Dimensions amp Results ssssseeeeee 13 3 5 Worksheet C Masterlists eine hehe adn ke nu nere nasi aun ed inan 14 3 6 Worksheet D Geo Cost based priCing c ceeeeeeeeeeeeeeeeeeeeeeeeeeeaeaeas 15 3 7 Worksheet E Allocation Factor Calc sssseenemmHe 16 3 8 Worksheet F Opex allocations cessessesesesenn mmm 17 3 9 Worksheet 1 Economic Parameters sssssseeneemeee 18 3 10 Worksheet 2 RAB 1 odio bene dese orek uta Aa ovus EUR FERES Dra d dU 19 3 11 Worksheet 3 Additions Disposals amp Ope
14. WACC framework the value of imputation credits is included in the ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 28 cash flows Excluding imputation credits from the cash flow building blocks would require an adjustment to the WACC under a post tax framework The tax liabilities can be calculated for as many years as required up to the model limit of 12 years The tax calculations do not depend on asset classes Hence the calculations in this sheet are performed only on the total values related to CAN and Core asset categories All calculations in this worksheet are performed on nominal values Table 10 1 Summary of inputs for calculations Table 10 1 1 Inflation indices reports the inflation indices used to convert real values into nominal values Table 10 1 2 RAB regulatory values at Beginning of Year calculates the nominal values of the total RAB regulatory values for CAN and Core asset categories at the beginning of each year from table 8 2 2 These values are used to calculate interest payments below Table 10 1 3 Revenue Requirement calculates the nominal values of the total RR using real values including tax from table 6 3 Table 10 1 4 Revenue Requirement excluding Tax calculates the nominal values of the total RR using real values excluding tax from table 6 2 Table 10 1 5 Operating Cost and Overheads specified for each Asset Class Totals only calculates the nominal values of the total operating costs and overh
15. alculate the internal rate of return for the pre tax and post tax cash flows All calculations in this worksheet are performed on nominal values Table 11 1 Summary of Inputs for Calculations Table 11 1 1 Inflation indices reports the inflation indices Table 11 1 2 Regulatory Asset Base end of year calculates the nominal values of the total RAB regulatory values for CAN and Core asset categories at the end of each year from table 8 2 4 Table 11 1 3 Net Additions calculates the nominal values of the total net capital additions for each year from the difference between asset class additions in table 8 1 2 and asset class disposals in table 8 1 3 This difference is the net additions which are then adjusted for inflation to arrive at nominal values Table 11 1 4 Revenues RR including tax calculates the nominal values of the RR or revenue requirement including tax in table 6 3 This is the nominal revenue Table 11 1 5 Operating Cost and Overheads reports the total operating costs and overheads calculated in table 10 2 2 part 1 These values because they come from worksheet 10 Tax Liabilities are already in nominal terms Table 11 1 6 Tax Payable reports the total tax payable calculated in table 10 2 6 Tax Payable These values because they come from worksheet 10 Tax Liabilities are already in nominal terms Table 11 1 7 Interest reports the interest payable on debt from table 10 2 2 part 3 These values because they come from
16. ance values are in nominal terms they are converted to real terms by dividing by the cumulative inflation index The calculation is performed separately for CAN and Core asset classes The taxes are allocated to the asset classes in proportion to the returns on capital amounts calculated in part 1 This is achieved by marking up the return on capital for each asset class by a fixed percentage The percentage is the value of the tax allowance as a proportion of the total return on capital If there are no return on capital amounts for the CAN or Core in a particular year the taxes are allocated equally to all asset classes Table 6 2 Revenue Requirement excluding Tax This table adds the results from parts 1 2 and 3 of table 6 1 Table 6 3 Revenue Requirement including Tax This table adds the results from parts 1 2 3 and 4 of table 6 1 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 2 3 3 15 Worksheet 7 Service Costs The full title of this worksheet is Service Costs and Prices It allocates the revenue requirement for each asset class to services to give the revenue requirement for each service It then turns the service revenue requirements into a maximum service price per unit of demand for the service Table 7 1 Summary of inputs for calculations This table section collects information from various worksheets in the model No additional calculations are performed in this section Table 7 1 1 Revenue Requirement repor
17. anteed for users with a version older than Microsoft Excel 2003 Furthermore compatibility issues cannot be completely ruled out for versions of Microsoft Excel newer than 2003 No extra add ins to Excel are required to run the model However users must allow macros to ensure functionality In addition all other options should be set to default In particular Calculations must be set to Automatic 2 1 Model schematic An overview of the model is illustrated in Figure 2 1 below Figure 2 1 High level structure of the model 41 Wes NEC Input sheets I Calculation sheets 1 Economic I Parameters Ali calc sheets effective 9 RAB Roll tax rate Forward for Tax Liabilities A Model Design Information sheets A Model Design 4 Tax Parameters B Dimensions amp Results 1 2 RAB Part A Opening RAB 11 Cash Flow J Analysis ji j Calculate Effective Tax Rate for Equity 10 Tax Liabilities Calculate Tax Payable 8 RAB roll forward C Masterlists Y 6 Revenue Requirement F Opex 3 Additions Allocations __ Disposals amp Opex E Allocation 7 Service Costs Allocation to services and Service Pricing 5 Service Demand Key Information Sheets Input Sheets Calculation s
18. cast over the regulatory period and voice traffic s share of traffic is taken The movement in voice traffic s share is applied to Analysys 2008 2009 PSTN OTA Transmission allocation factor Table E 5 Forecast demand adjustment The demand forecasts in the ACM for 2008 2009 are different to actual demands Table E 5 accounts for the difference between Analysys forecasts and actual demands for the asset classes and services not adjusted in tables E 2 to E 5 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 7 Subsequent years of allocation factors are adjusted by the year to year percentage change in demand This ensures that the underlying cost per unit of service is not affected by changes in demand Table E 6 Land and Buildings support allocation factor This table calculates the allocation factors for network land and network buildings support asset classes For the CAN the allocation factor has been obtained from the ACM and adjusted by the same forecast demand adjustment used in table E 5 There are no Analysys cost allocation factors for land and buildings support for the CORE This table calculates the proportion of each Core service s direct revenue requirement as a percentage of the total direct revenue requirement in the Core which is calculated in tables E 1 2 and E 1 3 Table E 7 Indirect capital asset adjustment The indirect capital asset class uses the same calculations as network land and network buildings support using the fig
19. e model makes provision for up to 7 services that is there is provision for an extra two services Calculations in the model are primarily undertaken in real terms i e at the price level for the first year of the estimation period the base year except for the calculation of tax liabilities and cashflows which must be undertaken in nominal terms Real price estimates are inflated by the assumed inflation index to produce nominal prices Also land is treated differently to other assets as it is an appreciating asset After being added to the current year s opening RAB value land is indexed by inflation before it is rolled into the next regulatory year s opening RAB The calculation of the revenue requirement begins from an opening Regulatory Asset Base RAB The assets in the RAB are divided into assets for the Customer Access Network CAN and assets for the Core network Core CAN and Core assets are each divided into Asset Classes An Asset Class is a group of related and similar assets Examples of typical Core Asset Classes are e Switching Equipment Local e Switching Equipment Trunk e Switching Equipment Other e Inter exchange Cables e Transmission Equipment e Radio Bearer Equipment There is the facility to add extra classes up to a maximum of 20 in each of the CAN and Core However the model does not automatically generate the required formula and linkages for new asset classes These must be generated by
20. e with the calculations for the real vanilla WACC It calculates the following parameters e Real Risk Free Rate the risk free rate in real terms e Nominal Cost of debt rate of return on debt in nominal terms e Real cost of debt rate of return on debt in real terms e Effective tax rate for equity calculated percentage difference between pre tax and post tax cash flows e Debt Equity ratio ratio of debt to the company value e Nominal cost of equity rate of return on equity in nominal terms e Real cost of equity rate of return on equity in real terms e Nominal vanilla WACC the weighted average cost of capital without accounting for inflation with the interest tax shield and imputation tax credits included in the cash flow e Real vanilla WACC the weighted average cost of capital accounting for inflation with the interest tax shield and imputation tax credits included in the cash flow 3 10 Worksheet 2 RAB The full title of this worksheet is Regulatory Asset Base It is an input worksheet to provide the values for the Opening RAB and the depreciation parameters for each asset class in the RAB Table 2 1 Regulatory Asset Base Opening Value and Parameters Table 2 1 is used to enter the opening regulatory values for the Regulatory Asset Base RAB and related parameters ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 2 O At the top of table 2 1 the user should enter the applicable valuation year of the R
21. eads from table 3 1 Table 10 1 6 Return of Capital Tax Depreciation calculates the nominal values of the total tax depreciation charges in each year from table 9 2 2 Table 10 1 7 Additional tax income calculates the nominal values of the additional taxable income for each year from table 4 3 Table 10 2 Calculation of Tax Expenses In this section the tax payable in each year is calculated Table 10 2 1 Debt calculates the debt values as the Debt ratio of the values in table 10 1 2 multiplied by the opening RAB values Table 10 2 2 Tax Expenses calculates the tax related expenses in nominal terms to be used for the tax calculation There are four parts e Part 1 Operating Costs and Overheads nominal This part transfers 10 1 5 e Part 2 Tax Depreciation nominal This part repeats the tax depreciation values from table 9 2 2 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 29 e Part 3 Interest nominal This part calculates the interest payable on debt The debt from table 10 2 1 is multiplied by the nominal cost of debt to give the interest payable e Part 4 Total tax expenses sum of parts 1 2 amp 3 This part the total tax expenses is the sum of the values in the other 3 parts Table 10 2 3 Pre tax Income excludes carry over amounts calculates the pre tax income which is the revenue requirement from table 10 1 3 plus any additional income from table 10 1 7 less the total expenses from table 10 2 2 part 4
22. eed to click on the or symbol for the relevant rows Initial choices In the first instance the user should make appropriate choices in worksheet B Dimensions amp Results Once these choices are made conditional formatting of the input worksheets will help guide the user as to which inputs are required The choices are listed in the block labelled B 1 User Selections They are as follows e Period this is the number of years for which the calculations are to be performed The base year is set in the input data for the RAB 9 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 O e Depreciation method Regulatory depreciation is limited to the straight line method However the user can select the method by which tax depreciation for new assets is calculated for each of the CAN Customer Access Network and Core Core Network assets The user should choose from the drop down list There are three choices o Straight line straight line depreciation is used o Diminishing value 150 o Diminishing value 200 All existing assets use straight line depreciation only e Number of asset classes the current model uses 10 CAN asset classes and 11 Core asset classes If the user changes the number of asset classes used these numbers must also be adjusted Once these choices have been made the user will be guided by the formatting in the input worksheets in filling out or modifying the input data In general inputs are only re
23. ervice 6 Revenue Requirement Calculates the revenue requirement RR 7 Service Costs Calculates the costs allocated to each service and the unit prices for each service 8 RAB Roll Forward Calculates the RAB at the beginning and end of each year and regulatory depreciation 9 RAB Roll Forward for Tax Calculates the RAB for tax purposes at the beginning and end of each year and tax depreciation 10 Tax Liabilities Calculates the tax payable 11 Cash Flow Analysis Calculates effective tax rate for equity from pre and post tax cash flows Source Ovum The model has used colour coding to ensure cells are easily identified The styles used are shown in the diagram below ACCC FIXED LINE SERVICES ACCESS PRICING MODEL Figure 2 1 Styles used in the model Model Conventions Red writing User inputs Black writting All other cells Header and start of table NB all cost values are in Australian Dollars AUD unless otherwise stated Source MJA These styles can be summarised as follows e Red writing indicates an input The user may enter a value or replace a value e Black writing indicates a calculation or provides information on the structure or type of data e Grey with white writing indicates a header and start of table Each worksheet has areas tables that relate to a type of calculation or processing of data These areas are separated from each other by a header row Use of the auditing t
24. escribed in turn 3 2 Worksheet Cover The worksheet identifies the model name version and date 3 3 Worksheet A Model Design This worksheet provides a block diagram of the model design cf Figure 2 1 anda list of model conventions 3 4 Worksheet B Dimensions amp Results This worksheet provides broad user choices and is used to view the final model results The user controls are located in a block labelled Dimensions The meaning of these controls is as follows Period Select model calculation period years The user may select a period between one and twelve years This is the number of years that the RAB will be rolled forward and for which results will be provided In the input worksheets and calculation worksheets years that ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 4 are not used are shaded out Note if the figure is changed the user must ensure that all inputs are available for the period Tax Depreciation method Select Depreciation method for new CAN Asset Classes Select Depreciation method for new Core Asset Classes The user may choose a method from the drop down list in each case The choices are o Straight line straight line depreciation is used in rolling forward the RAB o Diminishing value 150 allows for accelerated depreciation for new assets o Diminishing value 200 allows for accelerated depreciation for new assets For all existing assets straight line depreciation i
25. esign Each of the calculation worksheets has several sections The top section is labelled Purpose In general calculations proceed down the page In some cases data from other worksheets to be used in the calculations may be summarised at the top of the worksheet In addition some worksheets will have summary tables at the end ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 3 3 Model Operation 3 1 Introduction This chapter describes the way the model operates and provides a detailed description of the calculations performed in each worksheet The model has a number of specific conventions to assist the user Input cells where data is to be provided by the user have red fonts all other cells have black fonts Cells that are not used due to user selection are greyed out All asset values and operating costs and overheads are input in million Australian Dollars AUD in the base year s dollar value i e real terms Service prices are expressed in Australian dollars or cents per unit These are also converted to nominal prices using the input inflation rate The model is comprised of a number of worksheets in a single Excel workbook The purpose operation and output of each sheet are explained in the following sections The recommended approach to gaining an understanding of the model is to work through each sheet in turn starting with inputs moving to calculations and then results In the following each worksheet is d
26. et D Geo Cost based pricing This worksheet outlines the calculations necessary to derive the cost of ducts and pipes and copper cables by band and determine the costs for ULLS and WLR in each of the four bands Table D 1 Demand forecasts and band proportions Table D 1 1 contains the proportion of ULLS and WLR in each band This is input for year 1 Table D 1 2 splits the demand for ULLS WLR residual and total SIOs into the four bands ULLS and WLR demands are obtained from worksheet 5 Service Demand Total SIOs are assumed to be unchanged It is further assumed that the demand proportions remain unchanged in subsequent years i e year 1 input from table D 1 1 is used in all years Table D 2 Cost relativities of each band to the Average Table D 2 1 contains the cost relativities in each band These are obtained from the Analysys cost model price relativities When multiplied by the SIO proportions the relativities result in a weighted average of 1 Table D 3 Ducts and pipes cost per band This table calculates the cost of ducts and pipes for each band and the allocation factor used to allocate duct and pipes costs to services Table D 3 1 calculates the average annual revenue per line by taking the total revenue requirement for ducts and pipes from worksheet 6 Revenue Requirement and dividing by the total number of SIOs from D 1 2 The monthly cost per band is calculated in Table D 3 2 by taking the relativities in table D 2
27. et class The model allocates all these components to asset classes because the allocation factors used to allocate the revenue requirement to services are also by asset class This has the effect of allocating common costs such as taxes to services by a weighted average of the allocation factors for the service Table 6 1 Annual Revenue Requirement This table calculates the annual return on capital and allocates operating costs and overheads depreciation and tax to each asset class There are four parts to the calculation e Part 1 Return on capital This part calculates the annual return on the cost of the capital investment in each asset class at the beginning of the year It is just the opening RAB value multiplied by the weighted average cost of capital e Part 2 Operating Costs and Overheads allocated to each Asset Class This part looks up values from table 3 1 Similar to table 4 1 the user may input these costs directly e Part 3 Return of capital Depreciation This part looks up the depreciation for each asset class and in each financial year from table 8 2 3 e Part 4 Tax payable less value of imputation credits real In this part the tax payable less the value of imputation credits is allocated to asset classes The table uses the tax allowance to be included in the revenue requirement for the CAN and Core asset categories in each financial year calculated in worksheet 10 Tax Liabilities Because the tax allow
28. heets ACCC adjustment sheets oo Source MJA Each box depicted in Figure 2 1 represents a separate worksheet in the model The main flows of information between the worksheets is shown with arrows The contents and calculations performed in each worksheet are as follows ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 5 Figure 2 2 Model worksheets Worksheet Cover Title date and other identifying information A Model Design Schematic of model for easy reference B Dimensions amp Results Presents summary of results and includes a control panel for setting a number of relevant study parameters C Masterlists Input sheet for master lists used in model D Geo Cost based pricing Separates revenues and costs into bands according to geographic location E Allocation Factors Calc Presents the calculations to derive the FLSM cost allocation factors F Opex Allocations Displays the opex forecasts and the allocation of opex to each of the asset classes 1 Economic Parameters Input sheet for WACC parameters 2 RAB Input sheet for Opening RAB and RAB parameters 3 Additions Disposals amp Opex Input sheet for capital additions and disposals each year and annual operating costs and overheads 4 Tax Parameters Input sheet for Opening RAB for tax purposes RAB tax parameters and customer contributions for tax purposes 5 Service Demand Input sheet for annual demands for each s
29. is calculation Table 11 2 4 lays out the cash flows to be used in the IRR calculation in table 11 2 8 in the row Pre tax cash flows residual This is just the pre tax cash flows calculated above with the residual value of equity added to the cash flow in the last year For any years beyond the last year the cash flow is zero Table 11 2 5 Post tax Cash Flows excludes Value of Imputation Credits calculates the post tax cash flows from the pre tax cash flows The calculation is the pre tax cash flows from table 11 2 4 less the tax payable from table 11 1 6 Table 11 2 5 lays out the cash flows to be used in the IRR calculation in table 11 2 8 in the row Post tax cash flows residual This is just the post tax cash flows calculated above with the residual value of equity added to the cash flow in the last year For any years beyond the last year the cash flow is 0 Table 11 2 6 Post tax Cash Flows including Imputation Credits calculates the sum of the post tax cash flows given in Table 11 2 5 and the value of attached imputation credits The value of the imputation credits is given as the tax payable multiplied by the specified value for gamma The residual value of equity is added to the cash flow in the last year to calculate the total plus residual Table 11 2 7 calculates table 11 2 6 in real terms Table 11 2 8 Effective Tax Rate for Equity calculates the effective tax rate for equity It uses the Excel function IRR to calculate the in
30. ll E186 to false
31. m table 10 2 2 part 4 It multiplies this result by a factor depending on the Corporate Tax Rate and the Value of Imputation Credits to give the tax payable Tax is only payable on positive amounts This calculation will yield the same tax payable as in table 10 2 6 Table 10 2 8 Total Value of Imputation Credits calculates the total value of imputation credits by multiplying the tax payable from table 10 2 7 the intermediate tax calculation by the Value of Imputation Credits Table 10 2 9 Tax Allowance in RR Intermediate Tax Calculation less Total Value of Imputation Credits calculates the tax allowance to be included in the revenue requirement The tax allowance is the tax payable from table 10 2 7 the intermediate tax calculation less the total value of imputation credits from table 10 2 8 The values calculated in this table are used to add tax to the revenue requirement They are reported in table 6 1 4 where they are converted to real values for use in worksheet 6 Revenue Requirement ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 3 O 3 19 Worksheet 11 Cash Flow Analysis The main purpose of the cash flow analysis in this worksheet is to confirm the internal consistency of the model That is to check that the cash flows indicated by the revenue requirement would actually deliver investors with the rate of return assumed by the inputs of the model specified in the 1 Economic Parameters worksheet This worksheet is used to c
32. me In this table the user specifies for each asset class the additional contributions in million AUD in each year to be added to the income for tax purposes 3 13 Worksheet 5 Service Demand This is an input worksheet to provide the annual service demand levels by which the revenue requirement allocated to a service may be turned into a service price per unit Table 5 1 Annual Demand for each Service In table 5 1 the user inputs the annual demand level in relevant units for each service Table 5 2 Average Call Duration for Local Call Service In table 5 2 the user inputs the average call duration in minutes for the Local Call Service for each year of the estimation period This input is used in table 7 2 2 to calculate the service price per call instead of per minute 3 14 Worksheet 6 Revenue Requirement This worksheet calculates the revenue requirement to be generated from each asset class in each year For each asset class the revenue requirement to be generated from it in any year is the sum of the following charges e The annual return on the capital base at the beginning of the year e The depreciation return of capital on the assets during the year ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 2 2 e The operating cost and overheads allocated to each asset class this may be directly allocated by the user or may be allocated by the model see details below and e The tax payable allocated by the model to the ass
33. n factors are calculated to the right of the main table The RR or revenue requirement values from table 7 1 1 are multiplied by these allocation factors to give the revenue requirement contribution from each asset class to the revenue requirement of the service The total of these contributions shown at the top of the table for each year is the revenue requirement for the service Table 7 3 2 Summary of cost allocation summarises the total revenue requirement allocated to each service in table 7 3 1 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 24 3 16 Worksheet 8 RAB Roll Forward The full title of this worksheet is Regulatory Asset Base Roll Forward It calculates the RAB regulatory value in each asset class at the beginning of each financial year and the depreciation charges for the asset class during the year The basic roll forward calculation has the following steps 1 The RAB value at the beginning of the financial year is the value at the end of the previous financial year 2 The depreciation charge for each asset class is calculated for the particular asset class 3 The RAB value at the end of the financial year is the value at the end of the previous year less the depreciation charge plus net additions The RAB can be rolled forward for as many years as required up to the model limit of 12 years Table 8 1 Summary of Inputs for Calculations In this section information from various worksheets in the model is
34. n worksheet F Opex Allocations is to override the formulas in table 3 1 and input values directly However action of this type is generally not recommended as the model may be corrupted Once changes have been made to operating expenses and overheads the user must give values for capital additions to and disposals from each asset class in each year This is done in tables 3 2 Asset Class Additions and 3 3 Asset Class Disposals All values should be in million AUD The user can choose to enter just net additions in table 3 2 and leave table 3 3 blank if there are no asset class disposals At this point all the data required to roll forward the RAB has been specified Tax Parameters Worksheet 4 Tax Parameters is used to enter values to be used for the tax calculations In the current model the values for Opening tax value are set equal to that for the RAB and therefore in black font The user may change these values by inputting alternative values over each cell reference Note this action cannot be undone Users should retain a copy of the original spreadsheet to revert to the default approach Any tax losses carried forward can be specified in table 4 2 as Tax Loss Carried Forward Any tax losses should be entered as negative numbers Table 4 3 Additional taxable income is used to enter any additional customer contributions that add to the income assessed for tax purposes It may not be necessary in the first instance At this point
35. nalysys Cost Model ACM These factors are used as a base to calculate the final FLSM allocation factors Note that the allocations for ULLS and WLR for Ducts and pipes and Copper cables do NOT derive from this input These reflect calculations in worksheet D Geo Cost based pricing and are shown in Table E 2 Table E 1 2 sums the total revenue requirement for the CAN and CORE excluding network land network buildings support and indirect capital assets This total represents the total revenue requirement for direct network assets Table E 1 3 displays the services costs for ULLS WLR PSTN OTA and LCS Table E 2 Geographic costing adjustment This table takes the revenue share of ULLS and WLR for each year obtained from the D Geo Cost based pricing worksheet Table E 3 PSTN OTA Switching equipment adjustment The switching equipment in the Core network has been over provisioned with peak demand occurring in 2002 2003 The ACM is an optimised model without this over provisioning The cost allocation factor obtained from the ACM has been adjusted to take into account the over provisioning in the current Core network by taking the FLSM forecast demands divided by the total demand in 2002 2003 Table E 4 PSTN OTA Transmission equipment adjustment This table adjusts PSTN OTA Transmission cost allocation factors to reflect current and forecast usage pattern in the Transmission asset class Total traffic over the Transmission asset class fore
36. nclusive for each asset class that specifies how much of the revenue requirement for that asset class is to be allocated to the service For each service the sum of the revenue requirement allocations from each asset class is the revenue requirement for that service The Service Price whether real or nominal can then be calculated by dividing the revenue requirement allocation for the service by the Annual Demand for that service The annual demand is specified as an input The model assumes that there is an annual demand for each service in each year 8 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL For the Local Call Service it is assumed that the annual demand is in minutes The model converts the price per minute for this service to a price per call by multiplying the price per minute by the Average Call Duration The model assumes that the average call duration is specified by the user for each year Note there is no smoothing of prices where revenue requirements or expected demand is volatile 2 3 Using the model When opening the model depending on your settings in Excel a standard precautionary message may appear containing a warning on the presence of macros in the model If this is the case then click on the button Enable Macros otherwise the macro that supports the model will be disabled and the model will not work properly The user must provide a complete dataset in order for the model to provide correct results
37. oolbar functions is highly recommended to understand the model workings Due to the model sophistication it is not possible to describe details of all functions in the documentation Each sheet is divided into a number of sections Tables are numbered 1 2 3 etc one below the other within each section Table numbering reflects the sheet number and section number as well as the table e g 3 1 1 3 1 2 etc This means that some worksheets can have many functions and many rows but the functional areas are still clearly delineated 2 2 Model overview The model has a building block design to allocate capital charges and operating costs and overheads to services and hence calculate prices for declared wholesale services The ACCC s Review of the 1997 telecommunications access pricing principles for fixed line services Draft report released in September 2010 describes the way the building block model is to be implemented See section 4 5 of the September 2010 Draft Report for a description of the building block framework applied to the FLSM The model is designed to calculate the revenue requirement and then estimate prices for a list of declared wholesale services The default list of Services is e Unconditioned Local Loop Service ULLS 6 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL Wholesale Line Rental WLR PSTN Originating amp Terminating Access PSTN Local Call Service LCS Line Sharing Service LSS Th
38. ore is reduced ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 8 by LSS operating expenditure This removes the effect of double counting LSS operating expenditure The amount of LSS operating expenditure to be deducted from the CAN and Core is based on the CAN and Core proportion of total operating expenditure Table F 2 Allocation of indirect and direct operating expenditure to asset classes Each year s operating expenditure is the proportion of each asset class multiplied by the total operating expenditure for the CAN and Core The proportion percentages are obtained by taking the undepreciated values of each asset class as a proportion of the total undepreciated RAB excluding indirect capital assets 3 9 Worksheet 1 Economic Parameters This is an input worksheet to provide economic parameters to be used by the model Table 1 1 WACC parameters In this table the user enters the relevant WACC parameters in order to calculate the real vanilla WACC All the parameters in the Input values column of table 1 1 WACC parameters are required From these values a real vanilla WACC is calculated for use in the model s regulatory calculations The full list of input parameters is the following e Nominal Risk Free Rate rate of return with close to zero default risk and zero liquidity risk e g freely traded investment grade government bonds e Real Risk Free Rate the risk free rate in real terms Calculated from the nominal risk f
39. quired in cells where the text colour is red Entering or modifying data Economic parameters In the table 1 1 WACC parameters in worksheet 1 Economic Parameters the real vanilla WACC is calculated at the bottom of the table from the numbers listed The user may make changes to the Nominal Risk Free Rate Debt ratio Nominal Debt Risk Premium Debt Raising Costs Equity issuance costs Nominal Market Risk Premium Utilisation of Imputation Franking Credits Expected inflation Corporate Tax Rate Nominal effective tax rate for debt Nominal effective tax rate for equity note this figure is recalculated within the model and Equity Beta These inputs are grouped here to encourage consistency between estimates It is up to the user to ensure this consistency and the plausibility of the estimates The user should ignore the button Click here to update input value next to Effective tax rate for equity in the first instance Data for rolling forward the RAB The user may then turn to the Opening RAB in worksheet 2 RAB In table 2 1 Regulatory Asset Base Opening Value and Parameters the user will find the depreciated regulatory values for a number of asset classes for each of CAN and Core assets at a particular date financial year end At the top of the table there is an option to change the valuation year this value sets the dates used in the model The default value is 2009 indicating 2008 09 The date chosen should be the base
40. ree rate and expected inflation Fisher equation e Debt ratio portion of total capital financed by debt e Equity ratio calculated portion of total capital financed by equity This value is automatically calculated from the Debt ratio input to ensure both values add to 100 e Nominal Debt Risk Premium the margin above the risk free rate that a particular company must offer in order to attract debt funding in nominal terms e Debt Raising Costs costs of raising debt e Equity issuance costs costs associated with issuing equity e Nominal Market Risk Premium the expected rate of return for the national stock market as a whole minus the risk free rate ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 9 e Utilisation of Imputation Franking Credits portion of company tax paid by a service provider that is reimbursed to investors through imputation credits attached to dividends e Expected inflation the expected inflation rate The current value is set using the RBA s inflation figures and the mid point of its target band where forecasts are not available This inflation rate is used to convert nominal input parameters into real e Corporate Tax Rate company tax rate in Australia currently 30 e Equity Beta measures the risk associated with a particular stock compared with the market as a whole taking into account leveraging and the effect of financial risk Below the table of input parameters is the tabl
41. s the only option The four blocks labelled Fixed Line Access Services display the model calculated results in terms of service prices The service prices are given in both real and nominal terms The values are linked in from tables 7 2 2 7 2 3 D 6 2 and D 6 3 3 5 Worksheet C Masterlists The following master lists are maintained in this worksheet e CAN Asset Classes the names of the CAN asset classes The model provides for up to 20 CAN Asset Classes e Core Asset Classes the names of the Core asset classes The model provides for up to 20 Core Asset Classes e Services the list of services for which service prices are to be calculated The model provides for up to 7 Services e Years the list of financial years used in the model This list is calculated from the date entered in table 2 1 The model provides for up to 12 financial years as specified in worksheet B Dimensions amp Results e Depreciation methods the list of different depreciation methods available for new asset additions The user may change the CAN Asset Classes Core Asset Classes and Services if necessary Note that changing the asset classes requires significant editing of inputs and formulae and should only be done with care and after due study of the model In particular the user should ensure that the relationship between an asset class and allocation factor remains correct ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 5 3 6 Workshe
42. ssions and further information received since September 2010 On 9 March 2011 the ACCC engaged Marsden Jacob Associates Pty Ltd MJA to undertake the following tasks check the FLSM to ensure that all formulas were working as intended remove any redundant code that had no impact on the function of the model and ensure a consistent approach in the presentation of the FLSM inputs and outputs MJA delivered the checked model and updated user manual to the ACCC on 23 March 2011 This document is best read with the model open before the reader The Model Operation chapter of this document is laid out in the same order as the model is implemented in the Excel workbook Note that a user need not have detailed Excel skills or knowledge to use the model but a basic knowledge is expected If the intention is to modify the model or to investigate the algorithms used then some advanced Excel skills may be required to understand the details of how data is processed 1 2 Purpose of the Model The ACCC Fixed Line Services Model has been designed to facilitate the application of a building block approach to set prices for declared fixed access services The ACCC intends to release the model for comment by the telecommunications industry 3 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 4 2 Model Design The model have been developed using a standard software package namely Microsoft Excel However total functionality cannot be guar
43. ternal rate of return of the pre tax and post tax cash flows The IRR of the pre tax cash flows plus residual value of equity is calculated from the cash flows in table 11 2 4 The IRR of the post tax cash flows plus residual value of equity is calculated from the cash flows in table 11 2 5 The results of these calculations are reported in the Ca culated column The Nominal effective tax rate for equity is then one minus the ratio of the IRR post tax to IRR pre tax This is shown in the Used column The result of this calculation is reported also in table 1 1 2 Calculated Values as effective tax rate for equity calculated Inflation has an impact on the effective tax rate calculation ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 3 2 IRR post tax IRR pre tax T l by reducing the effective tax rate below the corporate tax rate of 30 per cent This occurs because a portion of an investor s return comes from the appreciation of the asset base Part of this inflation base is not taxed hence the effective tax rate is less than the corporate tax rate in the FLSM Table 11 2 9 Integrity check ensures that the internal rate of return calculated from the cash flows in tables 11 2 6 and 11 2 7 are equal to the nominal and real return on equity inputs in table 1 1 2 The cash flow returns on equity and the CAPM will not be consistent unless land appreciation is turned off Land appreciation may be turned off by setting ce
44. the user For this reason particular care must be exercised if further asset classes are added The model assumes that all capital assets have the same real Weighted Average Cost of Capital WACC throughout the period under study That is the model assumes only one real WACC value The real vanilla WACC is the particular WACC applied in the model The Opening RAB specifies the depreciated regulatory value of the assets in each asset class at the end of a given financial year that is at 30 June of the relevant year 7 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL Additions to each asset class through investments and asset acquisitions and Disposals from each asset class may occur each year The model works with Net Additions Additions less Disposals since additions and disposals are assumed to occur evenly through the year This is included in the model as occurring at the same point in time The model therefore assumes that additions and disposals occur in the middle of the financial year that is on 1 January of the relevant year A half year WACC adjustment is made to compensate for the loss of return for the half year period before a return on capital expenditure is provided The regulatory value for an asset class at the beginning of a financial year is the value from the end of the previous year The assets are then depreciated over the year the depreciation is subtracted to provide the regulatory value of each asset class
45. ts the results of the calculations from table 6 3 The values are the revenue requirement that can be generated from each asset class in each year Table 7 1 2 Annual Demand for each Service reports the inputs on annual demand for each service from table 5 1 Table 7 1 3 Average Call Duration for Local Call Service reports the inputs on average call duration for Local Call Service from table 5 2 Table 7 2 Calculation of Service Revenues and Prices Table 7 2 1 RR Allocation to Services shows the results of the detailed allocation calculations in the section below from table 7 3 2 The values are the revenue requirement for each service each year The units are million AUD Table 7 2 2 Service Prices calculates the maximum service price for each service by dividing the values in table 7 2 1 by the annual demand figures from table 7 1 2 While the values in table 7 2 1 are in million AUD the prices in table 7 2 2 are given in AUD per unit of demand In Table 7 2 3 Service Prices adjusted for inflation the values from table 7 2 2 are adjusted for inflation The prices are given in AUD per unit of demand Table 7 3 Detailed Allocation Calculations This section shows the detailed allocations of the revenue requirement to each service in each year In Table 7 3 1 Allocation of RR to each service there is a calculation for each year in this table The calculations follow the same structure for each year For the relevant year allocatio
46. ue and Parameters reports the initial RAB tax values from table 4 1 No additional calculation is performed in this table Table 9 1 2 Inflation calculates the cumulative inflation index Table 9 1 3 Net Additions reports the net additions to asset classes calculated in table 8 2 1 The real value is escalated by the inflation index in table 9 1 2 to reflect the fact that tax depreciation is based on actual or nominal expenditure Table 9 2 Roll Forward of Regulatory Asset Base for Tax In this section the main calculation to roll forward the RAB occurs Table 9 2 1 Opening RAB by asset class tax purposes calculates the RAB tax value for each asset class at the beginning of each year The value is the closing RAB value at the end of the previous year calculated in table 9 2 3 below Table 9 2 2 Tax Depreciation reports the results of the detailed depreciation calculations in the following section The values are the depreciation charges for each asset class in each year They are the sum of the depreciation charges from the assets in the opening RAB and from the net additions in each year Table 9 2 3 Closing RAB by asset class tax purposes calculates the RAB tax value for each asset class at the end of each year The value is the RAB value at the end of the previous year plus net additions from table 9 1 3 less the depreciation charge from table 9 2 2 The starting point YOO in table 9 2 3 is the opening RAB values from table 9 1
47. ures from tables E 1 2 and E 1 3 Table E 8 Other communications plant amp equipment This table calculates the allocation factors for other communications plant and equipment for the CAN and Core For the CAN the proportional make up of the asset types within other communications plant and equipment is calculated and a weighted average of the asset types is used to derive a cost allocation factor Note that the CAN Proportion that is CAN Radio equipment and the CORE Proportion that is Network building are both input figures For the Core since the other communications plant and equipment is made up of network buildings assets the network buildings asset allocation factor is applied Table E 9 FLSM Cost allocation factors Table E 9 collates all the adjusted cost allocation factors This table is the source data for the allocation factors used in the 7 Service Costs worksheet 3 8 Worksheet F Opex allocations This worksheet contains inputs for operating expenses and allocates forecast operating expenses to asset classes Table F 1 Opex forecasts Table F 1 1 displays the direct operating expenditure for the CAN CORE and LSS Table F 1 2 contains a mark up for indirect operating expenditure overheads Table F 1 3 displays the total operating expenditure after adding in a mark up for corporate overheads Since LSS costs are made up entirely of corporate overheads the total direct and indirect operating expenditure for the CAN and C
48. ut only the years for the period specified by the user provide useful results the calculations for later years should be ignored Each table has the same structure with three parts e Regulatory Value at Beginning of Year For the initial year this is zero For later years the value is simply the net additions during the previous year from table 8 2 1 e Regulatory Value at End of Year This is the closing regulatory value from the previous year minus depreciation e Depreciation This calculates depreciation 3 17 Worksheet 9 RAB Roll Forward for Tax The full title of this worksheet is Regulatory Asset Base Roll Forward for Tax It calculates the RAB tax value in each asset class at the beginning of each financial ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 2 6 year and the tax depreciation charges for the asset class during the year It is the equivalent of worksheet 8 RAB Roll Forward for tax values The basic roll forward calculation has the following steps 1 The RAB value at the beginning of the year is the value at the end of the previous year 2 The depreciation charge for each asset class is calculated 3 The RAB value at the end of the year is the value at the end of the previous year plus net additions minus the depreciation charge The RAB can be rolled forward for as many years as required up to the model limit of 12 years Table 9 1 Summary of inputs for calculation Table 9 1 1 Opening Tax Val
49. x esee 20 3 12 Worksheet 4 Tax Parameters cccccecceseceeereseceeaansesececeeeeeeseeaanauas 20 3 13 Worksheet 5 Service Demand eese nennen sanas 21 3 14 Worksheet 6 Revenue Requirement sss ene 21 3 15 Worksheet 7 Service COStUS 0 icccicsteseceteceteenececeddcecacetedecseneceaezsneanaran 23 3 16 Worksheet 8 RAB Roll Forward cececeeeeeeeeee tees ee ee eee eee eeeeeeeeeeaeaeas 24 3 17 Worksheet 9 RAB Roll Forward for Tax esses eee 25 3 18 Worksheet 10 Tax Liabilities 0c cece cece eee eee ee eee eee mme 27 3 19 Worksheet 11 Cash Flow Analysis sesseeeenmm e 30 ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 Introduction 1 1 Purpose of this document This document is an operations handbook for the ACCC s Fixed Line Services Model FLSM The purposes of this document are e to provide some brief background to the model e to explain the workings and structure of the model e to provide guidance to facilitate operation of the model by users This document does not set out to justify the structure of the model The FLSM is a revised version of the previous building block model initially called the OVUM BBM which was used to estimate prices used in the September 2010 Review of the 1997 telecommunications access pricing principles for fixed line services The ACCC has made substantial revisions to the initial model in response to submi
50. year for calculations The user may then enter the depreciated regulatory values Depreciated Value in table 2 1 The depreciated regulatory values should be in million AUD The user ACCC FIXED LINE SERVICES ACCESS PRICING MODEL 1 1 must also specify Average Asset Life and Remaining Asset Life for each asset class The user may then complete the capital additions and disposals and operating costs and overheads in worksheet 3 Additions Disposals amp Opex Data is required for each year and all values should be in million AUD The allocation of operating costs and overheads to individual asset classes in table 3 1 Operating Cost and Overheads specified for each Asset Class is linked to table F 2 Allocation of indirect and direct operation expenditure to asset classes in worksheet F Opex Allocations In order to change operating expenses and overheads the user should consult this worksheet In table F 1 1 Direct opex the user can insert direct operating expenses for the major category CAN and Core and specifically for the LSS Overhead costs are calculated using a mark up specified in table F 1 2 Mark up for indirect opex overheads Operating expenses related to LSS are inclusive of overheads the totals in table F 1 3 make adjustments to take this into account The totals in table F 1 3 are allocated to asset classes in F 2 Here the user has the option to change the allocation factors used An alternative to changing input values i
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