Two reports on rate of return for telecommunications

Commerce Commission publishes expert reports on rate of return on capital for telecommunications services
Issued 23 June 2014

Release No. 119

The Commerce Commission today published two expert reports about the rate of return on capital for the unbundled copper local loop (UCLL) network and the unbundled bitstream access (UBA) service.

The allowed rate of return on capital is also known as the ‘weighted average cost of capital’ (WACC).

As part of the final pricing principle (FPP) process, the Commission needs to determine a WACC for the UCLL and UBA services. The Commission commissioned two expert reports to assist in reaching a view regarding the WACC for UCLL and UBA.

The first report is by Associate Professor Martin Lally of Victoria University of Wellington and addresses the tax-adjusted market risk premium (TAMRP) and the methodology for estimating the cost of debt.

The second report, by Oxera Consulting Ltd, covers asset beta, leverage and an appropriate long-term credit rating.

The Commission invites interested parties to submit their comments on the papers, by 5pm Monday 21 July 2014. There will then be two weeks for cross-submissions, which should be submitted by 5pm Monday 4 August 2014.

There will be a further opportunity to submit on WACC, including the specific parameter values the Commission decides to adopt, in response to the draft UCLL and UBA price review determinations to be released on 1 December 2014.

You can find the expert reports on the Commission’s website on the UCLL and UBA final pricing principle price review page.

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