Paris, 18 December 2006
After notifying its draft decision to the European Commission and submitting it simultaneously for public consultation, ARCEP is now adopting its decision which specifies the cost accounting and accounting separation obligations to be imposed on France Telecom.
- What does this mean?
This decision concerns the ways in which France Telecom’s accounting obligations are implemented, that is the cost accounting obligation, the account separation obligation for the access and interconnection markets (the wholesale markets), and the obligation to keep accounts on retail market activities and services. These obligations were imposed on France Telecom when it was declared as having significant market power.
These obligations were initially imposed on France Telecom and implemented under the old regulatory framework, but had to be reconsidered and revised under the current framework, conforming to the new framework’s relevant market segmentation and the market analyses ARCEP had conducted.
- The obligation to implement a cost accounting system to provide a global view of the company’s costs
"The purpose of imposing an obligation to implement a cost accounting system is to ensure that fair, objective and transparent criteria are followed by notified operators in allocating their costs to services in situations where they are subject to obligations for price controls or cost-oriented prices" (Article 1 of the Commission recommendation of 19 September 2005).
A cost accounting system is built in such a way as to distribute all of the costs incurred by the company across all the products it sells and to compare these costs to the revenues generated by these same products. In this way, it provides a global view and a reference for the costs, which is needed for regulation, and to ensure that price control obligations are being respected, in particular.
For cost accounting, ARCEP is maintaining the obligation imposed on France Telecom to keep a accounting system imposed by law and is adding new reports which are suited to market developments and their regulation:
- France Telecom is required to publish a fine description of its cost accounting system and to justify the cost allocations which structure it
- It is also required to provide ARCEP with a number of accounting reports, which are suited to market regulation needs, and for price control in particular, and for verifying that the cost orientation obligation is being respected, when it applies
All of these accounting documents are audited annually.
- The account separation obligation to prevent cross-subsidies
The recommendation states that the purpose of account separation is to "reflect as closely as possible the performance of parts of the notified operator’s business as if they had operated as separate businesses, and in the case of vertically integrated undertakings, to prevent discrimination in favour of their own activities and to prevent unfair cross-subsidies".
Thus, account separation requires that the company produce accounts which are separated according to a relevant partition of the company subject to this obligation. This is necessary in order to pursue the objectives of regulation, to ensure that the non-discrimination obligation is being respected, when it applies, and that there are no unfair cross-subsidies.
Under its account separation obligation, France Telecom is required to produce and submit separate accounts to ARCEP for each market, allocating the assets and debits of each relevant market.
This separate accounting is based on pricing resulting from formalised internal transfer protocols between France Telecom’s wholesale activities and its retail activities. The entire account separation measure is used to ensure that there are no discriminatory practices or unfair cross-subsidies. This measure is audited annually and published.
ARCEP decision no. 06-1007 (pdf - 2.53 Mo) is available for consultation and downloading