21 January, 2021

ETNO Statement on the WACC Notice of the European Commission

The European Commission issued a notice in November 2019[1] (the Notice) which outlines the methodology for the calculation of the Weighted Average Cost of Capital (WACC) of legacy assets and mandates BEREC to annually calculate the various individual input parameters. Although the Notice is non-binding, National Regulatory Authorities (NRA) within the EU might have little discretion to deviate from it as they would risk a serious doubts procedure under Art. 32 of the European Electronic Communications Code (EECC). Thus, the Notice and the BEREC calculations will directly affect national tariff decisions and, as an important benchmark for fibre returns, will also send strong signals for fibre investments. Therefore, the impact of the WACC notice on investment decisions cannot be underestimated.

A wrongly set WACC for legacy assets poses serious threats for electronic communications markets in Europe. It would send negative signals to investors and reduce trust in regulation as it shows that Regulators would not take into account investors expected return on investments or current challenges of Corona crisis and furthermore, they would allow for disruptive decreases. Legacy WACC decisions could spill over to VHC where the legacy WACC is perceived as benchmark or basis for VHC WACC. Contrary to the Commission’s intention to promote the internal market the Notice may create distortions to EU internal market as countries with bigger differences with the actual WACC figures for the telecommunication sector would be penalized.

Therefore, it is of utmost importance that the recommended methodology is not flawed and delivers values which are in line with market expectations. If amended properly, a more harmonized WACC would indeed provide the opportunity for a fair and simplified WACC setting throughout Europe.

Yet, ETNOs analysis shows that the Notice and BEREC’s first calculations[2] (the Report) have several technical flaws that result today in underestimated WACC levels for SMP operators who operate legacy networks, sometimes in a very severe way for some operators.

ETNO, in this context, calls for an urgent review of the EC notice to amend the technical flaws and its resulting regulatory framework to achieve for the future a fair remuneration of legacy assets and to avoid detrimental signals for fibre investments.

 Read the full document at the link below. 

[1] Communication 2019/C 375/01 of 6.11.2019

[2] Report BOR (20) 116 of 12 June, 2020

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