The European Regulators Group (ERG) has prepared, in close cooperation with the services of the European Commission, a "Draft Opinion on proposed changes to Commission Recommendation 98/322/EC of 8 April 1998 on interconnection in a liberalised telecommunications market (Part 2 – Accounting separation and cost accounting)".

The objective of this exercise is to bring the Recommendation, which dates back to 1998, in line with the requirements of the new EU regulatory framework for electronic communications.

The ERG is publishing its draft Opinion for comments prior to finalising its Opinion.

The Recommendation, and its proposed update, concerns the implementation of accounting separation and a cost accounting system. Such obligations may be imposed on operators designated as having significant market power on a specific market as a result of a market analysis

The Annex of the ERG's draft Opinion includes 8 sections reflecting the content of the proposed changes to the European Commission Recommendation from 1998, and seeks to illustrate the approach that national regulatory authorities (NRAs) should follow to improve a cost accounting system.

- Section 1a) of the Annex defines the main cost accounting system requirements (recommended principles for allocating costs, capital employed and revenues when preparing separate accounts);

- Section 1b) provides the scope of accounting separation for each business of the relevant network;

- Section 2 outlines principles for cost causality/drivers definition and attribution methodologies;

- Section 3 provides guidance on modern asset valuation and current cost adjustment methodologies;

- Section 4 provides guidance on the cost of capital calculation;

- Section 5 provides principles describing the main qualitative characteristics required for data preparation and usage;

- Section 6 provides guidance on transparency, confidentiality, market definition limitation and publication;

- Section 7 provides reporting and verification requirements;

- Section 8 provides guidance on long run incremental cost methodology.

T-REGS Note: Even though extensive reference is made to the FL-LRIC methodology, which is also recommended by the ERG Common Position on regulatory remedies, this draft Opinion also covers aspects of HCA (historic cost accounting) and CCA (current cost accounting).

The full text of the draft ERG Opinion can be accessed by clicking here.

A cover letter containing a set of questions put to consultation can be accessed by clicking here.

The deadline for responses to the ERG consultation is 11 June 2004.