“The cost of capital is an important parameter that affects the cost base of operators and ultimately the price paid by consumers for telecommunications services in Bahrain. It represents the return that investors are able to earn on capital employed in the provision of regulated telecommunications services in Bahrain,” TRA in a statement said.
In reviewing the cost of capital, the statement said, the TRA has examined the changes that have occurred since TRA last set the cost of capital in 2009 and has had regard to international best practice, the latest available market information, regulatory precedents and the current economic environment. “TRA has been both cautious and conservative in its approach to determine 9.5% to be appropriate, fair and reasonable. It balances incentives to invest with regulatory stability and takes into account the ongoing current economic uncertainty.”
The cost of capital set by TRA will ensure that Licensed Operators who have been found to have Significant Market Power or dominance will be appropriately compensated for the capital costs that they face when making such investments. This in turn will maintain incentives for efficient investment, and will allow the regulated entities to continue to attract the capital required to underpin the development of the telecommunications sector in Bahrain. At the same time this will ensure that access seekers and consumers do not face excessive charges which would lead to distortions of competition and consumption.
TRA has also taken into account submissions received on the Draft Determination that was issued on 5 November 2012. These submissions are summarized and addressed in the Final Determination.
“Although the cost of capital set in the Final Determination is unchanged from the level set in 2009, a number of parameters upon which the cost of capital is based have changed,” Dr. Mohammed Al Amer TRA’s Chairman, said.
“We believe that the 9.5% rate continues to provide the right investment incentives while preventing excessive profits.”