Bottom-up models use engineering rules combined with detailed costing and operational data to build efficient telecommunications networks, thereby identifying all components of the networks necessary to produce the required services. This approach contrasts with “top-down” models which instead derive the cost of services based on operators’ historical accounting information. Bottom-up models better reflect the economic cost of services.
“The development and use of bottom-up cost models will complement existing regulatory instruments in determining the fair and reasonable cost of retail and wholesale telecommunications services in Bahrain. They will also help TRA and operators to gain a better understanding of the cost structure and the cost drivers of services,” Mohamed Hamad Bubashait, TRA’s General Director, said.
“Having this additional tool in place will help TRA in reviewing wholesale and retail prices to ensure that they meet legal requirements,” he added.
From a regulator’s perspective, the use of bottom-up models allows for greater transparency. They enable sensitivity analysis of key variables. Such models can also be useful to assess the cost of new investments, such as new fibre deployment, or to set cost efficiency targets.
TRA expects that the bottom-up models will be finalised by mid-2012.