Review of a margin squeeze test for wholesale fixed access products developed by the domestic telecoms regulator on behalf of an altnet

The problem

• An alternative operator (altnet) in an EU member state required support for the regulator’s construction of a margin squeeze test for wholesale fixed access products, reflecting the European Commission’s outline recommendation for an economic replicability test (ERT)
• The client was seeking to ensure that the margin squeeze test regime implemented was not unfavourable from the perspective of altnets who bought the fixed access products

The solution

• We undertook a wide range of tasks as part of its support, including:
  • a review of the draft reference paper released for consultation and providing feedback on its proposals, including how it compared to best-practice principles used in other countries and recommended by BEREC¹
  • a review of the data to be submitted to the regulator as part of the process in order to check that the data was as complete and clear as possible
  • a comprehensive review of the draft margin squeeze test (implemented in Microsoft Excel), including:
    • correctness of formulas and use of input data
    • whether the implementation corresponded to the reference paper
    • appropriateness of key input assumptions
    • recommendations as to how the test is run and the outputs shared with industry stakeholders

Figure: Benchmark of customer lifetimes applied in existing margin squeeze tests in other countries

The result

• We supported our client in formulating a comprehensive consultation response for submission to the regulator, in the format requested, as well as  appending supporting evidence where required

¹ Body of European Regulators for Electronic Communications