Be wary of telecommunication evaluation — J’ca official

Liberalisation of Trinidad and Tobago’s telecommunications sector goes hand in hand with an evaluation of TSTT’s assets. Speaking at the first OOCUR Annual Conference at the Trinidad Hilton last week, Ansord E Hewitt of the Office of Utilities Regulation (OUR) in Jamaica, said his country has already gone through such an exercise and so its experience should be instructive. Speaking on the topic “Asset Valuation: Some important considerations for Caribbean regulator,” he said a first consideration for those charged with the task of regulation is the different emphasis of asset valuation in a liberalised as compared with a rate of return monopoly regime. “Concerns in those markets are not only limited to consumer protection but also to prevent anti-competitive practices, which will have an adverse effect on the entry and sustainability of competition.”

He said since the value placed on assets is a large determinant of intermediate and final consumers charges, the regulator needs to be vigilant with regard to their valuation. The appropriate valuation approach for telecommunications plants, such as TSTT, is one that results in economic replacement values for assets. Among the important issues to treat with in asset valuation are the choice of valuation methodology, appropriate depreciation charges and allocation of overhead charges. In the end, he said the choice of valuation methodology will depend on the nature of the asset that is being valued. “Where an asset is not subject to rapid technological changes, indexation is appropriate for arriving at economic realisable values. On the other hand, where rapid technological changes are taking place, Modern Equivalent Asset (MEA) is the appropriate method.” Hewitt said careful attention has been given to guard against over inflated asset values which simply raise cost to both consumers and competitors. “In reviewing asset values, the regulator should look out for such occurrences as disproportionate allocation of overhead costs, the use of in appropriate loadings, doubling up of charges and lower than industry standard depreciation charges which do not adequately capture technological changes.”