ELENA ZAEVA: PROCOMPETITIVE TARIFF POLICY IS IMPORTANT FOR CONSUMERS AND MARKET PLAYERS
Participants of the V International Research-to-Practice Conference on Antimonopoly Policy discussed the practice of applying marginal pricing to calculate regulated tariffs for publically-accessible telecommunications and postal services
Head of FAS Department for Regulating Communications and Information Technologies, Elena Zaeva, who moderated the event, pointed out: “A balanced pro-competitive tariff policy is important for both consumers and market players. Communications is a dynamically developing sector. The range of services is constantly expanding on this market, and services that used to have rather weak connection with each other now tend to converge. All this presumes the importance of improving public regulation of the communications sector, particularly, tariff regulation that should meet the requirements of a competitive market”.
“Achieving economically justified costs in view of the standard profit, it is expedient to apply such mechanisms that comprise conditions and incentives typical for a competitive market, rather that the costs methods. Marginal pricing is one of these approaches”, continued Elena Zaeva.
Deputy Head of FAS Department for Regulating Communications and Information Technologies, Olga Klimova described in details that FAS has drafted and approved a tariff calculation procedure based on marginal pricing1 to improve tariff regulation in the communications sector in line with the existing legal acts2.
One of the key features of marginal pricing is a transition from the “costs plus” principle to market indicators based on the “inflation minus” principle that restricts prices “from above”.
Olga Klimova explained that “in a pure or modified form, this approach is the most appropriate at the intermediary stage of a transition from monopoly to a competitive telecommunications market since it creates incentives for regulated entities, in many aspects similar to the market ones, but at the same time enables efficient restriction of their market power”.
Marginal pricing is based on comparative analysis of productivity (efficiency) of operation by comparing performance indices (rather than efficiency indicators), for example, cost effectiveness) between producers, by periods, with the average industry values, and on average for the economy.
Tariffs are formed in several stages. A regulator sets an Х-factor (for 5 years), the economic meaning of which is to determine the degree of impact of various production factors such as: volume, proceeds, costs, etc.; payroll budget, depreciation, other costs as well as wages and salaries upon corporate performance and the economy in general through factor analysis. Then a communications operator calculates annually the maximum tariff increase coefficient and the tariffs.
“The algorithm of such tariff calculation is rather simple and clear for both the regulators and the regulated. The main motivation of regulation through price restrictions is, on the one hand, to stimulate costs reduction, which increases the profit kept by a company. On the other hand, it is restricting tariff growth for users of communications services. This incentive is absent in regulation based on the costs method”, explainedOlga Klimova.
Elena Zaeva further described the advantages of this approach.
She said: “The following advantages of this method can be mentioned – financial stimulation of producers to enhance efficiency because the savings from costs reduction are kept by a company; also restricting price from above rather than a rigid tariff, simplicity of the main underlying idea and calculating the marginal price during the regulatory period”.
Head of FAS Department for Regulating Communications and Information Technologies informed that in 2019 marginal pricing was applied3 to set the tariffs for “Rostelecom” PJSC.
“Creating a state tariff regulation system adapted to the state of the market of communications services, a system that stimulates efficiency of communications providers and enabling a more flexible tariff policy is, in our opinion, the main objective in the field of state tariff regulation in the mid-term prospect”, concluded the speaker.
References:
1 № 126/19 FAS Order “Procedure for calculating regulated tariffs for publically accessible telecommunications and postal services using marginal pricing that enables profit gaining from efficient costs management” of 05.02.2019.
Marginal pricing is developed in accord with the methods specified in the Eurasian Economic Treaty of 29.05.2014 (Astana) and conforms to one of the principles in the part of creating economic conditions when it is beneficial for holders of natural monopolies to decrease costs, implement new technologies, and enhance investment efficiency. Pursuing this principle is possible through comparative analysis of natural monopolies performance.
2 – №147 Federal Law “On Natural Monopolies” of 17.08.1995;
- № 126 Federal Law “On communications” of 07.07.2003;
- № 637 Decree of the Government of the Russian Federation “On state regulation of the tariffs for publically accessible telecommunications and postal services” of 24.10.2005.
3 Х-factor set for “Rostelecom” PJSC is 1.4%. Applying a tariff calculation formula under this method (inflation minus Х-factor), the tariff changing index is determined - 3.2% (4.6%-1.4%).