The main innovation in the final text agreed between the incumbent local exchange carriers (ILECs) and the Government, besides the end of indexation, is the door left open for negotiations. Much remains to be done, especially with regard to tariffs, and there is evidently a predisposition for dialog on both sides.
On the question of interconnect and unbundling rates, the Government ? specifically Anatel ? has undertaken to develop a ?long-term costing model?. The ILECs refused to reset tariffs using traditional simulations based only on incremental costs. They insisted on the inclusion of capital expenditure, amortization and other key economic and financial conditions. It remains to be seen whether Anatel will be empowered to obtain a detailed breakdown of these costs in developing the model.
With regard to user charges, negotiations will focus on details of the price cap mentioned generically in the decree. It doesn?t refer to any inflation or price index so there has clearly been an agreement to end indexation. Agreeing on a cap is complicated, however. There has to be a starting point, and the decree states that Anatel will develop a productivity factor based on a system of cost optimization, which according to economists consulted by TELETIME News could even be a ?model company?. Several things could be taken into account in developing this productivity factor, including cost inflation for the telcos, but that too will depend on future negotiations with the Government.
Meanwhile, the agreement to abolish indexation is a clear victory for the Government. At one and the same time it has resolved the macroeconomic issue and won from the ILECs an expression of confidence in the technical solution to be developed from now on. This may be why the decree refers so frequently to Anatel, although article 8, which highlights the regulator?s role, is somewhat confusing and will probably be redrafted by the Office of the Presidential Chief of Staff.
As for unbundling, although the decree is explicit throughout that the aim is to foster competition, here too negotiations with the Government will clearly be crucial as the authorities have to decide what benefits users, what is in the interest of society and the economy, and how to define ?fair remuneration?.
In sum, the decree opens the door to dialogue and stresses the importance of Anatel. The negotiations may give the Government a chance to avoid index-linked tariff resets in 2004 and 2005.