one (or few) dominant players, negotiation-based prices will lead to suboptimal results, as dominant players can exert their market power to
determine actual price levels. In addition, negotiation-based price setting is
often highly intransparent and the public interest is usually not taken into
consideration.
6.2.3 Price-setting by benchmarking is an often used efficient method e.g.
to quickly reduce prices to (international) best-practice prices. One major
problem with benchmarking is the choice of reference countries, which can
lead to widely varying results and gives an additional difficulty of how to
adjust prices to local market circumstances.
6.2.4 Cost-based price-setting is a most widely used approach by
regulators to set prices at levels of an efficient operator. The two main
approaches (each of which comes with different variants) are Long-RunIncremental Cost (LRIC) and Fully-Allocated Cost (FAC). According to
economic theory, both approaches will converge to the same results, if they
are based on current costs of an efficient operator and use a full-service (or
long-run average) increment. However, in most cases, LRIC-based cost
models lead to lower prices, by using a more narrow definition of the actual
service increment or by applying forward-looking efficiency improvements.
6.3.
Fully allocated cost approach
6.3.1 In the case of price-setting for infrastructure sharing, infrastructure
providers shall apply – in an initial approach – a fully-allocated cost
methodology, using actual cost figures from their accounting system.
RURA reserves the right to revise different price setting parameters such as
depreciation period and asset life times or the applicable cost of capital
(WACC).
6.3.2 A cost-based service price is defined as:
SERVICE COST = OPEX + DEPRECIATION + RETURN ON CAPITAL
While operating costs can be determined relatively straight-forward, return
on capital and depreciation charges can be based on different approaches,
depending on the form of depreciation. Most commonly used approaches are
straight-line depreciation (used in most accounting systems) and annuities.
6.3.3 Straight-line depreciation has the advantage, that it can be easily
based on operator accounts. However, the main disadvantage is that the
return on capital changes significantly over time: As return on capital is
based on the net book value of an asset, this net book value decreases over
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