PTA Drafts Law for Telecom Licensees to Have Separate Accounts

Pakistan Telecommunication Authority (PTA) drafted “Accounting Separation (1st Amendment) Regulations, 2024” under which the licensee(s) holding fixed and mobile licenses shall maintain separate accounts for each category of the license.

The draft regulations stated that the licensee shall prepare annual Separated Accounts for the following Business Units as defined to these Regulations;

1. Network about licensed system;
2. Retail about licensed services;
3. Telecom region-wise,
4. License-wise; and
5. Non-licensed activities.

For fixed network, account(s) shall be further disaggregated into Access Network and Core Network. The Licensee is required to prepare Separated Accounts of its Retail activities pertaining to licensed services. All non-licensed activities may be reported as “Retail – Remaining Activities”. An example would be the main disaggregated activities under the “Retail” business unit.

When providing licensed services (retail level) to the wholesale licensee (e.g. Mobile Virtual Network Operator), the Licensee providing such services should maintain an underlying Accounting Separation system that is capable of substantiating the levels of costs and those which are avoided by wholesale service provisions.

The Significant Market Player (SMP) operators shall maintain appropriate cost accounting systems to achieve this regulatory obligation by the Guidelines on ‘Cost Accounting Methodologies for Accounting Separation Purposes, 2007’.

The Separated Accounts shall contain a sufficient degree of separation as to allow for costs and revenues of each Licensed Service. For clarity for these Regulations, the Authority or the officer(s) of the Authority may issue directions/clarification or instruction(s) from time to time, including but not limited to the following:

1. Regulatory accounting principles;
2. Regulatory accounting conventions;
3. Transfer charging; and
4. Costing methodologies for Accounting Separation.

For preparation of Separated Accounts for business activities as provided at Regulation 4 of these Regulations, the Licensee shall apply the Regulatory Accounting Conventions as under:

Cost Causality:

1. The cost causality shall include revenue (including transfer charges), costs (including transfer charges), assets and liabilities attributed to cost components, services or business units by the activities that cause the revenues to be earned.
2. Where it is not possible to attribute revenue, cost, assets and liabilities by the preceding paragraph, the attribution shall be such as to present fairly the revenue, costs, assets and liabilities accounted for in the separate accounts for each business or activity. In the absence of any justification to the contrary, the Authority would expect this attribution to be equal/proportionate to those costs that can be attributed based on cost causation.

The use of a specific allocation basis may not be necessary if the effect of allocation is not material to the outcome, either individually or collectively with other cost allocations using the same allocation base. However, it may not be possible to measure the effect without adopting an alternative basis, and, in cases of doubt, the most appropriate activity-related cost allocation basis should be used. For clarity, materiality is to be considered in its overall impact on the product/service. If the product/service is going to change the user’s perspective, the cost will be considered material.

The Licensee shall prepare separate accounts as per the following principles:

1. The Separated Accounts shall include transfer charges between the main business units for services the Licensee provides to itself and also disclose the equivalent transactions with competing Licensees. All such transfer charges should be disclosed together with the associated service volumes.
2. The Separated Accounts shall be prepared by International Accounting Standards, in so far as they are relevant, unless superseded by the regulatory accounting principles.
3. Details of significant changes that materially affect Separated Accounts along with effects of prior year restatements shall be given.
4. The Separated Accounts shall be prepared annually and contain similar comparative information of one previous year following the initial period.
5. The Separated Accounts shall disclose any differences between costs allocated to different activities by the Licensee, and the costs that the Authority allows for the purpose of determining charges.

For each Business Unit, the Licensee shall report to the Authority regarding the following in the prescribed formats:

1. Profit and Loss statement;
2. Balance Sheet information in a form that is consistent with the measures of capital employed to cover purpose of calculating return on capital employed; and
3. Supporting Notes.

The Profit and Loss statement shall disclose revenues and operating costs from each business activity. The profit under each account shall be stated before interest and tax. All accounts shall show any transfer charges to or from other business units.

The Balance Sheet shall provide the breakdown of fixed assets, current assets and current liabilities. The Balance Sheet figures should be the average values for the period to which the Balance Sheet relates. For ease of reconciliation with the Licensee’s statutory accounts, the average may be calculated simply from opening and closing balance sheets for the period.