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European national regulatory authorities (NRAs) are currently implementing the EC's 2009 "Pure LRIC" Recommendation. This requires the construction of long-run incremental cost (LRIC) models in which the relevant increment of output is terminating services rather than the traditional "total service" increment, and hence common costs are excluded.
NERA was retained by a European mobile operator and asked to provide input to a consultation process by critically reviewing the conceptual design of a mobile LRIC model to be built on behalf of the NRA. This included analysis of the proposed methods for modeling:
We identified a range of shortcomings in the proposed approach, including a series of assumptions that were not supported by economic logic and departed from international best practice.