WACC for TP S.A. - UKE

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WACC for TP S.A.

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Having conducted administrative proceedings and public consultations the WACC for Telekomunikacja Polska S.A. was defined at the level of 11,47%.

The cost of capital is a minimal rate of return that a given investment should provide. This rate is in particular used by the management of companies in order to assess the size and resources of capital capture as well as to assess how the capital is used in different investment projects.

The telecommunications law states that the President of the Office of Telecommunications and Post Regulation shall define WACC applied by Telekomunikacja Polska S.A. in its cost calculation for telecommunications services. This rate should limit the abuse of monopolistic position by the operator, creating the conditions for the capital capture.

The cost of capital defined at a too high level may pose a threat of earning unjustified profits by an operator through excessive prices on the market. In turn, the cost of capital defined at a too low level may create a serious threat for investments within a company, which may finally stop the market from its development.

The calculation of the amount of return on employed capital is done, inter alia, using WACC calculated on the basis of a commonly applied WACC (Weighted Average Cost of Capital) formula. This formula is recommended by the European Commission as well as by the Independent Regulators Group.

While defining WACC, the President of URTiP analysed parameters which have an influence on its level (employed capital, cost of domestic and foreign capital, income tax rate) as well as the opinions of market analysts and compared obtained results with similar rates applied in the European Union. In addition, the President of URTiP took into account the opinions of telecommunications circles. Within the framework of public consultations comments to a proposed method for the calculation and the level of WACC were submitted by the Polish Chamber of Commerce for Electronics and Telecommunications (KIGEiT), Polska Telefonia Cyfrowa, Polkomtel and TP S.A.

In its decision of 14 March 2005 the President of URTiP finally decided to accept the amount of WACC at the level of 11,47 %. The value corresponds to that of other EU Member States, which according to the data for 2004 was 11,36 %. The highest WACC is in Italy (13,5 %), and the lowest in Germany (9,16 %).

The decision is not immediately effective. TP S.A. has the right to file an application for reconsidering the case by the President of URTiP as well as a possible complaint to the Regional Administrative Court.

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