Accounting Rate of Return (ARR)
The ratio of accounting profit to capital employed, also referred to as Return on Capital Employed (ROCE). The measure of capital employed can be either HCA or CCA.
Allocative Efficiency
The extent to which the economy's finite resources are deployed in a fashion so as to derive maximum benefit. An important condition is that prices reflect underlying costs.
Broadband Switched Mass Market Services
Services aimed at a mass market delivered over broadband switched telecoms networks.
Common Costs
Costs that are incurred in the supply of all or a group of services provided by the firm and cannot be directly attributed to any one service. Common costs arise from the existence of economies of scope.
Current Cost Accounting (CCA)
An accounting methodology, where assets are valued and depreciated according to their current replacement cost. Typically this will be the cost of a Modern Equivalent Asset (MEA).
Discount Yield
The value of discounts from the standard tariff BT was offering at 31 July 1993, which BT must maintain in accordance with Condition 24C of its licence, or offer equivalent reductions in standard prices.
Economic Rate of Return
See Internal Rate of Return.
Economies of Scale
These are present where the unit cost falls as the level of output rises.
Economies of Scope
These are present where the unit cost of a service is lower because the firm also provides other services, ie the provision of service B reduces the unit cost of supplying service A.
Efficient Component Pricing Rule (ECPR)
A rule for determining interconnection prices, under which the price is composed of the incremental cost of providing the interconnection service plus the profit (including contribution to common costs) that the network operator foregoes by selling interconnection rather than the final service for which interconnection is used.
Equal Proportionate Markups
A method of recovering the common costs of interconnection, where the markup on the incremental cost of a network service is equal across all services.
Financial Capital Maintenance (FCM)
A CCA accounting convention, where the depreciation charge to the profit and loss account includes holding gains or losses due to changes in asset prices, in addition to the OCM depreciation charge.
Financial Results By Service (FRBS)
The FRBS is a set of financial statements drawn up by BT on an annual basis and provided to Oftel for regulatory purposes until Financial Year 1993/4. They provide accounts information at the service level (eg local calls, national calls, access lines).
Financial Statements For the Businesses and Activities
The regulatory accounts that BT is required to publish under Accounting Separation, which give information down to the level of business (Access, Network and Retail) and disaggregated retail activity (eg local calls, national calls, access lines).
Forward-looking Costs
An assessment of costs on the basis that any costs which arise from past decisions should be ignored when calculating the profitability of current and future decisions. As well as future operational costs, the costs of maintaining and replacing assets are included.
Fully Allocated Costs
An accounting approach under which all the costs of the firm are distributed between its various services. The fully allocated costs of a service may therefore include some common costs that are not directly attributable to the service.
Geographic Averaging
The principle under which BT charges customers the same price for a given service wherever they are in the country, subject to its published tariff.
Historic Cost Accounting (HCA)
The conventional accounting methodology, where assets are valued and depreciated according to their cost at the time of purchase.
Incremental Costs
The costs that arise as a result of the provision of the "increment". In this document, the increment refers to a service. In contrast to fully allocated costs, the incremental costs of a service include only those costs that are directly caused by the provision of the service. So long as service revenue exceeds incremental costs, the firm improves its profitability by providing the service.
Internal Rate of Return (IRR)
The discount rate which equates the revenue streams of a project with the costs of the project, also known as Economic Rate of Return.
International Simple Resale (ISR)
Collecting traffic from the PSTN in the UK, switching it onto a leased line to another country across the international gateway which is operated by BT or Mercury, and then breaking back out onto the public network in the other country.
ISDN
Integrated Services Digital Network - a network providing end-to-end digital connectivity, supporting a wider range of narrowband services than available across the PSTN.
The Light User Scheme (LUS)
The present Scheme fulfils a licence condition requiring BT to offer a lower tariff to customers making few telephone calls. Under current Guidelines, customers whose call charges place them in the lowest 20% by usage (£10.80 per quarter at present) can claim a tapered discount on line rental charges, up to a maximum rebate of 60% if no outgoing calls are made.
Local Delivery Operator (LDO)
The new generation of broadband cable franchisees, i.e. those awarded franchises under the 1990 Broadcasting act rather than the 1984 Cable and Broadcasting Act. The major difference between the two is that LDOs are specifically allowed to use radio to deliver entertainment services to the end user.
Marginal Cost
The cost of supplying an extra unit of output.
Mean Capital Employed
BT's definition of Mean Capital Employed is total assets less current liabilities, excluding corporate taxes and dividends payable, and provisions other than those for deferred taxation. The mean is computed from the start and end values for the period, except in the case of short-term investments and borrowings, where daily averages are used in their place. Oftel's adjustments (as in the Financial Statements) involve the inclusion of corporate taxes in current liabilities and the use of period start and end values for short-term investments and borrowings rather than daily averages.
Modern Equivalent Assets (MEA)
The valuation of the firms' existing assets at the cost of replacing them with assets which serve the same function but incorporate the latest available (proven) technology, which a new entrant might be expected to employ.
Operating Capability Maintenance (OCM)
A CCA accounting convention, where the depreciation charge to the profit and loss account relates to the current replacement cost of the firm's assets, taking account of specific and general price inflation.
Productive Efficiency
Productive efficiency is maximised when each firm in the industry carries out its activities at minimum cost and when activities are distributed between firms such that industry-wide costs are minimised.
PSTN
Public Switched Telephone Network. The telecommunications networks of the major operators, on which calls can be made to all customers of all PSTNs.
Return on Capital Employed (ROCE)
See Accounting Rate of Return.
Stand-alone Costs
The costs to a single-product firm of providing a service. The stand-alone costs of a service exceed the incremental costs to a multi-product firm if there are economies of scope.
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