Malaysian Communications and Multimedia Commission: Version 1: Revision 1

Malaysian Communications and Multimedia Commission
GUIDELINES ON IMPLEMENTATION OF
ACCOUNTING SEPARATION IN MALAYSIA
1 November 2016
VERSION 1: REVISION 1
CONTENTS
LIST OF TABLES VIII
LIST OF FIGURES IX
1. INTRODUCTION 1
1.1 Outcome of Public Inquiry Process 1
2. SCOPE AND COVERAGE OF ACCOUNTING SEPARATION 4
2.1. Scope of AS 4
2.2. Fixed Network Services 5
2.3. Mobile Network Services 8
3. ACCOUNTING SEPARATION PRINCIPLES AND POLICIES 11
3.1. Overview and General Principles 11
4. REVENUE RECOGNITION AND ATTRIBUTION 12
4.1. Overview and general principles 12
5. COST ATTRIBUTION 13
5.1. Overview of Cost Attribution 13
5.2. Cost Causation and Cost Drivers 14
5.3. Cost Categories used by Operators in Malaysia 16
5.4. Steps Required for Cost Attribution 17
5.4.1. Direct costs 17
5.4.2. Directly attributable costs 17
5.4.3. Indirectly attributable costs 18
5.4.4. Unattributable costs 19
5.5. Developing the Cost Attribution Process and Systems 19
5.6. Cost Categories and Cost and Capital Employed Attribution for
Fixed Operators 20
5.7. Cost Categories and Cost and Capital Employed Attribution for
Mobile Operators 20
6. TRANSFER CHARGES 21
6.1. Transfers at Market Prices 21
6.2. Transfers at Cost plus Cost of Capital 22
6.3. Cost of Capital 22
6.4. Demonstration of Transfer Charges 24
6.5. Fixed Network 24
6.6. Mobile Networks 25
7. FORMAT OF REGULATORY FINANCIAL STATEMENTS 26
7.1. Overview 26
7.2. Requirements for Large Operators 26
7.3. Requirements for Small Operators 26
8. RECONCILIATION 28
8.1. Overview 28
8.2. Reconciliation Statements for Large Operators 28
8.3. Reconciliation Statements Small Operators 29
9. CURRENT COST ACCOUNTING METHODOLOGY 31
9.1. Overview of Asset Valuation Methods 31
10. AUDIT AND DOCUMENTATION REQUIREMENTS 32
10.1. Overview of audit opinion for large operators 32
10.2. Audit scope 33
10.3. Documentation 36
10.4. Maintenance of accounting records and responsibilities 37
11. IMPLEMENTATION PLAN 39
11.1. Implementation Timetable 39

APPENDIX A: FORMAT OF ACCOUNTS FOR SMALL OPERATORS 41
A.1 Small Operator Wholesale Income Statement 41
A.2 Small Operator Retail Income Statement 42
A.3 Small Operator Other Business Income Statement 43
A.4 Small Operator Net Asset Statement 44
APPENDIX B: FORMAT OF ACCOUNTS FOR LARGE OPERATORS 46
B.1 Fixed Operators 46
B.1.1 Wholesale Service Income Statements 46
B.1.2 Consolidated Wholesale Income Statement 48
B.1.3. Retail Service Income Statements 51
B.1.4 Consolidated Retail Income Statement 52
B.1.5 Wholesale Mean Capital Employed by Service 54
B.1.6 Retail Mean Capital Employed by Service 54
B.1.7 Consolidated Mean Capital Employed 59
B.1.8 Other Business Income Statement Format 60
B.1.9 Network Unit Cost by Service 61
B.1.10 Statement of Costs on a Current Cost Basis: Network Activity

Statement 64
B.2 Mobile Network 65
B.2.1 Wholesale Service Income Statements 65
B.2.2. Retail Service Income Statements 67
B.2.3 Other Business Income Statement Format 69
B.2.4 Consolidated Income Statement 70
B.2.5 Mean Capital Employed by Service

(Wholesale and Retail) 73
B.2.6 Consolidated Mean Capital Employed 74
B.2.7 Network Unit Cost by Service 75

B.2.8 Statement of Costs on a Current Cost Basis: Network Activity
Statement 78
APPENDIX C: CALCULATION OF CURRENT COSTS 79
C.1 Historical Costs 79
C.1.1 Example of historical cost valuation 79
C.1.2 Assets to be valued using historical costs 79
C.2 Absolute valuation 79
C.2.1. Example of absolute valuation using existing assets 80
C.2.2 Assets to be valued with absolute valuation using existing

assets 81
C.3 Modern Equivalent Asset valuation 82
C.3.1 Examples of MEA valuation 82
C.3.1.1 Example 1 – Increased capacity 83
C.3.1.2 Example 2 – Reduced operating costs 85
C.4 Assets to be valued using MEAs 86
C.5 Price Indices 87
C.5.1 Example of Price Index Valuation 88
C.5.2 Assets to be valued using price indices 88
C.6 Adjustments to Depreciation 89
C.7 Holding gains and losses 89
C.8 Supplementary depreciation 89
C.9 Backlog depreciation 91
APPENDIX D: COST ATTRIBUTION GUIDELINES 93
D.1 Fixed Network: Methods of Attributing Operating Costs 93
D.2 Fixed Network: Methods of Attributing Capital Employed 96
D.3 Mobile Network: Methods of Attributing Operating Costs 101
D.4 Mobile Network: Methods of Attributing Capital Employed 104

APPENDIX E: SIGNIFICANT ACCOUNTING POLICIES 107
E.1 Fixed Network 107
E.1.1. Fixed Assets 107
E.1.2 Financial Assets 108
E.1.3 Grants and Universal Service Provision (USP) Funding 108
E.1.4 Revenue 109
E.2 Mobile Networks 109
E.2.1 Basis of consolidation 109
E.2.2 Fixed Assets 110
E.2.3 Intangibles 111
E.2.4 Current Assets 111
E.2.5 Grants and USP Funding 111
E.3 Common Accounting Policies 112
E.3.1 Borrowing Costs 112
E.3.2 Provisions for Liabilities and Charges. 112
E.3.3 Significant Related Party Transactions 112
E.3.4 Financial Instruments 112
APPENDIX F: ACCOUNTING SEPARATION - OPERATOR DOCUMENTATION 113
F.1 Illustrative Template 113
F.2 Documentation should follow the AS Guidelines structure 114
F.3 Accounting Separation Principles and Policies 115
F.4 Revenue recognition and attribution 115
F.5 Cost Attribution 116
F.5.1 Example Cost Attribution Documentation 116
F.6 Transfer Charges 117
F.7 Reconciliation 118
F.8 Scope and Development of Documentation 118

ABBREVIATIONS AND GLOSSARY
Term Definition
ABC Activity Based Costing
AS Accounting Separation
Attribution The process of attributing direct and directly attributable

costs to services or products
Apportionment The allocation of unattributable costs in a proportional

manner
BU Bottom-up
CCA Current Cost Accounting
CMA Communication and Multimedia Act 1998
DSL Digital Subscriber Line
ERP Enterprise Resource Planning
FAR Fixed Asset Register
FAC Fully Allocated Cost
FCM Financial Capital Maintenance
GL General Ledger
HCA Historic Cost Accounting
HSBB High Speed Broadband
HR Human Resources
IBP International Best Practise
LRIC Long Run Incremental Cost
MASB Malaysian Accounting Standards Board
MCE Mean Capital Employed
MCMCA Malaysian Communications and Multimedia Commission

Act 1998
MEA Modern Equivalent Asset
MFRS Malaysian Financial Reporting Standard
MIA Malaysian Institute of Accountants

MVNO Mobile Virtual Network Operators
NPV Net Present Value
NRV Net Realisable Value
OCM Operating Capital Maintenance
PI Public Inquiry
PSTN Public Switched Telephone Network
PV Present Value
RAN Radio Access Network
RFS Regulatory Financial Statements
MCMC Malaysian Communication and Multimedia Commission
SMP Significant Market Power
SMS Short Messaging Services
USP Universal Service Provision
VOIP Voice over Internet Protocol
WACC Weighted Average Cost of Capital
WiMAX Worldwide Interoperability for Microwave Access

LIST OF TABLES
Table 1 Fixed Network Services 5

Table 2 Mobile Network Services 8
Table 3 Reconciliation of Consolidated Income Statement
(Large Operators) 28
Table 4 Reconciliation of Consolidated Mean Capital Employed
(Large Operators) 29
Table 5 Reconciliation of Consolidated Income Statement
(Small Operators) 29
Table 6 Reconciliation of Net Asset Statement (Small Operators) 30
Table 7 AS Implementation Timetable 39
Table 8 Small operator Wholesale Income Statement 41
Table 9 Small Operator Retail Income Statement 42
Table 10 Small Operator Other Business Income Statement 43
Table 11 Small Operator Net Asset Statement 44
Table 12 Fixed : Wholesale Income Statement Format for Each Service 46
Table 13 Fixed : Wholesale Average Unit Revenue and Cost Statement
for Each Service 48
Table 14 Fixed : Consolidated Wholesale Income Statement by Service 49
Table 15 Fixed : Retail Income Statement Format for Each Service 51
Table 16 Fixed : Retail Average Unit Revenue and Cost Statement 52
Table 17 Fixed : Consolidated Retail Income Statement by Service 53
Table 18 Fixed : Wholesale Mean Capital Employed by Service 55
Table 19 Fixed : Retail Mean Capital Employed by Service 57
Table 20 Fixed : Consolidated Mean Capital Employed 59
Table 21 Fixed : Residual Income Statement 60
Table 22 Fixed : Network Element Unit Cost Statement 61
Table 23 Fixed : Service Routing Factors 62
Table 24 Fixed : Network Unit Costs by Service 63
Table 25 Fixed : Network Activity Statement 64
Table 26 Mobile: Wholesale Income Statement 65
Table 27 Mobile: Wholesale Average Unit Revenue and Cost Statement 66
Table 28 Mobile: Retail Income Statement 67
Table 29 Mobile: Retail Average Unit Revenue and Cost Statement 68
Table 30 Mobile: Residual Income Statement 69
Table 31 Mobile: Consolidated Income Statement by Service 71
Table 32 Mobile: Mean Capital Employed by Service 73
Table 33 Mobile: Consolidated Mean Capital Employed 74
Table 34 Mobile: Network Element Unit Cost Statement 75
Table 35 Mobile: Network Routing Factors 76
Table 36 Mobile: Network Unit Costs by Service 77
Table 37 Mobile: Network Activity Statement 78
Table 38 Calculation of NRC from GBV 81
Table 39 Comparison of Existing Asset and MEA Asset 84
Table 40 Calculation of NRC Given Increased MEA Capacity 84
Table 41 Comparison of Existing Asset and MEA Asset 85
Table 42 Calculation of NRC Given Lower MEA Opex 86
Table 43 Price Index Example 87
Table 44 Supplementary Depreciation (10% p.a. price increase) 90
Table 45 Supplementatry Depreciation (10% p.a. price fall) 90
Table 46 Backlog Depreciation Calculation 92
LIST OF FIGURES
Figure 1: Cost Attribution Overview 14

Figure 2: Highly Simplified Example of Cost Causation in a
Telecommunications Network 16
Figure 3: Transfer Charge at Market Prices 21
Figure 4: Transfer Charge at Cost plus Cost of Capital 22
1. INTRODUCTION
1.1 Outcome of Public Inquiry Process
MCMC’s final views and decisions on the implementation of accounting separation (AS)
were set out in its Public Inquiry Report on Implementation of Accounting Separation
in Malaysia (PI Report) released on 30 November 2012.
Prior to the publication of the Public Inquiry (PI) Report, MCMC consulted widely and
openly with all interested stakeholders, including:
(i) Consultations with a broad range of licensees prior to the release of a PI Paper
on 7 September;
(ii) Publication of a PI Paper on 7 September 2012, which set out MCMC’s

preliminary views on the implementation of AS and the form it might take and
requested comments from interested parties;
(iii) Clarification session on 27 September 2012 during which MCMC responded to

questions raised by stakeholders in relation to the PI Paper;
(iv) Written submissions from interested parties by 31 October 2012; and
(v) Discussion with the Malaysian Institute of Accountants (MIA) on matters

relating to audits.
Having considered all the submissions received, MCMC issued the PI Report.
As noted in the PI Report, all operators will be subject to the requirement to implement
AS. In response to the industry’s concerns regarding cost and administrative burden,
MCMC has decided to adopt a two-level approach to AS. Detailed reporting will apply
to those operators whose revenue and total assets in Malaysia both exceed RM 3
billion. Entities whose revenue or total assets fall below this threshold (“Small
Operators”) are required to submit less detailed regulatory financial statements (RFS)
as specified in Appendix A of these Guidelines, on a historic cost basis only.
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1.2 Purpose of the Guidelines
Accounting separation (AS) involves the production of regulatory financial statements

at the level of individual services or business units within an operating company. It
requires:
 A set of AS principles and policies;
 The production of RFS (separate accounts) based on sound analysis and

economic principles of cost causation;
 The need to fairly present the financial interactions between different parts of
the operators’ business and the transactions between them (transfer charges);
 The need to fairly present the profitability of different retail and wholesale
products and services;
 A reconciliation back to the firms’ audited accounts lodged with Bursa Malaysia
or Companies Commission;
 Relevant supporting documentation to explain the regulatory financial

statements; and
 To be subjected to independent verification (audit) for detailed reporting or

self-certification for abbreviated reporting;
The Guidelines set out in this document are based on MCMC’s final views, as set out
in the PI Report.
The revision (Rev.1) is done to provide greater clarity to service providers and to
standardise, to the extent possible the RFS submissions.
The purpose of the Guidelines is to:
(i) provide a structured approach to Operator’s adherence when submitting AS

financial reports and related information to MCMC
(ii) help promote the comparability of information submitted by operators;
(iii) ensure that Operators report to MCMC based on a common timetable, and on
a consistent and accurate basis;
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(iv) assist Operators to better understand MCMC’s information requirements when
preparing the AS documentation for submission to MCMC for review.
Further to the requirement to submit RFS annually, MCMC may require, from time to
time, any Licensee to provide further information in relation to specific studies or
investigations.
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2. SCOPE AND COVERAGE OF ACCOUNTING SEPARATION
2.1. Scope of AS
As set out in the PI Report, MCMC has decided that:
(i) Operators with revenues or total assets, arising in Malaysia, fall below RM3
billion in any financial year, are subject to an abbreviated RFS requirement
whereby their accounts are separated by wholesale and retail segments. The
formats of the required statements are provided in Appendix A of these
Guidelines.
(ii) The abbreviated RFS has to be accompanied by a statement signed by a

company director confirming that the RFS are properly prepared in accordance
with the submitted documentation and comply with the regulatory obligations.
(iii) Fixed and mobile operators who exceed the small operator threshold, are
required to implement AS and submit to MCMC detailed RFS as described in
Appendix B of these Guidelines;
(iv) The detailed RFS is subjected to audit requirement as set out in Section 10 of
these Guidelines;
(v) The detailed RFS should be prepared for the specified services at both the
wholesale and retail level. The services to be separated will be reviewed from
time to time as circumstances change (e.g. following the emergence of new
services);
(vi) AS obligations apply only to telecommunications activities carried out in

Malaysia. Non-telecommunication activities and revenue generated outside
Malaysia will be reported under Residual Business; and
(vii) The RFS should be accompanied by complete accounting documentation that

specifies the accounting policies and methods adopted in the preparation of
RFS. Among others, documentation should be submitted on methodology
adopted to allocate revenue by services, transfer pricing, allocation/attribution
of network cost and non-network cost by services including the drivers used
and the network diagram that clearly outlines all network elements in the
routing factor tables.
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2.2. Fixed Network Services
For fixed operators ten wholesale and eight retail services have been identified, along
with a “residual” category for any remaining activities. The identified services are
provided below in Table 1.
Table 1 Fixed Network Services
Market Services
Wholesale Wholesale exchange lines
Wholesale local access – copper
Wholesale local access – fibre
Wholesale broadband access
Wholesale leased lines
Backhaul services
Call origination
Call termination
Transit services
Interconnection circuits
Other
Market Services
Retail Retail exchange lines – business
Retail exchange lines – residential
Local calls
National calls
International calls
Calls to mobiles
Leased lines
Broadband
Other
Residual Non Telecommunication Activities
Revenue generated outside Malaysia
The services listed in Table 1 are based on information that was gathered from
operators. In a dynamic industry, such as telecommunications, the services provided
are likely to evolve frequently and MCMC intends to review these services from time
to time.
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The wholesale services are defined as follows:
(i) Wholesale exchange lines: all wholesale residential and business exchange lines
including rental and connection services.
(ii) Wholesale local access - copper: all unbundled local loop (LLU) products (full
access, line sharing, sub-loop and bitstream services) provided over existing
copper networks, including services supplied to third party ISPs but excluding
services provided over alternative technologies and wholesale broadband
access services. This includes rental and connection services.
(iii) Wholesale local access - fibre: all access services provided over fibre, such as
Layer 2 HSBB Network Services and Layer 3 HSBB Network Service. This
includes rental and connection services.
(iv) Wholesale broadband access: all wholesale broadband products over existing
copper and fibre broadband networks, including those to third-party internet
service providers (ISPs) such as DSL Resale. This includes rental and
connection services.
(v) Wholesale leased lines: all wholesale trunk and terminating segments of
analogue and digital leased lines. This includes rental and connection services.
(vi) Backhaul services: all backhaul services provided to other operators, including
trunk and terminating segments and rental and connection services.
(vii) Call origination: all calls originating from the fixed network i.e. Fixed Network-
to-Fixed Network, Fixed Network-to-Mobile Network and Fixed Network-to-
international outgoing calls. This includes, but is not limited to calls using toll
free 1300, freephone using 1800 and equal access services.
(viii) Call termination: all calls terminating on a fixed network i.e. Fixed Network-to-
Fixed Network, Mobile Network-to-Fixed Network and international incoming
calls-to-Fixed Network.
(ix) Transit services: the domestic and international transit of calls on a fixed
network at which other networks interconnect. E.g. Incoming international
voice minutes terminating on other operator’s network in Malaysia via a fixed
network or incoming international voice minutes transiting in Malaysia.
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(x) Interconnection circuits: all interconnection circuits between the exchanges of
two interconnecting operators in order to allow traffic to pass between their
networks.
(xi) Other: Any other wholesale services that are not specifically identified for
example infrastructure sharing, network co-location, tenancy services, vendor
compensation, etc.
The retail services are specified as follows:
(i) Retail exchange lines - business: Non-residential public switched telephone

network (PSTN) and integrated services digital network (ISDN) access lines
provided over the fixed public telecommunications network, including rental
and connections.
(ii) Retail exchange lines - residential: Residential public switched telephone

network (PSTN) and integrated services digital network (ISDN) access lines
provided over the fixed public telecommunications network, including rental
and connections.
(iii) Local calls: Residential and non-residential local calls provided at a fixed
location.
(iv) National calls: Residential and non-residential national calls provided at a fixed
location.
(v) International calls: Residential and non-residential international calls provided

at a fixed location.
(vi) Calls to mobiles: Residential and non-residential calls provided at a fixed

location that are made to mobile telephony networks.
(vii) Leased lines: All analogue and digital retail national and international leased
lines (terminating and trunk segments), regardless of capacity and distance
and including rental and connection services.
(viii) Broadband: Residential and non-residential retail broadband services over

existing copper and fibre networks of all speeds and including rental and
connection services.
(ix) Other: Any other retail services, including, for example, value added services,
dial-up internet services (if applicable), directory enquiry, payphone services,
content, breach of contract (e.g. early termination), etc.
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Residual
The residual market contains revenue derived from non-telecommunication activities

(such as equipment/asset sales) and/or revenue generated outside Malaysia. It is
necessary for the purposes of reconciling with the audited accounts (see Section 9).
2.3. Mobile Network Services
For mobile operators seven wholesale and five retail services have been identified,
along with a “residual” category.
The mobile services are set out in Table 2 and defined below:
Table 2 Mobile Network Services
Market Services
Wholesale Call origination
Call termination
MVNO access
National roaming
Inbound international roaming
RAN Sharing
Backhaul services
Other
Retail Connections and subscription
Voice
SMS
Data
Outbound international roaming
Other
Residual Non Telecommunication Activities
Revenue generated outside Malaysia
The wholesale services are specified as follows:
(i) Call origination: This includes all calls originating from the mobile network i.e.
Mobile Network-to-Mobile Network, Mobile Network-to-Fixed Network and
Mobile Network-to-international outgoing calls. This includes, but is not limited
to calls using toll free 1300, freephone using 1800 and equal access services.
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(ii) Call termination: This includes all calls terminating on the mobile network i.e.
Mobile Network-to-Mobile Network, Fixed Network-to-Mobile Network and
international incoming calls-to-Mobile Network.
(iii) MVNO access: The provision of mobile services (e.g. voice, SMS and data) to
mobile virtual network operators.
(iv) National and inbound international roaming: The provision of wholesale

roaming services to other mobile networks.
(v) Radio Access Network (RAN) Sharing: Refers to any kind of active and passive
sharing of radio access network.
(vi) Backhaul services: The link from the base station to the core network via any
technologies such as analogue and digital leased lines, microwave and VSAT.
(vii) Other: All other wholesale services such as transit services, SMS and MMS
termination, mobile number portability, infrastructure sharing, network co-
location, vendor compensation, etc.
The retail services are specified as follows:
(i) Connections and subscription: The connection fees and monthly subscription.
(ii) Voice: All calls (on-net, off-net national and international to mobile and fixed
networks) provided over mobile networks, whether pre-paid or post-paid.
(iii) Short messaging services (SMS): All SMS (on-net, off-net national and
international to mobile and fixed networks) provided over mobile networks
whether pre-paid or post-paid.
(iv) Data: All data services provided over mobile networks whether pre-paid or
post-paid such as internet access, video calls and multimedia messaging
services (MMS).
(v) Outbound international roaming: All voice calls, SMS and data services provided
to international roaming customers.
(vi) Other: All other retail services, such as content, value added services (e.g.
itemised billing, voicemail, caller identification, etc.), breach of contract (e.g.
early termination), sale of devices (SIM, handset, etc.), 5 digit SMS, bulk SMS
and directory enquiry services.
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Residual
Again, a general residual category is included for revenue derived from non-
telecommunication activities (such as equipment sales) and/or revenue generated
outside Malaysia. This is necessary for the purposes of reconciling with the audited
accounts (see Section 9).
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3. ACCOUNTING SEPARATION PRINCIPLES AND POLICIES
3.1. Overview and General Principles
The starting point for AS is the operator’s audited accounts. This means that the RFS
will also need to comply with: the Malaysian Companies Act and the applicable
accounting standards; fundamental accounting concepts and principles; the
accounting policies of the company; and the format and content of certain financial
statements.
The fundamental principles of financial information reporting are relevance,

reliability, comparability (over time and across reporting entities), intelligibility,
materiality, and consistency (of treatment over time). In the case of AS there is
also the need for transparency, causality and objectivity in the attribution of
revenues, costs, assets and liabilities to different services.
When producing RFS, operators should use accounting policies that are consistent with
their statutory accounting policies. These accounting policies should follow closely the
Financial Reporting Standards required by the Malaysian Accounting Standards Board
(MASB) in terms of recognition and disclosure of material transactions and balances,
and their effect on the Income Statement and Mean Capital Employed (MCE).
RFS should be reconciled to the group’s audited accounts, which consolidate, on a

historic cost basis, the financial statements of the holding company and all subsidiary
undertakings. Where a subsidiary company’s accounting policies do not conform to
the group’s policies, these should be adjusted on consolidation in order to present the
financial information on a consistent basis.
Appendix E describes the most significant and relevant accounting policies for the
purposes of producing RFS. When RFS is produced for a certain year, the accounting
policies should match those in the operators’ corresponding audited accounts.
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4. REVENUE RECOGNITION AND ATTRIBUTION
4.1. Overview and general principles
For the purposes of preparing RFS, operators should apply the same accounting
policies for revenue recognition that they use in their audited accounts.
Revenues should be recognised when it is probable that the economic benefits

associated with the transaction will flow to the operator and the amount of the revenue
can be measured reliably.
The majority of revenues can be directly identified to the services and products
specified in Table 1 and Table 2 above. In any instances where revenues cannot be
attributed directly, they should be attributed to the relevant activities on the basis of
causation.
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5. COST ATTRIBUTION
5.1. Overview of Cost Attribution
The historic cost information underlying the audited accounts is the starting point for
attributing costs to different services. Since all costs are attributed or, where that is
not possible, apportioned to services, the process is referred to as fully-allocated
costing. The same process is used in current cost accounting (CCA) but the latter
involves additional depreciation entries. An overview of the cost attribution process is
provided in Figure 1.
The first step in cost attribution is to organise the company’s costs into those
associated with:
(i) Activities, normally within broad categories of functional groupings such as

maintenance or marketing and sales functions; and
(ii) Network plant groups such as switching and within each plant group by more
detailed network components.
Once costs have been attributed to activities or plant groups they can then be
attributed to products and services (either directly or indirectly).
The cost attribution process should reflect the principle of cost causation, as far as
possible. Costs can be attributed to services in a number of ways. For example,
(i) Network costs (such as depreciation of equipment, maintenance and other

support costs) can be attributed directly to plant groups and then to services
based on service volumes and engineering studies and analysis of how different
services use different types of equipment.
(ii) Other types of costs, such as payroll costs for engineering and field staff, can
be attributed in an intermediate step to network plant groups and or support
functions using activity based costing (ABC1) or surveys, and then attributed to
services in the same manner as those plant categories or support functions are
attributed to services.
1
Staubus, George J., Activity Costing and Input-Output Accounting (Richard D. Irwin,
Inc., 1971).
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Figure 1: Cost Attribution Overview
Source: NERA.
For the purposes of attribution to different services, a firm’s costs are categorised as
follows: direct; directly attributable, indirectly attributable and unattributable. These
categories are described, with examples, in Section 5.4 below.
5.2. Cost Causation and Cost Drivers
The identification of cost causation is a precondition for developing an appropriate cost

attribution method. The term “cost driver” is normally used to describe any factor that
causes a change in the cost of an activity to be incurred. An activity can have more
than one cost driver. For example, in a fixed local access network, the external line
plant maintenance costs in the local distribution side of the local switch will be driven
mainly by the number of faults and also by the time taken to repair the faults.
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The attribution of costs can be undertaken for all types of telecommunication network,
both fixed and mobile, although there will be some specific aspects and features of
network design and operation in each type of network.
Figure 2 below shows a highly simplified view of cost causation in a

telecommunications network. The arrows show the general direction of causation. 2
Thus, for example, network plant assets (capital costs) are caused by the need to
provide network services. In some cases, the relationship between cost categories
operates in both directions (indicated by the arrows pointing in both directions). This
is because one cost category both drives and is driven by another cost category.
The process of deriving fully allocated costs essentially involves reversing the direction
of the arrows in the diagram and attributing the different types of cost to the services
that directly or indirectly give rise to them. For example, plant capital costs are
attributed to services according to the extent to which each service uses the equipment
concerned.
2
To prevent the diagram from becoming unmanageable, not all the relevant arrows are
shown. For example, no arrow is shown from General Management to Accommodation
even though the former would require the latter as an input.
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Figure 2: Highly Simplified Example of Cost Causation in a
Telecommunications Network
Final
Final Other
Apportioned
Direct
Services
Services Costs costs
Costs
directly
directly indirectly non-
attributable
attributable attributable attributable
General
General
Maintenance
Maintenance Transport
Transport Management
Management
Capital
Capital Plant
Plant
Voice,
Voice and
SMS and Interconnection
Interconnection e.g.
e.g.
.. Exchanges,
Data
Data Calls,
Calls, Payments
Payments Transmission
Transmission
VAS,
VAS, and
and Call
Call Base Stations
Termination
Termination
Computing
Computing
Corporate
Corporate
Marketing
Market and&
Accommodation
Accommodation &
&Regulatory
Regulatory
Regulatory
Costs
Costs
activities
Personnel
Personnel
Direction of cost causation
Source: NERA.
Any fully allocated costing system requires a substantial amount of information about
cost drivers and the linkages between different cost categories. More examples are
provided in the following sections.
5.3. Cost Categories used by Operators in Malaysia
MCMC have been provided with the cost categories (account codes or chart of
accounts) which are currently used in the general ledger systems of the operators.
While there are differences between the operators, in general:
(i) Operating costs are either analysed by account type or natural expense, such
as payroll (salaries and wages); or
(ii) By cost centre or function such as marketing; and
(iii) Depreciation is analysed by plant group.
This provides the starting point for cost attribution to services. However, apart from
the identification of the direct costs of different services, which is used for the purpose
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of calculating gross margins, there appears to be no process of attributing network
costs to services at present.
5.4. Steps Required for Cost Attribution
Following the principle of cost causation, each item of cost will need to be attributed
to the products and services provided by an operator. Each cost item may be
considered to fall into one of the following categories.
5.4.1. Direct costs
There are relatively few direct costs in telecommunications networks. They are those
costs that:
(i) Are only needed to provide a specific service or set of services;
(ii) Are recorded against the relevant product or service in the operator's
accounting system; and
(iii) Can be directly and unambiguously identified to a product or service.
For example, interconnection payments to other operators are a direct cost of

providing call services and can be identified with the services that give rise to them.
5.4.2. Directly attributable costs
Directly attributable costs are shared by a number of services but are still directly
related to those services. Most network plant and equipment costs fall into this
category. Examples include:
(i) The cost of exchange lines in a fixed network (links between distribution points
and exchanges) is driven by the number of lines and their length. This cost
can be attributed to different services such as retail line rentals, wholesale line
rental (WLR) and LLU based on the numbers of lines, their length and the
technology provided for each service.
(ii) The amount of switching equipment required and hence its costs are typically
driven by the total volume of traffic using such equipment. For example,
processor costs are driven by busy hour call attempts and port costs by busy
hour call minutes. The costs can therefore be attributed to different services
based on their respective shares of the traffic handled by the switching
equipment.
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(iii) Some aspects of a mobile network operator’s requirements for media gateways
(MGW) are driven by the number of subscribers supported while other aspects
are driven by the volume of traffic in the busy hour (because mobile networks
are sized in order to handle traffic at peak times). In calculating the directly
attributable cost, the first step is to split costs into those which are subscriber-
related and those which are call-related. The next step would be to split call
costs into those corresponding to different call services. These attributions
should be based on the average number of MGWs used per call (captured in a
routing factor), the number of calls and the average duration of calls.
(iv) Transmission equipment costs are driven by the number of circuits, which in
turn is driven by services such as calls, leased lines and backhaul. To attribute
costs, information is required on the transmission capacity for all types of
service conveyed, for example, in terms of 2 Mbit/s paths used for voice calls.
Transmission equipment costs can then be attributed to calls using routing
factors, the number of calls and call durations.
5.4.3. Indirectly attributable costs
Indirectly attributable costs are costs that can be indirectly related to a service or
product based on the relationship these costs have to the direct and directly
attributable costs explained above. For example:
(i) Records of how telecommunications engineers spend their time can be used to
attribute maintenance costs to different types of network plant group and
components, which in turn can be directly attributed to different services (see
above).
(ii) Transport costs are partly driven by maintenance and other plant related
activities and can thus be attributed in a similar way to these activities. In
addition, transport costs will be incurred as a result of the activities of other
functions such as marketing (since marketing managers may have company
cars) or by high level staff costs.
(iii) Computing costs are typically driven by particular projects, which can then be
related to certain activities. Meanwhile desktop computing costs are driven by
the number of users.
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(iv) Accommodation costs are partly driven by plant requirements and partly by the
number of people in different activities, which in turn is partly driven by plant
requirements.
5.4.4. Unattributable costs
Unattributable costs are those costs for which no direct or indirect method of
attribution to services and products using cost drivers can be identified. Examples
include costs relating to the CEO’s office, investor relations, corporate relations and,
to some extent at least, the regulatory department. The way such costs are normally
apportioned to different services is to estimate their total value as a percentage of the
costs that can be directly or indirectly attributed and then mark up the latter by that
percentage.
Rigorous application of cost attribution methods explained above can be expected to

reduce substantially the proportion of these costs that are unattributable.
5.5. Developing the Cost Attribution Process and Systems
Before costs can be attributed in a reliable manner, a substantial amount of

information of both a financial and non-financial nature is required. This information
is necessary to identify the usage of different types of equipment and other resources
by different services. In order for operators to attribute costs reliably, it will be
necessary for them to verify their existing surveys or to conduct new ones, and to
have, amongst other things:
(i) A system of time recording (such as used in an ABC type system) or a survey
approach. For example, to record time spent by engineers maintaining different
types of network equipment;
(ii) Activity surveys in cases where employees spread their time over a number of
different activities or services;
(iii) Information on pay costs;
(iv) Details of the deployment and use of different network plant groups and
components by different services;
(v) Surveys for the fixed network, for example that identify where duct is used by
the core network, where it is used by the access network and where it is shared
by both networks;
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(vi) Sample surveys of traffic, such as busy hour traffic to identify the volumes and
routings of different types of traffic;
(vii) Comprehensive billing system information;
(viii) Engineering input on cost drivers for different network components;
(ix) Surveys of the use of buildings to identify the respective responsibilities of

different types of equipment for network building costs and the responsibility
of different departments for non-network building costs; and
(x) Surveys of use of general computing and IT equipment.
Any surveys need to be updated regularly (ideally annually).
5.6. Cost Categories and Cost and Capital Employed Attribution for Fixed
Operators
Appendices D.1 and D.2 contain tables that relate to fixed operators and which provide
examples of cost drivers and methods of attributing operating costs and capital
employed for the main types of cost.
5.7. Cost Categories and Cost and Capital Employed Attribution for Mobile
Operators
Appendices D.3 and D.4 contain tables that relate to mobile operators and which
provide examples of cost drivers and methods of attributing operating costs and capital
employed for the main types of cost.
As Appendices D.1, D.2, D.3 and D.4 are only provided as examples, and not intended
as a comprehensive list, operators are free to include additional categories of cost that
are not included in the appendices, identify the appropriate cost drivers and document
them accordingly. In addition, if operators deem cost drivers in appendices as
inappropriate, they can use other cost drivers that are more appropriate. However,
the cost categories, corresponding GL codes and the cost drivers must be clearly
identified and documented.
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6. TRANSFER CHARGES
Each operator will need to account for services provided between its own
divisions/entities “as if” these transactions were with external parties. This requires
the use of transfer charges.
6.1. Transfers at Market Prices
In instances where a wholesale service is also being provided to an external party,

there is a market price and, provided that the latter can be shown to be cost based,
this should be used as the transfer charge.
The situation is illustrated in Figure 3 below, where external wholesale revenues are
the payments made to the operator’s wholesale business by the external party and
internal wholesale revenues are the transfer charges received by the operator’s
wholesale business from its retail business unit. These same transfer charges are part
of the costs of the retail business.
Figure 3: Transfer Charge at Market Prices
Wholesale Retail
External wholesale revenues Retail revenues
(= quantity x wholesale (= quantity x retail price)
market price)
Revenue
Internal wholesale
revenues (retail quantity x
wholesale market price)
TRANSFER
CHARGE
Direct costs Internal transfer cost (retail

quantity x wholesale
market price)
Network costs
Cost
Wholesale billing costs etc.

Retail marketing costs etc.
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In instances where regulated rates are mandated for external sales (e.g. via MSAP),
the transfer charges should be posted at regulated rates.
6.2. Transfers at Cost plus Cost of Capital
In instances where the wholesale service is not being provided to an external party
and consequently there is no market price (or external wholesale revenue), or where
the market price is not cost justified, the transfer charge should instead be calculated
using wholesale costs for the service including the cost of capital (see Figure 4).
Figure 4: Transfer Charge at Cost plus Cost of Capital
Wholesale Retail
External wholesale revenues Retail revenues
(= quantity x wholesale (= quantity x retail price)
price)
Revenue
Internal wholesale
revenues (wholesale plant
cost + cost of capital)
TRANSFER
CHARGE
Direct costs Internal transfer cost

(wholesale plant cost
+ cost of capital)
Network costs
Cost
Wholesale billing costs etc. Retail marketing costs etc.
6.3. Cost of Capital
When implementing AS, it is standard international practice to use the weighted

average cost of capital (WACC). This reflects the opportunity cost of funds invested in
a business, and should take into account the different sources of finance. This requires
evaluation of:
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(i) The costs of debt held by the operator, weighted to reflect holdings of different
types of debt;
(ii) The cost of equity of the operator, measured in terms of the returns demanded
by shareholders in light of the risks to the business; and
(iii) The relative holdings of debt and equity.
  V  1 1Tc  Rf   PR   E V , where:

Based on this, (pre-tax nominal) WACC is calculated using the following formula:
WACC  Rd   D
Rd = Weighted Average Cost of Debt

Tc = Corporate Tax Rate
D = Total Debt
E = Total Equity
V = D + E = Total Capitalisation
β = Beta
Rf = Risk Free Rate
PR = (Rm - Rf ) = Equity Risk Premium, where
Rm = Market Rate of Return
Given the difficulties and uncertainties that the calculation of divisional WACC would
entail, operators should use company-wide pre-tax WACC for the calculation of the
cost of capital. However, the position could be revisited in the future if the techniques
for determining divisional WACC become more reliable.
For operators who do not have company WACC readily available, they may use the
WACC value computed by MCMC for the purpose of determining access prices. In
2012, MCMC had computed pre-tax WACC value for mobile and fixed operators at
9.86% and 8.86% respectively, fixed core at 8.65%, fixed access at 8.39% and HSBB
at 9.70%. As and when MCMC publishes revised pre-tax WACC value, the revised
value should be applied.
In the event that a company WACC is not available or there is no pre-tax WACC
computed by MCMC for fixed and mobile operators, WACC computed by analysts may
be used. However, it is generally not favoured for the purpose of accounting
separation as the basis of computation cannot be ascertained. Under no circumstance
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should operators substitute pre-tax company WACC for other figures such as effective
rate of return.
For RFS purposes, pre-tax company WACC should be applied to all services, although
some services may show negative values.
6.4. Demonstration of Transfer Charges
To ensure that the information in the RFS is relevant, reliable and transparent, it is
essential that the basis and nature of the transfer charges is clearly set out in the
accounting documentation (see Section 10.2). Further, the format of the RFS (see
Section 7 and Appendices A and B) will separately show the internal and external
revenues, costs and MCE of the individual products and services.
Finally, there should be consistency of treatment of transfer charges from year to year.
Where changes occur, they should be transparent and clearly documented. Material
changes in policies adopted and/or calculations may require reclassification of the prior
year numbers, including closing MCE balances.
6.5. Fixed Network
Following the principles explained above, the wholesale Income Statement of a fixed
network will include:
(i) External wholesale revenue generated as a result of sales to external wholesale

customers (other telecommunications operators); and
(ii) Internal wholesale revenues in the form of transfer charges made to the parts
of the business providing Retail and Other services.
The flipside of this is that the retail and other Income Statements will show internal
transfer costs alongside other retail costs.
If a fixed operator does not have a beneficial ownership in a mobile operator, any
transactions with mobile operators for the use of the network (interconnection) will be
classified as external.
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6.6. Mobile Networks
In a similar manner, the wholesale Income Statement for mobile networks will show
internal and external revenues, and correspondingly the mobile network retail Income
Statements will show internal and external costs. For example:
(i) A mobile network’s wholesale business Income Statement will show external
revenue from providing services to external customers (e.g. for
interconnection) and internal revenue from providing services to its own retail
businesses (voice, SMS and data).
(ii) The retail business Income Statement will record external revenue relating to
the sale of post-paid and prepaid plans as well as other external sales and
internal revenue for the recharge of the billing system.
Where a mobile operator also has a fixed network business and the scale of such
activities is material, an internal transfer charging system between fixed and mobile
markets would also need to be established.
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7. FORMAT OF REGULATORY FINANCIAL STATEMENTS
7.1. Overview
The proposed format and content of the RFS for small operators are described in
Appendix A and the RFS for large operators in Appendix B to these Guidelines.
7.2. Requirements for Large Operators
The RFS for large fixed and mobile network operators comprise:
(i) Income Statements at the level of individual wholesale and retail services and
other services;
(ii) Statements of average unit cost and revenues at the level of individual
wholesale and retail services;
(iii) Income Statements consolidated at the level of wholesale and retail showing
aggregate wholesale and retail and other results;
(iv) A Statement of MCE for individual services at the retail and wholesale levels;
(v) A consolidated MCE statement;
(vi) Statements of network unit costs by service;
(vii) Network Activity Statements;
(viii) Reconciliation Statements to the audited accounts;
(ix) A Properly Prepared in Accordance with Audit Opinion; and
(x) Accounting documentation that clearly specifies the accounting policies and
attribution methods adopted;
All large operators will produce the RFS on a HCA basis until 2017, followed by CCA
thereafter.
7.3. Requirements for Small Operators
MCMC has decided to provide a partial exemption from AS reporting requirements for
companies whose revenue arising in Malaysia or total assets (or both) fall below RM3
billion. These “small operators” will, however, be required to produce abbreviated
RFS, that is to say RFS showing income and net assets at a less granular level. In
particular, these entities will be required to produce:
Page 26
(i) Regulated income statements at the Wholesale, Retail and Total level only, on
an HCA basis (seen Appendix A);
(ii) Net asset statements at the company year-end date at the Wholesale, Retail
and Total level only, on an HCA basis (see Appendix A);
(iii) Reconciliation statement to the audited consolidated group financial statements

(with no CCA adjustments required) (see Section 8);
(iv) A statement signed by a company director (i.e. self certification) confirming

that the RFS are properly prepared in accordance with the submitted
documentation and comply with regulatory obligations; and
(v) Accounting documentation that clearly specifies accounting policies and

attribution methods adopted;
In developing these requirements, MCMC has taken into account the size and simplicity
of operations of the small operators. These provisions will apply if at least one of the
two threshold criteria is met.
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8. RECONCILIATION
8.1. Overview
In order to ensure the reliability of the RFS, and their consistency with the operators’
audited accounts, Reconciliation Statements are required. These Reconciliation
Statements will need to be prepared by the operators to consolidate and reconcile all
of the RFS for the individual products and services to the operators’ audited accounts.
The reconciliation process represents a fundamental step in enabling transparency of

how the RFS outputs are aligned to the audited accounts. Consequently, all the items
that are disclosed in the audited accounts, but not in the regulated accounts, require
a separate disclosure. For those entities that fall below the “small company”
thresholds, the reconciliation statement is simplified as it will exclude current cost
adjustments.
For companies operating in a group structure, the reconciliation statements should be

carried out to the companies audited group accounts.
Please refer to Appendix E and Appendix F for items that should be excluded in the
preparation of regulatory financial statements, and items that should be reconciled.
8.2. Reconciliation Statements for Large Operators
Table 3 Reconciliation of Consolidated Income Statement (Large Operators)
Revenue Operating Operating

(RM) costs profit
(RM) (RM)
As in the Annual Report x x X
Adjustments
Inter-market revenues and costs x x X
Other operating income x x X
Profit on disposal of property (if CCA x x X
basis)
Other gains x x X
Operating Cost not Relevant to RFS x
(Please Specify)
Total in RFS on HCA basis x x X
CCA Holding gains/losses x X
CCA Supplementary depreciation x X
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Other CCA adjustments x X
Total in RFS on CCA basis x x X
Table 4 Reconciliation of Consolidated Mean Capital Employed (Large

Operators)
Current Year Prior Year

(RM) (RM)
Shareholders’ funds as in the Annual xx Xx

Report
CCA adjustments (if applicable) xx Xx
Adjustments
Other long term liabilities xx Xx
Short term borrowings xx Xx
Taxation xx Xx
Assets held for speculative purposes xx Xx
Available for sale investments xx Xx
Derivative financial instruments xx Xx
Deferred tax assets/liability xx Xx
Financial assets at fair value xx Xx
Others as appropriate (Please specify) xx Xx
Closing capital employed at 31 December xx Xx
Opening capital employed at 1 January xx Xx
Average capital employed xx Xx
Total Mean Capital Employed xx Xx
8.3. Reconciliation Statements Small Operators
Table 5 Reconciliation of Consolidated Income Statement (Small Operators)
Revenue Operating Operating

(RM) costs profit
(RM) (RM)
As in the Annual Report x x X
Adjustments
Inter-market revenues and costs x x X
Other operating income x x X
Other finance income x x X
Other gains x x X
Operating Cost not Relevant to RFS x
Page 29
(Please Specify)
Total in RFS on HCA basis x x X
Table 6 Reconciliation of Net Asset Statement (Small Operators)
Current Year Prior Year

(RM) (RM)
Net assets as in the Annual Report xx Xx
Adjustments
Other long term liabilities xx Xx
Short term borrowings xx Xx
Taxation xx Xx
Assets held for speculative purposes xx Xx
Available for sale investments xx Xx
Derivative financial instruments xx Xx
Deferred tax assets/liability xx Xx
Financial assets at fair value xx Xx
Others as appropriate (Please specify) xx Xx
Total Net Assets as per RFS XX XX
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9. CURRENT COST ACCOUNTING METHODOLOGY
9.1. Overview of Asset Valuation Methods
It is necessary for large operators to establish a system of CCA so that regulatory

financial statements on a CCA basis can be submitted to MCMC beginning 2018.
The principles of CCA and illustrative examples of how it is implemented are set out in
Appendix C to these Guidelines.
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10. AUDIT AND DOCUMENTATION REQUIREMENTS
The responsibility for preparing RFS rests with the operators. In addition, it will be
necessary for the information to be audited and thoroughly documented.
The audit requirement, as specified below, does not apply to operators who fall below
the large company threshold. Instead, these entities i.e. “small operators” are
required to submit a Statement signed by a company director that confirms to MCMC
that the accounts have been produced in accordance with the submitted
documentation and comply with the regulatory obligations.
10.1. Overview of audit opinion for large operators
MCMC will need to be satisfied that the RFS are free from material errors and
misrepresentations. In order to to have that comfort level, MCMC requires an audit
opinion and this implies a duty of care to the regulator.
MCMC sets out below the basic principles upon which the two different levels of audit
opinion are based.
FPIA (Fairly Presents in Accordance with) provides comfort that the overall impression
created by the financial statements “fairly presents” the underlying performance and
financial position of the entity concerned. This level of audit opinion is the industry
standard and is equivalent to what is required for audited accounts.
On the other hand, PPIA (Properly Prepared in Accordance with) only provides
assurance that the figures contained in the financial statements have been properly
prepared in accordance with an agreed process, without any assurance that the overall
impression which they convey represents the underlying performance and financial
position in a “fair” manner. Therefore, it is usually only permitted where it would not
be possible to implement FPIA or it would be disproportionate to do so. Reflecting
this, the lower assurance, which a PPIA audit opinion provides, is less costly to obtain
than a FPIA.
Since there are no standards for providing a FPIA audit opinion under the Malaysian
Financial Reporting Standards (MFRS) for current cost accounting, MCMC has decided
that an audit opinion based on PPIA should be provided for RFS prepared on both
historcal and current cost accounting beginning from year 2015.
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The audit opinion should cover whether the RFS:
(i) Are properly prepared in accordance with the Accounting Separation guidelines
and procedures, as defined in the detailed documentation, which state the
Principles of Accounting Separation, the attribution method and accounting
policies in arriving at Income and MCE of each market and product;
(ii) Complies with the regulatory obligations in place;
(iii) Contains all the information and documents specified as to be submitted by the
regulatory obligations; and
(iv) The restated and re-presented prior year Income and MCE Statements are
properly presented in accordance with this document.
MCMC has decided that:
 With respect to entitites that fall below the “small company” threshold self
certification signed by a company director will be required.
 For companies that do not fall below the “small company” threshold, a
Readiness Review Statement signed by the company auditors will be sufficient
for the first two years of implementation of AS, followed by PPIA thereafter.
10.2. Audit scope
The audit scope must cover all matters highlighted in this Guidelines which include but
not limited to the following:-
(i) Review of operator’s Accounting Separation (AS) Manual
To assess whether:
 The regulatory accounts adhere to the principles of causality ,

transparency , consistency and cost effectiveness in attribution of
revenue, cost, assets and liabilities to the different services;
 The overall content and structure of the AS manual is consistent in the

context of the model structure and reporting requirements;
 The AS manual includes description of all material cost drivers, data

sources and allocation methods; and
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 The description of each methodology in the AS manual is sufficient for
audit verification in the context of a ‘properly prepared in accordance
with’ (“PPIA”) audit.
(ii) To review the Accounting Separation Policies
To assess whether:
 The regulatory accounts are prepared based on the audited financial

statements and AS manual. The audited financial statements are
prepared in accordance with the Malaysian Financial Reporting
standards issued by the Malaysian Accounting Standards Board,
International Financial Reporting Standards and provisions of the
Malaysian Companies Act.
 To ensure only accounting policies relevant to the preparation of

accounting separation are included into the RFS and irrelevant policies
to regulatory accounts are either marked as “Not Relevant to RFS” or
struck off or included as an Appendix.
(iii) Review of revenue allocation and attribution methodology
 To assess whether the revenue attribution methodologies being used

are not wholly unreasonable including consideration of the relevance of
the drivers and any management estimates or assumptions embedded
within the methodologies;
(iv) Review of revenue allocation and attribution processes to:
 assess whether the implemented methodology is consistent with the

description in the AS Manual;
 determine whether any additional information is required to be

documented in the AS manual;
 to assess the readiness of processes and controls to ensure that the

revenue attribution model inputs can be properly compiled with;
 To assess management’s controls and processes in place to ensure

completeness and accuracy of data source;
Page 34
 to ensure transfer pricing are allocated to the respective identified
services where applicable; and
 to ensure the documentation of transfer pricing between business

operations and services are transparent , objective and are in
accordance with the principles set out in the Guidelines on
Implementation of Accounting Separation in Malaysia.
(v) Review of cost allocation and attribution methodology
 To assess whether the cost attribution methodologies being used are

not wholly unreasonable including consideration of the relevance of the
drivers and any management estimates or assumptions embedded
within the methodologies.
(vi) Review of cost allocation and attribution processes to:
 assess whether the implemented methodology is consistent with the

description in the AS Manual;
 determine whether any additional information is required to be

documented in the AS manual;
 to assess the readiness of processes and controls to ensure that the cost
attribution model inputs can be properly compiled with;
 To assess management’s controls and processes in place to ensure

completeness and accuracy of data source;
 to ensure transfer charges are allocated to the respective identified

services where applicable; and
 to ensure the documentation of transfer charges between business

operations and services are transparent , objective and in accordance
to the principles set out in the Guidelines on Implementation of
Accounting Separation in Malaysia.
(vii) Review of AS model
To assess the overall AS model to ascertain the following:
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 the overall AS model structure reflects the revenue and costing
processes spelt out in the AS manual; and
 to ensure the AS model is able to reconcile to the audited accounts.
 Operators will be free to determine who audits their RFS, so the use of statutory
auditors is not precluded.
10.3. Documentation
Alongside the RFS themselves, it will be necessary for the operators to provide a full
documentary record of the framework and methods used in their preparation. This
documentation should comprise:
(i) A statement of the Accounting Separation Principles followed;
(ii) A statement of the Accounting Policies used, in accordance with Section 3 above
and Appendix E, and noting, where necessary, any changes in the policies over
time;
(iii) A brief description of the services;
(iv) An explanation of revenue apportionment, the drivers used and mapping of the
services to the product code;
(v) An explanation of the cost attribution methods used and the principal cost
drivers and mapping of GL to the cost category using guidance set out in
Section 5 and Appendix D;
(vi) An explanation of the nature and calculation of the transfer charges, in

accordance with what is described in Section 6;
(vii) A full list of all codes and definitions used for:
─ Products and services;
─ Account codes;
─ Activity codes;
─ Cost centres and functions; and
─ Data sources.
(viii) A network diagram;
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(ix) PPIA Audit Opinion; and
(x) A copy of the audited accounts or certified true copy of the audited accounts.
Documentation supporting the RFS needs to be of good quality and information needs
to be disclosed with sufficient detail and clarity of the overall model in preparing the
regulatory financial statements which include methodologies and drivers applied in the
preparation of regulatory accounting data.
The necessary level of documentation is also linked to the audit requirements, with
aspects of the costing process having to be reviewed “in accordance with the
documentation”.
Retention of records should be the same as for current statuory purposes.
Operators will need to submit the required documentation to MCMC in accordance with
the Implementation Timescale set out in Section 11.
An illustrative template of the documentation is attached in Appendix F for reference.
10.4. Maintenance of accounting records and responsibilities
In addition to the required documentation, it is essential that operators maintain

appropriate accounting records. The accounting and non-financial records have to be
sufficient to provide relevant, comparable and reliable information, and key
requirements include:
(i) A sufficient level of detail to allow verification of the RFS;
(ii) Sources of information, particularly non-financial data used in cost attribution;
(iii) Definitions of all services and products;
(iv) The “mapping of services” onto network plant groups and components,
demonstrating how the services use the network;
(v) Network engineering information used for developing cost drivers;
(vi) The on-going availability of staff and information to support queries from
MCMC; and
(vii) The appropriate retention of information.
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Ultimately, the responsibility for keeping proper records, the preparation of the RFS,
and the reliability of the information contained in them lies with the directors of the
relevant companies.
The principal accounting recording system is normally the operator’s general ledger.
It will be possible for operators, in due course, to develop additional management
accounting features, such as cost allocation and ABC, which would provide many of
the tools for AS processing and record keeping.
Within the general ledger, the core feature is the accounts code or chart of accounts
which typically contains two key dimensions, namely the type of account, or natural
expense, such as payroll and the cost centre. The latter normally relates to a broad
functional activity such as marketing. MCMC envisages that a matrix of cost types and
costs by function would form the basic financial building block for cost analysis
purposes.
The main accounting record for premises and network plant would be the Fixed Asset
Register.
In a number of cases, operators appear to use Enterprise Resource Planning (ERP)

systems which contain modules such as Financial Accounting or Controlling. The
financial modules can typically work in conjunction with other modules such as Human
Resources or Customer Relationship Management.
Given that these ERP modules or systems bring together financial and non financial
information, both for internal and external purposes, in due course, these modules
could contain many of the necessary records for non financial information for the
costing process and a more integrated approach to data collection which could be used
for RFS purposes.
In the first year of preparing results, and possibly beyond, it may be practical to
develop the cost apportionment process using a series of spreadsheets, with
supporting documentation. This may be helpful in terms of the overall learning
process, as new methods are being introduced, and would not be over prescriptive.
Page 38
11. IMPLEMENTATION PLAN
11.1. Implementation Timetable
Table 7 AS Implementation Timetable
Actions
Date
MCMC Operator
Nov 2012 Issue decision on AS
Dec 2012 Prepare AS Guidelines and send out
letters to operators to Implement AS
Dec 2012 Begin the on-going task of data
gathering.
Feb 2013 Monitor progress by reviewing the Submit documentation explaining
implementation plan, and advising the the operator’s own implementation
operators of any shortcomings plan
Jun 2013 Monitor progress by reviewing the Produce first set of 6 monthly
revenue reports and documentation in separated revenue reports together
comparison to the contents of the PI with documentation explaining the
Paper, and advising the operators of principles and details of methodology
any shortcomings used
Sep 2013 Monitor progress by reviewing the Complete collection of data on
documentation in comparison to the network cost drivers and submit
contents of the PI Paper, and advising document summarising the cost
the operators of any shortcomings drivers used and explaining
attribution methodology for network
costs.
Dec 2013 Monitor progress by reviewing the Complete collection of data on non-
documentation in comparison to the network cost drivers and submit
contents of the PI Paper, and advising document summarising the cost
the operators of any shortcomings drivers used and explaining
attribution methodology for non-
network costs.
Jun 2014 Monitor progress by reviewing RFS Submit 2013 draft HCA RFS
Sep 2014 Monitor progress by reviewing RFS Formally submit 2013 final HCA RFS
June 2017 Consultation with industry on CCA
Guidelines
Sep 2017 Publish Guidelines on CCA
Oct 2017 Begin the on-going task of data
gathering for CCA asset revaluation
Dec 2017 Monitor progress by reviewing the Submit documentation explaining
CCA documentation the implementation plan for CCA RFS
Page 39
and the principles and the details of
the methodologies to be used to
revalue assets and calculate
depreciation and holding
gains/losses
Sep 2018 Monitor progress by reviewing RFS Formally Submit 2017 final HCA RFS
Jun 2019 Monitor progress by reviewing RFS Submit draft 2018 CCA RFS
Sep 2019 Monitor progress by reviewing RFS Formally submit 2018 final CCA RFS
The above timelines are for companies with financial year ending 31 Dec. For companies with
different financial year end, the draft RFS should be submitted 6 months from the FYE and final
RFS 3 months thereafter.
The timetable above summarises what was set out in the PI Report and the changes
as approved by the Commission since 2012. Draft and final CCA RFS will also need to
be submitted in June and September respectively of each year beginning 2018.
Page 40
APPENDIX A: FORMAT OF ACCOUNTS FOR SMALL OPERATORS
A.1 Small Operator Wholesale Income Statement
The format for the consolidated wholesale Income Statement that small operators
need to produce is shown below.
Table 8 Small operator Wholesale Income Statement
Current Prior year

year (RM)
(RM)
Income Income from other x x
operators/external parties
Transfer charges from retail x x
Transfer charges from other x x
business units
Gain on disposal of wholesale x x
assets
Other income (Please specify) x x
Total income X X
Operating Operating costs x x

Costs
Depreciation x x
Transfer charges to retail x x
business units
Loss on disposal of wholesale x x
assets
Other operating cost (Please x x
specify)
Total operating costs X X
Operating X X
return
% return on turnover x% x%
Page 41
A.2 Small Operator Retail Income Statement
Small operators are also required to produce a consolidated retail Income Statement.
The format for this is shown in Table 9.
Table 9 Small Operator Retail Income Statement
Current Prior year

year (RM)
(RM)
Transfer charges from x x
wholesale
business units
Gain on disposal of retail x x
assets
Total income X X
Operating Operating costs x x

Costs
Depreciation X x
Transfer charges to wholesale x x
Transfer charges to other x x
business units
Loss on disposal of retail assets x x
specify)
Operating X X
return
Page 42
A.3 Small Operator Other Business Income Statement
The format for the consolidated other business Income Statement that small operators
need to produce is shown below.
Table 10 Small Operator Other Business Income Statement
Current Prior year

year (RM)
(RM)
wholesale
Gain on disposal of residual x x
assets
Total income X X
Operating Costs Operating costs x x

Depreciation x x
Loss on disposal of residual x x
assets
specify)
Operating X X
return
Page 43
A.4 Small Operator Net Asset Statement
The format for the Net Asset Statement that small operators need to produce is shown
below.
Table 11 Small Operator Net Asset Statement

Year Ended ….201x
Residual/Other
Total retail
wholesale
business
Total
Total
Non-current assets
Tangible fixed assets
Other
Investments
Others (Pls specify)
Total Non-current Assets
Current Assets
Stocks
Cash and cash equivalent
Debtors
- Internal
- External
Accruals (Please specify)
Others (Please specify)
Total Current Assets
Current Liabilities
Creditors
- Internal
- External
Page 44
Total Liabilities falling due within
one year
Working Capital i.e. Total Current

Assets - Total Current Liabilities
Capital Employed i.e. Total Assets
less Current Liabilities
Provisions for liabilities and charges
Net Assets
Operating Returns
% return on Net Assets x% x% x% x%
Page 45
APPENDIX B: FORMAT OF ACCOUNTS FOR LARGE OPERATORS
B.1 Fixed Operators
B.1.1 Wholesale Service Income Statements
For each of the wholesale services identified in Section 2.2, the Income Statement
should have the format shown in Table 12.
Table 12:
Fixed: Wholesale Income Statement Format for Each Service
Current Prior year

year (RM)
(RM)
business
Gain on disposal of wholesale x x
assets
Total wholesale income X X

Depreciation x x
business/residual
Loss on disposal of wholesale x x
assets
specify)
CCA Adjustment Holding (gain)/loss3 x/(x) x/(x)
3
Holding gains/losses can be presented on a gross basis where they are calculated as closing GRC
minus opening GRC, or on a net basis where they are calculated as closing GRC minus opening
GRC minus backlog depreciation. We recommend that holding gains or losses are shown on a net
basis. Alternatively holding gains or losses can be shown on a gross basis, and backlog depreciation
included in “other adjustments”.
Page 46
Current Prior year
year (RM)
(RM)
Supplementary depreciation x x
Other adjustments x x
Operating x x
return
The corresponding statements of average unit revenue and unit costs for each
wholesale service should be formatted as shown in Table 13. The figures in both tables
should tally to ensure consistency in reporting.
Page 47
Table 13
Fixed: Wholesale Average Unit Revenue and Cost Statement for Each Service
Total revenue xxx

External revenue xxx
External volume xxx
Average external unit revenue xxx
Internal revenue xxx
Internal volume xxx
Average internal unit revenue xxx
Total costs xxx
External Cost xxx
Internal Cost xxx
Average unit cost xxx
External unit cost xxx
Internal unit cost xxx
Margin xxx
External Margin xxx
Internal Margin xxx
Margin % xxx
External Margin % xxx
Internal Margin % xxx
B.1.2 Consolidated Wholesale Income Statement
The wholesale Income Statements for the individual wholesale services in the previous
section should also be aggregated into a consolidated wholesale Income Statement,
as shown in Table 14 below, summarising wholesale total market results.
Page 48
Table 14
Fixed: Consolidated Wholesale Income Statement by Service
Transit services
Interconnection
Wholesale local
Wholesale local
Call origination
Exchange lines
access- copper
access- fibre
WHOLESAEL
Leased lines
termination
Broadband
Wholesale
Wholesale
Backhaul
Services
circuits
access
TOTAL
Other
Call
Income
Income from other operators/external
parties
Transfer charges from retail
Transfer charges from other business
Gain on disposal of wholesale assets

Other income (Please specify)
Total wholesale income
Operating costs
Operating costs
Depreciation
Transfer charges to retail
Transfer charges to other
business/residual
Loss on disposal of wholesale assets
Other operating costs (Please specify)
Total HC operating costs
Holding (gains)/losses4
Supplementary depreciation
4
See Footnote 3
Page 49
Other adjustments
Total Net CCA adjustments
Total operating costs
Operating return
% return on turnover
Page 50
B.1.3. Retail Service Income Statements
For each of the retail services identified in Section 2 the Income Statement should have
the format shown in Table 15. The example shown is for when CCA is used. In the case
of HCA there will be no entries for holding gains/losses, supplementary depreciation or
other CCA adjustments.
Table 15
Fixed: Retail Income Statement Format for Each Service
Current year Prior year

(RM) (RM)
wholesale
business
Gain on disposal of assets x x
Other income (Please x x
specify)
Total income X X

Depreciation charges x x
Transfer charges to x x
wholesale
business
Loss on disposal of assets x x
Other operating costs x x
(Please specify)
Holding (gain)/loss5 x/(x) x/(x)
Operating return X X
5
See Footnote 3
Page 51
The corresponding statements of average revenue and unit costs for each retail service
should be formatted as shown in Table 16. The figures in both tables should tally to ensure
consistency in reporting.
Table 16
Fixed: Retail Average Unit Revenue and Cost Statement
Total revenue xxx

External Volume xxx
Internal volume xxx
Total costs xxx
External Cost xxx
Internal Cost xxx
Margin xxx
External Margin xxx
Internal Margin xxx
Margin % xxx
B.1.4 Consolidated Retail Income Statement
The Retail Income Statements for the individual retail services in the previous section
should be aggregated into a consolidated retail Income Statement, as shown in Table 17
below, summarising retail total market results.
Page 52
Table 17
Fixed: Consolidated Retail Income Statement by Service
International calls
Calls to mobiles
Exchange lines
Total exchange
Exchange lines
TOTAL RETAIL
National calls
Leased lines
Broadband
residential
Local calls
business
Other
liens
Income
Income from other operators/external
parties
Transfer charges from wholesale
Transfer charges from other business

Gain on disposal of assets
Other income (Please specify)
Operating costs
Operating costs
Depreciation
Transfer charges to wholesale
Transfer charges to other business
Loss on disposal of assets
Other operating costs (Please specify)
Holding (gain)/loss6
Other adjustments
Operating return
6
See Footnote 3
Page 53
B.1.5 Wholesale Mean Capital Employed by Service
A statement should be provided showing the breakdown of MCE for each wholesale service.
The format is shown in Table 18.
B.1.6 Retail Mean Capital Employed by Service
Similarly, a statement should be provided of the breakdown of MCE for each retail service.
The format is shown in Table 19.
Page 54
Table 18
Fixed: Wholesale Mean Capital Employed by Service
termination
Broadband
connection
origination
Wholesale
Wholesale
Wholesale
Wholesale
Exchange
Backhaul
Services
Services
access-
access-
circuits
Leased
Transit
copper
access
Other
Inter
lines
lines
local
local
fibre
Call
Call
Non-current assets
Land & Buildings
Access-Copper
Access-Fibre
Access-Duct
Switch and Transmission - Switch
- Transmission
Investments
Current Assets
Stocks
Debtors
- Internal
- External
Current Liabilities
Creditors
- Internal
- External
Total Liabilities falling due within one year
Page 55
Net Current Assets/(Liabilities)
Total Assets less Current Liabilities
Rounding
Mean capital employed
Return on Turnover
% of Return on Mean Capital Employed
Page 56
Table 19
Fixed: Retail Mean Capital Employed by Service
International
Leased lines
Broadband
residential
Local calls
Exchange
Exchange
exchange
business
National
mobiles
Calls to
Other
Total
lines
lines
liens
calls
calls
Non-current assets
Land & Buildings
Access-Copper
Access-Fibre
Access-Duct
Switch and Transmission - Switch
- Transmission
Investments
Current Assets
Stocks
Debtors
- Internal
- External
Current Liabilities
Creditors
- Internal
- External
Total Liabilities falling due within one year
Page 57
Net Current Assets/(Liabilities)
Total Assets less Current Liabilities
Rounding
Mean Capital Employed
Return on turnover
% of return on Mean capital employed
Page 58
B.1.7 Consolidated Mean Capital Employed
Wholesale, retail and other MCE should be consolidated using the format shown in Table
20 below.
Table 20
Fixed: Consolidated Mean Capital Employed
Current
year
(RM)
Wholesale exchange lines X
Wholesale local access - copper X
Wholesale local access - fibre X
Wholesale broadband access X
Wholesale leased lines X
Backhaul services X
Wholesale
Call origination X
Call termination X
Transit services X
Interconnection circuits X
Other X
Total wholesale X
Retail exchange lines - residential X
Retail exchange lines - business X
Local calls X
National calls X
International calls X
Retail
Calls to mobiles X
Leased lines X
Broadband X
Other X
Total retail X
Global X
Other Value added services X
Other residual X
Total separated accounts X
Adjustments x/(x)
Audited accounts X
Page 59
B.1.8 Other Business Income Statement Format
For any other business, the Income Statement should have the format shown in Table 21
below. The example shown is for when CCA is used. In the case of HCA there will be no
entries for holding gains/losses, supplementary depreciation or other CCA adjustments.
Table 21
Fixed: Residual Income Statement
Current Prior year

year (RM)
(RM)
wholesale
specify)
Total income x x

wholesale
specify)
Operating return x x
7
See Footnote 3.
Page 60
B.1.9 Network Unit Cost by Service
In order to demonstrate that transfer charges are cost-based and non-discriminatory, it is necessary to show how network unit costs are
calculated. The first step is to calculate average unit costs for each network component, as shown in Table 22 below. Not all network
components are shown, but these lists should be completed by the operators. For each service, network unit costs (Table 24) are then
calculated as the sum product of component average unit costs (Table 22) and routing factors (Table 23) where the latter are the average
number of units of each network element used by a particular service.
Table 22
Fixed: Network Element Unit Cost Statement
and capital
return (%)
Operating
Operating
Employed
unit cost
Average
Volume
Rate of
Capital
Capital
Mean
costs
costs
costs
Components
Access
Local switching
Core switching/routing
Transmission
etc
Totals
Page 61
Table 23
Fixed: Service Routing Factors
Transmission
switching/
switching
routing
Access
Local
Core
etc
Component average unit cost
(Table 22)
Service routing factors:

Wholesale exchange lines
Wholesale local access - copper
Wholesale local access - fibre
Backhaul services
Call origination
Call termination
Transit services
Other
Retail exchange lines - residential
Retail exchange lines - business
Local calls
National calls
International calls
Calls to mobiles
Leased lines
Broadband
Other
Page 62
Table 24
Fixed: Network Unit Costs by Service
Transmission
switching/
switching
routing
Access
Local
Core
Total
etc
Wholesale exchange lines
Wholesale local access - copper
Wholesale local access - fibre
Backhaul services
Call origination
Call termination
Transit services
Other
Retail exchange lines - residential
Retail exchange lines - business
Local calls
National calls
International calls
Calls to mobiles
Leased lines
Broadband
Other
Page 63
B.1.10 Statement of Costs on a Current Cost Basis: Network Activity Statement
When costs are stated on a CCA basis, the Network Element Unit Cost Statement (see Table 22) should be augmented to show the CCA
adjustments and supplementary depreciation. This is often referred to as a Network Activity Statement (see Table 25).
Table 25
Fixed: Network Activity Statement
Average
Total of costs per
operating unit on a
Applicable costs and current cost
HCA Holding gains Total CCA CCA Mean rate of capital costs basis
operating Supplementary and other CCA operating Capital return on Capital relating to relating to
cost depreciation adjustments costs Employed capital % costs current year Volume current year
Components
Access
Local switching
Core switching
sswswitching/routing
Transmission
Etc
Totals Note 1 Note 2 Note 3

Notes: 1. Total as per wholesale market income statement, 2. Total as per wholesale MCE, 3. Applicable rate is usually previous year’s rate of return
on MCE for the wholesale business.
Page 64
B.2 Mobile Network
B.2.1 Wholesale Service Income Statements
For each of the wholesale services identified in Section 2.3, the Income Statement should
have the format shown in Table 26. In the case of HCA, there will be no entries for holding
gains/losses, supplementary depreciation or other CCA adjustments.
Table 26
Mobile: Wholesale Income Statement
Current Prior year

year (RM)
(RM)
business
Total wholesale income X X

Depreciation x x
business
specify)
% return on turnover % %
Page 65
The corresponding statements of average unit costs for each wholesale service should be
formatted as shown in Table 27. The figures in both tables should tally to ensure
Table 27
Mobile: Wholesale Average Unit Revenue and Cost Statement
Total revenue xxx

External volume xxx
Internal volume xxx
Total costs xxx
External Cost xxx
Internal Cost xxx
Margin xxx
External Margin xxx
Internal Margin xxx
Margin % xxx
Page 66
B.2.2. Retail Service Income Statements
For each of the retail services identified in Section 3.3, the Income Statement should have
the format shown in Table 28. In the case of HCA, there will be no entries for holding
gains/losses, supplementary depreciation or other CCA adjustments.
Table 28
Mobile: Retail Income Statement
Current Prior year

year (RM)
(RM)
operators/external charges
wholesale
business
specify)
Total income X X

wholesale
business
specify)
Total operating CCA costs X X
% return on turnover % %
9
See Footnote 3.
Page 67
The corresponding statements of average unit revenue and costs for each retail service
should be formatted as shown in Table 29. The figures in both tables should tally to ensure
Table 29
Mobile: Retail Average Unit Revenue and Cost Statement
Total revenue xxx

External Volume xxx
Internal volume xxx
Total costs xxx
External Cost xxx
Internal Cost xxx
Margin xxx
External Margin xxx
Internal Margin xxx
Margin % xxx
Page 68
B.2.3 Other Business Income Statement Format
For any other business, the Income Statement should have the format shown in Table 21
below. The example shown is for when CCA is used. In the case of HCA there will be no
entries for holding gains/losses, supplementary depreciation or other CCA adjustments.
Table 30
Mobile: Residual Income Statement
Current Prior year

year (RM)
(RM)
wholesale
business
Total income x x

business
specify)
Operating return x x
10
See Footnote 3.
Page 69
B.2.4 Consolidated Income Statement
The retail and wholesale Income Statements for the individual services should be
aggregated into a consolidated Income Statement, as shown in Table 31 below. In the
case of HCA, there will be no entries for holding gains/losses, supplementary depreciation
or other CCA adjustments.
Page 70
Table 31
Mobile: Consolidated Income Statement by Service
RAN Sharing
her business
Internationa
Internationa
Total retail
Connections
Residual/Ot
termination
wholesale
and rentals
origination
l roaming
l roaming
Backhaul
Services
National
roaming
TOTAL
access
MVNO
Other
Other
Total
Voice
Data
SMS
Call
Call
Income
Income from other
operators/ external parties
Transfer charges to
wholesale
Internal charges to other

business
Gain on disposal of assets
Other income (Please

specify)
Operating costs
Operating costs
Depreciation
Transfer charges to
wholesale
Transfer charges to other
business
Loss on disposal of assets
Other operating costs
(Please specify)
Page 71
Holding (gains)/losses11
Other adjustments
Total operating CCA costs
Operating return
11
See Footnote 3.
Page 72
B.2.5 Mean Capital Employed by Service (Wholesale and Retail)
MCE for wholesale and retail services should be broken down by service as shown in
Table below.
Table 32
Mobile: Mean Capital Employed by Service
Residual/Other business
Connections and rentals
International roaming
Total wholesale
Backhaul Services
National roaming
Call termination
Call origination
MVNO access
RAN Sharing
Total retail
Other
Other
Total
Voice
Data
SMS
Non-current
assets
Tangible fixed
assets
Land &
Buildings
Access-Copper
Access-Fibre
Access-Duct
Switch and
Transmission
- Switch
- Transmission
Investments
Others (Please
specify)
Total Non-
current Assets
Current Assets
Cash and cash
equivalent
Stocks
Debtors
- Internal
- External
Accruals
(Please specify)
Others (Please
specify)
Total Current
Assets
Current
Liabilities
Creditors
- Internal
- External
Accruals
(Please specify)
Page 73
Others (Please
specify)
Total Liabilities
falling due
within one year
Net Current
Assets/
(Liabilities)
Total Assets
less Current
Liabilities
Provisions for
liabilities and
charges
Rounding
Mean capital
employed
Return on
turnover
% of return
on Mean
capital
employed
B.2.6 Consolidated Mean Capital Employed
Consolidated MCE should be broken down as shown in Table below.
Table 33
Mobile: Consolidated Mean Capital Employed
Current
year
(RM)
Call origination X
Call termination X
MVNO access X
National roaming X
Wholesale
International roaming X
RAN Sharing x
Backhaul Services x
Other X
Connections and rentals X
Voice X
SMS X
Retail Data X
International roaming X
Other X
Total retail X
Page 74
Global X
Other Value added services X
Other residual X
Total separated accounts x
Adjustments x/(x)
Audited accounts X
B.2.7 Network Unit Cost by Service
In order to compare internal and external transactions and hence demonstrate that
transfer charges are cost-based and non-discriminatory, it is necessary to show how unit
costs are calculated.
The first step is to calculate average unit costs for each network component, as shown in
Table below. For the purposes of exposition, not all network components are shown, but
these lists should be completed by the operators.
Combining network element unit costs with service routing factors (Table ) produces
network unit costs by service (Table ). These statements can be produced in connection
with both HCA and CCA RFS.
Table 34
Mobile: Network Element Unit Cost Statement
Operating and
Rate of return
Mean Capital
Average unit
Capital costs
capital costs
Operating
Employed
Volume
costs
cost
(%)
Components
BTS/Node B/eNodeB
BSC/RNC
GGSN/SSGN/PGW/SGW
HSS/HLR/FNR/MNP
IN/Prepaid
INTGW
MGW
MMSC/WAP
MNP
MSC/MSS/GMSC/MME
NGIN
NMS
POI
Page 75
RAN
Roaming
SMSC
Transmission
Etc (Please specify)
Totals
Routing factors specify the average number of units of each network component used by
a particular type of service and should be provided as in Table .
Table 35
Mobile: Network Routing Factors
GGSN/SSGN/
HSS/HLR/FN
IN/Prepaid
PGW/SGW
BTS/Node
B/eNodeB
BSC/RNC
INTGW
R/MNP
etc
Component average unit
cost (Table 30)
Service routing factors:
Call origination
Call termination
MVNO access
National roaming
RAN Sharing
Backhaul Services
Other wholesale
Voice
SMS
Data
Other retail
Page 76
Using the network element unit costs and the routing factors provided in the two tables
above, the operators can then derive the unit network cost of different services, as shown
in Table below. For each service, this is calculated as the sum product of network
component average unit costs (Table ) and routing factors from Table .
Table 36
Mobile: Network Unit Costs by Service
GGSN/SSGN/P
HSS/HLR/FNR
IN/Prepaid
BTS/Node
B/eNodeB
BSC/RNC
GW/SGW
INTGW
/MNP
etc
Call origination
Call termination
MVNO access
National roaming
RAN Sharing
Backhaul Services
Other wholesale
Voice
SMS
Data
Other retail
Page 77
B.2.8 Statement of Costs on a Current Cost Basis: Network Activity Statement
As for mobile operators, when costs are stated on a CCA basis, the Network Element Unit
Cost Statement (see Table ) should be augmented to show the CCA adjustments and
supplementary depreciation. This result in a Network Activity Statement (see Table ).
Table 37
Mobile: Network Activity Statement
current cost basis relating to

Total of operating costs and
Holding gain and other CCA
CCA Mean Capital Employed

Applicable rate of return on
Average costs per unit on a

Total CCA operating costs
capital costs relating to

HCA operating cost
Capital costs
current year
current year
adjustments
capital %
Volume
Components
BTS/Node B/eNodeB
BSC/RNC
GGSN/SSGN/PGW/
SGW
HSS/HLR/FNR/MNP
IN/Prepaid
INTGW
MGW
MMSC/WAP
MNP
MSC/MSS/GMSC/M
ME
NGIN
NMS
POI
RAN
Roaming
SMSC
Transmission
Etc (Please specify)
Totals Note 1 Note 2 Note 3
Notes: 1. Total as per wholesale market income statement, 2. Total as per wholesale MCE, 3.
Applicable rate is usually previous year’s rate of return on MCE for the wholesale business.
Page 78
APPENDIX C: CALCULATION OF CURRENT COSTS
This section serves as a basic guide on the principles of current cost account. A more
comprehensive guideline will be developed after consultation with the related parties for
full implementation beginning 2018.
C.1 Historical Costs
The historic and current cost valuations of an asset will be the same if there has been no
change in the price of the asset since its purchase. This means that the use of historical
cost valuation is often appropriate when the asset has a short life and/or a short residual
life. Also, if the asset concerned only accounts for a small percentage of the company’s
total asset base, then any difference between historic and current costs will have little
impact.
In either of these cases there is no need to revalue the asset and the historic costs may
be used.
C.1.1 Example of historical cost valuation
The use of a historical cost valuation can be used to value capital work in progress (CWIP).
Since the year-end balance of historical expenditure broadly reflects current price levels,
no further current cost adjustment is necessary.
C.1.2 Assets to be valued using historical costs
The historical cost valuation of assets other than the example of CWIP given above is
possible, but will depend on the circumstances of the individual operators and the
materiality of the items, as explained above.
C.2 Absolute valuation
Absolute valuation is used to revalue assets when information on the prices and quantities
of network equipment is available. Two variations on the methodology can be identified
and the choice between them depends on whether or not there has been technological
progress between the time of the purchase of the original asset and when it is revalued.
The two methodologies and examples of their use are explained in the following sub-
sections and it is important to keep in mind that the aim of both is to reflect as closely as
possible the prices available to Malaysian operators. As a result, the prices used in the
calculations should include an allowance for any discounts that operators receive against
the list prices of the assets. In addition, if operators have framework contracts with a
Page 79
network equipment vendor or any other supplier, then the prices under this agreement
should be used, because they will reflect the costs that would be incurred if that operator
were to actually replace its assets.
If the asset being valued has not been subject to technological change since its purchase
date, then if it were to be replaced today it would be replaced by an identical asset.
However, the price of this asset may have changed over time (including as a result of the
availability and size of any discounts against list prices available to the operator making
the valuation).
C.2.1. Example of absolute valuation using existing assets
Since valuation using the current price of existing assets is appropriate when no
technological progress has occurred it should be used for long lived assets that are
unaffected by technological change such as ducts and radio masts. Absolute valuation
using existing asset prices may also be appropriate for vehicles with reasonably long asset
lives, as shown in the example below.
From their Fixed Asset Registers (FAR), the operators should have accurate figures on the
numbers of the different types of vehicles they operate but for this example we assume
100 vehicles of the same vintage. For the purposes of this illustrative example, it is
assumed that the asset life for vehicles is 5 years and that the age of the vehicles
considered in this example is 3 years. It is further assumed that the price of a vehicle has
fallen by RM 10,000 since the existing vintage of vehicles was purchased. This lower price
could, for example, be due to the list price of vehicles falling over time, or because the
operator has negotiated a discount of RM 10,000 per vehicle with its supplier.
The process used to calculate the net replacement cost (NRC) from the gross book value
(GBV) of the existing asset is shown in Table and the steps are explained below the table.
Page 80
Table 35
Calculation of NRC from GBV
Amount
(RM)
GBV of each existing vehicle 150,000
Accumulated depreciation 90,000
NBV of each existing vehicle 60,000
Price of a new asset (GRC) 140,000
CCA depreciation c/f 84,000
NRC of each existing vehicle ( GRC- 56,000

CCA)
NBV of all such vehicles 6,000,000
NRC of all such vehicles 5,600,000

Source: NERA
Using straight line depreciation over the 5-year asset life, vehicles of this vintage will each
have accumulated depreciation of RM 90,000. This is calculated as 3/5 of the historic cost
because the average vehicle is 3 years old and vehicles are assumed to have an asset life
of 5 years. When the accumulated depreciation is subtracted from the GBV, this leaves
an NBV of RM 60,000 for each vehicle.
The price of a new vehicle at the time of revaluation is RM 140,000 and this is the gross
replacement cost (GRC) of the vehicle. As before, three years of accumulated depreciation
are taken into account to leave an NRC for a vehicle of RM 56,000. Since this result is for
a single vehicle, we multiply by 100 to calculate the NRC of the cohort of 100 vehicles,
which is RM 5,600,000.
C.2.2 Assets to be valued with absolute valuation using existing assets
Examples of the types of assets that may be revalued using absolute valuation are:
(i) Duct
(ii) Towers
(iii) Copper and fibre
(iv) Vehicles
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C.3 Modern Equivalent Asset valuation
The use of a “modern equivalent asset” (MEA) valuation may be necessary when:
(i) The existing asset is no longer available from equipment suppliers; or
(ii) Technological progress has rendered the existing asset obsolete.
In the first of these cases there will be no price data available for the existing asset. In
the second case, a new entrant operator would not deploy a network using obsolete
equipment, so this methodology will not provide a true reflection of the costs of replacing
the existing network. In both cases MEA prices should be used when valuing the asset.
MEAs should be chosen such that they have similar service potential to the existing asset,
because their prices act as a proxy for the replacement cost of the existing asset.
However, there may nevertheless be differences in the features, functionality, capacity,
quality, operating costs, asset lives or space requirements of the MEA compared to the
existing asset. It is important that such differences should be taken into account when
valuing the existing asset.
In cases where the MEA is superior to the existing asset in terms of features, functionality,
capacity or quality, this should be accounted for by estimating the value of the difference
and subtracting this value from the estimate of the current value of the MEA. Differences
in operating costs may arise from differences in maintenance, network management or
associated indirect costs and should similarly be discounted. The MEA should be chosen
on the basis of the asset with the required capacity and functionality, which, summing
over the asset life has the lowest net replacement cost. In doing this, any differences in
asset lives should be considered.
Where there is surplus capacity, i.e. capacity that is not currently required and is not
expected to be required within the network planning horizon, valuations should be
adjusted downwards. This is not only the case for network traffic capacity but also physical
capacity. For example, it is possible that a modern switch requires less space in the
buildings that contain switching equipment than the existing asset does and this should
be accounted for in the MEA valuation.
C.3.1 Examples of MEA valuation
As explained above, MEA valuation is appropriate when technological progress has

occurred. This means that it is likely to be an appropriate methodology for valuing an
operator’s switching/routing and transmission equipment, because these assets are
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subject to considerable technological change. MEA valuation is likely to be the most
appropriate approach to use for much of an operator’s switching and transmission
equipment.
Two examples are provided below as illustrations of how the process can be implemented,
but it is important to note that an operator itself is in the best position to know what assets
it owns, what assets are currently available to replace them and hence, which valuation
methodology is appropriate in each case. The following examples refer to the valuation of
a particular asset, but where an operator has more than one asset of each type and the
assets were purchased at different points in time and hence, have different gross book
values and levels of accumulated depreciation, these should be revalued separately. In
order to simplify this process, assets of the same type and of the same “vintage” can be
revalued together.
C.3.1.1 Example 1 – Increased capacity
This example is based on MEA valuation of an operator’s switch or router and assumes
that sufficient technological progress has been made to justify the use of MEA over
absolute valuation (which is explained in Appendix C.2 above). This asset could be a next
generation network (NGN) router in a fixed network or a mobile switching centre in a
mobile network; the principles are the same regardless of the precise asset in question.
To revalue the asset, it is first necessary to identify the MEA. As explained above it should
be the modern asset with the lowest net replacement cost calculated over the expected
life of the asset, which has at least the same capacity and functionality as the existing
asset.
Operators in Malaysia will know from their FARs how many of each type of asset they use
and for this example we have assumed the number to be 10. We also assume an asset
life of 10 years for a switch/router. It is possible that an operator will have purchased its
existing assets at different points in time, and as noted above, in this case, each vintage
of switch/router should be revalued as a tranche. In the example below, we assume that
an operator has five switches of the same age which are being revalued together.
Table below compares the existing switch against the MEA asset. In this example, while
the price of the MEA is the same as the historical cost of the existing asset, the MEA has
greater capacity. For example, it could be capable of handling a greater number of busy
hour call attempts. We assume for the sake of exposition that the MEA asset can handle
1,000,000 busy hour call attempts as opposed to only 750,000 for the existing asset.
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Table 39
Comparison of Existing Asset and MEA Asset
Asset Historic cost Asset life Age Output

(RM) (years)
Existing 250,000,000 10 6 750,000

asset
MEA 250,000,000 10 N/A 1,000,000
Source: NERA.
The process used to calculate the NRC from the GBV of the existing asset is shown in Table
below and the steps explained below the table. It is similar to the example in Table above,
but has the complication of the increased capacity.
Table 40
Calculation of NRC given Increased MEA Capacity
Amount
(RM)
GBV of existing asset 25,000,000
Accumulated depreciation 15,000,000
NBV of existing asset 10,000,000
Price of MEA 25,000,000
GRC (if same output as existing asset) 18,750,000
Revised GBV of existing asset 18,750,000
Revised depreciation on existing asset 11,250,000
NRC of existing asset 7,500,000
NBV of all such assets 50,000,000
NRC of all such assets 37,500,000
Source: NERA.
Given a GBV of RM 25,000,000 and using straight line depreciation over the 10-year asset
life, a single switch of this vintage will each have accumulated depreciation of RM
15,000,000. This is calculated as 6/10 of the historic cost because the average asset is 6
years old and the asset life is 10 years. When the accumulated depreciation is subtracted
from the GBV, this leaves an NBV of RM 10,000,000 for each switch.
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In this example, the MEA has greater capacity than the existing asset (see Table 36). It
is therefore necessary to adjust the MEA price to what it would be if the MEA had the same
level of output as the existing asset (measured in this example by busy hour call attempts).
This is done by multiplying the MEA price by the ratio of the existing asset output to the
MEA output, in other words 750,000/1,000,000 * RM 25,000,000. The result, RM
18,750,000, is the GRC of each the existing asset, using MEA valuation and we adjust the
accumulated depreciation in the same manner (750,000/1,000,000 * RM 15,000,000 =
RM 11,250,000). Subtracting one from the other we find that the NRC of each existing
switch is RM 7,500,000 and so for all five of the operator’s assumed switches of this vintage
the NRC is RM 37,500,000, compared to an NBV of RM 50,000,000.
This result can be checked simply by recalling that the existing asset has only three
quarters of the capacity of the MEA, so its NBV must be reduced by a quarter to find the
NRC.
C.3.1.2 Example 2 – Reduced operating costs
As explained above, an MEA may have lower operating costs than the existing asset. This
might, for example, come about as a result of improved energy efficiency, as is assumed
in the example below in Table .
Again, an operator itself is in the best position to judge the merits of its assets relative to
their modern equivalents, so for the purposes of this example we assume that the operator
needs to perform an MEA valuation on its voicemail equipment. We assume, for illustrative
purposes, that the reason for this is that as a result of technological change, MEA voicemail
equipment requires 20% less electricity than the operator’s existing asset. We assume
for simplicity that the operator has only one voicemail system.
Table 41
Comparison of Existing Asset and MEA Asset
Asset Historic cost Asset life Average Operating

(RM) (years) age costs
Existing asset 200,000 10 4 25,000 p.a.
Modern asset 200,000 10 N/A 20,000 p.a.
Source: NERA.
Assuming that the existing asset has operating costs relating to electricity of RM 25,000
per year, then the equivalent figure for the MEA asset will be 20% less than this, or RM
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20,000. The difference in the net present values (NPVs) of these sums over the ten-year
lifetime of the assets, discounted at a rate of 10%, is RM 30,723. The 10% discount rate
is an assumption for the purposes of this example, and should be replaced by the relevant
operator’s cost of capital when the actual calculations are performed.
On the assumption that the existing asset is four years old, it has six years of life remaining
during which savings in operating costs could be made were the asset to be replaced by
its modern equivalent. Therefore 6/10 of the difference in NPVs (i.e. RM 18,434) should
be deducted from the price of the MEA asset. Table below shows the reduction in the price
of the MEA from RM 200,000 to RM 181,566 in order to take account of the difference in
operating costs and then revises the depreciation as in the previous example.
Table 42
Calculation of NRC given Lower MEA Opex
Amount (RM)
GBV of existing asset 200,000
Accumulated depreciation 80,000
NBV of existing asset 120,000
Price of MEA 200,000
GRC (if lower opex taken into 181,566

account)
Revised depreciation on existing asset 72,627
NRC of existing asset 108,940
Source: NERA.
C.4 Assets to be valued using MEAs
Examples of the types of assets that may be revalued using MEAs are:
(i) Radio equipment;

(ii) Exchange equipment;
(iii) Switches and routers;
(iv) Transmission equipment;
(v) IT and computer equipment.
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C.5 Price Indices
The fourth methodology for revaluing assets at current costs involves the use of price
indices. The latter is commonly found in interconnection cost models the operators will be
familiar with it from their LRIC modelling process. The use of price indices is a second
best option to absolute valuation when information on equipment quantities is not known.
Consequently, the use of price indices is only appropriate when a lack of detailed
information on quantities of assets means that absolute valuation is not possible.
Furthermore, the use of price indices is only appropriate when there has been little
technological change, the service potential of new assets is similar to that of the existing
asset and all direct costs that have been incurred and capitalised would be incurred if the
asset were replaced today. It is also necessary to have information on the age profile of
assets and a split of the cost elements used in constructing the asset (pay, raw material,
contract and other). In addition, care must be taken to avoid double counting, for
example, if a trench is re-dug to install additional cable, as it is possible that some assets
on the FAR may no longer be required.
In contrast to the use of prices and quantities in the absolute valuation explained in the
preceding section, the use of price indices can be thought of as a “relative valuation”
against prices in previous years. The historic costs of asset acquisition are multiplied by
price indices to derive current cost valuations of those assets. An example price trend and
price index is shown in Table below.
Table 43
Price Index Example
Year
1 2 3 4 5
Price change in 2.0% 2.5% 3.0% 2.5% 2.5%

year
Price index 102.0 104.6 107.7 110.4 113.1
Source: NERA.
In this example, if an asset purchased at the end of Year 0 is to be revalued at the end of
Year 4, its price must be multiplied by 1.104. The indices used to produce the valuation
can be drawn from a number of sources:
(i) Internal asset specific indices;
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(ii) External asset specific indices; or
(iii) A general price inflation index.
Each operator could construct an internal asset specific index using data on prices that it
has paid for equipment over the years. This approach has the advantage that it reflects
any discounts available to that operator against list prices, but also requires that the
operator has consistently purchased equipment over a period of years. An external asset
specific index, where available, is an alternative and could be checked by third parties
such as equipment manufacturers or suppliers. However, this approach would not account
for factors specific to the operator, such as discounts or any framework contract. If these
price indices are not available, then a more general price inflation index could be used.
While this will reflect broader economy-wide trends it will not capture asset specific price
trends and hence, should only be used as a last resort.
C.5.1 Example of Price Index Valuation
As explained above, the use of price indices is appropriate in situations where information
on the quantity of assets is not readily available, but the assets involved have not been
subject to technological change. This makes it an appropriate methodology for assets such
as support and inventory systems and fixtures, fittings and office equipment. In order to
apply the methodology, the operator should first attempt to construct its own internal
asset specific index, based on actual prices paid. If this is not possible, external price
indices should be sought from equipment manufacturers and suppliers. As explained
above, only in the absence of these first two possibilities and as a last resort could a
general price trend be used.
Furthermore, different elements of the costs of the asset will have different cost trends,
so it will be necessary to separate pay related costs, raw material costs, contract costs
and other costs, and apply appropriate cost trends to each element.
C.5.2 Assets to be valued using price indices
Examples of the types of assets that may be revalued using price indices are:
(i) Installation costs

(ii) Some transmission equipment, such as SDH
(iii) Planning costs
(iv) Poles
(v) Cabinets
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C.6 Adjustments to Depreciation
The use of CCA requires a number of adjustments to be made to take account of holding
gains and losses and the impact of asset price changes on depreciation. These are
explained below.
C.7 Holding gains and losses
Holding gains and losses are unrealised changes in the value of assets as a result of
changes in the current cost of assets held at year end. For example:
(i) If an asset was worth RM 1,000,000 at the beginning of the year and the asset
price rises by 10% during the year, that asset would provide an unrealised holding
gain of RM 100,000 (10%  1,000,000).12 This is treated as a negative cost (i.e. it
increases profits).
(ii) If, on the other hand, the asset price fell by 10% during the year, an asset worth
RM 1,000,000 at the beginning of the year would provide a holding loss of RM
100,000 (10%  1,000,000). This is treated as a cost (i.e. it reduces profits).
Holding gains and losses are shown in the Income Statements (see Section 8 and Appendix
B).
Where there are asset acquisitions, disposals or write offs during the year, these should
be treated as occurring at the end of the year for the purposes of calculating holding gains
or losses. Supplementary depreciation (see next section) should also be calculated using
year-end values.
C.8 Supplementary depreciation
Changes in asset prices also require changes to be made to depreciation charges. There
will be an additional charge against revenue if asset prices are increasing (because the
part of the asset that is “consumed” has risen in value) but a reduction in charges if asset
prices are falling. These additional charges are referred to as supplementary depreciation.
This is illustrated in Table and Table below, which show the position for an asset that has
a five year life and where asset prices are rising by 10% per annum and falling by 10%
per annum respectively. In Table , the gross replacement cost (GRC) and gross book
value (GBV) are used to calculate annual depreciation under CCA and HCA respectively
12 The holding gain is unrealised because the asset has not been sold.
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over the five year life of the asset. The supplementary depreciation on the right hand side
is simply the difference between the CCA and HCA annual depreciation charge. This must
be added to the HCA depreciation and charged against revenue to reflect the current cost
of assets consumed in the year.
Table 44
Supplementary Depreciation
(5 Year Asset Life and 10% p.a. Price Increase)
Year Gross Gross Annual Depreciation

Replacement Book CCA HCA Supplementary
Cost Value (20% of (20% of
GRC) GBV)
0 1,000,000 1,000,000
1 1,100,000 1,000,000 220,000 200,000 20,000
2 1,210,000 1,000,000 242,000 200,000 42,000
3 1,331,000 1,000,000 266,200 200,000 66,200
4 1,464,100 1,000,000 292,820 200,000 92,820
5 1,610,510 1,000,000 322,102 200,000 122,102
Source: NERA.
The calculation in Table below follows the same format, but in this case the reduction in
asset prices means that the GBV exceeds the GRC, and so the supplementary depreciation
is negative.
Table 45
Supplementary Depreciation
(5 Year Asset Life and 10% p.a. Price Fall)
Year Gross Gross Annual Depreciation

Replacement Book CCA HCA Supplementary
Cost Value (20% of (20% of
GRC) GBV)
0 1,000,000 1,000,000
1 900,000 1,000,000 180,000 200,000 -20,000
2 810,000 1,000,000 162,000 200,000 -38,000
3 729,000 1,000,000 145,800 200,000 -54,200
4 656,100 1,000,000 131,220 200,000 -68,780
5 590,490 1,000,000 118,098 200,000 -81,902
Source: NERA.
Supplementary depreciation is shown on the Income Statements (see Section 8 and

Appendix B).
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C.9 Backlog depreciation
Just as changes in asset prices lead to changes in depreciation within the relevant year
(supplementary depreciation), they also affect accumulated depreciation. Backlog
deprecation adjusts accumulated depreciation to take account of any asset price changes.
Continuing from the example shown for supplementary depreciation in Table above (10%
p.a. reduction in asset price),
Table below adds a column showing backlog depreciation. This is calculated as the
difference between cumulative depreciation and required depreciation based on the gross
replacement cost of the asset.
To give an example from Table 46 below, cumulative depreciation in Year 4 is calculated

as CCA depreciation in Year 4 (or equivalently the sum of HCA deprecation and
supplementary depreciation in Year 4) plus cumulative and backlog depreciation from Year
3. Required depreciation in Year 4 is simply four fifths of the GRC (because the asset has
a five-year life), and backlog depreciation in Year 4 is required depreciation minus
cumulative depreciation.
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Table 46
Example of Backlog Depreciation Calculation
Year Gross Annual Depreciation

Replacement CCA HCA Supplementary Cumulative Required Backlog
Cost
0 1,000,000
1 900,000 180,000 200,000 -20,000 180,000 180,000 0
2 810,000 162,000 200,000 -38,000 342,000 324,000 -18,000
3 729,000 145,800 200,000 -54,200 469,800 437,400 -32,400
4 656,100 131,220 200,000 -68,780 568,620 524,880 -43,740
5 590,490 118,098 200,000 -81,902 642,978 590,490 -52,488
Source: NERA.
Any backlog depreciation is recorded in RFS in the Income Statement under “Other
adjustments”.
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APPENDIX D: COST ATTRIBUTION GUIDELINES
D.1 Fixed Network: Methods of Attributing Operating Costs
Category of
Description of
functional operating Cost driver Method of Attribution
account type
cost (cost centre)
Depreciation Depreciation Refer to capital The attribution of depreciation should follow the attribution of the fixed
employed below asset plant groups to which it relates (see capital employed below).
Provision and Payroll costs Time spent Direct to network components/other plant where possible, otherwise
installation of attribute to network components/other plant based on the time spent
equipment carrying out provisioning and installation work.
Installation, contract Installation and Direct to network components/other plant on the basis of the plant
and maintenance maintenance installed or maintained where possible.
costs activity
Maintenance and Payroll costs Time spent Direct to network components/other plant where possible, otherwise
repair costs attribute to network components/other plant based on the time spent
carrying out repair work.
Other costs Repair data Direct to network components/other plant where possible, otherwise
apportion in line with costs that can be attributed.
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Category of
Description of
account type
cost (cost centre)
Network planning Payroll and external Planning and Direct to network components/other plant where possible, otherwise
and developments costs development apportion in line with costs that can be attributed.
costs activity
Network Payroll costs Time spent Attribute to network components/other plant on the basis of the time
management costs spent by staff to manage each type of plant.
Other costs Time spent Attribute to network components/other plant on the basis of the plant
managed, where possible, otherwise apportion in line with costs that
can be attributed.
Marketing and sales Payroll Customer Direct to products and services where possible, otherwise attribute
costs acquisition between products based on revenues from customer segments.
Cost of sales of Volume of Attribute to customer equipment services within “Other activities”.
equipment equipment
Publicity, Promotions, Customer Direct to products and services where possible. Otherwise, for those
Market research fees, segment analysis costs where multiple services are being marketed or promoted, cost
Other costs should be attributed to the related services on a revenue basis for
customer segments.
Billing and collection Payroll costs Number of Direct to products and services where possible, otherwise attribute
costs customers and between products based on activity surveys or the number of
bills raised customers/number of bills raised.
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Category of
Description of
account type
cost (cost centre)
Other billing costs Number of Direct to products and services where possible, otherwise attribute
(incl. Bad debts) customers and between products based on usage (e.g. number of bills produced)
bills raised and/or revenue.
Operator services Payroll costs Time spent Direct to services where possible. The costs of staff that carry out tasks
costs for several operator services should be attributed to the related
operator services based on surveys of time spent on different tasks and
activities.
Payments to other Out payments for Interconnection Direct to products and services.
operators outgoing traffic traffic
Support costs Human resources Headcount HR function costs should be attributed to the staff that are overseen by
function costs the HR function.
(residual)
Finance and other Time spent If related specifically to a product, service or business attribute
head office support accordingly using time spent, otherwise apportion as common
functions (unattributable).
Building costs and Occupancy rate Costs should be attributed according to occupancy from survey data.
rent
General computing/IT Computer use Attribute to operations and system development on the basis of the use
costs of the computers to support each application (jobs and projects). Costs
attributed to applications can then be attributed to those products and
services that they support.
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D.2 Fixed Network: Methods of Attributing Capital Employed
Category of assets Description of

Cost driver Method of Attribution
and liabilities account type
Switching/routing Local switching (PSTN) Traffic For PSTN networks the traffic-related network components of local
equipment exchanges should be identified using information from manufacturers
or engineering studies. The costs of the traffic-related network
components of local exchanges should be attributed based on the use
of equipment by different services (i.e. traffic levels). For the access-
related network components of local exchanges see below.
Core switching/routing Traffic Direct to network components where possible, otherwise attribute
equipment based on traffic.
International Traffic Direct to network components where possible, otherwise attribute
switching/routing based on traffic.
equipment
Switching equipment Service traffic Direct to core network components where appropriate/required by
for special services regulation or to the specific services provided by other networks – e.g.
specific data switching equipment should be attributed directly to data
transmission services.
Other Traffic Direct to network services where possible, otherwise attribute to other
switching/routing switching network components on the basis of the use of the equipment.
equipment
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Transmission Traffic-sensitive Circuit Costs include both capital and maintenance and need to be attributed
equipment transmission equipment numbers using circuit volumes based on a common unit (e.g. number of 2
/traffic volumes Mbit/s paths).
Transmission fibre Circuit capacity Direct to services where possible, otherwise attribute to services
based on use of capacity.
International/submarine International Direct to network components where possible, otherwise attribute
cable traffic based on usage.
Accommodation plant Space occupied Costs should be attributed to plant groups based on space occupied.
(network), e.g. air
conditioning
Other primary Local exchange (access Connections Total cost of local exchange (including capital, pay and indirect costs)
network assets network) should be split between access and core network components using
data provided by manufacturers or engineering studies. Access
network components (e.g. line cards) should be attributed to services
based on the number of connections.
DSLAMs Tie cable Costs should be attributed to products and services based on tie cable
volumes numbers.
MDF Connections Costs of main distribution frames should be attributed based on the
number of connections.
Local loop copper Connections Costs associated with the provision, installation and recovery of
copper cable in the access network (both capital and maintenance)
should be attributed based on the number of connections.
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Other primary Local loop fibre Number of Costs associated with the provision, installation and recovery of fibre
network assets circuits cable in the access network (both capital and maintenance) should be
attributed based on the number of circuits.
Special network plant Service traffic Plant and equipment that is used solely to provide one specific service
should be allocated directly to the relevant services. Examples may
include: Intelligent network equipment, Data transmission equipment
and Multimedia equipment.
Customer premises Number of Direct to products and services where possible. Otherwise attribute
equipment customer to products and services using appropriate cost driver (e.g. use
connections for network termination equipment).
Public payphones and Number of Direct to service.

related equipment payphones
Support Plant Ducting Engineering Ducting can be attributed to the cable and fibre that it supports and
data attributed to products in the same way as cable and fibre. Engineering
studies are used to attribute duct for fibre and duct for copper cable.
Power equipment Power usage Attribute to plant groups on the basis of the use of power equipment,
e.g. kilowatts per hour. Assets should then be attributed to products
in the same way as the relevant plant groups.
Common Intelligence Call volumes These costs include CISL that supports Basic and Advanced Number
Service Layer Translation Services and should be attributed using call volumes.
Ethernet Infrastructure Service traffic The costs of provision of Ethernet connectivity can be directly
attributed.
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Support Plant Network management Usage Attribute to plant groups on the basis of their use of the systems, e.g.
systems time spent to control different types of switch/router. Costs should
be attributed to products and services in the same way as the related
plant group.
Non-network fixed Land and buildings Square metre Attribute to products, services and network components on the basis
assets occupancy of the space occupied (i.e. floor space) to support each product,
service or network component.
General computers Usage Attribute to the applications run by the operator on the basis of the
use of the computers to support each application. Costs attributed
to applications can then be attributed to those products and services
that they support.
Motor vehicles Usage Attribute to products, network components and activities based on
usage.
Furniture and office Usage Attribute to products and network components based on survey data.
equipment
Intangible fixed Licence fees Revenue basis Direct to products where possible, otherwise on the basis of revenues.
assets
Other Revenue basis Attribute to products and services based on revenues achieved.
Working capital Fixed asset investments n/a Direct to “Other activities”.

(associates and joint
ventures)
Other investments n/a Direct to “Other activities”.
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Working capital Short-term investments Operating Direct to products and services where possible, otherwise attribute
(including cash at bank profits based on the operational requirements of each product or service
and in hand) using net operating profit.
Stocks Apparatus Stocks should be attributed directly to products, services or plant
supply and groups.
network
equipment
Trade Turnover Trade debtors may be attributed to products and services based on
debtors/receivables billing system information where possible.
Other Various Other debtors/receivables should be attributed to activities and plant
debtors/receivables groups using bases appropriate to the particular debtor type (e.g.
payroll debtors on the basis of total pay).
Trade creditors Operating Trade creditors should be attributed directly to products and services
expenses if possible.
Long term provisions Various Provisions are either attributed directly to activities and plant groups
or using a base appropriate to the particular charge (e.g. provisions
relating to the cost of vacating leased buildings are attributed using
the accommodation base).
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D.3 Mobile Network: Methods of Attributing Operating Costs
Category of
Description of
account type
cost (cost centre)
Depreciation Depreciation Refer to capital The attribution of depreciation should follow the attribution of the fixed
employed below asset plant groups to which it relates (see capital employed below).
Provision and Payroll costs Time spent Direct to network components/other plant where possible, otherwise
installation of attribute to network components/other plant based on the time spent
equipment carrying out provisioning and installation work.
Installation, contract Installation and Direct to network components/other plant on the basis of the plant
and maintenance maintenance installed or maintained where possible.
costs activity
Maintenance and Payroll costs Time spent Direct to network components/other plant where possible, otherwise
repair costs attribute to network components/other plant based on the time spent
carrying out repair work.
Other costs Repair data Direct to network components/other plant where possible, otherwise
apportion in line with costs that can be attributed.
Network planning Payroll and external Planning and Direct to network components/other plant where possible, otherwise
and developments costs development apportion in line with costs that can be attributed.
costs activity
Network Payroll costs Time spent Attribute to network components/other plant on the basis of the time
management costs spent by staff to manage each type of plant.
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Category of
Description of
account type
cost (cost centre)
Network Other costs Time spent Attribute to network components/other plant on the basis of the plant
management costs managed, where possible, otherwise apportion in line with costs that
can be attributed.
Marketing and sales Payroll Customer Direct to products and services where possible, otherwise attribute
costs acquisition between products based on revenues from customer segments.
Cost of sales of Volume of Attribute to customer equipment services within “Other activities”.
equipment equipment
Publicity, promotions, Customer Direct to products and services where possible. Otherwise, for those
market research fees, segment analysis costs where multiple services are being marketed or promoted, cost
other costs should be attributed to the related services on a revenue basis for
customer segments.
Customer service and Payroll costs Number of Direct to products and services where possible, otherwise attribute
support customers and between products based on activity surveys or the number of
bills raised customers/number of bills raised.
Billing and collection Other billing costs Number of Direct to products and services where possible, otherwise attribute
costs (incl. Bad debts) customers and between products based on usage (e.g. number of bills produced)
bills raised and/or revenue.
Payroll costs Time spent Direct to services where possible. The costs of staff that carry out
tasks for several operator services should be attributed to the related
operator services based on surveys of time spent on different tasks
and activities.
Payments to other Out payments for Interconnection Direct to products and services.
operators outgoing traffic traffic
Page 102
Category of
Description of
account type
cost (cost centre)
Support costs Human resources Headcount HR function costs should be attributed to the staff that are overseen
function costs by the HR function.
(residual)
Finance and other Time spent If related specifically to a product, service or business attribute
head office support accordingly using time spent, otherwise apportion as common
functions (unattributable).
Building costs and Occupancy rate Costs should be attributed according to occupancy from survey data.
rent
General computing/IT Computer use Attribute to operations and system development on the basis of the
costs use of the computers to support each application (jobs and projects).
Costs attributed to applications can then be attributed to those
products and services that they support.
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D.4 Mobile Network: Methods of Attributing Capital Employed

Radio access network Radio equipment: Traffic Attribute to services on the basis of resources used by different types
TRXs/carriers of traffic.
BTS/Node B, including Traffic As above.
sites, masts, power
BSC/RNC Traffic As above.
Core network MSC/MSC-CS Subscribers, Attribute to services based on subscriber numbers and engineering
traffic data on traffic.
MGW Subscribers, Attribute to services based on subscriber numbers and engineering
traffic data on traffic.
SGSN/GGSN Data traffic Attribute directly to plant groups for data traffic.
SMSC SMS messages Attribute directly to plant groups for SMS traffic.
Transmission Traffic-sensitive Circuit numbers Costs include both capital and maintenance and need to be attributed
equipment transmission /traffic volumes using circuit volumes based on a common unit (e.g. number of 2
equipment Mbit/s paths).
Support plant Power equipment Power usage Attribute to plant groups on the basis of the use of power equipment,
e.g. kilowatts per hour. Assets should then be attributed to products
in the same way as the relevant plant groups.
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Support plant Network management Usage Attribute to plant groups on the basis of their use of the systems,
systems e.g. time spent to control different types of switch/router. Costs
should be attributed to products and services in the same way as the
related plant group.
Non-network fixed Land and buildings Square metre Attribute to products, services and network components on the basis
assets occupancy of the space occupied (i.e. floor space) to support each product,
service or network component.
General computers Usage Attribute to the applications run by the operator on the basis of the
use of the computers to support each application. Costs attributed
to applications can then be attributed to those products and
services that they support.
Motor vehicles Usage Attribute to products, network components and activities based on
usage.
Furniture and office Usage Attribute to products and network components based on survey data.
equipment
Intangible fixed Licence and spectrum Revenue basis Direct to products where possible, otherwise on the basis of
assets fees revenues.
Other Revenue basis Attribute to products and services based on revenues achieved.
Working capital Fixed asset n/a Direct to “Other activities”.

investments
(associates and joint
ventures)
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Working capital Other investments n/a Direct to “Other activities”.

Short-term Operating profits Direct to products and services where possible, otherwise attribute
investments (including based on the operational requirements of each product or service
cash at bank and in using net operating profit.
hand)
Stocks Apparatus supply Stocks should be attributed directly to products, services or plant
and network groups.
equipment
Trade Turnover Trade debtors may be attributed to products and services based on
debtors/receivables billing system information where possible.
Other Various Other debtors/receivables should be attributed to activities and plant
debtors/receivables groups using bases appropriate to the particular debtor type (e.g.
payroll debtors on the basis of total pay).
Trade creditors Operating Trade creditors should be attributed directly to products and services
expenses if possible.
Long term provisions Various Provisions are either attributed directly to activities and plant groups
or using a base appropriate to the particular charge (e.g. provisions
relating to the cost of vacating leased buildings are attributed using
the accommodation base).
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APPENDIX E: SIGNIFICANT ACCOUNTING POLICIES
Below are the most significant and relevant accounting policies for the purposes of
producing the RFS. They are separately presented for fixed and mobile networks because
the nature and structure of their operations differ. Also identified are accounting policies
that should be common to both fixed and mobile networks. Since, the starting point for
AS is the same as for audited accounts, operators should use accounting policies that are
consistent with their statutory accounting policies. For example, when RFS is produced
for 2013, the accounting policies should match those in the operators’ 2013 audited
accounts.
E.1 Fixed Network
The Group Financial Statements are prepared in accordance with the provisions of the
Companies Act 1965, the International Financial Reporting Standards (IFRS), and the
MASB Approved Accounting Standards in Malaysia.
The financial statements are prepared under the historical cost convention except as
disclosed in the significant accounting policies. Based on the accounting policies in the
Group Financial Statements for 2010, the following policies would need to be followed for
the production of the RFS for that year.
E.1.1. Fixed Assets
The cost of the telecommunications network should include expenditure up to and

including the last distribution point before the customers’ premises and include related
material, labour and associated overhead charges. The cost of other property, plant and
equipment should comprise their purchase price and any incidental costs of acquisition.
Depreciation should be implemented on a straight line basis to write off the cost of the
assets over their estimated useful lives as follows:
(i) Telecommunication network 3-25 years
(ii) Movable plant and equipment 5-8 years
(iii) Computer support systems 3-5 years
(iv) Buildings 5-40 yeas
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Depreciation should not be implemented on assets with an infinite life or on land.
Leasehold land should be amortised in equal instalments over the period of the respective
leases. Long term leases should have an expiry period of over 50 years.
Assets with indefinite useful lives should not be subject to amortisation and should be
tested annually for impairment. Other assets with definite useful lives should also be
assessed for impairment whenever events and changes in events indicate that the carrying
amount may not be recoverable. Any losses arising should be written off to the Income
Statement.
E.1.2 Financial Assets
Financial assets held for trading with the purpose of selling within a year should be valued
at year end and any surplus or deficit put through the Income Statement. Financial assets
not held for trading should be classified as hedging instruments and not included within
the MCE Statement. The Group Company only applies fair value hedge accounting for
hedging fixed interest risk on borrowings, so this policy should also be followed for the
RFS. Changes in the fair value of the hedged fixed rate borrowings attributable to interest
rate risk should be recognised in the Income Statement within “finance costs”.
Available-for-sale Financial Assets represent non-derivatives that should either be

designated in this category or not classified in any of the other categories. They should be
included in non-current assets unless the investment matures or management intends to
dispose of them within 12 months from the end of the reporting period. These should
initially be capitalised at cost and subsequently recorded at fair value. Changes in the
value of these investments should not be recorded in the Income Statement until the
investment is sold.
E.1.3 Grants and Universal Service Provision (USP) Funding
Government grants should be recognised at their fair value where there is a reasonable
assurance that the grant will be received and the Group will comply with all attached
conditions. Government grants relating to income should be deferred and recognised in
the Income Statement when the expenditure to which they relate is incurred. Government
grants relating to the purchase of assets should be deferred and shown in non-current
liabilities and recognised in income over the estimated useful lives of the related assets.
The cost of funding the USP should be included as part of the operating cost base in both
the audited accounts and the RFS. Any government grants received in respect of this
Page 108
expenditure are treated in accordance with the stated policy and recognised in the Income
Statement when the expenditure to which they relate is incurred.
E.1.4 Revenue
Revenue should comprise the fair value of the consideration received and receivable for
the sale of products and services net of returns, duties and sales discounts. Operating
revenue should be recognised or accrued at the time of the provision of products and
services, when the amount of revenue can be reliably measured and it is probable that the
future economic benefits will flow to the Group. Advance billings comprise mainly billings
for data services, which should be amortised on a straight line basis according to
contractual terms.
E.2 Mobile Networks
The mobile market is served predominantly by several mobile operators, some comprising
a number of subsidiary companies operating within Malaysian territory and overseas. The
Group Financial Statements of these operators are prepared in accordance with IFRSs and
the Companies Act 1965 in Malaysia. All financial statements are prepared on the historical
cost basis unless otherwise indicated in the accounting policies stated below.
Although the individual companies follow the accounting policies as prescribed by the
Malaysian Financial Reporting Standards, the companies are allowed a degree of flexibility
with which to apply them to their individual results. The preparation of both statutory and
RFS often involves the use of estimates and assumptions that are likely to differ between
various organisations and businesses and require management to exercise a level of
judgment in the process of applying the Group accounting policies.
For instance, the accounting policy for spectrum costs differs between the mobile
operators. While some capitalise the spectrum costs and amortise them over the term of
the spectrum, others consider expenditure incurred in acquiring telecommunications
licences with allocated spectrum rights to have infinite economic useful lives and related
costs are therefore capitalised but not amortised. This is because their Directors are of
the opinion that the licence can be renewed in perpetuity at negligible cost. The company
carries out annual impairment reviews.
E.2.1 Basis of consolidation
As noted in Section 4.1.2 some of the mobile operators have complex corporate structures.
For the purposes of AS intra-group income and expenses should be eliminated on
Page 109
consolidation so that the consolidated financial statements reflect only external
transactions
Subsidiaries should be consolidated using the purchase method of accounting. Under this
method the results of subsidiaries acquired or disposed of during the financial year are
included in the Income Statement from the effective date of acquisition or up to the
effective date of disposal. The subsidiaries’ identifiable assets acquired are measured
initially at fair value at the date of acquisition. Adjustments to those fair values relating
to previously held interests are treated as a revaluation and recognised in other
comprehensive income, in other words the adjustments do not pass through the Income
Statement and should be posted directly to reserves.
E.2.2 Fixed Assets
Property, Plant and Equipment should be stated at cost less accumulated depreciation and
impairment losses. Cost should include expenditure that is directly attributable to the
acquisition of an asset. CWIP comprising mainly telecommunication equipment, submarine
cables and renovations is not depreciated until the types of equipment concerned are ready
for their intended use. We note that the accounting treatment of fixed assets varies
between the mobile networks, as shown in Table 36 below.
Table 36 Mobile Network Policies on Asset Lives (years)
Company A Company B Company C

Leasehold land 50-90 20-100 30-99
Buildings 42-50 5-50 50
Network equipment 4-25 3-20 3-30
Movable plant and 3-7 5-8 3-5
equipment
Computer support systems 3-7 3-5 3-5
Source: Operators’ audited accounts.
As explained above, it is essential for the production of the RFS that the operators match
their own statutory accounting policies, even where this will lead to differences between
the operators in the accounting policies used for their RFS.
Page 110
E.2.3 Intangibles
Intangibles can be acquired through a business combination or through separate

acquisitions. Intangible assets acquired in a business combination should be recorded at
fair value at the date of acquisition and recognised separately from goodwill.
Intangible assets that are considered to have a finite life should be amortised on a straight
line basis over the period of expected benefit. (Spectrum costs should be amortised over
the spectrum period). Assets with no finite lives, or not yet available for use, should not
be amortised. Impairment reviews should be carried out annually.
Handset subsidies, meaning expenditure incurred in providing customers with free or

subsidised handsets, should be capitalised as intangible assets and amortised over the
contractual period on a straight line basis, provided the customer signs a non-cancellable
contract for a predetermined contractual period. Investments should be excluded from the
statement of MCE if they are not related to regulated activities e.g. speculative
investments in property.
E.2.4 Current Assets
Inventories, which comprise telecommunication components, incidentals and devices,

should be stated at the lower of cost and net realisable value. Cost includes the actual
cost of materials and incidentals in bringing the inventories to their present location and
condition and is determined on a weighted average basis.
Financial assets are deemed to be held for trading unless they are designated as effective
hedging instruments.
E.2.5 Grants and USP Funding
As universal service providers, the operators are entitled to obtain certain qualified
expenses from the MCMC in relation to USP projects. These are treated as government
grants and should be recognised at their fair value where there is reasonable assurance
that the grants will be received. Grants related to assets should be treated as income over
the life of the related assets by way of a reduced depreciation charge. Grants related to
income should be recognised in the Income Statement by crediting directly against the
related expense.
Page 111
E.3 Common Accounting Policies
E.3.1 Borrowing Costs
Borrowing costs that are directly attributable to the acquisition, construction or production
of a qualifying asset should be capitalised as part of the cost of the assets. Other borrowing
costs should be recognised as an expense in the Income Statement when incurred.
Fees paid on the establishment of loan facilities should be recognised as transaction costs
of the loan to the extent that it is probable that some or all of the facility will be drawn.
To the extent that there is no evidence that the loan facility will be drawn, the fee should
be capitalised as a prepayment and amortised over the period of the facility to which it
relates.
E.3.2 Provisions for Liabilities and Charges.
Provisions should be recognised when the Group has an obligation as a result of past
events, and it is probable that an outflow of resources will be required to settle the
obligation. As such the provision will form part of the operating expenditure and will be
treated as any other cost for the Regulatory Accounting purposes.
E.3.3 Significant Related Party Transactions
A related party transaction is the transfer of resources, services or obligations between

related parties regardless of whether a price is charged. Our review of the Malaysian
operators’ audited accounts revealed that there were a considerable number of these
transactions.
For the purposes of preparing the RFS, as for their audited accounts, the amounts due
from/(to) related parties should be disclosed and the nature of the transactions that have
taken place. All related party transactions should be entered in the normal course of
business and at prices available to third parties or on negotiated terms.
E.3.4 Financial Instruments
The RFS exclude income, costs, assets and liabilities relating to regulatory entities' long-
term funding. Accordingly, substantially all of the accounting for financial instruments is
excluded from the RFS, except to form part of the Reconciliation Statement.
Page 112
APPENDIX F: ACCOUNTING SEPARATION - OPERATOR DOCUMENTATION
ILLUSTRATIVE DOCUMENTATION TEMPLATE
F.1 ILLUSTRATIVE TEMPLATE
Documentation should follow as closely as possible the structure and content of this
guideline.
The Regulatory Accounting Documents set out the framework under which the RFS are
prepared and contain detailed descriptions of the policies, methodologies, systems and
processes for deriving and/or calculating costs, revenues assets and liabilities underlying
the regulatory results by products as specified in the Guidelines.
The documentation should comprise:
(i) Organizational and Group Structure, including a list of entities covered by the
reporting requirements and relationship between them;
(ii) Accounting systems used in the organization to generate accounting and regulatory
information;
(iii) A statement of the Accounting Separation Principles followed;
(iv) A statement of the Accounting Policies used, in accordance with Section 3 above
and Appendix E, and noting, where necessary, any changes in the policies over
time. These should align with the accounting policies used for statutory purposes.
In circumstances when they do not, reasons for variations should be explained in
the Regulatory Accounting Documents;
(v) An explanation of the cost attribution methods and the principal cost drivers used,
following the guidance set out in Section 5 and Appendix D;
(vi) An explanation of the nature and calculation of the transfer charges, in accordance
with what is described in Section 6;
Page 113
(vii) Accounting policies used for assets and liabilities included within the Mean Capital
Employed Statement and reasons and detail of account categories excluded from
the Regulatory Financial Statements;
(vii) A full list of all codes and definitions used for:

─ Products and services;
─ Account codes;
─ Activity codes;
─ Cost centres and functions; and
─ Data sources.
Documentation supporting the RFS needs to be of good quality i.e. of high professional
standards.
The necessary level of documentation is also linked to the audit requirements, with aspects
of the costing process having to be reviewed “in accordance with the documentation”.
Retention of records should be the same as for current statutory purposes.
Operators will need to submit their documentation to MCMC for review, together with
Regulatory Financial Statements, in accordance with the Implementation Timescale set
out in Section 11 of the Guidelines and agreed at the working group level for individual
operators, in line with their statutory and stock exchange disclosure requirements.
F.2 Documentation should follow the AS Guidelines structure
Each section will need to be prepared to cover the particular items such as revenue or cost
categories, the rationale for attribution, the methodology used and data sources, such as
non-financial information.
Examples of content are given below for three AS sections.
Page 114
F.3 Accounting Separation Principles and Policies
This section should include the accounting policies adopted in the statutory and regulatory
accounts for major revenue, cost, asset and liabilities items and are likely to include
policies for:
i. Revenue recognition
ii. Fixed Assets recognition and depreciation provisions
iii. Financial Assets
iv. Grants and Universal Service Provision (USP) Funding
v. Intangibles
vi. Current Assets
vii. Borrowing Costs
viii. Provisions for Liabilities and Charges
ix. Significant Related Party Transactions
The above list is not exhaustive and there will be other items (such as impairment reviews)
that may need further disclosure.
F.4 Revenue recognition and attribution
This section should include an overview and general principles of revenue recognition and
allocation. For example:
“The majority of the wholesale and retail revenue will be allocated directly to products and
services from the accounting records. Where it is not possible to allocate directly, revenue
is attributed to the relevant service or product using information from the billing system.
In instances where neither direct allocation of the use of the billing systems is possible,
the method used needs to be detailed separately. “
For each General Ledger line used by the operators in the preparation of the regulatory
financial statement, the revenue allocation principle used (direct, indirect, unattributable
etc) and allocation method should be crossed referenced to the audited accounts for audit
purposes.
Page 115
Revenue in “other” category needs to be analyzed by major products lines e.g. sales of
handsets.
F.5 Cost Attribution
i. List of cost items that can be directly allocated to products and services
ii. List of cost items that require apportionment and the methods used to apportion.
iii. List of cost, assets and liabilities excluded from apportionment and Regulatory
Statements and reasons for their exclusion
iv. Cost Causation and Cost Drivers for network elements and major cost categories
v. Cost Categories used and mapping to the General Ledger.
vi. Systems and processes applied including detailed statistical information used in the
analysis.
F.5.1 Example Cost Attribution Documentation
CATEGORY OF FUNCTIONAL OPERATING COST (COST CENTRE)
………………………..
ACCOUNT TYPE
…………………………..
DESCRIPTION (of items/activities)
……………………………..
Page 116
RATIONALE FOR THE COST DRIVER
………………………………
ATTRIBUTION/ALLOCATION METHODS (e.g. on the basis of……….)
……………………….
RATIOS (possibly)
………………………………….
NON FINANCIAL INFORMATION (data sources used)
………………………………
AN APPENDIX (Containing a list of accounts/cost centers used for this category)
………………………….
F.6 Transfer Charges
This section should describe the products and services that are being transferred charge
for within the Regulatory Financial Statements and the methodology used for setting the
transfer charge price.
Transfers at Market Prices
Transfers at Cost plus Cost of Capital
Page 117
Where transfer charges are made based on the cost plus WACC methodology, the
documentation should specify the value used for WACC and assumptions adopted for its
calculation.
F.7 Reconciliation
The reconciliation statement will form part of the Regulatory Financial Statements and will
need to be audited. Items classed as adjusting entries (i.e. items that exist in the audited
accounts but not in the Regulatory Accounts or vice versa) will need to be explained in the
documentation submitted.
F.8 Scope and Development of Documentation
The level and scope of the AS documentation will need to be considered by individual
operators in terms of their own standards (of documentation) and procedures and the
scope will also need to be discussed with the operators own auditors.
As the regulatory reviews of RFS reports take place, there will be further developments to
the supporting AS documentation to provide the required transparency of the regulatory
results.
Page 118

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Malaysian Communications and Multimedia Commission

LIST OF TABLES VIII

1.1 Outcome of Public Inquiry Process 1

2. SCOPE AND COVERAGE OF ACCOUNTING SEPARATION 4

2.2. Fixed Network Services 5

2.3. Mobile Network Services 8

3. ACCOUNTING SEPARATION PRINCIPLES AND POLICIES 11

3.1. Overview and General Principles 11

4. REVENUE RECOGNITION AND ATTRIBUTION 12

4.1. Overview and general principles 12

5.1. Overview of Cost Attribution 13

5.2. Cost Causation and Cost Drivers 14

5.3. Cost Categories used by Operators in Malaysia 16

5.4. Steps Required for Cost Attribution 17

5.4.1. Direct costs 17

5.4.2. Directly attributable costs 17

5.4.3. Indirectly attributable costs 18

5.4.4. Unattributable costs 19

5.5. Developing the Cost Attribution Process and Systems 19

6.1. Transfers at Market Prices 21

6.2. Transfers at Cost plus Cost of Capital 22

6.3. Cost of Capital 22

6.4. Demonstration of Transfer Charges 24

6.5. Fixed Network 24

6.6. Mobile Networks 25

7. FORMAT OF REGULATORY FINANCIAL STATEMENTS 26

7.2. Requirements for Large Operators 26

7.3. Requirements for Small Operators 26

8.2. Reconciliation Statements for Large Operators 28

8.3. Reconciliation Statements Small Operators 29

9. CURRENT COST ACCOUNTING METHODOLOGY 31

9.1. Overview of Asset Valuation Methods 31

10. AUDIT AND DOCUMENTATION REQUIREMENTS 32

10.1. Overview of audit opinion for large operators 32

10.2. Audit scope 33

10.4. Maintenance of accounting records and responsibilities 37

11. IMPLEMENTATION PLAN 39

11.1. Implementation Timetable 39

A.1 Small Operator Wholesale Income Statement 41

A.2 Small Operator Retail Income Statement 42

A.3 Small Operator Other Business Income Statement 43

A.4 Small Operator Net Asset Statement 44

APPENDIX B: FORMAT OF ACCOUNTS FOR LARGE OPERATORS 46

B.1 Fixed Operators 46

B.1.1 Wholesale Service Income Statements 46

B.1.2 Consolidated Wholesale Income Statement 48

B.1.3. Retail Service Income Statements 51

B.1.4 Consolidated Retail Income Statement 52

B.1.5 Wholesale Mean Capital Employed by Service 54

B.1.6 Retail Mean Capital Employed by Service 54

B.1.7 Consolidated Mean Capital Employed 59

B.1.8 Other Business Income Statement Format 60

B.1.9 Network Unit Cost by Service 61

B.1.10 Statement of Costs on a Current Cost Basis: Network Activity

B.2 Mobile Network 65

B.2.1 Wholesale Service Income Statements 65

B.2.2. Retail Service Income Statements 67

B.2.3 Other Business Income Statement Format 69

B.2.4 Consolidated Income Statement 70