OFFICE FOR COMMUNICATIONS (AK)PRINCIPALITY OF LIECHTENSTEIN

A D M I N I S T R A T I V E D E C I S I O N

The Office for Communications (AK) has in the official administrative matter regarding the

Approval of a cost accounting model of

Telecom Liechtenstein AG

with its registered office in FL-9490 Vaduz, Schaanerstrasse 1,

on DD. Month. 2017

ruled as follows:

Aeulestrasse 51 | P.O. box 684 | 9490 Vaduz | Liechtenstein | T +423 236 64 68 | F +423 236 64 89 | info.ak@llv.li | www.ak.llv.li

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RULING

1. The cost accounting model ("CAM") submitted by Telecom Liechtenstein AG, consist­ing of the computed Excel document "20170403_1639 20160531_1557 BAB - IST- Werte 2015 V5 - AK.xIsx" and the documentation "Kostenrechnungsmodell Basis 1st 2015", (hereinafter the "Cost Accounting Model 2015 Actual Basis" document), which are enclosed with the present administrative decision as attachments, is approved as follows in accordance with Points 2 and 3 of the ruling.

a. The structure and system of the assessed cost accounting model is hereby approved.

b. The data on costs, revenues and quantities, which were included in the cost accounting submitted for plausibility purposes, were not an object of the as­sessment and are thus not approved.

The publication of the Excel document, as well as of those enclosures which contain trade and business secrets, is being waived due to the confidentiality interest in same on the part of Telecom Liechtenstein AG.

2. The Office for Communications (AK) has defined the following specified amounts, cal­culation methods and approaches:

a. The following useful life values are to be applied for the CAM from the begin­ning of the 2016 financial year for the network elements (NE):

Network Element No. and Specification - Description Useful Lives (in years)

NE 201 Building installations-fittings, electronics, 15etc.

NE 202 Furnishings / facilities 7NE 204 Patents - licences Frequencies 15

Software licences 5Sundry 3

NE 205 IT hardware - server, client PC, mobile devic- 5es

NE 206 IT software SW, ... 5NE 314 DSLAM (access) - access units for DSL 8NE 321 RSS (access) - voice access gateway systems 8NE 338 CRM billing - billing system, mediation, 5

NE 391 RAN (loc.) - installations at the transmitting 8stations

NE 422 BRAS (core) - IP routing system for the DSL 8retail customers

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NE426FTTB CO 8NE 427 IP network (FL-net) (core) - L2 / MPLS plat­

form8

NE 429 WDM (core) - transmission system FOC core 8NE 492 Mobile core 6NE 506 CATV headend - signal processing for the

CATV network8

b. The depreciation of the Network Element 200 "Schaanerstrasse building" is to be solely effected on the asset value of the building, commencing with an ac­quisition value of CHF 5,741,794, but not on the asset value of the real estate.

c. The interest rate for the calculation of the imputed capital costs amounts to 3.67%.

3. Telecom Liechtenstein AG is, in the event of a fundamental change regarding the structure and system as indeed the amounts, calculation methods and approaches, obliged to reassess its cost accounting model and revise it if need be and to submit it anew to the Office for Communications for approval. Fundamental changes are re­garded especially as changed network structures, relevant amendments to the sector- specific law, the introduction of new services or technologies, changes to the useful lives, carrying amounts or other amounts in the accounting, or every other change which seems appropriate for having a significant influence on the result of the cost accounting.

4. Any appeal against this administrative decision has its suspensive effect revoked pur­suant to Art. 100(1) Liechtenstein National Administrative Act (LVG) in conjunction with Art. 116(3)(a) and (8) LVG.

5. Telecom Liechtenstein AG is obligated to pay administrative fees at an amount of |I within 14 days by means of the enclosed payment slip to the Liechtenstein

National Administration, Landeskasse, Kirchstrasse 8, 9490 Vaduz, with details of the reason for payment, subject to execution otherwise.

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A. Established Facts

A .l Party to the proceedings

Telecom Liechtenstein AG (hereunder also called "TU") is a provider of electronic commu­nication services which is registered in Liechtenstein.

TLI was created on 1 January 2008 by the merger of Telecom FL AG and LTN Liechtenstein TeleNet AG. On 27 August 2014, TLI merged by means of an absorption merger with Mo­bilkom (Liechtenstein) AG. The Principality of Liechtenstein holds a 75.1% shareholding in TLI and the Telekom Austria Group a 24.9% shareholding in same.

As a full service provider, TLI offers single products or product bundling in the fixed net­work, mobile telephony, internet and TV areas, among others. It provides these services by utilising its own mobile communication network as well as the networks provided by Liechtensteinische Kraftwerke (LKW) - the copper pair network, the fibre optics network, as well as the CATV/HFC network.

TLI was identified in the Ml, M2, M3, M5 and M7 market analyses by the Office for Com­munications (hereunder also called the "AK") as a provider with significant market power on the respective market and subject to corresponding regulatory measures.

A.2 The dominant market position of Telecom Liechtenstein AG

It was determined by the administrative decisions - termed "the administrative decisions" hereunder - in the M l proceedings dated 4 October 2010, in the M2 and M3 proceedings dated 24 August 2010, in the M5 proceedings dated 16 December and in the M7 proceed­ings dated 28 July 2011 from the AK due to the market analyses conducted in accordance with Art. 22(1) KomG, that no effective competition prevails on the retail customer market for access to the public telephone network at fixed locations (market Ml), as well as on the wholesale service markets for establishing a connection in the public telephone net­work at fixed locations (fixed network market for call origination M2) and for the call ter­mination in its public telephone network at fixed locations (call termination on fixed net­works M3), as well as on the wholesale market for the broadband access for major cus­tomers (market M5), as indeed on the wholesale service markets for call termination in individual mobile communications networks (M7), and that TLI enjoys a position of sole significant market power in accordance with Art. 22 (l)(b) KomG.

Thus, in the proceedings Ml, M2, M3 and M5, among others in accordance with Art. 23 KomG and Art. 36 VKND, the obligations were imposed on TLI to maintain a cost account­ing system on the basis of the requirements by the regulatory authority and to maintain accounting separation in order to prevent forbidden cross-subsidisation.

Both the cost accounting model (CAM) in compliance with the specifications of the AK as well as the accounting separation based on regulated and unregulated areas or products

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respectively represent the basis for determining or approving respectively the cost orient­ed prices.

Despite the time that has elapsed since the issuing of the above-mentioned administrative decisions, nothing has changed in the circumstances determined at that time. Competition is still not prevailing on the fixed network telephony markets for access (Ml) and connec­tions (M2, M3). At the end of 2016, there were approx.^Btelephone connections in Liechtenstein from other providers compared to approx. connections from TLI. Inthe broadband access market (M5), no competition continues to prevail in all areas in which broadband access with high connection speeds can be offered only via the HFC network as long as the nationwide expansion of the fibre optics network has not been completed.

A.3 Course of the proceedings

On 5 February 2015 in its quarterly meeting, the AK and TLI agreed the following roadmap for preparing the cost accounting model:

Assessment of Cost Accounting Model (CAM) TLI (2015 Schedule)

Model design: By end April 2015 (content of the CAM struc­ture)

Structure of the model: By end June 2015 (system controls with data)Submission of CAM with 2016 budget data: By end September 2015

Approval by the AK: By end 2015

In numerous meetings and in correspondence by email and by phone (on 29 April 2015, on 7 May 2015, on 23 June 2015, on 10 July 2015, on 12 and 24 August 2015, on 1, 9, 10, 21, 29 and 30 September 2015, on 1, 2 and 13 October 2015, on 6 November 2015, on 14, 16 and 17 December 2015, on 14 January 2016, on 7, 12, 24 and 31 March 2016, on 4, 8, 13, 14,15, 20, 22, 25, 28, 29 April 2016, on 11,14, 17, 18, 19, 20, 23, 24 25, 30 und 31 May 2016, on 15 June 2016, on 23, 26, 27 and 28 September 2016, on 5, 27, 28 und 31 October 2016, on 2, 4, 7, 8, 9, 11, 25 and 30 November 2016, on 2, 6, 13, 19 and 21 December 2016, 19, 27 and 30 January 2017, on 3, 5, 6, 7 and 17 February 2017, on 13, 14, 15, 20, 21, 22, 23, 24 and 31 March 2017, on 3, 5, 10, 12, 13 and 18 April 2017) the detailed re­quirements for the CAM were defined, data were requested, submitted and reviewed for plausibility, and feedback exchanged.

After the CAM in the first version submitted (working status from 24 August 2015 with 2015 budget data) was still structurally at the 2012 level, without any updated reflection of the merged-in mobile area and without any adjustment to the new, smaller TLI organi­sation, as well as in addition to the CAM evidencing various deficiencies in the allocation of costs, the documentation on further areas required for the assessment being lacking, and the CAM having no direct relationship to the schedule of fixed assets, various versions

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were prepared by TLI - after related assessments and feedback by the AK on the individual prior versions submitted. On 31 May 2016, the AK received a CAM version on the basis of the 2015 financial figures ("ACTUAL Values 2015 V5"). This version was utilised by the AK as a basis then adjusted for the deficiencies identified at the start, so as to conduct a new and integral CAM assessment.

The follow-up questions and points of improvement which resulted from this in-depth assessment were submitted by the AK from 27 October 2016 onwards in a series of notifi­cations to TLI, and TLI responded to same by the end of November 2016.

The deficiencies (formula errors, structure deficiencies such as for instance cost units ei­ther lacking or inserted in the wrong place, system deficiencies concerning the allocation formulae, errors in the input data) which were identified during the assessment of the "ACTUAL Values 2015 V5" CAM version were rectified directly by the AK on the basis of the responses from TLI. Doing so, the AK extensively revised the Excel CAM, inputted new data, corrected formula and reference errors, and undertook comprehensive improve­ments. In particular, "correction switches"1 were inserted into the CAM so as to be able to present and trace the effects of individual changes as a whole. With this approach, on the one hand, the important relationship to the version submitted could be secured. On the other hand, the AK was able to advance its assessment work at a fast pace - without the risk of having further large delays and without having to transfer the assessment work to any new CAM supplied (new versions of the Excel file), in which the respective changes were not evident.

The CAM adjusted in this way for deficiencies was submitted to TLI on 6 December 2016 for an overall review and especially to assess the effectiveness of the cost accounting. Subsequent to this in the January-February period, specific allocation formulae were dis­cussed and adjustments to the cost allocations were undertaken, and the roadmap estab­lished for supplying the "2016 ACTUAL" data (costs, quantities, key values) as well as for the CAM documentation. On 31 March 2017, TLI provided the "2016 ACTUAL" data to the AK.

For the above-mentioned work conducted by the AK on the CAM, which extended far be­yond any officially required assessment of the data supplied, the AK spent approx. | work hours or approx. | work days respectively from 24 August 2016 to 31 March 2017.

On 31 March 2017, the AK submitted the draft of the CAM administrative approval to TLI and granted it the opportunity to submit a comment on it by 18 April 2017. TLI availed of this opportunity and submitted a comment within the due time. Moreover, shortly before this, on 13 April 2017, TLI provided the AK with a second draft version of the CAM docu­mentation entitled "Telecom Liechtenstein AG - Cost Accounting Model 2015 Actual Basis" (Documentation Cost Accounting Model 2016 - V2.docx). The AK took this comment, as well as the further developments of the CAM and the documents submitted into consider­ation appropriately, revised the administrative approval accordingly and submitted this

1 Correction switches permit the fast switching of different values in the CAM, e.g. to replace originally intended allocation formulae with corrected allocation formulae, and thus allow corrections to be traceable in the Excel CAM.

anew to TU on 12 May 2017 for their comment on same. TLI informed within the due time that it did not intend to avail of this opportunity and would not submit a new comment on same.

A.4 The cost accounting model submitted by TLI in the version dated 3.4.2017

In accordance with the administrative decisions named in Section A.2 TLI is obliged in con­formity with the requirements of the AK to provide in the accounting separation at least the following information:

- Revenues;

- Costs (which can be differentiated in personnel costs, costs for the depreciation of assets, capital costs and sundry costs);

- A detailed schedule of fixed assets for the undertaking, key figures on personnel, cost drivers such as especially the traffic volumes and the number of services, and other information necessary to assess the cost accounting.

Over the course of the procedure described above, the AK assessed the CAM on the basis of these requirements and ascertained the following facts which form the basis for the present administrative decision:

Accounting separation:

The CAM is organised in accordance with the principle for accounting separation and shows the regulated and unregulated services, categorised in cost units, offered in the electronic communications area.

Transparency:

The CAM demonstrates sufficient granularity in its structure and in the details (costs and quantities), so that the obligations imposed by the administrative decisions regarding reg­ulated rates and rates-related non-discrimination can be assessed. The CAM reports the costs of the cost centres on the level of cost types. The proportional and fixed costs can be differentiated. Moreover, costs from the network purchases from LKW are reported sepa­rately in the CAM. In the CAM documentation, the network elements, product (group) fixed costs, cost centres and cost units are presented in detail.

Allocation of costs:

The allocation of the costs in the CAM occurs in that the costs are allocated by means of allocation formulae on the basis of cost drivers, or with overhead costs on the basis of the

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production costs. The cost drivers and calculations of the individual allocation formulae are described and explained in the CAM documentation.

Schedule of fixed assets (asset accounting):

In the schedule of fixed assets, each asset group (called network elements in the CAM) is recognised in annual asset statements. The assets are depreciated on a straight-line basis over the respective corresponding useful lives on the basis of the acquisition values, and the depreciation ends as soon as the cumulative depreciation reaches the acquisition val­ues of the assets. The depreciation expenses and carrying amounts in the CAM are in agreement with the schedule of fixed assets included in the CAM documentation.

Return on capital:

The CAM applies an imputed rate of interest, whereby the rate of intended by TLI is taken from an outdated basis. At the point in time of taking the present decision by the AK it is calculated on the basis of the WACC-CAPM methodology and capital market infor­mation for 2016 and determined and updated accordingly.

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B. Consideration of Evidence

The findings on the CAM from TU in the approved version are reasoned on the repeated inspections by the AK of the various versions of the cost accounting from TLI together with the enclosures mentioned explicitly in same.

The dominant market position of TLI in the meaning of Art. 31(1) VKND was ascertained by the administrative decisions in the Ml, M2, M3 and M5 proceedings and still exists un­changed.

The present administrative decision was consulted nationally in the period from 1 June to 19 June 2017. The comments provided in the context of the national consultation proce­dure were evaluated and summarised in a document. Both the comments and the evalua­tion have been published on the website of the Office for Communications.

In the period from DD. Month 2017 to DD. Month 2017, the present administrative deci­sion was coordinated internationally. In the context of this coordination, the EFTA Surveil­lance Authority (ESA)...

Thus, all comments from the national consultation and the international coordination pro­cedures were taken into consideration to the extent that they were relevant for the pre­sent administrative decision, and formed the basis for the present ruling.

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C. Grounds for the Decision

C.l Competent jurisdiction of the Office for Communications

In accordance with Art. 55 KomG in conjunction with Art. 3 of the Ordinance of 3 April 2007 on the tasks and powers of the regulatory authority in the area of electronic com­munications (RKV), LGBI. 2007 No. 68, the AK as the responsible regulatory authority is obligated with the fulfilment of all regulatory tasks in the electronic communications area in conformity with Art. 56 KomG. These tasks include in particular the promotion and the monitoring of effective competition in accordance with Art. 56(l)(a) KomG and the order­ing of measures of special regulation in accordance with Art. 56(l)(h) KomG as well as Art 33 et seq. in the Ordinance of 3 April 2007 on electronic communication networks and services (VKND). The assessment of the cost accounting model submitted for approval constitutes such a measure of special regulation.

C.2 The requirements for a cost accounting model

The requirements under European law for a CAM are contained in Art. 11 and Art. 13 of the Directive on access to and interconnection of electronic communications networks and associated facilities (Access Directive). In Liechtenstein, these provisions were adopt­ed in Art. 23 KomG and Art. 36 and 38 VKND. The concrete obligation to develop a corre­sponding cost accounting model and have it approved results from the administrative de­cisions named in Section A.2 in relation to the dominant market position of TU.

C.3 Recommendation of the Commission dated 19 September 2005 on accounting sepa­ration and cost accounting systems corresponding to the regulatory framework for electronic communications (2005/698/EC)

On 11 October 2005, the European Commission issued a Recommendation published in the Official Journal L266/64 of the EU pursuant to Article 19(1) of the Directive 2002/21/EC (Framework Directive) on accounting separation and cost accounting models corresponding to the legal framework for electronic communications, which was adopted by resolution of the EEA Joint Committee No. 84/2008 on 4 July 2008 into the EEA Agree­ment. Fundamentally, the following criteria can be taken from this Recommendation for the assessment of the cost accounting models of undertakings with significant market power in the meaning of Art. 16 Framework Directive by the regulatory authority:

• It is to be guaranteed that undertakings with significant market power, which are subject to price controls or obliged to have cost oriented prices, allocate their costs to the services provided on the basis of fair, objective and transparent criteria.

• In the case of vertically integrated undertakings, so as to prevent discrimination in favour of their own activities and unfair cross-subsidisation and in order to provide a higher level of detail of information than that derived from the statutory financial

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statements of the notified operator, it is necessary to reflect as closely as possible the performance of parts of the notified operator's business as though they oper­ate as separately managed businesses. This point is to be taken into consideration as TLI offers wholesale services which it also provides to its own retail area. Fur­thermore, TU is obligated to have accounting separation due to the administrative decisions.

• An undertaking with significant market power must guarantee a disaggregation of their operating costs, capital employed and revenues to the level required to be consistent with the principles of proportionality, transparency and the regulatory objectives.

• The allocation of the costs, the capital employed and the revenues is to be under­taken in accordance with the principle of cost causation (e.g. process cost account­ing). The cost accounting models and accounting separation systems of the provid­er need to be capable of reporting financial information as required by regulatory purposes, so as to demonstrate full compliance with regulatory obligations.

The regulatory authority took the recommendation into account appropriately in the con­text of the assessment.

C.4 Assessment of the cost accounting model (CAM) from TLI

During the assessment of the CAM from TLI, the structure and system especially within the CAM were subject to in-depth examination. With respect to the structure, the separated and sufficiently detailed presentation of all the services offered, as well as the mathemati­cal traceability of the cost accounting model was assessed. During the assessment of the system, especially the cost allocation formulae, the schedule of fixed assets, the deprecia­tion and the capital costs were examined. In order to assess the quantitative effectiveness of the CAM, the cost accounting was filled with concrete input figures (costs, quantities) from the 2015 and 2016 financial years and calculated accordingly. Prior to this, these in­put figures were subjected to a plausibility check to the extent that comparisons with an­nual financial reports and details in data surveys were possible. It was also ensured that costs are not charged several times (e.g. personnel costs as both personnel costs and capi­talised assets on the balance sheet) and that the costs and quantities are correctly allocat­ed to the related cost unit on a retail or wholesale basis. Commencing with the (identical) obligation to the accounting separation imposed in the administrative decisions, the fol­lowing has to be noted with respect to the approved CAM from TLI:

Re. Point 1 of the ruling: approval

The approved CAM is based on historic full cost accounting. The allocations reported in the documentation on the cost accounting are sufficiently reasoned by TLI and presented plausibly.

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In the documentation on the CAM, TU describes the allocation formulae with cost drivers and calculation methods which are applied for the allocation of the product fixed costs, the product group fixed costs, as well as for the costs of the network elements and cost centres. Overhead costs without a specific cost driver were weighted in accordance with the respective production costs and assigned over the cost units of the CAM. With subor­dinate allocations on the basis of production costs, the costs of the subordinate allocation steps were distributed correspondingly in the cost unit groups concerned.

The AK assessed the allocations with respect to their causation principle effects, as well as their correct calculation and application in the CAM. To do so, on the one hand the AK conducted comparisons with the details that TU provided in the data survey question­naires from 2015 and in the 2015 annual financial statements. On the other hand, the rel­evance of the cost drivers as well as of the product-specific allocations was assessed with the inclusion of the network architecture and by means of specific follow-up questions to TU. Furthermore, the correct mathematical implementation of the allocations in the CAM was assessed. The allocations factors are the result of an intensive assessment process with follow-up questions from the AK to TLI, as well as corrections and clarifications on the part of TLI.

The costs are presented in detail in the respective types of costs in the operative cost ac­counting and thus fulfil the minimum requirements for costs "which can be differentiated in accordance with personnel costs, costs for the depreciation of assets, capital costs and sundry costs". The cost allocation itself is consistent and coherent to the extent that the sum of the allocated costs corresponds to the total costs in the cost units. The relationship between the schedule of fixed assets (asset accounting) and the values contained in the CAM for the imputed depreciation costs and/or imputed interest costs is equally con­sistent. The proportionate costs and fixed costs can be differentiated and are reported on a granular basis on the level of the cost units and product fixed costs, with the LKW net­work costs presented separately.

The approved CAM conforms to the accounting separation obligation in accordance with regulated and unregulated areas and to the cost accounting obligation based on historic full cost accounting as per Art. 23(l)(a) Point 1 KomG and Art. 36 and 38 VKND imposed by the administrative decisions, and fulfils the specifications of the AK.

The CAM in the last revised version dated 3 April 2017, and the "Cost Accounting Model 2015 Actual Basis" was thus issued the approval in Point l.a of this administrative decision ruling. This approval is subject to the limitation that it explicitly concerns only the struc­ture and system of the cost accounting model assessed. As mentioned in Point l.b of the ruling, the costs, revenues and quantities data, which were included in the cost accounting submitted for plausibility purposes, were not an object of the assessment.

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Re. Point 2 of the ruling:

In the context of approving the CAM, the AK had to ensure on the one hand that efficient network usage is guaranteed, while on the other hand that the actual useful lives of net­work elements and other operating equipment are reflected. To that extent, changes with respect to the useful life values of various network elements (capital assets) were re­quired. The value provided by TLI for the business operation building on Schaanerstrasse 1 in Vaduz was adjusted by the value of the real estate. The cost of capital rate was deter­mined on the basis of the current circumstances.

In detail:

Re. Point 2 a of the ruling: useful lives

The depreciation methodology used in the CAM, which corresponds to TLI's capitalisation of assets on the balance sheet rule and which was submitted to the AK on 24 August 2015 is based on the IFRS standards2 IAS 16 Property, plant and equipment and on IAS 38 Intan­gible assets, utilising the acquisition and production cost model as the measurement method.

Straight-line depreciation represents the prevailing depreciation method in the field of telecommunications. This has been verified for instance by the telecom-specific market study from Ernst & Young3 and is also reported as a standard method in the annual finan­cial statements from undertakings such as, e.g. Swisscom4 or the Telekom Austria Group5 (TAG).

Thus the AK regards the straight-line depreciation applied by TLI in the CAM as typical for the industry and appropriate. With respect to the fact that the present administrative de­cision has changed the useful life values of the assets, it should be pointed out that the depreciation is to be calculated on a straight-line basis from the carrying amounts for the remaining lives until the end of the intended useful lives. This clarification ensures that the straight-line depreciation method is also applicable when useful life values are adjusted or when value impairments occur.

The useful lives of the assets are described by TLI in Section 7.2 of the "Cost Accounting Model 2015 Actual Basis" documentation.

It did not prove possible to accept the proposal by TLI to assume the useful life values from their financial accounting in the CAM. This was because, according to the AK, the financial accounting included too short useful life values for various network elements, which do not coincide with the useful lives actually determined. In the CAM, the costs have to be determined which correspond or come as close as possible to the actual usage, so that especially the useful life values used as a basis for calculating the depreciation

2 IFRS: International Financial Reporting Standards. Details in German of the individual International Accounting Standards (IAS) are available at httos://www.iasplus.com/de/standards/ias/.á Ernst & Young, 2009: Staying strong under pressure - Survey into the management of fixed assets by global telecommuni­cations operators.4 2015 Annual Report of Swisscom, page 148, https://www.swisscom.ch/de/about/investorenfberichte.html6 2015 Annual Report of TAG, page 89, https://www.telekomaustria.com/de/ir/geschaeftsberichte

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costs had to be assessed. This opinion is also consistent with the measurement principles in Art. 1085 Item 2) Liechtenstein Person and Company Law (PGR): "For asset items in the fixed assets, the use of which is limited by time, the acquisition or production costs are to be reduced by scheduled depreciation. The plan has to distribute the acquisition or pro­duction costs over the financial years in which the asset can probably be used economical­ly."

In order to determine the operating useful lives of the individual network elements, on the one hand the AK conducted comparisons with the market study from Ernst & Young mentioned above, and on the other hand with values which the regulatory authorities in Austria6, Germany7, Switzerland8 as well as the AK9 itself would apply in their decisions, as well as with values which are reported by operators in annual reports10. With this basis, the AK has prepared a comparative value range for every network element.

Furthermore, regarding the operating useful lives, i.e. the useful lives to be actually as­sumed in contrast to the financially optimised useful lives taken in the financial account­ing, the AK compared the values with TLI's annualised schedules of fixed assets (with ac­quisition, depreciation and carrying amounts as of the end of 2014, for the periods and as of the end of 2015), from which for each network element the total number of years in use, the number of years without any asset disposals, as well as the number of years of already completely depreciated assets and which are still in use can be taken. These con­siderations served to provide information about how long the individual assets are actual­ly used in reality and about which useful lives were taken as a basis for their use in the past, thus permitting a specific useful life to be estimated for each network element. These lives were evaluated by the AK as a further indicator of the actual operating useful lives.

Taking all of these evaluations and measurements as its basis, the AK defined the concrete useful lives as shown in the ruling. In this regard, the useful life values have been defined by the AK without providing any maximum values, after comparison with the comparative value ranges mentioned above and in relation to the actual circumstances, which result from TLI's schedule of fixed assets. The latter is, due to the historic full costs, in any case correct and of guidance as a basis for the CAM.

The details provided by TLI in its comment dated 18 April 2017, according to which shorter useful lives are to be defined due to the unique national circumstances and faster tech­

6 RTR: Bottom-up cost accounting model for interconnection in fixed networks: fixed network input parameter lists page 54, Section 2.6, Economic lifetime, https://www.rtr.at/de/tk/fn modell/29239 Festnetz lnputparameterliste.pdf. see al- sohttps://www.rtr.at/de/tk/fn modell7 BNetzA: Ruling Chamber (BK) 3, BK 3a-12/086: Decision . dated 7.9.2012 on approval of the rates for termination ser­vices in mobile communication networks...: pages 50-51, Section 5.1.5.4 Determining the economic useful lives, http://www.bundesnetzaQentur.de/DE/Service-Funktionen/Beschlusskammern/1BK-Geschaeftszeichen-Datenbank/BK3- GZ/2012/2012 0001bis0999/2012 001 bis099/BK3-12-086 BKV/BK3-12-086 final Download.pdf? blob=PublicalionFile&v=38 ComCom: Conditions for access to the leased lines (MLF), pages 68-69: Section 4.2.9 Depreciation periods, http://www.comcom.admin.ch/themen/00500/00782/index.html?lang=de&download=NHzLpZeQ7t.lnp6l0NTU042l2Z6ln1acv4 Zn4Z2oZpn02Yua2Z6apJCDdXx5fGvm 162epYba2c JiKbNoKSn6A-J Office for Communications, Approval of a cost accounting model for Liechtensteinische Kraftwerke, page 2,http://www.llv.li/files/ak/20141007-verfuqunQ-krm-final-esiQniert.Pdf10 LKW 2015 Annual Report, page 40, Swisscom: see footnote 4, TAG: see footnote 5,

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nology switchovers in Liechtenstein, were not followed for the reasons presented hereun­der. Furthermore, it should be noted in general that the CAM approved in the present administrative decision is based on historic full costs.

The useful lives on an individual basis:

NE 201 Building installations - fittings, electronics, etc.

The useful life is defined as 15 years. The comparative values range from 8 to 25+ years. The useful life of | years, which TU applied for, is in any case too short as the schedule of fixed assets does not contain any disposals over the most recent | years, with | years in total being reported there. In consideration of these circumstances, the AK regards an operating useful life of 15 years as appropriate.

NE 202 Furnishings /facilities

The useful life is defined as 7 years, which corresponds to the average value in the | j] year values respectively taken by TU for own assets and for the assets it assumed from

Mobilkom. The comparative values range from 6 to 10 years. The schedule of fixed assets does not contain any disposals over the most recent | years, with assets used up to §J previous years reported there, so that an operating useful life of at least 7 years seems appropriate, as it reflects the actual usage in the past.

NE 204 Patents - licences

Among others, rights of use of frequencies (for mobile communications) and software licences are listed in Network Element 204. The useful life for rights of use of frequencies is defined as 15 years, useful life of the frequency assets assumedfrom Mobilkom, in which the one-off assignment fees from the AK are recorded. A useful life of 15 years is also judged to be appropriate in relation to the comparative values which range from 11 to 25 years. In consideration of the fact that the rights of use of fre­quencies were assigned for an unlimited time, defining a shorter useful life does not seem appropriate either.

For software licences, a useful life of 5 years is to be applied, as which is inline with the comparative range of values of up to 7 years.

and

NE 205 IT hardware - server, client PC, mobile devices

A useful life of 5 years is to be applied for Network Element 205. This value || is in line with the comparative range of

values of up to 6 years. Likewise, the schedule of fixed assets does not include any signifi­

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cant disposals over a |-year period and overall reports assets used over a range of |_] years, so that an operating useful life of at least 5 years seems appropriate.

NE 206 IT software - I LswJ

A useful life of 5 years is to be applied for Network Element 206. This valueI __ ______ = I is in line with the comparativerange of values of up to 7 years. Likewise, the schedule of fixed assets does not include any significant disposals over the most recent | years, so that an operating useful life of at least 5 years seems appropriate.

NE 314 DSLAM (access) - access units for DSL

A useful life of 8 years is to be applied for Network Element 314. The value corresponds to the comparative value range of 6 to 15 years and is regarded as appropriate as no dispos­als have been recorded in TLI's schedule of fixed assets over an J -y e a r period.

NE 321 RSS (access) - voice access gateway systems

A useful life of 8 years is to be applied for Network Element 321. The value is in the lower range of the comparative values of 6 to 20 years and is considered appropriate as no dis­posals have been recorded in TLI's schedule of fixed assets over a |-year period.

NE 338 CRM billing - billing system, mediation.

A useful life of 5 years is to be applied for Network Element 338. The value is within the comparative value range of up to 7 years and it is considered appropriate as no disposals have been recorded in TLI's schedule of fixed assets over a |-year period. A useful life of| years is regarded as being too short-term especially for central operating systems. A more extensive replacement of this average value in a |-year cycle was classified by the AK as being inefficient.

NE 391 RAN (loc.) - installations at the transmitting stations

A useful life of 8 years is to be applied for Network Element 391. The value is in the lower end of the comparative values of 8 to 20 years and is also considered appropriate as these assets also typically report a useful life of | years in the scheduleof fixed assets and no disposals have been recorded in TLI's schedule of fixed assets over the most recent | years. A useful life of | years is regarded as being too short-term espe­cially for installations at transmitting stations, such as e.g. antenna masts, racks and vari­ous hardware.

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NE 422 BRAS (core) - IP routing system for the DSL retail customers

A useful life of 8 years is to be applied for Network Element 422. The value is within the comparative value range of up to 20 years and it is considered appropriate as no disposals have been recorded in TU's schedule of fixed assets over the most recent | years.

NE 426 FTTB CO

A useful life of 8 years is to be applied for the new Network Element 426. The value is within the comparative value range of up to 15 years and it is considered appropriate for central carrier-grade equipment.

NE 427 IP network (FL net) (core) - L2 / MPLS platform

A useful life of 8 years is to be applied for the Network Element 427. The value is within the comparative value range of up to 15 years and it is considered appropriate for central carrier-grade equipment, also because no disposals have been recorded in TU's schedule of fixed assets over a |-year period.

NE 429 WDM (core) - transmission system FOC core

A useful life of 8 years is to be applied for Network Element 429. The value is within the comparative value range of 6 to 20 years and it is considered appropriate for central carri­er-grade equipment, also because no disposals have been recorded in TU's schedule of fixed assets for more than | years.

NE 492 Mobile core

A useful life of 6 years is to be applied for Network Element 492. The value is at the lower end of the comparative value range of 6 to 10 years and it is considered appropriate for central mobile-core equipment, also because no disposals have been recorded in TU's schedule of fixed assets over a |-year period.

NE 506 CATV headend - signal processing for the CATV network

A useful life of 8 years is to be applied for Network Element 506. The value is within the comparative value range of 6 to 10 years and is considered appropriate, also because no disposals have been recorded in TLI's schedule of fixed assets over an |-year period.

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Re. Point 2 b of the ruling: depreciation of the "Schaanerstrasse building" Network Ele­ment 200

At the start of 2009, TU acquired from the Principality of Liechtenstein the Vaduz tele­phone exchange property item, plot no. 1731 (address: Schaanerstrasse 1). The "Report and Motion ("Bericht und Antrag" - "BuA") from the Government submitted to the Land­tag (Parliament) of the Principality of Liechtenstein concerning the sale of the Vaduz tele­phone exchange property item and of plot nos. 1729 and 1730 to Telecom Liechtenstein AG (No. 83/2008)" formed the basis for this property acquisition. The land price for the plot no. 1731 "telephone exchange" of CHF 973.13 per m2 is provided in the BuA. The price was applied by State surveyors for plot no. 1731 and was confirmed at the same amount in a further valuation by the firm Josef Wohlwend Treuhand, as provided on page 12 of the BuA. With a surface area of 3,402 m2, a real estate value of CHF 3,310,588 re­sults at CHF 973.13 per m2. The real estate itself can be used without any restrictions. It is stable in value and does not require any depreciation, unlike the building erected upon it. By deducting the real estate price thus calculated from the complete purchase price of CHF 9,052,382 for the telephone exchange property item, a building value of CHF 5,741,794 results.

This calculation takes into account, on the basis of historic costs, the acquisition price of the property item as well as the real estate value determined specifically in the BuA for this transaction, and is thus considered appropriate. For this reason, the depreciation of Network Element 200 is to be restricted to this building value in the CAM.

Re. Point 2 c of the ruling: imputed interest

The AK has defined the interest rate for the calculation of the imputed interest at 3.67%. This values is to be applied instead of the rate of submitted by TU so as to calculate the capital costs in the CAM. The value of was interpreted by the AK as being anoutdated value, which can thus not be applied in the present CAM. Old CAM documents which TLI handed over to the AK in February 2012 also actually include this value, which thus must have been derived on the basis of outdated financial market data from 2011 and earlier. In the present CAM however, an interest value determined currently that in­cludes financial market data from 2016 and earlier is to be applied.

The cost of capital is calculated for regulatory purposes by applying the weighted average costs of capital (WACC) and capital asset pricing model (CAPM) methods on a pre-tax basis for TLI, based on the relevant regulatory practice and methodology. In order to improve the traceability of the calculations applied, due to the extent of the presentations, the AK prepared a separate document, which is enclosed with the CAM administrative approval as an attachment. The derivation route and the individual calculation stages are described in this document and verified with numerous sources.

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Re. Point 3 of the ruling: foreseeable and material changes

In order to fulfil its tasks, the AK requires a CAM that reflects the respective real relation­ships and circumstances. To that extent, TU was to be obliged in this respect to take into consideration any changes which can have impacts on the CAM. The AK has identified as the most important cases of such changes from a technical perspective to be changed network structures, as well as the discontinuation or introduction of new services or tech­nologies. From an economic viewpoint, the change to useful lives, carrying amounts or other values in the accounting system can require a reassessment of the CAM to the same extent as a change to the structure, the system, the calculation methods or other ap­proaches when preparing the overall accounts. Finally from a legal perspective, any poten­tial amendment to the sector-specific law can also be appropriate for having a reassess­ment of the CAM and revising it as required.

The listing of the relevant circumstances is demonstrative in nature as it cannot be ex­cluded that other changes also arise which are appropriate for exerting a significant influ­ence on the result of the cost accounting.

In the event that such a fundamental change to the underlying conditions or other deci­sive factors occur, TU must reassess the CAM in a corresponding manner and revise it as required and submit it anew to the Office for Communications for approval.

Re. Point 4 of the ruling: revocation of the suspensive effect

Any appeal against this administrative decision has its suspensive effect revoked pursuant to Art. 100(1) Liechtenstein National Administrative Act (LVG) in conjunction with Art. 116(3)(a) and (8) Liechtenstein National Administrative Act (LVG) dated 21 April 1922, LGBI. 1922 No. 24, in its currently valid version, in the overriding interest of protecting the provider on the wholesale market from abusively excessive prices.

The revocation of the suspensive effect is in accordance with the basic principle in Art. 4(1), last sentence Framework Directive 2002/21/EC which stipulates that, "Pending the outcome of any such appeal, the decision of the national regulatory authority shall stand, unless the appeal body decides otherwise".

Re. Point 5 of the ruling: ruling on costs

The administrative fees are pursuant to Art. 60 (l)(b) KomG and Art. 3 and 4 of the Ordi­nance dated 13 April 2004 on the Charging of Administration and Usage Fees in accord­ance with the Communication Law (KomG Fees Ordinance; KomG-GebV), LGBI. 2004 No. 99, in its currently valid version.

As per the provisions quoted above, among others, the regulatory authority charges one- off fees for the fulfilment of the tasks assigned to it (administrative fees). The regulatory authority determines the amount of the administrative and usage fees - providing nothing

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specific is prescribed in Attachment 1 of the KomG-GebV - on the basis of the actual out­lays and expenses of the regulatory authority; the calculation of said expenditure is based on an hourly rate of CHF 250.00.

As detailed in the course of the proceedings described above in Section A.3, in addition to its official assessment of the CAM submitted, the AK also performed a decisive role in rec­tifying the errors in the CAM, as well as in its revision and further development. In particu­lar, the inputting of the data supplied, the correction of allocation formulae and various mistakes, as well as the installing of the correction switches, which actually permitted the traceability and verifiability of any changes in the first place, were effected solely by the AK.

In this respect it has to be considered that not only the entering of the corrections as such is linked to outlays, but also that each correction has its own origin. The requirements for each correction undertaken include the identification of the problem, relevant follow-up questions, the filing of the response as future evidence and the subsequent discussion about the change. Only after these steps, did the entering of the data supplied occur and the programming of the individual corrections in the form of traceable correction switch­es11.

This revision work conducted by the AK was also necessary because otherwise further de­lays would have been expected. Only by the AK taking control of the further development of the CAM, was the AK able to ensure the fulfilment of its own market regulation tasks, which were pending since the issuing of the SMPO decisions to TU in 2009-2010.12

The expenditures were caused by TU by the fact that numerous deliveries of data were delayed and/or were only partly effected. In this regard the CAM itself was not revised in a traceable manner, and instead data were solely supplied which then had to be inputted by the AK into the cost accounting. The detailed work performed by the AK is documented appropriately in its files and well-known by TLI.

For this work, which extended far beyond the mere assessment of the data supplied, the AK spent a total of work hours or approx, jjf work days respectively since the end of August 2016.

The following expenditure calculation results from same:

• H hours x CHF 250 per hour = CHF | ]

TLI has to bear 50% of this expenditure incurred by the regulatory authority, which amounts to a mandatory administrative charge of CHF

11 Corrections were implemented specifically in the following areas: the input data (2 items), the network element allocations (18), the product fixed cost allocations (9), the cost centre allocations (18), the empirical formulae (3) as well as in individual cost units (26) and network element costs (15).12 The reasons for the long delay include for instance the debate in the Landtag (Parliament) about the sale of Telecom Liechtenstein to Swisscom, which was finally rejected, proceedings before the AK about input factors for TLI (CAM LKW, Approval of the Rates for Regulated Products of LKW, Standard offers LKW) and the absorption merger of Telecom Liech­tenstein AG and Mobilkom Liechtenstein AG.

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It should be noted with these administrative fees, that the cost accounting model submit­ted not only forms the regulatory basis for the subsequent approval and setting of the rates for regulated products respectively, but that it also reflects TLI's business model in its entirety. In addition to the regulated areas, it also includes the unregulated areas and thus represents a complete reproduction of the organisation in its entirety. In this regard, the AK had to specifically consider the sustainability and consistency of the approved cost accounting model to be implemented.

To that extent, the expenditure and the fees charged by the AK linked to same are also to be regarded as a one-off outlay: The AK assumes that, regardless of the adjustment duty as per Ruling Point 3, the approved cost accounting model in its developed and revised version will remain in force for many years. Even in the event of changes, it may be as­sumed that the changes and amendments will subsequently only have to be undertaken selectively and be marginal in effect.

With this fee decision, the AK had to comply in particular with the principle of equivalence and the cost coverage principle. As the decision has been reasoned and is comprehensible, it does not constitute a surprising or even inequitable decision.

With respect to the absolute amount of the administrative fee, it should be noted that the AK has only charged TU half of the actual outlays which were recorded since 24 August 2016, with the other half of same and the complete work outlays for the assessment of the CAM from April 2015 to the end of August 2016 remaining with the State, although higher outlays already arose in this period for the procurement of information, especially due to the incomplete documentation in the CAM.

C.5 Rendering anonymous trade and business secrets

The data with which the cost accounting model from TLI was filled represent internal business data from TLI. TLI has provided these data to the AK with the express instruction that said data concern trade or business secrets to which third parties may not be permit­ted access.

As solely the structure and system of the cost accounting model is being approved in the present administrative decision, the wish expressed by TLI for rendering these data anon­ymous in the context of the national consultation was complied with and the version of the draft administrative decision which was adjusted for trade and business secrets by TLI was published. The AK will refrain from publishing the related figures.

In those cases where the AK is of the opinion that certain figures do not represent input data but rather fundamental parameters for the cost accounting model or are figures and values to be calculated with which the cost accounting model functions respectively, the AK has mandated the application of certain such values and methods. In concrete terms, these are the useful lives, the depreciation methods and the imputed interest rate con­tained in Point 2 of the ruling.

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C.6 Admissibility and appropriateness of the measure ordered

Art. 33 VKND, which implements Art. 8(4) Framework Directive, lays down, in an explicit embodiment of the general administrative law principle of proportionality, that measures of special regulation must correspond to the kind of problem that has emerged, be appro­priate in light of the regulatory principles in accordance with Art. 5(2) KomG and be justi­fied.

The suitability, appropriateness and justification for the measures of special regulation to be set were presented extensively, coherently and conclusively in the market analysis pro­ceedings.

Even if delays have occurred in the implementation of measures intended in the adminis­trative decision, said delays are not suitable for casting doubt on the appropriateness of the measures:

Despite the delays - which the AK has not to account for - TU and the AK remained in continuous contact about the details of the measures and any required adaptations and changes, so that it was always foreseeable and to be expected by the legal undertaking concerned that the cost accounting separation obligation and the approval of the cost accounting system to be established - that is, the part of the measures of special regula­tion to be complied with which are the subject of these proceedings - will actually be im­plemented.

The lack of competition determined at that time on the markets which were the subject of these proceedings continues to exist, so that the period of time which has lapsed between the market analyses and the present administrative decision has not changed anything in the necessity and appropriateness of the measures. The lack of competition determined on the market which is the subject of these proceedings can only be removed by means of the measures of special regulation imposed in conformity with Art. 22(l)(c) KomG.

On all of these grounds, the decision was taken in accordance with the ruling.

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INSTRUCTION ON THE RIGHT TO APPEAL

An appeal can be raised against this administrative decision within 14 days of its notifica­tion before the Appeals Commission for Administrative Matters.

The appeal must include:

- the name/designation of the ruling to be contested;

- the declaration as to whether the ruling is to be contested in its entirety or only in individual parts;

- in the latter case, the exact name/designation of the parts to be contested;

- the grounds of appeal;

- the applications;

- the evidence on which the grounds for contesting should be supported and prov­en, and

- the signature of the complainant.

Vaduz, XX July 2017 3803.05-TLI-KRM/GISI/SKMA/brca

OFFICE FOR COMMUNICATIONS (AK)

Kurt Bühler Head of Office

1IpLANDESVERWAL.TUNGFÜRSTENTUM 1 IFCHTFNSTFIN

D as Dokument wurde signiert

von Kurt BühlerLiechtensteinische Landesverwaltung Amt für Kommunikation

am 2 0 1 7 -0 6 - 2 1 T 1 3 :4 6 :4 6 + 0 2 :0 0

PrUfinformation: www.llv.li/signaturpruefung

Enclosures:• Cost Accounting Model 2015 Actual Basis (Documentation Cost Accounting Model

2016 - V2.docx)• Derivation of the WACC