CNMC adjusts the risk-free rate for Telefónica and Cellnex, but signals a return to the EC’s approved methodology
Consulting on the WACC calculations: On 2 August 2023, the CNMC launched a public consultation on the calculation of the weighted average cost of capital (WACC) for Cellnex and Telefónica for the 2023 financial year. Following publication in the official gazette of Spain, the consultation will remain open for a non-extendable period of 45 days, ending on 18 September. Each year, the regulator calculates the WACC of telecoms providers that are subject to a cost accounting obligation. In turn, cost accounting is used to determine the price of regulated wholesale services. Like other national regulators in the EU, the CNMC uses an EC-approved methodology and parameters from BEREC to calculate the WACC, which it then uses for its own economic replicability tests.
The risk-free rate has responded to rising interest rates: A notable recent adjustment to the CNMC’s determination of the WACC relates to the risk-free rate – one of the three ‘general economic parameters’. It is typically based on the weekly yields of 10-year Spanish bonds over a historic five-year period. However, the regulator modified its calculations for 2022 to account for a sharp increase in interest rates, which began to rise across Europe from March of that year. The CNMC calculated a 50/50 average using historic five-year figures and more recent data spanning the previous six months. The EC accepted the determination in light of the abrupt macroeconomic change. With 10-year Spanish bonds still trading above the usual level, the CNMC has proposed to adjust the risk-free rate in a similar way again for 2023, albeit to a lesser extent (66.7/33.3).
Proposals are not expected to cause a stir: The CNMC considers its proposals appropriate and largely uncontentious given the approach it took for the 2022 fiscal year and the current macroeconomic climate, so may not be expecting significant opposition in responses to the consultation. The regulator has also signalled that it is willing to return to utilising the standard BEREC methodology and parameters in future years. For 2023, WACC calculations have been undertaken for Telefónica and Cellnex, which are the only firms subject to cost accounting requirements in the markets for fixed voice and broadband, and television signal broadcast carrier services, respectively. Since its previous WACC determination, the CNMC has deregulated the mobile call termination market, removing the need to make equivalent cost of capital calculations.
