Indian telecom regulator TRAI said it will be appointing a consultant for calculation and determination of Weighted Average Cost of Capital (WACC) for Indian telecom service sector.
TRAI has been using Weighted Average Cost of Capital (WACe) for its regulatory exercises like spectrum valuation, interconnection usage charges, SMS termination charges, calling cards etc.
TRAI said WACC is an important cost component which is used by regulators in the cost-based calculations. WACC is the minimum return that a company must earn on its existing capital to satisfy the respective stakeholders like shareholders, creditors, lenders etc.
TRAI has been using 15 percent pre-tax WACC In various regulatory calculations/ exercises for quite a considerable time. The telecom sector has witnessed tremendous changes with regard to the interest rates and tax rates during the last decades. These lending rates / interest rates affect the cost of equity and cost of debt and in turn effect on the Weighted Average Cost of Capital of the Indian telecom service sector.
TRAI felt that there is an urgent need to review and determine WACC which represents the current financing rate and relevant for Indian telecom service sector in the wake of changes that have taken place during the last two decades in the telecom service sector in India.
