The WACC is a key component of the price that regulated operators charge for accessing their infrastructure.

In 2019, the European Commission published a Notice with the aim of ensuring a consistent calculation of the WACC by National Regulatory Authorities across the EU. The Body of European Regulators for Electronic Communications (BEREC) agreed to estimate, on an annual basis, a number of parameters that would enable NRAs to calculate the WACC based on the Notice. In June 2021, the BEREC published its second report with the parameters for the year 2021.

The Notice requires a mechanical approach to estimating the cost of capital and provides little scope for regulatory judgement or discretion. The revised results have been influenced by two factors:

• A further 12 months’ data for parameters based on market data, and
• The removal of the UK/BT from the sample post-Brexit.

The exclusion of the UK from the sample has led to an increase in the EU-wide Equity Risk Premium (ERP) from 5.31% to 5.50%. However, the rest of the parameters have moved in the opposite direction, with the overall impact of a reduction of 68 bp in the average WACC(*).

Applying the new parameters will lead, in most of the cases, to lower regulated profits and, hence, prices for access to legacy infrastructure. The impact on new fibre investments is unclear as the Notice only applies to legacy infrastructure.

Frontier regularly advises fixed and mobile operators.

For more information please contact media@frontier-economics.com, or call +44 (0)20 7031 7000.

(*) Taking into account the arithmetic average of the WACC parameters in 2020 and 2021. So, whilst on average the WACC is expected to decrease in 2021, there may be operators whose WACC may increase in 2021, depending on the EU country where they operate.