Broadly, the key concepts in the regulator’s access pricing tool kit are:
· Cost oriented prices - as required by the WTO Reference Paper can be developed from bottom-up or top-down cost models or from benchmarking rates in similar countries who have used cost models.
· Cost models - bottom-up costing for LRIC (long-run incremental costs) where a firm prices in such a way as to cover only the incremental costs of the product (ie the product’s LRIC), sales of that product make no contribution to the firm’s common costs. There are many variations around this but it is sufficient to consider LRIC to understand the issues and principles .
· Regulatory accounting - top-down costing associated with FDC (fully distributed costs) where all costs, including joint and common costs, are fully allocated to all the operator's services/products according to a specified distribution/allocation key. The costs of a given service/product are composed of direct volume-sensitive costs, direct fixed costs and a share of joint and common costs.
· Benchmarking – compares access prices across a peer group of countries to determine what price would be reasonable.
· ECPR – the efficient component pricing rule which is closely related to ‘retail minus avoided retail costs’. ECPR is cost-based because it includes ‘opportunity cost’ .
· BAK - Bill and Keep has been around for mobile termination in countries with ‘receiving party pays’ (eg USA) and seems related to ‘peering’ in internet traffic exchange.
· GB – Volume based charging. This is a possible alternative access pricing to address changes in the industry that BAK cannot address.
Related technical concepts:
· DAC (depreciated actual cost) – based on historic cost accounting (HCA). Some regulators also require current cost accounting (CCA) in which assets are re-valued at replacement cost; which may then require further adjustment to ‘mean equivalent assets’
· DORC (depreciated optimised replacement cost) – takes accumulated depreciation from ORC calculated for TSLRIC
· SAC (stand-alone-cost) – the sum of the incremental cost of the product, plus all the costs which are common between that product and other products. The stand-alone cost is therefore higher than long-run incremental cost (LRIC).
· WACC (weighted average cost of capital) – derived from the capital asset pricing model and used to set the return to capital.
 LRIC is closely related to TELRIC (total element long-run incremental cost) and TSLRIC+ (total service long-run incremental) which is LRIC cost plus an appropriate mark up for the recovery of common costs.
 Australian regulation excludes ECPR from principles that maybe considered for access pricing to stop the incumbent from maintain profitability from access products; except in the case of retail-minus pricing of resold access services.