Costs and Regulation in the UK Telecommunications

Posted: 16 Mar 2000


This article is written in the belief that it is important to encourage research into accounting for regulated industries. It seeks to illustrate this by considering as an exemplar the use of Accounting Separation (using regulated industry nomenclature) and hierarchical costing systems in the UK telecommunications industry concentrating on their use by BT and the telecommunications regulator. Accounting Separation seeks to use accounting means to partition the organisation into elements as independent as possible from other parts of the organisation. The published output of this system is meant to inform competitors of BTIs costs for the regulated network components they use. These costs are also used in setting interconnection charges. These are charges that other operators pay for connecting with and using the BT system. This is not the accounting system used in decision making by BT. Nor does it represent the only accounting information obtained by the regulator. The focus of this article is upon how far the BT accounting system satisfies the accounting conditions required to allow the incremental costs and stand alone costs of the partitioned elements of the organisation to be determined in a setting using a hierarchical accounting system. Methods of overcoming some of the identified problems are suggested. The importance of correct approaches to joint costs is highlighted concentrating on the treatment of joint costs in regulation. The accounting ideas discussed here would seem to have application well beyond regulated firms but seem neglected generally in management accounting.

Key Words: Regulated industries; Telecommunications; Accounting separation; Hierarchical accounting systems and ABC; Joint costs

JEL Classification: M40, M46, D23

Suggested Citation

Bromwich, Michael and Hong, Cheolkyu, Costs and Regulation in the UK Telecommunications. Management Accounting Research, Vol 11, No 1, March 2000. Available at SSRN:

Michael Bromwich (Contact Author)

London School of Economics ( email )

Houghton Street
Department of Accounting & Finance
London WC2A 2AE
United Kingdom
+44 7 1955 7323 (Phone)
+44 7 1955 7420 (Fax)

Cheolkyu Hong

Korea Telecom

206 Jungja-dong Bundang-gu, Sungnam-city
South Korea

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