GMPCS Financial Status Background and Update (Doc.7-E)

Document 7-E

27 May 2003

Original: English only

Vice Chairman, Finance, GMPCS-MoU Group

GMPCS Financial Status

Background and Update

May 27, 2003

1. Introduction

In 1998 the ITU Council approved the role of Secretary-General as depository for the GMPCS on the basis of full cost recovery, including the requirement that details be defined in consultation between the GMPCS MoU Group and the Secretary General.[1] The initial cost recovery methodology was discussed and agreed to by representatives of the Strategic Planning Unit in 1998. Based on these conditions, the GMPCS-MoU Group developed a fee structure to cover projected ITU costs.

The depository activities commenced and during the years 1998 & 1999 the Project was not charged reallocated costs. In February 2001 the GMPCS-MoU Project Manager sent an email to the Budget officer confirming the understanding that reallocated costs would not be charged to the Project, no objection was received. The project continued to operate and plan its activities under these conditions and all subsequent financial information provided by the ITU Budget Office for consideration during the GMPCS Annual Review Meetings was consistent with this approach.

As a point of interest, the Satellite Notification cost recovery process and fee structure will cover certain support costs while other centralized costs will be excluded.[2] However, as follow-on to Marrakech Resolution 88 and Council 03, the Council Working Group (CWG) on satellite notification cost recovery will continue its work on this topic and others as many details concerning cost recovery remain unresolved. The uncertainty surrounding this cost recovery process has a direct relationship to the uncertainty associated with cost recovery for the GMPCS Project, especially as it relates to transparency and the ability to audit costs and expenses.

The GMPCS MoU and associated processes have gained considerable attention, particularly in the developing countries, and in a number of countries they have been institutionalized in legislation and regulations concerning the licensing and introduction of services. GMPCS will continue to play an increasingly important role in providing universal access to services, particularly in remote and under-served regions.

1. Recent Developments

The External Auditor

In December 2002, the external auditor informed the GMPCS-MoU Project Manager that starting in 2000 the ITU has charged in excess of CHF400,000.00 in reallocated costs to the Project. The yearly financial information provided by the ITU for the review meetings gave no indication that these costs were being charged and the financial information provided for the annual review meetings was consistent with our understanding of the on-going cost recovery process and criteria. Based on the information provided by the external auditor, the cost allocation process has not been transparent or clear with regard to charges, and the GMPCS-MoU Group Management Team has not been given the opportunity to review charges and/or pass judgment regarding their applicability.

ITU & GMPCS MoU Group Meeting

On 18-19 March 2003, the Management Team of the GMPCS MoU Group and representatives from several GMPCS system operators met with ITU Finance Department staff to address the issues of reallocated costs and the 04-05 Biennium Budget. The basis for reallocated costs and specific charges were discussed but could not be reconciled during the course of the meeting because of time constraints and a lack of detail regarding specific line item costs. During the meeting the GMPCS Group provided revised minimum estimates of income and expenses for 2003 and for the 04-05 Biennium Budget. The intent of these revised estimates was to more closely match workload and expenses, and to assure that charges against the Project are for specific tasks and activity that directly support the administration of the GMPCS MoU Registry. These revised figures for 04-05 were not included in the ITU Biennium Budget submitted for consideration by Council 03. The current draft budget includes 04-05 income at 0 CHF with expenses of CHF 20,000.00. This topic remains as an item for further discussion between the ITU Budget Staff and the GMPCS MoU Group.

Letter from GMPCS MoU Group Chairman

In follow-up to the March 03 meeting, the Chairman of the GMPCS Group sent a letter[3] to the Secretary General summarizing the Groups position and a suggested course of action. Key points included; a proposal to reduce expenses for the administration of the GMPCS MoU Registry, a request that new income and expense projections for 04-05 be included in the ITU Budget, the need to be consistent with Resolution 1116 of Council 98 and Resolution 91 (Minneapolis 1998), the recognition that progress is being made by the Ad hoc group on cost recovery for satellite network filings activity and that we expect to benefit from its experience, and that in anticipation of a clear definition of the methodology being developed for the Satellite network filings activity request that, consistent with the practice for the Satellite network filings activity, that the charges for reallocated costs not be applied to the GMPCS MoU project for the years 2000 – 2003.

Council 03

Most recently in Council 03 it was stated that, “Numerous statements were also made on the subject of GMPCS. It was acknowledged that the activity undertaken within the framework of the MoU on GMPCS should be continued within the ongoing application of full cost recovery. Further clarification should be provided in the draft budget regarding the levels of expenditure and income anticipated for the next biennium.”

Special Session of Council

Council 03 did not approve the Draft Budget for the Biennium 04-05 during its session in May 2003. As a result of this, a special session of Council is scheduled for 27-29 October 2003 to continue discussions leading to approval of the budget. Revised estimates of expected income and expenses based on inputs provided during the March 2003 meeting need to be included in any revised budget document considered for approval by the 27-29 October 2003 Special Session of Council.

Current Status

The GMPCS MoU and associated activity was particularly intense during the years leading up to the introduction of services and the establishment of the MoU Registry at the ITU in 1998. During this period and in subsequent years, numerous systems became operational, existing systems expanded and numerous terminals were registered and authorized to carry the GMPCS MoU Mark. All this generated considerable income and workload at the ITU.

Beginning in 2001 and 2002 the level of activity regarding the registration of new systems and GMPCS terminals dropped notably with a resulting steady decrease in workload and income to the project, while fixed costs remained basically unchanged.

While income and workload has decreased, the importance of the GMPCS MoU process and the associated registry remains an important element in the provision of communication services and, in particular, the advancement of universal access in developing countries.

Budget Year 2003

During 2003, GMPCS MoU project activities have concentrated on maintenance of the Registry, associated paper work, and coordination needs that may arise. No new system or terminal registrations have been received nor are any expected for the remainder of 2003.

Additional income for 2003 will be achieved from increased yearly dues, and a two tiered yearly membership fee for systems that differentiates between operational and planned systems. This will provide at least $70,000.00 of additional income for the remainder of 2003 and will be made recognizing that these and other funds will be used to support direct costs and not reallocated costs for which there has been no coordination or agreement.

Budget Years 04-05

During 2004 there will continue to be five operational systems each of which will pay $7,000.00 annual dues, and two planned systems that will contribute $5,000.00 each. During 2004, it is expected that 3 additional terminals will be processed and receive the Mark after payment of the individual $5,000.00 registration fee. Terminal manufactures should remain at 3 and will each contribute $5,000.00 in yearly dues. This results in an income of at least $75,000.00.

In 2005 there will be a continuing increase in activity. In addition to the 5 current operational systems ($35,000.00 annual dues), one additional system should be registered ($75,000.00 registration fee and $7,000.00 annual dues). Two additional terminals should be registered ($10,000.00), 3 terminal manufactures ($15,000.00) will continue to participate, and one planned systems ($5,000.00) will remain in the pipeline. These financial contributions will provide an income of at least $142,000.00 for 2005.

The current ITU 04-05 Budget includes CHF 0 income and only CHF 20,000.00 for expenses. This is not a realistic projection of either income or expenses for an operational GMPCS MoU Registry. These figures must be modified prior to final approval – as a minimum; the income and comparable figures presented above should be entered in the 04-05 Biennium Budget for GMPCS.

Conclusions

The GMPCS MoU, its Arrangements, the Mark and ITU Registry continue as important elements in the effective provision of telecommunications services, particularly in remote and under served areas.

The activity undertaken within the framework of the MoU on GMPCS should continue at the ITU within the ongoing principle of full cost recovery.

In anticipation of a clear definition of the methodology being developed for the Satellite network filings activity, and consistent with the practice for the Satellite network filings activity, that the charging of reallocated costs should not be applied to the GMPCS MoU project for the years 2000 – 2003. The experience gained from this activity will be the point of departure for any additional discussions with the ITU, which may be necessary, regarding full cost recovery.

Direct as well as any subsequent reallocated costs must be clear, auditable, transparent, and directly associated with project workload and identifiable support services.

Additional income has been specified for the remainder of 2003 to support direct costs incurred by the ITU in the administration of the GMPCS MoU Registry.

Estimates of income for the Biennium 04-05 have been developed and should be included in a revised draft ITU Budget submitted for approval by the 27-29 October 2003 Special Session of Council. For purposes of the budget, expenses should be included that match the projected income for the biennium period.

More timely reports regarding project expenses and financial projections would aid the effective and responsive administration of the GMPCS MoU activity at the ITU, promote accurate cost recovery, support accountability and transparency.

1

[1] Council 98 Resolution 1116

[2] Document CWG/9

[3] See separate input document containing the letter from the GMPCS MoU Group Chairman to the Secretary General.