Resolution No. 706, of December 27, 2018

Note: This text does not replace the one published in the Official Gazette on December 31, 2018, rectified on January 1, 2019.

THE BOARD OF DIRECTORS OF THE NATIONAL TELECOMMUNICATIONS AGENCY, in the exercise of the powers conferred upon it by Article 22 of Law No. 9,472, of July 16, 1997, and by Articles 17 and 35 of the Regulations of the National Telecommunications Agency, approved by Decree No. 2,338, of October 7, 1997,

CONSIDERING the provisions of Article 19 of Law No. 9,472/1997, which assigns to Anatel the authority to adopt the necessary measures to serve the public interest and for the development of Brazilian telecommunications;

CONSIDERING the comments received as a result of Public Consultation No. 7, of March 8, 2018, published in the Official Gazette of the Union on March 9, 2018;

CONSIDERING the decision taken through Deliberative Circuit No. 254, of December 27, 2018;

CONSIDERING the contents of the records of Process No. 53500.072105/2017-42,

DECIDES:

Article 1. To approve the Regulation of the Weighted Average Cost of Capital (WACC) Estimation Methodology, as set forth in the Annex to this Resolution.

Article 2. To revoke Resolution No. 630, of February 10, 2014.

Article 3. This Resolution shall take effect on the date of its publication.

LEONARDO EULER DE MORAIS

Presidentof the Board

APPENDIX

REGULATION FOR THE WEIGHTED AVERAGE COST OF CAPITAL ESTIMATION METHODOLOGY

TITLE I

ON GENERAL PROVISIONS

CHAPTER I

ON OBJECTIVE AND SCOPE

Article 1. Approves the Regulation for the Weighted Average Cost of Capital - WACC - Estimation Methodology.

Art. 2º O CMPC será estimado para o setor de telecomunicações.

Paragraph 1 The calculation of the WACC may be performed using another Aggregation Criterion, as provided for in Article 3, item II, of these Regulations.

Paragraph 2: The Aggregation Criterion may be individualized by company or economic group for purposes specified by Anatel.

Article 3 (Revoked by Anatel Resolution No. 779, of April 28, 2025)

TITLE II

ON THE METHODOLOGY FOR ESTIMATING THE WEIGHTED AVERAGE COST OF CAPITAL

CHAPTER I

ON THE CALCULATION OF THE WEIGHTED AVERAGE COST OF CAPITAL

Article 4. The WACC is the percentage rate equivalent to the weighted average of the opportunity costs of the service providers' permanent funding sources.

Paragraph 1 For the purpose of calculating the WACC, in nominal terms, relating to the chosen Aggregation Criterion, after the application of taxes, the following shall be considered:

Paragraph 2 For the purpose of calculating the WACC, in nominal terms, relating to the chosen Aggregation Criterion, before the application of taxes, the following shall be considered:

CHAPTER II

ON CALCULATING THE COST OF DEBT CAPITAL

Article 5. For the purpose of calculating the Cost of Debt Capital, the following shall be considered:

Sole paragraph. In cases where service providers issue a limited number of securities in the local market, the following may be used to estimate the Cost of Debt Capital:

I - preferably, data reported by investment banks and market analysts, among others; or,

II - the rate resulting from the weighted average of the monetary values of interest contracted in all loan lines used by companies at the time of calculation.

CHAPTER III

ON CALCULATING THE COST OF EQUITY

Section I

On the Cost of Equity

Article 6. For the purpose of calculating the Cost of Equity, relating to the chosen Aggregation Criterion, the following general formula shall be considered:

Where:

is the Market Risk Premium;

is the expected Brazilian inflation rate;

is the expected US inflation rate; and,

RP is for Country Risk Premium.

Paragraph 1 If it is necessary to use the return from a short-term asset, the Risk-free Rate of Return on Equity , an adjustment will be made to the calculation to reflect long-term expectations.

Paragraph 2 If the Cost of Equity is estimated based on data from the US market, the Country Risk Premium may be estimated using the average CDS for the Brazilian market or a market index related to Country Risk considered appropriate during the evaluated period, for a period of at least 1 (one) year, provided it is duly justified.

Paragraph 3 The Cost of Equity, when estimated using data from the US market, should be adjusted for inflation expectations in the respective Brazilian and US markets, using as a reference the data released through the Inflation Targeting System of the Central Bank of Brazil or another official source that may succeed it, in the case of Brazilian inflation expectations, and the data released through the Consumer Price Index (CPI) or another source that better reflects US inflation expectations.

Section II

On the Systematic Risk Coefficient

Article 7. The Systematic Risk Coefficient may be estimated by means of a Calculation Method, observing the provisions of Subsection I of this Section, preferably, or by means of a Reference Method, observing the provisions of Subsection II of this Section:

Sole paragraph. The Reference Method will be chosen in any of the following situations:

I - in the absence of shares of telecommunications companies listed on the Brazilian stock exchange with a significant trading volume; or,

II - at Anatel's discretion, provided it is duly justified.

Article 8. Daily data should be used for calculating the Systematic Risk Coefficient.

Article 9. The estimation of the Systematic Risk Coefficient by the Calculation Method must take into account a period considered relevant, informed and justified in the calculation details of the WACC.

Sole paragraph. At Anatel's discretion, and provided it is duly justified, data from the period that reflect abnormal market situations may be disregarded for the purpose of calculating the Systematic Risk Coefficient.

Subsection I

On the Method for Calculating the Systematic Risk Coefficient

Article 10. The estimate of the Systematic Risk Coefficient obtained by the Calculation Method must be unleveraged and re-leveraged, as follows:

Where:

is the estimate of equity used in the Optimal Equity and Debt Capital Ratios;

is the estimate of Debt Capital used in the Optimal Equity and Debt Capital Ratios; and,

is the Leveraged Systematic Risk Coefficient.

Article 11. For the purpose of the Leveraged Systematic Risk Coefficient Calculation Method, the following shall be considered;

Where:

 is the return, on the date , of the chosen portfolio; and,

 is the return of the local Market Index on the date ;

Sole paragraph. For the estimation of the Systematic Risk Coefficient using the Calculation Method, telecommunications companies operating in the country shall be considered.

Article 12. For the purposes of calculating the current Debt Capital Ratio of the selected company, it is considered that:

I - the current Value of Debt Capital Less Available Funds is the book value of the interest-bearing liability less available funds, such as cash and cash equivalents;

II - the Current Value of Equity   is the market value of a company's shares; and,

III - the calculation is performed using the following mathematical representation:

Where:

 is the Current Debt Capital Ratio on the date  of the related companies; and

is the total number of Debt Capital Ratios for the related companies, throughout the entire historical data period used for the estimates of Equity and Debt Capital Ratios.

Article 13. For the purpose of calculating the Current Debt Capital Ratio of the selected company, the following shall be considered:

Article 14. The accounting information considered for calculating the average Current Debt Capital Ratios is that declared in the companies' balance sheets.

Paragraph 1 The historical data period to be used for the estimates of the Current Equity and Debt Capital Ratios will be the last 2 (two) years.

Paragraph 2 The data used to estimate the Equity and Debt Capital Ratios is quarterly for publicly traded companies and annually for privately held companies.

Subsection II

On the Reference Method to the Systematic Risk Coefficient

Article 15. The Reference Method for determining the Systematic Risk Coefficient can be obtained through external estimates of the Systematic Risk Coefficient.

Sole paragraph. External estimates of the Systematic Risk Coefficient should be unleveraged and releveraged to better represent the capital structures of the companies related to the chosen Aggregation Criterion, as shown below:

Where:

is the number of selected reference Systematic Risk Coefficients; and,

is the benchmark unleveraged Systematic Risk Coefficient:

Section III

On the Market Risk Premium

Article 16. The Market Risk Premium is the average excess of the market index rate of return over the Risk-Free Rate of the Cost of Equity.

Sole paragraph. For the purpose of calculating the Market Risk Premium, the following shall be considered:

Where:

 is the risk-free rate of the cost of equity in the Brazilian market or in the US Treasury sovereign bond market on the date , in annual terms;

 is the return of the local market index or the US market on the date , in annual terms; and,

is the number of observations in the historical data period used to estimate the Market Risk Premium, in accordance with the provisions of Article 18.

Article 17. The data frequency for estimating the Market Risk Premium is daily.

Article 18. The historical data period to be used will be that considered by Anatel as relevant to represent the estimate of the Market Risk Premium.

Paragraph 1 The historical data period used to estimate the Market Risk Premium shall not be less than 5 (five) years.

Paragraph 2 At Anatel's discretion, and provided it is duly justified, data from the period that reflect abnormal market situations may be disregarded for the purpose of calculating the Market Risk Premium estimate.

TITLE III

ON THE CURRENT VALUE OF ASSETS OF PRIVATELY HELD COMPANIES

Art. 19. With regard to the individualized WACC estimate for a privately held company, the Current Value of Equity shall be estimated through an interactive process using a variable WACC, via the Financial Asset Pricing Model with a variable capital structure, and the service provider must inform the Agency of the estimated operating, investment, and financing cash flows over a 10-year period, the terminal value, the debt, and the respective payment terms.

TITLE IV

ON FINAL PROVISIONS

Article 20. The WACC estimate must be declared by Anatel together with the following information:

I - Selected Aggregation Criterion;

II - Calculation Date;

III - Historical data period used to estimate the Systematic Risk Coefficient;

IV - Historical data period used to estimate the Market Risk Premium;

V - Method for estimating the Systematic Risk Coefficient;

VI - Cost of Debt Capital;

VII - Cost of Equity;

VIII - Optimal Debt Capital Ratio;

IX - Optimal Equity Ratio;

X - Taxation Applicable to Profit;

XI - Names of the companies and market indices selected for determining the Systematic Risk Coefficient using the Reference Method;

XII - Data sources used for inflation expectations in Brazil and the United States.

Sole paragraph. When the Aggregation Criterion is solely the telecommunications sector, all information related in the caput of this article must be published on Anatel's website.

Article 21. The estimated WACC shall be expressed with 2 (two) decimal places, in percentage form, without rounding.

Article 22. In the event that any index is discontinued, Anatel may replace it, with justification, until this Regulation is revised.

Article 23. In defining the reference price for the right to operate a satellite, Anatel shall preferably use the methodology defined in this Resolution and, exceptionally, use an alternative methodology, provided it is duly justified.

Article 24. For the purpose of converting nominal WACC to real WACC, based on the methodology of this standard, the inflation expectation published through the Inflation Targeting System of the Central Bank of Brazil or another official source that may succeed it will be used as a reference, in the case of the Brazilian inflation expectation, and the data published through the Consumer Price Index (CPI) or another source that best reflects US inflation expectation.

Article 25. The percentages of the Optimal Equity Ratio and Optimal Debt Capital may be altered by an Act of the Board of Directors. (Included by Anatel Resolution No. 779, of April 28, 2025)

Sole paragraph. With regard to the individualized WACC estimate, the capital structure of the respective company or Economic Group will be considered. (Included by Anatel Resolution No. 779, of April 28, 2025)