9. Pricing Principles for Retail Services with Controlled Tariffs 1) When the Authority reviews a filed Controlled Retail Tariff to ensure its lawfulness, the tariff shall pass either the non-predatory test or the margin squeeze test, and in addition, be not unduly discriminatory. 2) When assessing whether a Controlled Retail Tariff passes the non-predatory test, the Authority shall consider the following: a) Whether the tariff, for the corresponding service, or service bundle, is below cost. If a tariff is equal or above cost, then the tariff passes the non-predatory test. b) Use the Telecommunications Operator’s current year costs, or where available, regulatory accounting costs, subject to reasonable adjustments if these are from a prior year, as the source of information to calculate the cost of a service. c) Use any of the following cost modeling methods to establish the cost basis: i) Fully allocated cost; ii) Long-run incremental cost (LRIC); or, iii) Long-run incremental cost plus (LRIC+), which allows for joint and common costs. 3) When assessing whether a Controlled Retail Tariff passes the Margin Squeeze test, the Authority shall consider the following: a) Evaluate occurrence of a Margin Squeeze. b) Assess whether there is a positive margin between the retail tariff and the cost of providing the Retail Service. A tariff passes a Margin Squeeze test if the difference between the retail tariff and the cost is positive. c) Calculate the cost of the Retail Service, taking into account the cost of the necessary input purchased in the wholesale market, plus the Downstream Retail Cost. d) Calculate the cost of providing a Retail Service using the Downstream Retail Cost of the vertically integrated Telecommunications Operator as a proxy for the Downstream Retail Cost of an efficient retail competitor. e) Use the Telecommunications Operator’s current year costs, or where available, regulatory accounting costs, subject to reasonable adjustments if these are from a prior year, as the source of information to calculate the Downstream Retail Cost of the vertically integrated Telecommunications Operator. f) Use any of the following cost modelling methods to establish the cost basis of a Retail Service: i) Fully allocated cost; ii) Long-run incremental cost (LRIC); or, iii) Long-run incremental cost plus (LRIC+), which allows for joint and common costs. 6