2.21 PITO used the should-cost model to profile estimates of O2's six capital and operational cost lines. These were compared against cost information that O2 provided in a projected profit and loss account built up from these cost lines. PITO and Mason Communications used discrepancies to challenge O2's costs and both PITO and O2 told us that the estimated unit cost of base stations had been reduced as a result of these discussions.
2.22 Charterhouse told us that it was confident that the should-cost model provided a reasonable estimate of O2's internal rate of return on the project. It considered, on the basis of experience, that the rate of 17 per cent (pre finance and tax costs), calculated by the model, was reasonable for the nature of the project.
2.23 Until August 1999, PITO continued to refine inputs to the should-cost model as cost and quantity information was received from O2. With this exchange of information it was to be expected that the net present cost of £990 million for Airwave, as computed by the model, was close to the net present cost of £970 million calculated by O2 in its best and final offer.