NBN Co is pitching a $2 a month increase to the ‘fixed’ cost of its 50Mbps-plus services from May next year, with substantive changes to its price strategy deferred until 2023.
The company released its latest pricing consultation to retail service providers (RSPs) and other interested parties on Monday morning.
From the outset, it is clear that the proposals have much to do with resuscitating NBN Co’s stalled residential average revenue per user (ARPU), which somehow needs to hit $49 by FY23; it is currently stuck at $45.
There are two options on the table from NBN Co at this time.
NBN services have a fixed aggregated virtual circuit (AVC) cost and a variable connectivity virtual circuit (CVC) component.
One option is to freeze AVC prices at May 2021 levels and offer a small bundled connectivity virtual circuit (CVC) increase.
Under this option, retail service providers would need to upgrade more users to higher-speed plans to get more bundled CVC, or pay for extra bandwidth themselves to meet any bandwidth shortfall.
The other option on the table is to agree to a $2 a month AVC price increase for services of 50Mbps and above, which would be offset on the retailers’ end by the inclusion of more CVC.
Either way – through encouraged upgrades, additional CVC purchases, or an AVC price rise – it appears likely that NBN users will be paying more for broadband services in 2022.
It will ultimately be left to retailers as to whether they can model these offerings without asking their customers to pay more.
The only decision is around who will pay: all users, or a subset that can be encouraged onto higher-speed plans and who can then more or less subsidise the usage of others.
But NBN Co chief customer officer Brad Whitcomb told iTnews that he didn’t know “how looking at our pricing consultation would directly relate to a conclusion that has something to do with retail price.”
He acknowledged that the company’s steady encouragement of users onto higher speed tiers did ultimately mean they paid more.
“If we can go all the way back to the basics of it, through government policy this is a user pays model,” he said.
“The user in our case is the retail service provider, and we essentially charge them for three things: the number of customers they put on the network, the speeds those customers choose to take up, and then what the overall consumption of data is in the busy hour for that particular retailer.
“We have seen that as data consumption grows, customers tend to be more satisfied with higher speed plans than what they might have been satisfied with in the past.
“So we would expect – and we have seen – customers choosing higher speed plans and while the value we believe is significantly higher, the [wholesale] price point clearly of an [100Mbps-plus] price is higher than a 12/1Mbps [product], for example.”
On the proposal to raise AVC – fixed – costs by $2 a user a month for all plans 50Mbps and above, Whitcomb argued it could provide greater certainty to RSPs.
“The reason we are consulting on this shift from variable to fixed cost is that there have been calls in the industry to provide even greater certainty, [and] even less variability going forward,” he said.
“I will say that historically we’ve made great progress on that. If you look at the variable portion of NBN’s revenue and therefore by implication the variable portion of the retailer’s costs.
“In 2017 that stood at 33 percent, and as a result of the consultations that we have engaged in and executed on in the past that’s now dropped to just 10 percent, and we would expect that to continue to decline over time.
“But by offering this option to accelerate that shift, putting more emphasis on the fixed portion and less on the variable, that’s why we’ve got that second option out for retailers to consult on, and we’re very curious to see how they’ll respond.
“The increase in the AVC is more than offset by an even larger increase in the value in the CVC that’s included, so the value of that plan [to the retailer] actually goes up, not down.”
Path to long-term action
Critics are unlikely to be appeased by NBN Co’s decision not to pursue deeper, long-term changes to its pricing structure until the expiry of its latest wholesale broadband agreement, WBA4, in late 2022.
NBN Co said that between now and then, it will only assemble some “core objectives and guiding principles” for what retailers and others think should occur.
Retailers are substantially on record about this already, consistently demanding a single service price and the scrapping of the CVC, an artificial construct that ensures NBN prices will increase over time.
In adopting this stance, NBN Co will put off “improving accessibility and affordability of broadband for Australian customers”, “enabling long term financial sustainability of industry”, and the provision of “greater wholesale price and cost certainty to RSPs.” It doesn’t propose to have solutions “until FY24”.
Executive general manager of commercial Ken Walliss told iTnews that despite “high level comments from different parts of the industry” to date, “when you get down to the future of pricing for the NBN, you really do need to get down into a level of specifics”.
“You need to talk about the pros and cons of different constructs, and it’s not a simple binary type decision,” he said.
“It’s something that does really require a lot more consideration.
“In a consultation like this we really do need to get into more specificity, and hear from different service providers on their different perspectives as well. Those perspectives won’t [all] be the same.
“NBN Co is obviously regulated as well with the ACCC and we would need to discuss any significant change in our pricing with the ACCC as well.
“That itself would take time and no doubt the ACCC will have its own perspectives as well.”
NBN Co is accepting submissions up until March 24. It expects to act on short-term price rises by April 30.
Internet for low-income families
NBN Co’s latest consultation puts a $40 to $50 retail price target on a future “low-income offering”.
There isn’t much progression in eligibility criteria since the idea was first raised several years ago, in that it would be offered to “never connected” premises or those “unconnected for greater than three months”, and would be based on eligibility for “specific Centrelink benefits”.
Walliss said that action on this could occur sooner than FY24, depending on what changes need to be made.