NBN price model re-negotiators reduce options from three to two – Telco/ISP

Maria J. Danford

Internet providers negotiating a new price deal for NBN services appear to have already rebuffed one of three models tabled by NBN Co that was effectively a sweetened version of its existing pricing.

A meeting of the working groups renegotiating the NBN price model on August 12 agreed to progress only two potential models, both of which would include flat pricing, a key industry demand.

Retail service providers (RSPs) want to pay a single flat wholesale rate per service per month, instead of the current system where they pay NBN Co a fixed price per month for a service ‘bundle’ and then incur variable costs on top of that, depending on usage. 

The result of the August 12 meeting would appear to suggest that the working groups are developing something similar to constructs 2 and 3 proposed by NBN Co back in June.

Construct 2 maintains the current bundle structure for plans 50Mbps and below, but would set a flat wholesale price on services 100Mbps and above; Construct 3 would offer flat pricing across the board.

It’s not clear if the working groups are specifically developing these constructs further or are perhaps using the assumptions for each as a basis to propose their own separate models.

What is clear is that the retail service providers (RSPs) aren’t interested in Construct 1 – that is, keeping the current plan structure of fixed and variable costs for all NBN services, even if the variable (“volumetric”) costs are reduced.

“The group agreed to initially focus its work program on developing two product and pricing models and an agreed set of principles, or scorecard, against which to assess them,” working group convener the Australian Competition and Consumer Commission (ACCC) said in a summary of the August 12 meeting, released today. [pdf]

“One model involves flat rate charges while the other retains some volumetric components. 

“The group will commence work on developing these product and pricing models, with a ‘notional’ value for the average revenue per user requirement used as a working assumption until more detailed estimates are available.”

To aid in its modelling and sums, the working group is hoping to understand “the proportional split of the NBN cost base between costs that are relatively fixed and those that scale with additional network utilisation.”

There’s been a long-term effort to better understand how NBN Co incurs costs and to what extent its spending might be considered efficient, which has previously failed to progress in each of the mostly regulatory avenues it’s been pursued in.

RSPs are hoping that the renegotiation of price and non-price terms will prove to be the appropriate avenue to progress the costs discussion.

Any price models that the working group proposes will be kept “simple and straightforward” for now.

It appears all sides of the negotiation favour “maintaining support for retail differentiation” in the models, though exactly what that looks like remains uncertain.

NBN Co has raised concerns through the process to date that moving to a flat pricing model could produce homogenous broadband offers with little to differentiate between providers, though not everyone agrees that this is likely to be the outcome of changing NBN Co’s pricing structure.

Participants of the working groups intend to draft a series of papers to present at the next meeting on September 9.

This will include “initial drafts of each of the proposed product and pricing models (focusing on what product features and tariff items would make up a good product construct)” – meaning it could be a matter of weeks before it is clear how close or far apart NBN Co and the industry are on what they believe is a feasible and acceptable future price construct for NBN services.

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