Getting NBN pricing right

NBN Buzz is a weekly wrap up of everything that's going on with Australia's largest infrastructure project. For previous editions and the latest news visit our NBN Buzz page.

A telco industry talkfest in Sydney yesterday provided the likes of Optus, Telstra, Vodafone and iiNet a chance raise some pertinent points about what the post-NBN landscape might look like and perhaps the strongest voice was that of Optus' corporate and regulatory affairs vice president David Epstein.

Epstein told those gathered at the ACCAN National Conference 2012 that this landscape would be shaped by wholesale forced migration of customers from the old copper network to fibre and by how much NBN Co decides to charge for internet services.

The Optus executive used the example of the electricity market to illustrate how disastrous over-investment in a service can be if it's not matched up by requisite demand. In this case, the telcos fear that an insufficient uptake of medium-top tier NBN plans could potentially force NBN Co to raise the wholesale prices and make life difficult for them

According to The Australian Financial Review, Epstein stressed the need for some real incentives for the NBN spend its money “prudently and efficiently”.

 “We don't want to have a repeat of the electricity industry where you have over-investment or indeed over-investment that is really driven by a need to be rewarded by higher prices,” the Optus executive said.

As far as the telcos are concerned, NBN Co's current pricing model still gives it far too much wriggle room when it comes to raising prices, especially if uptake rates aren't up to scratch.

This isn't a new concern, but Epstein's comments do highlight the importance of pricing. While the benefits of the NBN may be lost on many worries about prices are never too far from mind. The entry level prices have to be attractive enough to allay any fears that the public may have.

As veteran telco analyst Paul Budde points out, so far there is plenty of evidence to suggest that the current NBN retail prices are right, and people are migrating at a healthy rate.  

We will get a clearer of what happens next once the fibre gets connected to more homes and businesses and the Australian Competition and Consumer Commission (ACCC) will have to play a big role in placating the telcos.

With the NBN Co special access undertaking yet to get the final tick it's only natural that the telcos will take this opportunity to send a message both to the ACCC and NBN Co.

After decades of playing the villain Telstra will be happy to see that that crown is slowly but surely shifting to NBN Co. The company may provide as many guarantees it wants but the industry wants to see the ACCC in a position to enforce those guarantees.

This is the hurdle that has so far prevented the SAU from getting the final tick and it's still unclear when the ACCC and the industry will see a document that they like.

A level playing field 

Meanwhile, the telcos are also busy preparing themselves for life after the NBN and as Telstra's group managing director of corporate affairs Tony Warren pointed out at the ACCAN conference: How do telcos would build a loyal customer base in a market where all players used the same infrastructure?

Given that the purpose of the NBN is to provide a level playing field and remove differentiation this is a valid question but not one without answers

According to Ovum analyst David Kennedy, one way to stand apart from the crowd is bundling, provided the telco has access to decent content resources.

“If you have your own mobile network then you have an advantage,” Kennedy says.

Another thing to keep in mind is that there is always a chance that the existing status quo can be challenged by new players with different business models. The likes of Telstra and Optus have to be mindful that if they are uncompetitive in a particular segment then they leave the door open for other nimbler entrants.

NBN's true potential

On the political front, communications minister Stephen Conroy leveraged the positive buzz around the NBN this week to take the offensive against the Coalition. The first piece of good news was the launch of the first business specific network enhancements that shows plenty of promise for local small to medium businesses (SMBs).

The NBN for Business initiative is designed to translate the potential benefits of the network into something concrete for the SMBs and the ability to run up to 50 voice services over network and extended business support are features that have the potential to really make a difference for many small business owners across the country.

One critical feature of the service is that it offers more speed for highest priority NBN traffic, as highlighted in this article in Business IT (BIT) highest level traffic is classified as Traffic Class 1 (TC1), while regular internet is categorised as Traffic Class 4.

What the enhancement essentially means is that VoIP services are going to get a whole lot better for a lot of businesses and that's certainly something worth celebrating about. Most of all here is clear example that truly showcases what the NBN is capable of.

The Gillard government would have also welcomed the news that the NBN rollout is in full swing in Western Australia with construction to have commenced or be completed for around 60,000 homes and businesses by the middle of next year.

Meanwhile, the town of Geraldton is now connected to the NBN fixed wireless service with two of the six NBN fixed wireless sites providing 354 homes and businesses in Geraldton with broadband speeds of up to 12 megabits a second.

Questions and answers

So plenty of positive news and true to form Conroy's message to his opposition counterpart was clear, if the Coalition has a fully costed plan then it should be made public.

Of course , we posed a few questions of our own this week to the shadow communications minister and the answers are here for you to see.

Somehow, I don't expect an equally prompt reply from Turnbull to the questions raised by Conroy. Still, our thanks to the opposition communications minister for his responses. We can only hope that it's a sign that perhaps more disclosure is on its way.