There’s a problem with the NBN – well, that’s the understatement of the century isn’t it – there’s a few problems with the NBN, and one of the biggest ones is speed. Today the NBN takes steps to fixing that with a set of pricing discounts aimed at enticing users onto faster speed plans.
While you may read the click-bait headlines and think that the NBN is an utter nightmare, the fact is much of that which drives then NBN hype is poor user experiences, and much of that relates to the fact that many people are in fact signing up for some of the slower available speed plans, then wondering why the NBN isn’t that different to what we’ve always had.
Talk to the Telcos and they say they’ve been forced into a corner. NBN wholesale pricing means they either struggle to make much money from the customers requesting the fastest speed plans, or they are worried that profit margin will diminish as usage online grows and grows.
These companies are not charities, so they look at the numbers and realise that the money is in the slowest plans, similar pricing for the end user, best possible margins for the telco.
As such we’ve got millions of people connected to the NBN and the overwhelming majority are signed up to the slowest possible plans. NBN Co CEO Bill Morrow explains “Today, more than 80 per cent of end users are on plans based on the nbn™ 25 wholesale speed tier or lower but we want all Australians to experience the benefits of fast broadband and the economic growth, job creation, and social inclusion that it unlocks.”
It’s not a simple thing though, you see the NBN is a business, and it’s required by the government to make a profit, so it can pay back what it owes, and become so valuable it’s an asset that could be privatised in the future.
While it’s complex, the simple mathematics is the NBN charges an access fee and a usage fee to the telcos for each consumer. Today, the NBN combines those fees and begins offering more bandwidth in the hope that people will be enticed onto the higher speed plans.
Mr Morrow explains; “Combining access and bandwidth charges into one simple price point will not only promote the take-up of plans based on higher wholesale speed tiers and position the nbn™ 50 bundle as our flagship service, but it will also trigger the triple benefit of improved end user experiences, provide more affordable pricing options for retailers and support NBN Co’s revenues in the longer term.”
EFTM spoke with several of Australia’s biggest NBN providers in response to this announcement.
A Telstra spokesperson said “We welcome any initiative from nbn co that will help provide a better experience for more Australians. While we believe these changes will be a positive step when introduced next year, there are still a number of factors that impact speeds including in home wiring and CVCs.
Our position at Telstra is to provide the best network experience for our customers on the nbn. We do this by continually monitoring traffic and adjusting our CVCs to meet demand. We have robotic testers in our network to measure customer speeds and ensure we are buying enough CVCs. Our plans are to deliver significantly ahead of the ACCC guidelines during peak times.”
Over at Optus they were a little more reserved, “Optus is aware NBN Co is still consulting in the Product Development Forum on a new pricing model.”
Going on to say “Optus would support structural changes to pricing that deliver better value and an improvement in experience for customers.”
New entrant Vodafone seemed positive about the changes with Fixed Broadband General Manager Matthew Lobb welcoming the change “(the) new pricing arrangements will improve the economics of its faster speed plans, and help unleash the potential of the NBN for Australians. Consumers want faster, better broadband, and this will ultimately give users access to the experience they want and expect.
Unfortunately, the current pricing structure was a lot like driving with the handbrake on as it limited the ability for industry to sell faster speeds. By bundling AVC and some CVC, the pricing restructure removes a lot of the risk for retailers around the faster speed tiers. We expect this will lead to lower prices in the faster speed tiers; and as a result we are reviewing our NBN broadband plans.
While the arrangements are a step in the right direction, demand for bandwidth is only going to increase as usage steps up over coming years. The pricing structure will need to evolve as demand increases, and we are keen to understand NBN Co’s plans to ensure the model remains sustainable.”
Interestingly, while the pricing has been developed through consultation with the Telcos, it seems the detail of the pricing is very fresh for everyone, including those telcos, with Optus and others stating they needed to see the process out and understand all the detail first.
Smaller players like Aussie Broadband were in the same position, with Managing Director Phil Britt telling EFTM “We’re pleased the NBN has responded to the many calls for a renewed look at the pricing structure, unfortunatley, given the complexity of the pricing structures we can’t yet be sure how positive these changes will be for Aussie Broadband or its customers.”
However the NBN has it’s biggest issue with Singapore based MyRepublic, Aussie Managing Director Nicholas Demos didn’t hold back when speaking to EFTM “It is a mixed bag- NBN have done the right thing by reinventing the 50Mbps bundle, however they have priced the 100Mbps speed tier $20 wholesale ex backhaul (44%) higher which is completely ridiculous.”
“We agree with NBN’s decision to promote the higher speed tiers so why not offer incentives and discounts on the 100 Speed tier as well?”
“We can only think that NBN appear to be championing the 50Mbps speed tier as a way to defend their MTM decision due to 50Mbps being the universal speed that customers can achieve.”
“Pricing the 100 Speed tier so high prevents customers from getting the optimum speed experience. 40% of the market are on HFC and FTTP who can comfortably get up to 100 Mbps and the FTTN/B customers coming out of co-existence will also be eligible for speeds between 50-100, however we doubt that the customer will see value in paying $30 a month more.”
Mr Demos seems to hold out some hope of a reprieve for those offering the 100/40 plan, though as it stands it could cost them more to offer to customers. “Based on the proposed bundle wholesale pricing, the 100Mbps plan will become more expensive, we are currently evaluating how we position our plans and as part of the consultation process we will be voicing our concerns to NBN to see if incentives for the 50 speed tier can be extended to the 100Mbps plan.”
NBN are quick to point out that these prices are not replacements, the existing pricing remains in place, so MyRepublic don’t have to adopt these changes.
And as with many of the smaller players, Demos seems to throw the spotlight right onto the big telcos when it comes to why people are signing up to those slower plans “Since MyRepublic launched a year ago, we have seen a fundamental shift in the conversation about speed which has been a good thing. However the 12 and 25Mbps plans will still be in market so it will be interesting to see how the incumbents who play in this space react, MyRepublic will continue to only offer the premium high speed unlimited plans.”
The bottom line here is, don’t expect your price to come down any time soon. Consumers won’t see any change in retail pricing as a result of these changes. What should happen for those on the slower plans, is that new plans will become available at Telcos offering the 50mbps speed tier at much more competitive prices, possibly the same as their current 25mbps.
By combining the access charge and bandwidth charge, it’s also possible NBN will create two classes of users, those who’s peak hour speeds are horrible (because their ISP is paying for “CVC” or bandwidth on a data limited basis), and those that are paying under the new plans for a higher amount of bandwidth as part of their access fee (meaning their peak speeds should be less affected by congestion).
Time will tell. While Vodafone’s Matthew Lobb welcomed the change, he told EFTM the new structure helped offset the risk these telcos take on with users on the higher speed plans “It’s an important change, we see it as a price restructure, the challenge with the legacy pricing was there was a lot of risk for the RSP (retail service providers) with customers at the higher tier”, explaining that those users usage could skyrocketed in the next year and completely erode any margin that exists.
Just like the NBN Co and Government, Vodafone want’s one thing; “what we want to see is more Australian’s experiencing faster broadband..”
Getting more people onto higher speed plans will mean more positive views on the NBN “performance” and will help offset the technical challenges that will continue to be faced by the current roll-out.