Claims of NBN price hikes exaggerated

Shadow Communications Minister Malcolm Turnbull called a press conference yesterday claiming that a month-old paper from the National Broadband Network Company (NBN Co) asks for product price increases 5 per cent above consumer price index (CPI), but NBN Co is really just covering all bases.

"Their intention is to be able to raise the prices of all of their products, except for the base entry-level product, the 12-megabit product, all of their prices by up to 5 per cent per annum more than the CPI," Turnbull told gallery journos gathered outside of parliament yesterday.

The document in question, published by NBN Co in July (PDF), does specify a CPI plus 5 per cent "buffer", but this is only if the costs for offering the service actually go up. The buffer, according to NBN Co, is designed to shield consumers within any financial year from a significant price hike if inflation rises in Australia. From the report:

NBN Co has incorporated a price shock mechanism into the pricing model to ensure access seekers' business models are not unduly disrupted by abrupt actual price changes to NBN Co's products, while preserving sufficient scope for NBN Co to change prices over time as the market, and NBN Co's experience of demand characteristics and costs, evolve.

Unlike the basket price control (which applies to changes in the maximum regulated prices of the price-controlled offers), the price shock mechanism operates to limit NBN Co's ability to increase the actual prices of products. It will apply to all NBN Co products, and will operate to limit NBN Co's ability to increase prices by prohibiting actual price increases of an individual product within each financial year of greater than 5 per cent above CPI. This price shock mechanism does not allow NBN Co to build up any "buffer" of "unused" price increases — if the actual price of a product is not changed in one year, it is not able to be increased by (say) twice the rate shock amount in the following year.

In addition to this, NBN Co will not be able to raise the price of the basic package, currently the 12Mbps product. This, NBN Co said in the paper, would act as an "anchor" for other products offered by the NBN, and contain prices on the higher product offerings.

The basic product would also be reviewed as demand for it over other products decline, and NBN Co would be able to set a new "anchor" at a higher package, from which all other products would be based.

While taken literally, one could jump to the conclusion that NBN Co would be seeking to raise the price of most of its products by the annual CPI plus 5 per cent, which seems pretty remarkable given the general decline in broadband prices over the last decade. But NBN Co is really just considering how to protect Australians in high-inflation conditions, as a responsible government organisation should, and I don't think they'll increase costs even to their maximum of CPI plus 5 per cent .

Instead, given the decline in broadband prices over the last decade as providing it became cheaper for telcos, there's a good chance that we'll see that continue on the NBN.

As others have noted, the paper itself is only a discussion paper that provides a preliminary design for the special access undertaking. NBN Co has called for comment from industry to the design, and will lodge the formal undertaking with the Australian Competition and Consumer Commission (ACCC) later down the track. The ACCC doesn't have to accept NBN Co's plans, either, as we saw with its decision to increase the number of points of interconnect from 14 to 121. So to claim that prices are definitely going to go up on the NBN because of this one design is just alarmist.