NBN study prices cheap, slow broadband

Summary:If Greens Senator Scott Ludlam wins his fight to have the government table the NBN Implementation Study, what will he find?

analysis If Greens Senator Scott Ludlam wins his fight to have the government table the National Broadband Network (NBN) implementation study, what will he find?

If Minister for Communications Stephen Conroy is true to his word, it will contain the gory details of how to get the lowest paying broadband customers onto fibre.

In April last year, shortly after the announcement that the government would go it alone on the NBN, Conroy laid out fairly clearly what would be in the study.

"No consumer or business will be forced to pay anything for services on the NBN," said Conroy. "But clearly affordability is an important factor to drive take-up. NBN prices cannot be structured without having careful regard to the prices people pay today for comparable services... The implementation study will give careful regard to pricing levels on the National Broadband Network."

In other words, the study will try to define a wholesale price that will enable retail service providers to offer packages that are cheap enough to lure the very bottom of Australia's broadband user base to the new deal.

What the study could safely assume, as has been borne out by the Australian Communications and Media Authority's recent figures, is that even if higher speeds become available, Australian consumers might not pay extra to take them up. But they will take higher speeds if they become available at the same price as today.

What it will all boil down to is the study's pricing recommendations for slower connections — not 100Mbps but 1 to 8Mbps, where 30 per cent of all internet connections sit. Can it, for example, provide 20Mbps — the current maximum for ADSL2+ — at a lower cost than what internet service providers (ISPs) are currently paying to install their own "DSLAMs" in Telstra's exchanges?

iPrimus' cheapest copper network ADSL2+ is $30 a month on a 3GB download quota, which is provided over Telstra's unbundled local loop at a cost of $16.70 per month in metropolitan areas.

It's not just fixed-line pricing the study will have to take into account when considering how low pricing has to go for the network to be viable, but also the price and speed of wireless broadband. As has become clear in the past two years, wireless broadband is snapping at the heels of fixed line broadband, which also means it is snapping at NBN Co's.

While NBN Co chief Mike Quigley has played down wireless broadband as a threat — because it will never be a pure substitute for fibre — should NBN Co price wholesale access for the bottom of the market a few dollars too high, there is the risk that consumers flock to it, rather than make the switch to fibre.

Also coming into the pricing mix will be the company's roll-out costs, and how quickly it will burn cash. The study will likely consider what roll-out strategy is best in a financial sense, stopping NBN Co from over-committing on capital as it waits for revenues to stream in. Should NBN Co connect whole neighbourhoods as a matter of course, or should it activate lines as households demand it? While doing a whole region might be cheaper overall compared to provisioning on a house-by-house basis, one option has a significant upfront cost, while the other doesn't.

Of course, speaking of costs, the study will also have to address the elephant in the room. It will need to assess pricing under two key scenarios: Telstra's agreement or rejection of the government's advances for it to transfer customers to the NBN Co.

If Telstra agrees to ditch its copper network, and migrates its customers to the NBN Co, as flagged in the heads of agreement announced last year, the problem would largely be solved; if Telstra migrates its customers to the NBN fibre-access network, all ISPs will be forced to migrate.

The worst-case scenario the report can possibly assume is if Telstra doesn't play along with the government and continues to invest in ADSL technology. In that case, NBN Co will face a protracted and bloody battle with the incumbent, as ADSL technology edges towards NBN Co's fibre speeds using infrastructure that is already a sunk cost.

Topics: Telcos, Broadband, Government : AU, NBN, Optus, Telstra

About

Liam Tung is an Australian business technology journalist living a few too many Swedish miles north of Stockholm for his liking. He gained a bachelors degree in economics and arts (cultural studies) at Sydney's Macquarie University, but hacked (without Norse or malicious code for that matter) his way into a career as an enterprise tech, s... Full Bio

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