Internode managing director Simon Hackett yesterday described the National Broadband Network's (NBN) pricing model as "insane" for small internet service providers (ISPs), warning that none will survive their walk through the "valley of death" transition from the current copper network to the fibre future envisioned by the Federal Government.
According to Hackett, the NBN's pricing model will only be feasible for ISPs with larger than 250,000 customers. Only five retail ISPs in Australia can boast of having this many customers: Telstra, Optus, TPG, iiNet and Internode itself.
Hackett told the Communications Day Summit in Sydney yesterday that he had calculated it cost ISPs with 250,000 customers or more as little as $27.28 per month plus GST to connect customers to the fibre infrastructure as it was rolled out.
However, the Internode chief said that this price rose dramatically as the number of customers fell; for a national ISP with only 10,000 customers spread out across Australia, the cost of connecting to the NBN would be as high as $106 per month per customer.
"At 10,000 customers, it's insane to connect to this network, as a national provider."
According to Hackett, there are several fundamental problems within NBN Co's pricing model as laid out in its business plan published in late 2010. For example, he said, the decision by the Australian Competition and Consumer Commission (ACCC) to have 121 points of interconnect around Australia where ISPs could connect to the network disadvantaged smaller ISPs: they will be forced to provide what NBN Co calls a Connectivity Virtual Circuit (CVC) connection to all of these locations in order to provide a national service.
Hackett has previously advocated a model where NBN Co provides as little as 14 points of interconnect, which he said would serve smaller ISPs much better. He claimed that a model with more points of interconnect would serve larger ISPs like Telstra and Optus, which already have infrastructure around Australia.
If NBN Co's pricing model doesn't change, Hackett argued, the only way that smaller ISPs will be able to afford to connect to the network will be through larger wholesale players like Optus and Telstra. Speaking before Hackett at the same conference today, Optus managing director of wholesale and satellite divisions, Vicki Brady, confirmed the company is planning to offer wholesale NBN services.
"This is why Vicki Brady wants to sell wholesale services to 10,000-customer ISPs; because they're dead without it. Quite deeply," Hackett said.
The Internode chief said that it isn't just smaller players who will be affected by the pricing structure that NBN Co has outlined.
Hackett pointed out that even ISPs like Internode, which has about 250,000 customers, would need to gradually migrate its customers onto the NBN fibre over the next decade. This means that it will need to suffer the claimed high connection costs until it makes more customer connections.
"How many retail national service providers do you think the NBN is planning for?" Hackett asked. "The feeling of the rhetoric is that there will be hundreds of them. It's actually just five. We're the number five player in the industry. Anyone smaller than us, never gets across the valley of death."