Speed tiers designed to drive take-up: NBN Co

Speed tiers designed to drive take-up: NBN Co

Summary: NBN Co has defended its tiered speed pricing model, stating it is designed to get users over from the existing copper network.

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The introduction of speed tiers for broadband on the National Broadband Network (NBN) is designed to make the NBN appealing to all consumers, while at the same time ensuring that the network is paid off, according to NBN Co.

As part of the discussion conducted by the Australian Competition and Consumer Commission (ACCC) into NBN Co's special access undertaking (SAU), which outlines how the company will operate over the next 30 years, former Telstra chief economist John de Ridder criticised (PDF) NBN Co's decision to tier speeds ranging from 12 megabits per second (Mbps) up to 100Mbps, because people will be unwilling to pay more for higher speeds.

"There is a very real danger that billions of dollars could be spent providing capacity that is neither adopted nor used," he said. "This will be the case if premiums are charged for higher speeds, because consumers are not prepared to pay for speed."

By charging on a data basis, and not on a speed basis, NBN Co would encourage end users to use more data in the long term, he argued. His point was picked up again today by Fairfax columnist Peter Martin.

The speed tiering on the access virtual circuit (AVC) charge comes in addition to the connectivity virtual circuit (CVC) charge, which is effectively a charge on the data used by an end user.

NBN Co senior regulatory adviser Tony Neilson told ZDNet that de Ridder was "oversimplifying the problem," and that moving to a single price for usage would result in all customers paying more initially in moving to the NBN.

"[A single price] would mean that everyone would face a higher charge from the get go, and you would start to see people at the lower end of the spectrum potentially not taking up a service at all, which would be no good for us and no good for them," he said. "We wouldn't have them as a customer, because they wouldn't be able to transition across at the same sort of prices that they're happy and willing to pay today."

The pricing model was developed to ensure that not only would users get the same price across fibre, satellite, and fixed wireless on the NBN, but also at the same price, he said.

"We've got to have the uniform national pricing across all of Australia and across all of the technologies ... and to try to make sure that as people come off the copper network and onto our network, for the same type of service, they will face the same kind of price. So there's no shock of transition across when they move from ADSL to the NBN," he said

"The approach to having the AVC with the tiered pricing and having the separate CVC charge was really to deal with those constraints that we've got where we're having to give the same price across all the different technologies across the country, transition the existing customer base across, but then have in place the means of frankly recovering our costs over time."

NBN Co assumes in its corporate plan that people's use of the network will increase over time, and that they will be willing to pay more for higher speeds and usage. The plan forecasts that over time, prices for services on the NBN will come down.

"The whole corporate plan is predicated on prices coming down ... but more and more people using the higher speeds, so they will be facing a lower price for them," Neilson said

Neilson said that if there was a lack of a speed tier, and every user was provided with 100Mbps download plans, then the retail service providers (RSPs) would have to upgrade their backhaul to accommodate to deliver that to customers.

"In doing that, there will still be a large group of people who still will only use the network for voice and very basic internet, and would only touch the sides of 100Mbps and so they'd be getting something I don't think they'd need, and paying for that would be ... higher than the AU$24 today," he said.

NBN Co's pricing structure can be evaluated over time, Neilson said, but at this point it is still too early to say whether plan adoption has been different to what was forecast. Data released so far by NBN Co points to users on the NBN today taking up higher-speed plans more than any other plan available. But Neilson indicated that NBN Co will wait until customers begin migrating off the copper network before it gets an idea of the typical plans that customers are taking up on the NBN.

Topics: NBN, Government, Government AU, Australia

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Armed with a degree in Computer Science and a Masters in Journalism, Josh keeps a close eye on the telecommunications industry, the National Broadband Network, and all the goings on in government IT.

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36 comments
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  • Ummm, I dunno about that...

    I would respectfully disagree with Telstra chief economist John de Ridder...

    I for one would expect to pay for a higher tier of speed on the NBN, and would willingly do so. My current broadband plan is with Optus cable, and they already throw far more data at me than I can use or consume in a month.

    Whilst data is an important consideration in Australia, ( I never had to deal with data limits in Canada ) speed is much more of an attractant to me.

    Speed has to be one of if not THE key features of the NBN! All that data does no one any good if it takes you hours to download large files and streaming data is stuttering all the time.

    First the speed, then watch the data requirements climb.
    Anycolouryoulike
    • Speed is the compelling reason for the NBN

      > I for one would expect to pay for a higher tier of speed on the NBN

      Why would you expect to pay for a higher speed when it is costing NBNCo zero to provide it? All NBNCo change to move you from 12/1Mbps to 1000/400Mbps is a software setting.

      > Speed has to be one of if not THE key features of the NBN! All that data does no one any good if it takes you hours to download large files and streaming data is stuttering all the time.

      Totally agree. Speed is the biggest advantage NBNCo have over competing networks, yet they've chosen to throw it away with tiered pricing for speed.

      > First the speed, then watch the data requirements climb.

      Except with NBNCo predicting that 50% will connect at 12/1Mbps, the speed simply isn't going to be there for the data requirements to rise.
      mathew42-bc1ae
  • The Alternative

    The alternative is to give everyone the same speed, reducing the price for the top tier and increasing it for the low end.

    Just think about that for a moment, can you imagine the outrage if light users were forced to subsidize heavy users like that? We'd never hear the end of it!
    karl_w_w
    • 12/1Mbps users subsiding 1000/400Mbps users

      > Just think about that for a moment, can you imagine the outrage if light users were forced to subsidize heavy users like that? We'd never hear the end of it!

      Let the outrage begin then.

      ADSL is a viable alternative to the NBN for delivering 12/1Mbps speeds. The 50% connecting at 12/1Mbps will be subsidising both those on faster speeds receiving the true benefits of the NBN and the heavy downloaders.

      Only fibre will currently deliver 1000/400Mbps, but why should everyone in Australia pay when NBNCo are predicting in the Corporate Plan that less than 5% will connect at 1000/400Mbps in 2028.
      mathew42-bc1ae
      • And

        NBNCo are also predicting in the Corporate Plan that the NBN will be successful and paid off by (iirc) 2034 Mathew...
        RS-ef540
        • Clarification...

          NBNCo are also predicting in the Biz Case summary, that the NBN will be successful and paid off by 2034, Mathew...
          RS-ef540
      • Reality Check

        "ADSL is a viable alternative to the NBN for delivering 12/1Mbps speeds."
        No it isn't. ADSL is more expensive than NBN, and for the vast majority it doesn't give 12/1 speeds - the national average is 6mbps.

        It is also wholly untrue that lower speed users subsidise high speed; in fact NBN Co makes more profit from high speed users, which is why it's a good thing that more people have taken up higher speed plans than they expected, and why it's so important that their prediction oh people generally getting higher speeds as time goes by is important to their business case.

        "those on faster speeds receiving the true benefits of the NBN and the heavy downloaders"
        Faster speeds is one the benefits, not the only benefit. The other benefits are:
        - Lower prices
        - Reliability
        - Latency
        - Breaking the Telstra monopoly
        - Adaptabiliy & Longevity
        karl_w_w
        • typ-OH

          their prediction of* people
          karl_w_w
        • "No it isn't. ADSL is more expensive than NBN, and for the vast majority it doesn't give 12/1 speeds - the national average is 6mbps."

          Nailed it karl. I get about 13mbps on ADSL2+ and I'd still rather a 12/1mbps NBN plan. You'd have to be a complete nutter to keep ADSL2+ if you can get a NBN plan simply because it's much better value for money. If I chose a 12/1mbps plan I'd be saving money but thankfully you don't even have to be forced to endure ADSL2+ speeds on the NBN because for the same price that I pay now I can get a superior 100/40mbps plan... and by doing so I subsidise those on the slower plans. The NBN works.
          Hubert Cumberdale
  • Practical realities

    Guess I am just a simple bloke that understands 1+1=2, not up with all this high falutin economics stuff that seems to tell me 1+1=1.787

    To me if all are on the same tier, that means all pay the same base price so lower tier prices will have to rise and higher speed plans base rate fall = Low income/minimum requirement are subsidising high requirement users, that also means all downloads are at max speed so when all the emails are being downloaded, all the face book look sees, all the page refreshes etc are at max speed the transit and backhaul will be saturated during peak periods degrading the performance to HFC equivalent for one or two hours a day during school days, therefore backhaul and transits will have to be increased to cover those peaks increasing costs which will have to be recovered.
    Guess he must have been the one responsible when Telstra wanted $5Bill to do FTTN for the major metro areas (60% of premises) on the condition of NO ACCC regulation or oversight and minimum wholesale rate of over $80/month.

    Reminds me of the other leading Australian economist that was complaining about the massive cost to the taxpayer of the NBN when it is funded from borrowings which will be repaid and suggesting that instead of cross subsidisation the extra costs of the rural sector should be from transparent Taxpayer subsidies which of course will be eternal and never be repaid.

    I must be so ignorant to fail to understand these economic geniuses, unlike all those intelligent highly educated readers of AFR and the News Ltd. Publications
    Abel Adamski
    • Data is what limits internet usage in Australia, not speed

      > all the page refreshes etc are at max speed the transit and backhaul will be saturated during peak periods

      It is not the speed that will lead to saturation of the backhaul it is download quotas.

      If the smallest quota was 1TB on the NBN, then

      - Speed = 8 * Quota (MB/Month) / Speed (Mbps) / 60 seconds / 30 days
      - 12Mbps = 370 minutes of full speed a day
      - 100Mbps = 44 minutes of full speed a day = 4 customers in same bandwidth
      - 1000Mbps = 4 minutes of full speed a day = 40 customers in same bandwidth

      If we assume that peak time is between 7-10pm each night and that customers use their entire quota only during this time, then an ISP won't need to increase their backhaul. Why? Because customers above 24Mbps are limited by their quota, not their connection speed.
      Therefore, I suggest it is clear from these numbers that there is minimal impact on backhaul for an ISP.

      If you reduce the quotas to 100GB, then you can see why ISPs (apart from on Telstra infrastructure) don't have a sliding scale for speed on ADSL connections.
      mathew42-bc1ae
  • Their arguments don't make any sense.

    Everyone will be using the same hardware, regardless of whether they connect at 12Mbps or 100Mbps.

    They could connect everyone at the same speed (100Mbps) and base the price differential on data load (500Mb/1 Gb plans for seniors that just do email, all the way through to multi-terabyte plans.

    Even the back haul argument is a bit of a dead end, if back haul becomes an issue, then either they'll upgrade it, or other companies will step in to offer more.
    Tinman_au
    • Sounds good but.

      That would lead to higher CVC or ACV or both.
      SW_Victoria
    • It makes perfect sense

      If you give everyone 100 mbps (soon to be 1 gbps) then you have to have enough redundancy for the situations where everyone gets home from work and they all check their email at the same time. That's a hell of a lot of extra network capacity which isn't going to be used for ~20 hours each day, and it also puts the same pressure on the RSPs and so on.

      What would be the benefit of this? So that people who don't need more than 12 mbps can pay more, enabling the people who want 1 gbps to get it cheaper? How on earth is that a good thing?
      karl_w_w
      • Data transfer is what puts load on the system.

        > If you give everyone 100 mbps (soon to be 1 gbps) then you have to have enough redundancy for the situations where everyone gets home from work and they all check their email at the same time.

        In Australia, the main limiting factor is the data quotas. If you have a 100GB/month data quota (5 times current national average), then that equates to ~22 seconds a day flat out. These users are going to be a blip on the network.

        The people who place load on the system are the heavy downloaders. Once you have a large enough customer base, the speed of the low quota users is irrelevant because they aren't putting a load on the network.

        > What would be the benefit of this? So that people who don't need more than 12 mbps can pay more, enabling the people who want 1 gbps to get it cheaper? How on earth is that a good thing?

        NBNCo are predicting 50% will choose 12/1Mbps on fibre. The 12/1Mbps customers have to be extremely price sensitive because for $5 extra/month they can choose 25/5Mbps plans for double the speed. This means that the 50% who would most receive the same service cheaper on ADSL or 4G wireless.

        Everyone on a 12/1Mbps plan misses out on the game changing benefits of the NBN which only kick in at 100Mbps and faster speeds.
        mathew42-bc1ae
        • Don't believe everything you read

          "The people who place load on the system are the heavy downloaders. Once you have a large enough customer base, the speed of the low quota users is irrelevant because they aren't putting a load on the network."
          This is incorrect. Heavy downloaders usage tends to be spread out over the day because they always download, and in fact if they want to do some gaming or similar during the peak hours they are likely to pause downloading to get better performance out of their connection.
          The light users are the ones you need redundancy for, because while they don't use much, their use tends to be concentrated at the same time of the day. As I said they get home and check their email etc, so their use is always between the hours of 6pm-10pm.

          "This means that the 50% who would most receive the same service cheaper on ADSL or 4G wireless."
          You seem to be caught up in the Liberal lie that NBN plans are expensive. In fact, NBN plans are demonstrably cheaper than ADSL and especially 4G (not sure why you mention 4G, the prices on that are downright extortionate).
          http://www.computerworld.com.au/article/427470/updated_which_nbn_plan_best_/
          karl_w_w
  • Why the fanboys don't want it

    How do you pay for the other infrastructure utilities, like phone, electricity, water and gas? Everyone gets the same connection hardware, then everyone pays a service charge for the provision of that connection, then a charge per unit of volume of whatever it is. Why exactly should it be any different for your internet connection? A small fixed service charge, plus a charge for how many GB you used. Is there any other utility where as well as charging you for how much you use they also charge you for how fast you can use it?

    I can see why the NBN fanboys don't want the same billing model. They don't want to have to pay ten times as much for using ten times as much data each month. They want the present billing model that means that very large users only pay a small amount more than large users who in turn only pay a small amount more than really small users. Its that present billing model that is the reason why most people who've signed up to the the NBN have chosen the fastest speed. Because it only cost them a little bit more to get a lot more.

    Limited the speed of low-end users when everyone is getting the same hardware just adds to the complexity and cost and benefits the high end users.
    Gordon D
    • There is a diffrence

      How do you pay for the other infrastructure utilities, "like phone," Same for now "electricity" pay more per month for a 3 phase connection, "water" Larger the price the larger the service fees and "gas" Same as Water
      SW_Victoria
      • Rich benefit more from infrastructure

        > Electricity

        The recent increases in electricity prices have been largely driven by the cost of installing network capacity (e.g .wires to carry electricity to your house). One of the leading drivers of this has been home owners installing large aircons. The end result is that everyone pays more as the infrastructure costs are spread across all customers, however the rich benefit because they can afford to pay to run their large aircons, where as the pensioners try to survive with just a fan.

        > Water

        I pay a supply charge which is based on property values. The effect of this is that I pay more in a house with water usage equivalent to one person on a small block, than relatives in the country who have a 2000sqm block with extensive gardens.

        It would be interesting exercise to try pricing the NBN on this basis.
        mathew42-bc1ae
    • Err

      I find it humorous that the NBN detractors have said all along "user pays"... If the propeller heads want to download their p0rn and illegal downloads faster they should pay.

      Now they are suggesting the opposite.

      Then another was telling us over at Delimiter how the NBN would promote social inequality? Because the poor wouldn't be able to afford it (even though there's an undertaking to be cheaper/same for similar/better).

      Now another bunch trying to deride the NBN are telling us there should only be one speed, flat out, which will of course will cost more (as SW-Vic alludes to). Yes I'm sure that will help alleviate social injustice.

      Seriously Gordon, do you and the rest of the crusaders actually have an actual position on anything (apart from NBN = evil, socialist, white elephant) or is everything contradictory drivel?
      RS-ef540