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.