NBN Co may lower prices if overcharging

NBN Co may lower prices if overcharging

Summary: The National Broadband Network Company (NBN Co) has indicated it may lower wholesale NBN prices to retail service providers if its pricing model is overcharging carriers.

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TOPICS: NBN, Broadband, Telcos
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The National Broadband Network Company (NBN Co) has indicated it may lower wholesale NBN prices to retail service providers if its pricing model is overcharging carriers.

Since the release of the NBN business case in December last year, retail service providers (RSPs), such as Internode, have been wrangling with NBN Co over the method it uses to charge RSPs for services on the network. In addition to the end customer wholesale price, RSPs will also face prices for the physical connection to the NBN's point of interconnect and the end-user premise, and will also face costs of $20 per 1 megabit per second of bandwidth that the telco requires to service the end-user premise.

Internode founder Simon Hackett has led the charge for RSPs that have concerns over this model, saying that the model is structured in such a way that it makes it almost impossible for telcos with less than 20,000 customers to serve a national audience.

NBN Co's head of product development and sales Jim Hassell told ZDNet Australia that NBN Co had heard these complaints from the telcos.

"We talk to all of [the RSPs] and we talk to Simon [Hackett] on a regular basis about what their issues are and what they think," he said. "Doesn't mean we'll change every time, and sometime people will say something and they don't like it but that's how it's going to be. The consultative process is very important to us and very important to us to have an industry-wide agreement."

When the NBN rolls out and revenue starts coming in, NBN Co may adjust the pricing if it looks like they've overcharged the ISPs, he said.

"We've said that here are our assumptions about take-up and average revenues per user and those sorts of things, if we find that we have undercooked that and we generate much greater revenues than we expected, we would just reflect that in lower prices," he said. "We just need to get that amount of money to pay for what we're doing and pay for the network over that period of time."

In the NBN business case, the revenue model is calculated to include price decreases over time; however, the document notes that if take up is lower than expected, NBN Co would also have the power to increase costs in order to maintain the revenue it is expecting.

Hassell said the company would soon be in talks with RSPs on the final terms of the wholesale broadband agreement document, which, in conjunction with the Special Access Undertaking document submitted to the Australian Competition and Consumer Commission, will outline the products and prices for services on the NBN. Hassell said the contracts are expected to be released shortly.

"We'll release that out to industry and get the feedback on those," he said. "Those are the contracts on which service providers will sign to buy services off the NBN and it's quite a big deal."

Hassell also spoke in a ZDNet Australia panel at Salesforce.com's Cloudforce event on productivity in the cloud. See the video here.

Topics: NBN, Broadband, Telcos

Luke Hopewell

About Luke Hopewell

A fresh recruit onto the tech journalism battlefield, Luke Hopewell is eager to see some action. After a tour of duty in the belly of the Telstra beast, he is keen to report big stories on the enterprise beat. Drawing on past experience in radio, print and magazine, he plans to ask all the tough questions you want answered.

About

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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Talkback

8 comments
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  • I thought winter was approaching?

    Anyway, the above story is a bit strange, NBN Co is talking about reducing prices before its starts up. Really? well that indicates projected charges are too high.
    Knowledge Expert
  • This is another propaganda stunt by NBN Co.

    It the rest of the industry and the average punter can see that their business model is garbage, why can't they (they would internally).

    Their is no chance in hell they could decrease costing. The financials at this point in time are a shambles, and to decrease cost would make the return useless (not that it's not now).

    It has only one way to go, and that is up...
    Theguy-bbb4a
  • It just shows that this is a mammoth task with (as I have said previously) no template to gauge from, so there will always be an element of suck it and see...!

    But what it also shows is that NBNCo are willing to listen, especially to those such as Simon Hackett and acknowledge if there are legitimate gripes and NBN have in fact got something wrong (refer paragraph one again) then NBNCo will fix it...

    How much fairer can they be...? Seriously, you naysayers are just never happy, are you?

    You whinge that NBN prices will be inhibitive/unaffordable (to retailers and thus in the end, the consumer too) and when NBNCo says, ok we think we have pricing about right, but if not, we can work on affordability (AS YOU REQUEST)... You still whinge...

    There have been a few Lib muppet/FUD campaigners who honed in on the wholesale prices and have been trying to gain political points for many weeks now. All it took from NBNCo to dispel them and their hundreds of moronic FUDulent comments was this one sentence, LOL...

    "When the NBN rolls out and revenue starts coming in, NBN Co may adjust the pricing if it looks like they've overcharged the ISPs, he (NBNCO's Jim Hassell) said.

    Too easy!
    Rizz-cd230
    • On Ya Rizz, good point, plain and simple, in fact so simple even a Liberal Fudster or in deed their fearless leader the Fudster In Chief should be able to understand it, Meh! maybe.
      BoomerMMW
  • Of course if the wholesale prices have to be dropped it is less revenue the NBN Co gets from ISP's (not that ISP's could give a stuff about that!), and the already shaky return on investment looks even shakier.

    It's nice to have the bottomless pit of taxpayer funding to dip into to make sure customers buy the product, by making plan prices even cheaper.

    I wouldn't be surprised if the NBN Co give it away for the first three months after 'national release day', then brag about how 'popular' it is.

    That's what they are doing now in the new pilot areas, the first uptake figures areas didn't look to good, solution? - we will give it away. LOL
    advocate-d95d7
  • I quote:

    "NBN Co would also have the power to increase costs in order to maintain the revenue it is expecting."

    I reckon this is just another monopoly.

    Sounds like a load of crap, whole point was for the federal government to make a FTTH broadband network at affordable prices for every aussie in Australia.

    The above comment just shows this won't happen. Instead we'll be back in the days of a company who will act like Telstra. Pay Up, or be on your way.

    PFFT Labor!@
    cebisder
  • You are entitled to your opinion, but tell us that that isn't FUD...?
    Rizz-cd230
  • While the story itself presents nothing new, we already knew NBNco have a require rate of return and they would have to adjust their pricing to achieve it. It does hint at a problem.

    The comments from NBNco seem rather simplified, it isn't as simple as "if we are making too much money we will charge less" or "if we are not making enough we will charge more".

    The wholesale pricing, which directly impacts on the retail pricing will have a significant impact on take up rates. If you are charging too much wholesale and you do not have the expected return because of low take up the answer isn't to increase prices further.

    NBNco have to get the pricing right so from the beginning, I think what Simon had been vocal about is removing the distortion (near exponential cost blowouts) for RSPs with less than the average numbers used in the published models.

    The importance of this is reflected in the fact that the network will be rolled out in stages and even big RSPs like Internode, iiNet, TPG, Optus and Telstra etc will have only be able to bring their customers online as the network is available. Meaning they will all be small NBN RSPs for at least some point in time.

    I would to see a business plan from NBNco that removed the need for a 7% IRR that reflects the network remaining publicly owned rather than sold off (privatised). I wonder how much the pricing would change?

    The government would never do it until they have the budget back into surplus "in 2012/2013 precisely as... blah blah blah". Even if they have since thought it the appropriate way to go.

    I would rather NBNco remain publicly owned, it run at break even or a bit less and pay a reduced retail fee to use it. Particularly if it helps flatten the distortion that happens at the lower ends. Whether that be smaller RSPs or small businesses using the network.
    Roo-c9614