NBN is too expensive at $80 retail average

NBN is too expensive at $80 retail average

Summary: Malcolm Turnbull says the NBN is offering no cut-price nirvana. He's right — the average wholesale price of $52 could translate to a retail price of around $80 to $85.

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Malcolm Turnbull says the NBN is offering no cut-price nirvana. He's right — the average wholesale price of $52 could translate to a retail price of around $80 to $85.

An average price of $52 seems particularly high when we factor in all the people on the Telstra copper network who only want a phone service. As Telstra decommissions its copper network, where do all these people go? Will retail service providers be able to offer the service they want at a price that they're prepared to pay, even at the entry-level wholesale price of $24 or $25? The added cost of supporting the power supply certainly won't help.

Fortunately the business case manages to avoid the issue of low-value customers by assuming that one third of all premises passed will never connect to the NBN. That means there will be a lot of Telstra copper customers who disappear off the radar.

We'll also discuss the impact of the revised number of interconnect points on the NBN. Internode's CEO Simon Hackett says it will reduce competition in the market and risks the telco industry becoming another carnation of the banking industry, where a few small players dominate.

Listen in to the last Twisted Wire of 2010, as I delve into the details of the NBN Corporate Plan released on Monday. Helping with the dissection are IBRS senior analyst Guy Cranswick and economist (and former ACCC commissioner) Stephen King.

All that, plus Stephen Conroy introduces the word "ongoingly" into the English language.

Twisted Wire will be back on 6 January. Have a great Christmas.

Running time: 29 minutes 45 seconds

Carousel image credit: Australia dollars by InfoMoto, CC BY-SA 2.0)

Topics: NBN, Broadband, Government AU

About

Phil Dobbie has a wealth of radio and business experience. He started his career in commercial radio in the UK and, since coming to Australia in 1991, has held senior marketing and management roles with Telstra, OzEmail, the British Tourist Authority and other telecommunications, media, travel and advertising businesses.

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  • OK, so I have a standard ADSL connection, 1.5 x560 x 12G of dat for $39 / month. I have 30 or so free to air digital channels on TV. There are 5 nodes on my home network, a couple of them into online gaming. It all works... I would imagine much better if I had ADSL2. Why would I pay $80 something for NBN? And yes, I do work in the IT industry

    Norm
    Norm47
  • But you could 100 pay TV channels, 10 nodes , 4 of them into online gaming, your POT, a couple of nodes dedicated to those "less than savoury sites" and it all happens much faster and for just $80.00pm
    Blank Look
  • The flipside to your position. I live within site of my local exchange (about 800m), and have ADSL2+, which barely gets to an 8Mps connection, despite advertising as 24 Mps speed. For that, I pay $50 a month, plus $20 for the landline, so $70 a month total before phonecalls. Oh, plus my mobile on top of that.

    I have my PC, laptop, PS3, and TV connected to my network, and my flatmate has his PC connected as well. 5 possible connections all at once. When more than 1 is going, that 8 Mps connection really starts to drag. Flatmate might just be on facebook, but it guarantees a snails pace on my PC, or PS3 if I'm gaming. In 10 years, such a network will be the norm.

    So for me, a 12 Mps MINIMUM speed is a step up. $80 pm to cover a better than current connection speed, plus phone line? Sounds like a bargain to me. I also keep in mind that if inflation is a constant 3% for the next 10 years, that $70 cost now will be about $95 in 10 years, so in effect $80 pm is actually cheaper.

    What a lot of people dont seem to realise is that the NBN cost will include your phone line as well, instead of the donation of $20 a month most people make now.
    Gav70
  • So.... is that $52 in todays money or $52 when it actually gets here ?
    If its $52 in a few years time, thats not bad!
    Still... its all a guestimate and we wont know how much until its actually built and operational.
    tim.tuck
  • Gav, if that is the situation what is the cost of just a phone line, no broadband band?
    Blank Look
  • Oh Tim - only $52.00 per month for someone on $150K per annum (in today's money) is, as you say, probably modest. However for a pensioner couple living on barely $25K per annum it is budget breaking. Of course you are correct it is only a guesstimate (if that is a noun) - on the low side I suspect. Julia gratutiously gives us a module of her economics 101 at her NBN press conference informs us (you taxpaying fools) that now we have a level playing field retail prices must fall - surely we must all know at least that much..... we'll see
    Brianab
  • It's nominal value - in other words, $52 in today's money. Add inflation for price at the time.
    phildobbie
  • Well I'm on a naked plan ADSL2 50gb off and 50gb on, which is $60 per month, no line rental, free local and national calls using a standard phone plugged into voip port on the router.
    If I change to NBN and I'm still using voip, will I have to pay to call someone else on the NBN when it's part of my data charge? Will these calls be free? Because they should be, but I haven't seen anyone mention how much phone call charges are going to be.
    andrewdw
  • Interesting but looking at p133 of the business plan the forecasted percentage of premises still on the basic 12/1 plan is still approximately 50% so wouldn't be paying the ~$90 retail. Not that dissimilar to the 2012 situation when the ARPU is about $33.

    Of course I'm a user who would expect something like a 50/20 plan with a couple of hundred gig data for about $50-60 so I wouldn't be happy about having to pay $90 retail. There would be no compelling reason for me to switch from my optus cable situation. However, reading through the section describing how the revenue forecasts come about it seems that NBN might be anticipating a steady increase of revenue from new video-on-demand applications. If that's the case then you can no longer consider the ARPU as just internet revenue, instead it would be an amalgamation of today's internet and pay tv bills, in which case the number is a lot more reasonable/understandable.
    redrover-fac06
  • Right now? For me its $20 plus phone calls, if I make any. Post NBN? No clue whatsoever. I'm making the assumption that the $24 line fee the NBN charges includes line rental for a phone line, in effect making your ISP your phone company as well.

    I assume the point of your question is for cost to non-internet users, and it is a good question. I personally dont have the answer, I was just laying out my particular situation, where I stand to be in a better position.

    But as the paper assumes a 70% takeup rate, I expect there will be some avenue for that other 30% to get a phoneline. Thats not a small number to ignore.

    Maybe a company like, oh, I dont know, Telstra, will be part of the answer.
    Gav70
  • Brianab,
    Pensioners have long been able to access special discounted broadband rates. Can't see why that would change with the NBN.
    Also that "budget breaking $52/mth" is an optional, not compulsory expense.
    I'm one of those "barely $25K/PA" pensioners who's presently paying $100/mth for my barely adequate BB & line rental.
    ADSL2 or Naked not available & frequently lose service for extended periods.
    I would welcome just a superior connection let alone the cheaper $52/mth cost
    oldguy44
  • Hey Gav stop quoting NBN wholesale rates as if that is what a customer pays for a NBN connection.
    What we pay a ISP for a BB service or just a telephone service is NOT what the NBN Co charges a ISP for that service.

    Making spin predictions of what the connection does or does not include and what the RETAIL price will be is guesswork at the extreme.
    advocate-d95d7
  • Well oldguy all I can reply is if you are paying $100 per month you are being seriously ripped off. I pay $29.95 per month for my ADSL2 service and a further $10.00 per month for my Telstra G3 USB broadband MODEM. Yes I have two mobiles with Telstra and a line rental package that gives me 200 free local calls per month and untimed STD calls 24/7 right around Aussie at $0.40 each. My TOTAL monthly bill is never more than $140.00 for the lot.
    Special discount for pensioners in the nBN business plan? I can not find it - can you?
    Brianab
  • Gav - that's my point (in the podcast) - of the 30% not included in the take-up, they assume 12% or so are vacant premises - I'm wondering about the rest. There is no other avenue for fixed line, Telstra will decommission their copper and they want legislation to prevent other fixed line competitors. Hence, this is a high average price when there are a lot of low value customers.
    phildobbie
  • So they're expecting increased ARPU from Pay TV - presumably because of increase bandwidth usage, and capabilities like multicasting, which they'll charge extra for. So add on the retail costs of customer acquisition, management, content rights, program delivery etc - and that's a much higher retail price.
    Let's not forget that the assuming ARPU increases markedly (doubles) further down the track.
    phildobbie
  • Anyway let's look at your claims through the eyes of one of your clones...

    Your buddy, PhilIT did a dodgy comparison of his new Optus yes fusion 500GB ADSL2 plan @ $99 p.m. with the projected $81p.m. NBN 500GB plan.

    He mentioned the landline of Optus but of course hid the fact that the NBN plan is 50Mbps, where as ADSL2 is “up to” 20Mbps (assumed, my Telstra ADSL2 is 20Mbps - Optus call it super fast, but sneakily, don't like to give actual numbers)? FYI - I get less than 7Mpbs on my plan, So…

    His comparison-
    ADSL2 up to, 20Mbps (assumed) = $99
    NBN 50Mbps = $81

    So the NBN is faster (even if you live in the exchange, you’ll still get 2.5x faster with the NBN) with speed certainty and the NBN is also CHEAPER but admittedly, sans landline.

    But…Optus also offer an upgrade to supersonic (ooh) broadband (again heaven knows the exact number). For an additional $20p.m you will get cable, the NBN plans actual equivalent (presumably, I say this because the actual numbers are again, almost impossible to find).

    Of course typically, this is only available in Sydney, Melbourne and Brisbane (not even the other capitals) though…!

    Like those in the bush who are neglected, if you don’t live in one of these cities, YOU are being neglected too, think about it. Why should YOU, miss out, advocate...?

    So to start comparing apples with apples –
    Optus (with NBN like speeds) $119 – available in Syd, Melb, Brissy, only!
    NBN $81 – will be available more widespread!

    Now, what were you saying about the NBN being more expensive?

    Also, weren’t you not so long ago whinging about the so called poor NBN ROI, stating the NBN a waste. So like your hero Mal, you want maximum ROI and cheap-price nirvana too, LOL.

    He might wear glasses but his name is Conroy not Potter!

    BTW – still awaiting, your explanation on just how your completely contradictory claims (and ergo, you in general) re: the NBN monopoly, can possibly be taken seriously?
    RS-ef540
  • Brian... seriously!

    I'd suggest there isn't a pensioner discount in the NBN plan because the NBN isn't selling directly to the public, which includes pensioners.

    The NBN sells to resellers (which is why NBN Co is far superior to the current conflict of interest from Telstra). So any pensioner discount will surely have to come from the reseller, not NBN...

    Anyway, when Telstra migrates their customers (you and me) we will both be on the NBN...isn't that lovely!
    RS-ef540
  • Well what i'm arguing is that ubiquitous broadband will be the deathknell for pay tv just as it will be for brick and mortar dvd rental. Instead we will have video on demand service providers and RSPs will presumably offer access to that bundled with broadband. The reason for the sharp increase in ARPU over the period of the rollout is because currently video on demand doesn't really exist in Australia (well except for downloading torrents) but I would be very surprised if it's not up and running in 5 years time, let alone 10.

    So if I currently pay $50 a month for broadband and $100/mth for pay TV (to be replaced by video on demand) how much would I expect to pay 10 years down the track when the NBN is facilitating the distribution of both? I think that the NBN has factored these considerations into their revenue forecasts
    redrover-fac06
  • Brianab,
    You're obviously in the fortunate position to avail yourself of those
    services which we & many others outside of the big cities cannot due to a
    lack of investment & maintenance by Telstra.
    No ADSL2, No Naked, at my location a few minutes North of Forster, a 1.5Kbs
    ADSL1 plan is the best my exchange supports & from a limited No. of
    providers.

    Yes, I agree with your comment about being "seriously ripped off" but
    that's due to my location & lack of alternatives. I've done my homework on
    available plans & pricing to keep my costs down, using mobile mainly for
    emergencies & VOIP for all other calls (mostly free or else 12c untimed
    National).
    In poor health we are sem-housebound & rely on our PCs to keep in touch
    with friends & family as well as information & entertainment so we required
    a plan which provides up to 30GB/mth PEAK without incurring excess charges
    or shaping.
    Even so my average total monthly bill including prepaid mobile (with never
    expires credit) amounts to less than $105 that's over $35 less than yours
    despite our requirement for a much larger data allowance (100/100GB) than
    your obviouly lesser one.

    As for "Special discount for pensioners in the NBN business plan? I can not
    find it - can you?"
    Special plans/discounts for penioners have long been in existence. There's
    no reason to assume that won't continue with the NBN
    Dodo presently offers a limited free one, or there's:
    http://www.comparebroadband.com.au/article_473_Government-assisted-broadband-internet-for-pensioners.htm
    also:
    http://www.oneseniors.com.au/
    oldguy44
  • Should probably read this discussion regarding the ACV/CVC
    http://forums.whirlpool.net.au/forum-replies.cfm?t=1602178&p=7

    In other words, the CVC that NBNCo is using is squeezing the market into the area that favors that CVC model (which in this case happens to be the big ISP's i.e. Telstra/Optus) that do all the triple pay servicing and whatnot. This model is actually killing RSP competition, not helping it

    The ULL (which is what we have now) is a pure, open Layer 2 access network that doesn't discriminate on what model the RSP uses whatsoever. You pay $X for a data link, and how you implement QoS/CVC/Congestion Ratios/Multicast/Backhaul is completely up to you.

    The NBNCo's pricing is a layer 3 network, not a pure layer 2. QoS and CVC cannot be implemented on a 'pure' layer 2 network. In fact, using the shared service (GPON) makes it even harder to implement a layer 2 network, unless you cap the the connection at 77/39 mbit for each premise because you can only guarantee that speed if you want to sell the data link without discrimination on congestion ratios

    The only way NBNCo could guarantee that no one would be worse off on internet is if they offered a fiber connection (either direct or the capped GPON) to every premise at the same pricing and bands for the ULL without imposing any speed restrictions the same way ULL is

    However this of course won't be possible, because NBNCo wouldn't make any revenue whatsoever, it would be in complete defeceit. NBNCo has to recover the costs of the 39 billion dollar capex somehow, since it is meant to be a financial investment. The costing of ULL reflects a network (CAN) that is completely depreciated of capex since it was built so long ago. In other words, DSL services through ULL are *much much* cheaper, since they run an a depreciated network

    In other words, there is no free lunch, some consumers will pay more for services or the market is going to turn into an oligopoly of 5 or 6 big RSP's (since the CVC models that NBNCo is using heavily favors Telstra and Optus and the likes) which will equate to the same thing

    TPG for example will not be able to sustain its unlimited $70 ADSL2 service on NBNCo's 12mbit baseline with their CVC ratios without having users being brought down to dialup speed in peak hours
    deteego