Turns out the NBN is more expensive after all

Turns out the NBN is more expensive after all

Summary: Despite all evidence to the contrary, the coalition has long insisted that Labor's NBN will make broadband more expensive. The broadband prices from our largest telco have proved them correct, but the real question is: who will buy Telstra's NBN pricing story?

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After years of debate, pointed arguments and fact-filled diatribes, it turns out that the coalition is right: the NBN will be more expensive than ordinary broadband. It will cost more to sign up for, more to use in the long term, more to make phone calls and more to download your data. It won't return value for money, it's likely to struggle to enjoy the kind of take-up that the government wants and it's an overpriced, over-specified mess that will leave customers cursing the day the government ever strung together the letters N, B and N.

That is, if you stick with Telstra.

After months of keeping the market waiting, everyone's favourite incumbent played its NBN hand this week, and revealed NBN pricing that comes in two flavours: 25Mbps expensive, and 100Mbps very expensive.


Can Telstra justify charging first-class prices on an economy-class NBN? (Image by Richard Moross, CC BY-SA 3.0)

I may have simplified things somewhat — you're welcome to run through the actual pricing to see just how much it will cost you — but suffice to say that Telstra's pricing has resurrected its time-honoured tradition of charging way more than the rest of the market, leveraging its market cachet and reputation to squeeze customers for a bit more dough.

Interestingly, the company seems so determined to avoid low-value customers that it has even foregone the option of offering 12Mbps services altogether.

Some might say that this is to avoid a situation where it's marketing NBN services against comparable ADSL services, and they might equally say that Telstra's high prices are a result of not wanting to prematurely push down its ADSL prices. But I suspect that the deeper truth is that Telstra simply can't be bothered with the low-value customers who will be buying 12Mbps NBN services.

And why bother? Entry-level users are expensive to support; they don't want to take up value-added services on which Telstra depends; and they complain if they don't get what they want, feel that they're not getting value for money or have issues with being randomly overcharged.

As opposed to its long campaign of infrastructure-based blackmail, Telstra will now sink or swim on the NBN based on nothing more than its ability to convince customers to pay what it's asking.

This is one of the most important things about the NBN; as opposed to its long campaign of infrastructure-based blackmail that passed for a service and pricing strategy for years, Telstra will now sink or swim on the NBN based on nothing more than its ability to convince customers to pay what it's asking. This will, we are told, come through over-servicing them with Telstra bonuses, like its extensive service fleet, skilled technicians and gadget-filled retail shops — in essence, all the stuff that Telstra's NBN premium will fund.

The thing is — and this is something that most customers will still not appreciate — that you can get exactly the same quality of NBN service, with far more generous quotas and different value-adds, from the myriad other ISPs now lining up as retail service providers (RSPs).

If you have an affection for quirky commercials and anthropomorphic routers, you might go with iiNet. If you're more into birds of the cartoon kind, you might choose Dodo, and get some discount electricity in the process. If you like purple, choose TPG. If you want an innovative mobile-and-NBN bundle for discounted services (Nigel, have your people call my people), then you might choose Vodafone. If you just want a cheap plan, you might sign up for SkyMesh's $29.95 per month plan, which offers 12Mbps services and 5GB/10GB of data — or its 100Mbps service with a 2TB quota.

It all depends on your personal preferences — but one thing is certain. Even though careful buyers will quickly learn that they can get a 25Mbps service with 10GB/10GB quota for $39.95 from SkyMesh, untold others will flock to the Telstra website and commit themselves to paying $80 per month for exactly the same thing — with the added bonus of being forced to take a vestigial fixed phone line running over Telstra's soon-to-be-deprecated copper.

Yet, while no value-conscious buyer with an ounce of sense would commit to Telstra's plans, I'd bet that millions of customers will still run to Telstra and sign on the dotted line. For many Australians, the words "Telstra" and "communications" remain synonymous, and no amount of logic is going to change that — ever.

I'd bet that millions of customers will still sign on the dotted line. For many Australians, "Telstra" and "communications" remain synonymous, and no amount of logic is going to change that.

Judging by their determination to ignore the pricing realities of the NBN, I suspect that many members of the coalition have similarly struggled to make this cognitive leap. This is a fundamental problem with competition. It's a great idea, but, in the end, you can fiddle with the market as much as you want, but if you can't change consumer behaviour as well, you'll see your great idea sink into the sea of irrelevance.

In a market where inertia rules, this happens all the time. Loyal customers will not only pay Telstra twice as much for the same NBN service that they could get elsewhere, but they'll also even pony up for a redundant copper phone service — and they'll do it because Telstra says they have to.

Far away from the rarefied sphere of intelligent tech consumers, buying decisions really are often based entirely on brand. Qantas is the most expensive airline in Australia's skies, but it still attracts legions of loyal fliers. Name-brand milk comes from the same udders as the store-brand stuff, but many people still buy based on labels. Expensive wines often taste just the same as cheap-and-nasty plonk, but we are still happy to pay extra for the perceived value of a particular brand.

Telstra is counting on familiarity-driven behaviour to prevail, as it has been able to do so quite successfully in the past, such as when it capitalised on Optus and Vodafone languor to attract nearly one million new mobile customers in the last six months of 2011.

Can it repeat this success on the NBN? Not necessarily; this time around, Telstra is selling exactly the same access product as its competitors. It won't be able to crow about its network coverage, transfer speeds or the reliability of its services, since they'll be exactly the same, but it has a strong brand name — and even though they have a better story to tell, its competitors may find themselves continuing to struggle as they seek to prove that to a sceptical citizenry.

What do you think? Will you buy Telstra's NBN services? Are its prices a clever stopgap to discourage customers from abandoning ADSL? Or does its fixed-bundling requirement show that it has become so self-invested that it has shot itself in the foot?

Topics: Broadband, Government AU, Telcos, Telstra, NBN

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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93 comments
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  • "Interestingly, the company seems so determined to avoid low-value customers that it has even foregone the option of offering 12Mbps services altogether."

    Umm... have you considered that 12Mbps will be obsolete tomorrow? It already is. Get with the times and get out of the past where you and the Noalition are forever stuck in. $50 is very reasonable for new technology compared to the $99 Telstra was ripping people off for ADSL2.
    rajivdx
    • "Noalition" – I like that. But there will be plenty of people happy to take up 12Mbps as a starter NBN service and go up from there. These will be low-value punters who just want a basic email Internet service etc. Yet I would suggest that Telstra (a) doesn't want to lose margins by catering to these customers or (b) already has them stitched up with ADSL services.

      Its motivation in skipping 12Mbps is that it already has a product that operates at 12Mbps (in theory, I know!) If it priced its NBN services at the same price, it would hasten the demise of 10 years of ADSL revenues. Yet this also works against it because its competitors have priced NBN at ADSL-comparable rates because they have no legacy infrastructure to protect. So those competitors will be at a pricing advantage against Telstra from Day 1 – and Telstra will focus on the business or bundle-hungry customers from which it can extract sizeable margins.
      braue
    • 12Mbps is about 8Mbps faster than I can currently get on ADSL2+ and more than that again than is available on wireless, all this at less than 12km from the CBD of a capital city. So don't diss the lower end NBN speeds quite so quickly.
      ddoody
      • I was going to say the same. My ADSL2 is advertised as a 24 Mbps service. With just 1 corner between me and the exchange (I can see it from the front gate), I'm happy to get 6 Mbps.

        Problem with broadband in Australia (and plenty of other countries for that matter) up until now is that services are advertised as "up to", meaning your speed will go "up to" whatever speed limit you sign on for. So with ADSL2, you get "up to" 24 Mbps, or in most cases, well unto 10 Mbps. Not all cases, just most.

        NBN is advertised as "at least". So at the end of the day, my "up to" 24 Mbps service cant match the "at least" 12 Mbps the base NBN offers.
        Gav70
        • Who is advertising NBN speeds as "at least" X Mbps? No RSP should be advertising in those terms. The residential services that NBN wholesales to RSPs are characterised by Peak information Rate (PIR) which is a theoretical maximum. If you want guaranteed speeds there are some business products that have a Committed Information Rate (CIR). (Refer to Ch 8 of the NBN Corporate Plan - which incidentally is overdue for an update.) There is an explicit potential source of congestion built into NBN's product structure: RSPs not only have to buy (rent) the residential services, they also have to pay for bandwidth on their aggregated interface between NBN and the RSP's backhaul. This is called a Connectivity Virtual Circuit (CVC) and is charged at $20 per Mbps. (It's not clear whether this is a recurring charge but I assume it is because it accounts for a substantial and increasing part of NBN's projected revenue.) As I read it, an RSP trying to save money might skimp on backhaul bandwidth or on the size of the CVC. The Corporate Plan is not entirely clear, but it includes this curious statement: "The Connectivity Virtual Circuit (CVC) in the product construct is an aggregation point where the Access Seekers can choose to contend their traffic to create differentiation."
          Achilles-9158f
          • Who is advertising "at least" 12Mb/s? NBNco itself.
            They have said that they guarantee a contention ratio that will ensure that their infrastructure will NOT be the limiting factor at any data rate up to 12Mb/s. If your RSP does not provide enough backhaul to "at least" manage this rate, you problem is with them, NOT NBNco.

            This is a completely different scenario to ADSL2+ where regardless of who you get your retail service from, the copper and it's inherent limitations will be the same.

            In other words, on NBN if your RSP has at least 12Mb/s of free backhaul, your data rate will not drop BELOW 12Mb/s.
            Goresh
        • Living that close to your exchange you should see 20+ megabits on ADSL. I get 8mbps and I'm about 3kms from my exchange but yYou are right that the NBN speeds would still be greater.
          rocketfire
    • Telstra would probably still offer ADSL2+ plans on its copper even if NBN fibre is available until its complete hand off.

      If its making big bucks on ADSL2+ customers on a network it already owns why would it off NBNCo services to replace what it already offers and makes good money from.


      The same would be said for example, why would TPG stop offering ADSL even if it did offer NBNCo fibre, which would give it bigger returns? same is said for iinet, AAPT , primus etc.

      They all off their existing products, and NBN fibre is an additional product offering, which could even be less profitable for the ISP vs. say winning a customer on its ON-NET ADSL.

      So it looks like Telstra is offering NBNCo fibre as a high end niche product, that is why there isnt really an entry plan, they would convince you to go on ADSL2+, and their $80pm entry NBNCo plan which lots of people are bagging could be for various reasons, which you can figure out.
      Avatar1aaa
  • Simplified you call it I would call it Fraudulent what a complete beat up,are you paid to lobby against the NBN,ACCC to be advised.
    Brian62-5aeab
    • @brian62: Did you just read the same article I did? It's not anti-NBN at all. If anything, it's pro-NBN but anti-Telstra.
      ddoody
    • I think you need to read beyond the first paragraph.
      HazTechDad
  • I can understand not offering 12mbps plans but not offering 50mbps plans is a bit retarded. I doubt many of Telstra's customers will understand this though.

    It’s also hard to say if Telstra have shot themselves in the foot yet, perhaps some customers will wake up eventually, I have a feeling many I know will, as a result of Telstra's NBN pricing stunt I will be withholding tech support for friends/family until they dump Telstra :-)
    Hubert Cumberdale
  • N.B.N will be as synomous with wasted money as 9/11 is with terrorism. I am a regular player of mmorpg's and use xboxs' online gaming. I stream foxtel though the xbox wirelessly. I download movies from the internet regularly and watch parliament question time streamed to my desktop. I normally stream the radio while i am doing one of the above. I have ADSL2 and it suits all these needs and i experience good d/l times. I am yet to come across ANYONE who can tell me how this Massive Waste of Money will benefit our country more than investing the same into our health system / emergency services etc. Anyone backing this plan does not understand economics 101 - that is, when you are in billions of $ in debt.....STOP SPENDING ON EXTRAS.
    hotsauce-48b61
    • Perhaps for people like yourself, at current usage levels, you are correct. However, you are obviously getting pretty good ADSL performance. I live only 12kms from the CBD and yet am lucky if I get 3Mbps from my ADSL, and wireless performance in the area is even worse. Many of my neighbours can't get either. Add to that the fact I work 100% from home, and that it is impossible to guarantee ADSL to a premises until AFTER you connect the phone (for which you must be the current owner or renter), and you start getting into issues with where you can live too. The NBN is the only solution that guarantees (almost) everyone can have the same service. It's not only a matter of performance, it's a matter of EQUALITY.
      ddoody
    • Yes and investment in electricy networks a hundred years ago was equally unjustiable as electronic medical aids had not yet been invented.
      xBeanie
    • Just wanted to go through a couple of things for other people that might read your post:

      You say that the NBN will be synonymous with wasted money but I don't understand how this can be said. After 15 years the NBN is forecast to have repaid the government the full network build costs with 7% interest. At the very most all you could claim would be that the NBN was a waste of time.

      It's good to know that your current ADSL solution fits your needs, but as a couple of other people have pointed out, one of the primary goals of the NBN is providing a broadband service to all Australians. I personally have quite a good sync speed (living about 300m from the exchange), but even I wish my internet access speed was improved. Running a small media business, I'm often finding myself needing to bounce sizable raw and uncompressed files around the web to clients in other locations. Often times this means leaving files uploading overnight to my FTP - files that a client would have preffered to have in their hands as soon as I finished. I understand that I may not be your typical user but I'm just sayin' - just because ADSL is enough for your current needs, doesn't mean that it will be fast enough for others current needs or even your own needs in the future.

      Also it might be worth looking at how the NBN compares to health statistics in bugetary terms. In one sense, even that is a little pointless since the 36 billion NBN isn't counted on the budget as an expense (since it makes a return, it's counted as an investment). But just to compare figures, current govt expenditure for the 11-12 period is 365billion (http://en.wikipedia.org/wiki/2011_Australian_federal_budget) of which health secures almost 60 billion. Even if the NBN were included on the Budget, it would only work out to 3.6 billion per year (36 billion/10years). A relative drop in the bucket.

      It might also be worthwhile having a look through Nick Ross' article. It's a long read but goes through many of the benfits and savings that could be realised in many industries (including health) with the NBN. http://www.abc.net.au/technology/articles/2012/02/21/3435975.htm

      Economics 101 typically has positive things to say about infrasture investment when in debt since it promotes economic growth in the long term. The fact that this particular infrastructure also pays for itself financially (and makes a profit) is just the icing on the cake.
      BradCube
      • A few pointers:

        "After 15 years the NBN is forecast to have repaid the government the full network build costs with 7% interest."

        Key word there is forecast. If you go back and obtain original copies of past budgets delivered by the current government (with much fan-fare at the time- admittingly all goverments like to) and compare to the final Budget outcomes (also released by the Treasury) you'll notice a startling pattern of over-reported income and under-reported expenses. Now i'm happy for you to write off one or two years for the GFC as unpredictable. It's arguable both ways, so i'll consider it mute, but the other two have grossly over-estimated growth, so is not highly feasible that such a situation could also occur to the NBN numbers?

        Secondly, until the last few months i've been stuck on an ADSL connection at home for a variety of reasons and just managed to upgrade to ADSL 2+. I can honestly state that my house has the worst connection (theoretically) for the exchange as the property is the furtherest located from the exchange. Now with this upgrade in speed that i've seen (8x improvement), I noticed that the only change to my internet habits is that my web pages load quicker and YouTube just manages to load in real-time (on average at least). Aside from that, no change in internet patterns that have been established for many years now. And for general information, another member of the house runs their own freelancing Graphic Design business from the property. Downloads are faster, but don't affect their productivity (they were already faster than her) and uploads she no longer has to wait for. So she now has to create an excuse to go get a coffee rather than making one whilst it uploads... such an improvement there. Also to think that the copper services we have currently are the best that could ever be, would be to very mistaken. A quick wiki (or better sources if you bother to spend the time) search would show many technologies, some even already deployed overseas that would see an evolution of the Australian service. Not revolutionary, but still progress none the less.

        Finally as a health professional myself, i know very much how well 3.6 Billion dollars could be used in our health system over 10 years. Have you heard of the latest pay dispute for Victorian Nurses? Well they've got a point on how badly paid they are. Then just remember that they have a very strong and arguably militant union, large membership and a visible front line roll which all roll into a very good bargaining position. So consider all the other front-line health professionals that aren't so lucky, they been suffering on miserable pay for over a decade now for what can be a very thankless job. But admittedly that amount of funding would do far more than just moving towards paying staff fair wages, it could be used to update ALL Medical Imaging equipment to the latest state of the art 512 slice CT Scanners, 3 Telsa+ MRI scanners, respiratory gated Radiation Therapy Treatments. The list goes on... Now you don't NEED all that equipment to be state of the art however it's just an brief overview of some of the benefits. Spending less to upgrade the oldest of machines and creating more regular replacement programs of old equipment would overall benefit patient outcomes and contribute to a more efficient health system too.

        No ones arguing that you couldn't make investments that would give a return either. An example might be a new road with tolls that the government builds and then collects the tolls. Perhaps expansion or the creation of new ports around Australia as we so often hear we desperately need if we're not going to fall flat on our faces in the next 20 - 30 years. Or you could even invest some of the money into broadband infrastructure.

        The point is governments, just like everyone else has a finite amount of money and can't afford to run a deficit every year. So just like the controller of finances at home (be it husband, wife or accountant...) has to take responsibility, so too does the government need to take responsibility and make at times hard choices. So, the reason people protest the $30+ Billion figure is because from what they've heard and know, they don't think the whole amount is wisely spent on broadband.

        I personally would think that Backbone infrastructure and good international connections are the most pressing concerns with the industry now that the ACCC seems to have learnt a bit better about trying to create an even playing field on copper. That said i see no reason to be putting in obsolete technology into the ground in new estates, so i totally agree with those fibre roll-outs except that, it would be easier and cheaper for the government (at least up-front) to simply mandate the use of fibre. I think the rest of the money could've gone on a variety of more beneficial projects for all Australians, ranging from traditional infrastructure through to improvements in Health and Education.

        Whilst i think it's an admirable goal and i'm sure if given plenty of time i could find more uses for it, i still feel that compared to the alternatives, i'd be happy with more modest increases in speed and bandwidth for my broadband connection in order to allow ourselves to not fall behind in other equally important areas.

        I heard a frightening statistic that over 50% of Australian domestic consumption of goods is still transported on a highly inefficient (compared to rail at least) road transportation system. Upgrading this into newer transportation be it rail, sea or air (some new interesting blimps have been designed around cargo transport for the future) would see significant financial benefits for the investor (the government) as well as the private sector. A win-win for all Australians when combined with evolutionary improvements in several catagories.
        AWY-7dfd5
        • The pros and cons of government spending can be argued until we're blue in the face... we all have different perspectives and priorities.

          The issues surrounding internet speeds and availability are also skewed by perspective, but while you are happy loading a few web pages and watching some youtube videos, many people have much higher demands.

          Consider this: I run my business from home. I work there 100% of the time. Speed is not my issue, but reliability and availability are. If I wanted to move houses for any reason, it is extremely difficult. ADSL cannot be guaranteed. Even if the current owner has ADSL, the moment (s)he disconnects the phone service the ADSL provisioning could be reassigned to another line. There may not be any other available ports. Telstra, in it's infinite wisdom, may switch the line to a different system and preclude it having ADSL regardless of port availability (this happened to me last year when I forgot to pay my phone bill - it took weeks to get it all sorted again). Wireless coverage is patch and prone to dropping out. It is also slower and vastly more expensive per megabyte (this is changing, but only slowly). In fact, when buying my current property I was limited to those where I could see a foxtel cable running in the street, so at least I could have bigpond cable as a backup should ADSL not be available (and I hate Telstra, so that would have been uncomfortable for me). Not everyone can live in the areas where cable is installed.

          People always complain that we don't need the NBN because the current connections are fast enough. For most (for now) this may be true. But speed is not the only issue. UBIQUITY is just as important if not more so. We need to be able to guarantee a certain service level to ALL premises, not just those lucky enough to be close to the local telephone exchange or Telstra/Optus cable.
          ddoody
        • AWY

          Thanks for the very interesting read.

          The NBN is reputed to cost taxpayers anywhere between forty and fifty billion dollars over the next decade which, in the main, will be through borrowings. This massive outlay is not part of prudent budgetary safeguards because of the fallacy that the project is deemed to be, self revenue and profit generating capital works.

          No doubt, Gillard and Swan are oblivious of the compound effect that sort of debt will have on our economy.
          Vasso Massonic
          • Yeah Vasso...

            Who would ever have thought, borrowing money to build a business and having that business repay itself, and later, make a profit, feasible?

            Err, just like, every business, like, everywhere.
            Beta-9f71a