NBN places spending cap on business products

NBN has announced a spend cap for business-grade products as a replacement for its Business Ethernet product slated to launch later this year, allowing RSPs to bundle enterprise services together.
Written by Corinne Reichert, Contributor

Australia's National Broadband Network (NBN) company has announced that it is aiming to help retail service providers (RSPs) save on their monthly wholesale pricing under a new spend cap for some business-grade services.

Starting on October 1, NBN will institute a cap on spending across high-bandwidth business products -- its Traffic Class 2 wholesale product offered over its fibre-to-the-premises (FttP), fibre-to-the-node (FttN), and fibre-to-the-building (FttB) networks -- with the pricing based on the amount of bandwidth purchased by RSPs each month.

"The new pricing model has been developed to help retail service providers package up plans targeted at medium and enterprise businesses, those with between 20 and 200-plus employees, which represent around 11.7 percent of Australia's total business market," NBN said on Wednesday.

"Designed to support both high download and upload speeds, the products will enable business-grade applications such as multi-line voice, high-definition video conferencing, and online backup, which help businesses increase productivity, lower costs, and improve customer service."

According to NBN, it undertook industry consultation prior to announcing the spend cap, which will replace the NBN Business Ethernet (NBE) product originally expected to launch by the end of 2017.

"Today's announcement demonstrates our ongoing commitment to adapt and optimise our products and pricing in order to keep up with market trends," NBN executive GM of Product, Sales, and Marketing for Business Ben Salmon said.

"We've taken on board the feedback provided by a number of our retail service providers and have developed a new pricing model to enable those offering high-speed broadband, voice services, and after-hours care on the NBN access network to market their products at a more cost-effective price for their business customers."

Salmon added that the new pricing is aimed at supporting medium-sized enterprises in adopting cloud, multi-line voice, video conferencing, and multimedia applications.

The enterprise product pricing changes follow widespread criticisms of NBN's wholesale pricing structure, with the company earlier this month denying the culpability of its connectivity virtual circuit (CVC) charges in any margin squeezing for RSPs.

Instead, NBN suggested that falling profits could be due to retailers focusing more on a "land grab" than on providing high-quality services to consumers.

"NBN is statutorily prohibited from participating in the retail market and cannot compete with its access seekers in the retail market. Accordingly, NBN cannot be creating a margin squeeze," the company argued.

"If one exists, it is created by participants in the retail market who have some level of market power which allows them to set a ceiling on prices, which is profitable for them but not for others.

"Even if it contributes to relatively lower margins ... this would only be the temporary result of the 'land grab' phenomenon that is currently occurring in the downstream market as access seekers fight for market share during NBN's rapid expansion phase."

NBN added that its CVC discount launched in June is already driving usage in the right direction, with an increase in CVC being purchased by industry and an increase in small operators purchasing directly from NBN.

RSPs including Vocus, Vodafone, MyRepublic, and Macquarie Telecom have long argued that the only reason retailers are not offering 1Gbps speeds is the CVC and access virtual circuit (AVC) pricing.

NBN CEO Bill Morrow recently responded by criticising retailers for cutting corners by focusing on pricing rather than speeds or quality of service after he revealed that the average bit rate per user is around 1Mbps.

"Under our pricing model, that could be doubled to 2Mbps for each end user for around an extra AU$5 per month," he said.

"If an RSP doesn't price their product high enough to recover their costs, they may be forced to cut corners that could affect the quality of the services being offered."

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