Telcos call for NBN write-down to lower bandwidth costs for 1Gbps

Lack of demand by customers to pay the hefty fees for gigabit connections shows the NBN pricing model is broken, a collection of Australian telecommunications carriers has said.
Written by Chris Duckett, Contributor and  Corinne Reichert, Contributor

Pressure on the company responsible for rolling out the National Broadband Network (NBN) across Australia to deliver a return on investment has resulted in a broken wholesale pricing model that sees retailers pushing users onto slower plans, a collection on non-dominant Australian telcos has said.

The solution to the impasse, the Competitive Carriers' Coalition (CCC) said, is for the federal government to write down its investment in the NBN to allow the company to reduce its wholesale charges.

"If the government recognised this and wrote off part of the wasted investment, NBN could restructure and lower its prices, and would then benefit from kick-starting sales growth in higher speed products," a spokesperson for the CCC said in a statement.

The CCC said it was "absurd and insulting" for NBN to argue that Australians are not interested in taking up gigabit-speed connections, as NBN chief Bill Morrow repeatedly did this week.

"Currently, there are no retail 1Gbps speed plans on offer from the retailers. This is, in our opinion, because there is still minimal consumer demand for these ultra-fast speeds -- especially at the prices retailers would have to charge for them," Morrow wrote in an opinion piece.

"1Gbps speeds are simply way beyond what even the most advanced end user needs today, let alone what is needed by regular families across Australia.

"There is literally not a single mass market consumer application -- or even a combination of applications -- that requires 1Gbps capability right now."

"Even if we offered it for free, we see the evidence around the world that they wouldn't use it anyway," Morrow said during NBN's financial results presentation last week.

The blame for the purported lack of interest in gigabit speeds has been laid at the feet of an Australian government that is looking for a return on its AU$29.5 billion investment, which has led to an "unsustainable, self-defeating" situation where retailers make more money from slower speeds than higher ones.

"It doesn't matter how much NBN spends on marketing; if selling higher speeds services will send retailers broke, they simply can't and won't do it," the CCC spokesperson said.

"At the moment, an inflated balance sheet is driving unaffordable prices and pushing Australia in the opposite direction."

The CCC said the switch of NBN rollout technologies from the initial Labor-backed majority fibre-to-the-premises vision to the multi-technology mix under then-Communications Minister Malcolm Turnbull had stalled the rollout, slowed take-up, and added costs.

"Australian consumers' passion for high-speed broadband is easily seen in the mobiles market where the race for 3G to 4G and now 5G is all about meeting the download speed demands of mobile users," the CCC said.

"Does the NBN really think customers are happy with speeds on fixed lines below those emerging for mobiles?"

MyRepublic Australia managing director Nicholas Demos also blamed the lack of 1Gbps NBN products on the network company's connectivity virtual circuit (CVC) charge, which reserves a consumer's bandwidth from the point of interconnect and is priced depending on usage of data.

"It's absolute bull****," Demos said in an interview with ZDNet.

"The CVC pricing that the NBN are charging, it's not economical ... yes, they do offer retailers such as us a product with CVC pricing -- a one-gig product -- but it's just priced out of the market and no consumer will buy it at that price in Australia."

NBN on Friday announced that it would be amending its dimension-based discounted CVC wholesale pricing model to be based on individual retailer averages rather than the previous model of using an industry average.

According to NBN, it will allow RSPs to differentiate their offerings -- such as through offering higher speeds -- which will then increase competition.

"We've taken on feedback from our customers that the discounts could be more forward-looking and so go lower ... as more usage happens, so that's what we've looked to do," NBN Product and Pricing executive general manager Sarah Palmer said.

"So they're slightly deeper discounts and there's more of them so we get down to a AU$8 per megabit price point."

The new model -- adopted after consultation with industry, which NBN said was "broadly supportive" of the new approach -- will come into effect on June 1.

In November last year, the Australia government announced it would be loaning NBN the AU$19.5 billion needed to complete its rollout under commercial terms.

"In anticipation of a future privatisation of NBN as provided for in the NBN Companies Act 2011, it is expected that this loan will be re-financed by NBN on external markets in 2020-21," Finance Minister Mathias Cormann and Communications Minister Mitch Fifield said in November.

According to the latest Wholesale Market Indicators Report from the Australian Competition and Consumer Commission, only 90 premises across the nation are on NBN plans with speeds higher than 100Mbps.

For the top 1000/400Mbps plan, only 17 premises are connected, 500/200Mbps has 3 premises, and 250/100Mbps has 67 premises connected. All of those premises are connected via fibre-to-the-premises as NBN's other technologies are not capable of delivering greater than 100Mbps without further upgrades.

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