Telstra seeks stronger NBN price controls

Telstra has said that NBN Co's self-imposed limits on product price rises do not go far enough.
Written by Josh Taylor, Contributor

Telstra has told the Australian Competition and Consumer Commission (ACCC) that NBN Co needs to cap every part of pricing for products on the National Broadband Network (NBN) in order to avoid price rises for end customers.

Telstra's comments came in a submission to the ACCC's review of NBN Co's revised special access undertaking (SAU). The document sets out the pricing and regulatory framework for the operation of the NBN for the next 30 years, and is designed to work hand in hand with the wholesale-broadband agreement (WBA), which sets out arrangements between NBN Co and access seekers selling broadband services on the network over a shorter period of time--at this point, one year.

NBN Co has frozen the wholesale prices for NBN products until June 2017, and will limit price increases per year after that to 1.5 percent less than the rate of annual inflation. But this is just one component of NBN Co's pricing, and the company also has a connectivity virtual circuit (CVC) that it charges to retail service providers to reserve specific bandwidth from the point of interconnect to the end-user's premises on the backhaul.

Telstra said that as the use of the NBN increases, with more bandwidth being used by customers over time, because there is no "global" cap on pricing for the CVC, this could cause prices for retailers, and ultimately end users, to go up over time.

"It creates the real possibility that wholesale prices are set such that RSPs [retail service providers] cannot supply services at retail prices that end-users would be willing to pay," Telstra said.

Telstra said a possible solution would be to introduce a global price cap based on the average wholesale price for end users, including an average of the wholesale price, CVC charge, and additional charges, and the price could change at a rate in line with inflation. Alternatively, Telstra said that the price cap could be applied to the total revenues over the total premises connected.

This would give NBN Co more flexibility over the sorts of products it can introduce and the prices for those products, Telstra said, but until a change is made, there can be no guarantee that prices will remain affordable.

"In the absence of any specific commitment in the NBN Co SAU, the general statement of intent from NBN Co is not sufficient to ensure that CVC pricing will evolve over time in a way that promotes the [long term interest of end users]. The ACCC should maintain oversight of CVC pricing, such that CVC pricing is subject to regulatory recourse."

This pricing disparity was also raised by Optus in its submission, stating that by customers using more data per month, the capacity "will result in higher prices over time as usage increases, and is inconsistent with current industry pricing structures." The telco warned that some products on existing plans would, as a result of NBN Co's pricing, either be too expensive or unfeasible for retailers to offer on the NBN.

AAPT said in its submission that the CVC charge should be locked for four year terms and defined more specifically within the SAU.

"It is crucial that NBN Co include in the SAU more specific commitments in relation to CVC price reductions. This should take the form of a commitment to a minimum reduction pathway if certain demand and usage forecasts are met. This is important as it could adversely impact investment and business model decisions of wholesalers."

Macquarie Telecom said that NBN Co's "statement of intent" to review CVC pricing on an annual basis was not strong enough, and that there should be a firm commitment by NBN Co to review pricing.

The ACCC is expected to make a draft decision on whether to accept or reject the SAU in March.

Editorial standards