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NBN CEO hits out at corner-cutting ISPs with a mere 1Mbps allocated per user

ISPs are between a rock and a hard place with an NBN land grab taking place, NBN CEO Bill Morrow has said.
Written by Chris Duckett, Contributor

NBN CEO Bill Morrow has hit out at allegations the NBN's connectivity virtual circuit (CVC) and use of copper in its Multi-Technology Mix are to blame for Australians seeing unsatisfactory speeds when connected to the network, and instead said it was the result of an NBN "land grab" forcing retail service providers (RSPs) to cut costs somewhere.

"The RSPs are between a rock and a hard place," Morrow said in a position paper [PDF].

"Even though the consumer may be willing to pay more, the RSP can't raise their price on like-for-like offerings when other RSPs are setting their price to maintain and/or capture market share rather than make a reasonable profit."

In an accompanying blog post, Morrow revealed the average bit rate per user on the network was approximately 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.

Morrow said retailers were involved in a land grab for market share, where pricing was the focus, and not speeds or quality of service.

"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," he said.

"If an RSP isn't purchasing enough CVC capacity to offer the quality expected, that is a conscious choice to do so.

"Some RSPs are advertising broadband plans for as low as AU$29. When you consider the minimum AVC [access virtual circuit] cost them AU$24 for a 12/1 speed and they have to apportion a cost of the CVC charge, every expense must be as low as possible to make any kind of profit, if at all."

The NBN CEO maintained that customers would pay more for higher quality services, and that NBN's pricing structure would need to "evolve" to satisfy NBN, RSPs, and users.

"This is a focus for the board and management and we will be working closely with our RSP partners and relevant stakeholders to address these issues and solve for the problem at hand," he said.

Last week, NBN said 76 percent of Australians do not know the speed of their connection, and 35 percent are unaware they are able to choose a speed tier when connecting to the NBN.

The solution to this ignorance, NBN believes, is to launch yet another marketing campaign that will nationally hit TV, direct mail, and newspaper lift outs.

In May, NBN informed Senate Estimates its last nationwide marketing campaign cost AU$7.8 million excluding GST thus far.

Morrow has continued to claim recently that demand is not present for 1Gbps services, and said most users found a 25Mbps service satisfactory.

On the issue of speed complaints, Morrow said it was the fault of NBN's retail service providers.

"Remember, they're attaching their network to ours," Morrow said. "We are, by design, not even supposed to know the name of the people that are using the service."

On Monday, Morrow said the current revenue per user would not generate a positive return for the company.

"This was by design to offer more affordable services early on and only when the data demand increased would more revenue be generated," the NBN CEO said.

"NBN's business model relies on the assumption that data consumption will grow, consumers will value it more, and the average revenue per end-user will increase.

"If this does not hold true, then the cost recovery and modest profit return will be in jeopardy, creating risks to the universal access or needing budget money to offset the losses."

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