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NBN could end up as a 100Mbps network and the ACCC thinks it might be too quick

Excess pricing will push retailers and thus users towards an access-only 100Mbps plan, which will hollow out the lower end of the market, the ACCC has said.
Written by Chris Duckett, Contributor
Image: Cole Bennetts/Bloomberg via Getty Images

On Monday afternoon, the Australian Competition and Consumer Commission (ACCC) released a consultation paper on the proposed variation to the NBN Co Special Access Undertaking, which would codify NBN's preferred pricing model of removing the loathed connectivity virtual circuit (CVC) capacity charge on plans of 100Mbps and faster.

For 12Mbps, 25Mbps, 50Mbps plans, NBN is putting forward the same type of model it currently uses, where each plan has an allocation of CVC included -- often around 6% of the marketed speed or lower -- and would see excess capacity at AU$8 per 1Mbps per month to retailers. For plans at 100Mbps and above, a flat access fee each month is paid.

While the flat price plans are set to increase at a rate of the consumer price index (CPI) plus 3% initially, and the greater of CPI or 3% later, which is higher than the pure CPI increases on the bundles, the ACCC believes excess usage charges will steer retailers towards the 100Mbps plan.

"As a result of the retention of CVC charging for the bundled products less than 100Mbps and the CVC cost escalation mechanism built into the SAU proposal (along with allowable CPI+X adjustments), we observe that the costs to retailers of the 50Mbps product are expected to equal those of the 100Mbps product within only a few years and similarly for the 25Mbps product before the end of SAU term [in 2040]," the ACCC said in its consultation paper.

"These dynamics indicate that ... a narrowing of reasonably priced access products in the market that could be in turn damaging to the level of retail competition and result in the supply of retail products in the market at higher prices and at speeds in excess of end customer needs."

Citing the Bureau of Communications and Arts Research, the paper said it is forecast that median household speed requirement will be a mere 29Mbps in 2028, and only 0.1% of households will need speeds greater than 78Mbps, while retailers currently only promote 100Mbps plans are for "larger households" that make up 10% of the market.

NBN is not helping the situation by predicting 13% annual increases in peak data demand while only making CVC increases at half of that level.

"The retention of CVC charging may result in access cost escalation over time, as peak data demand continues to grow. It could also expose retailers and customers to cost increases due to demand shocks, such as those observed during COVID-19 lockdowns," the ACCC said.

"The cost escalation could occur because the CVC allowances for the bundles appear to be designed not to grow as fast as peak data demand."

Using NBN's forecasts, the ACCC said the wholesale cost for an entry level plan would double by 2033 and shoot towards AU$104 per month in nominal terms by 2040.

Along with having the technologies introduced by the Coalition government in 2013 brought under the SAU, the proposal seeks to separate NBN's services into core and non-core -- non-core is proposed to cover enterprise ethernet, business satellite, and satellite mobility services and would not be bound by the SAU.

In an effort to recover its initial costs to build the network -- stated at AU$38 billion in real terms or AU$44.5 billion in nominal terms -- NBN is putting forward a revenue cap mechanism where it would not make enough money to recover costs for some years, but would begin to rein it all back in during later years.

"The implication of this scenario is that the revenue cap would likely fail to act as a binding constraint on NBN Co or provide any basis for setting prices," the ACCC said.

"Under NBN Co's proposal there remains no link between underlying costs and the price structure, price levels, or projected price paths. Further, NBN Co's proposed pricing and proposed price paths do not appear to contain any direct link to current or future demand."

The ACCC is inviting submissions on its paper until July 8.

A chart of expected SAU wholesale charges for products 100Mbps and below
Image: ACCC

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