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NBN pricing: revolution or revolting?

Questions over the pricing of NBN services were answered in part, as Exetel revealed an innovative pricing model that will save money for light internet users and price bandwidth hogs off of its services. Underneath that pricing, however, are some important lessons about the prices at which NBN Co can deliver its fibre services — injecting some reality into long-running speculation over future NBN pricing.
Written by David Braue, Contributor

To say the pricing for the planned Tasmanian NBN services has been eagerly awaited is something of an understatement: in these numbers, after all, lie some of the first clues about NBN Co's ability to cost-effectively deliver the NBN — and the best indication yet as to whether consumers will in fact take up the NBN in the volumes that are expected, and required.

One key question is how much more customers we have to pay to get NBN-quality services compared with the services they have now? Tantalisingly, Exetel's pricing suggests that NBN services don't actually have to cost much more — at least, for what chief executive John Linton referred to as the 60 per cent of low to moderate-usage customers out there.

Exetel seems determined to stop cross-subsidisation between low- and high-usage customers with a simple pricing scheme: a $10, $25 and $50 per month base rate (for 25, 50 and 100Mbps service respectively) and flat charges of $1.50, $1 and $0.75 per GB, respectively. Sign up for a basic 25Mbps service and download emails and a bit of web surfing, and you could be paying $15 to $20 per month for a 25Mbps NBN-based service that's far more reliable than the 24Mbps ADSL2+ you might have now. BitTorrent like your life depended on it, and you'll be up for hundreds per month.

Linton's pricing was picked up by Stephen Conroy, who has worked hard to convince critics that the NBN Co-carried infrastructure doesn't have to be prohibitively expensive.

The other indication we've had of NBN pricing so far is from iiNet, which has said it will keep its Tasmanian NBN customers on parity with the monthly pricing already set for its Point Cook, Victoria fibre-to-the-home services — starting at $49.95 per month for a 25Mbps service with 10GB of data ($5/GB) and ranging up to $159.95 per month for a 100Mbps service with 180GB ($0.89/GB).

Sign up for a basic 25Mbps service and download emails and a bit of web surfing, and you could be paying $15 to $20 per month for a 25Mbps NBN-based service that's far more reliable than the 24Mbps ADSL2+ you might have now.

This sets baseline pricing higher than that of Internode, which recently introduced new "Easy Broadband" ADSL2+ plans starting at 50GB of downloads for $49.95 ($1/GB). Even that is twice as expensive as Optus' newest ADSL2+ or cable plans, which start at $59.95 for 120GB of monthly data ($0.50/GB) and jump $20 and 50GB (to $0.57/GB) for the top-end plan.

Clearly, fibre-to-the-home will attract a premium. Yet while Exetel's pricing sits at the higher end of the scale, users will still make out better on Exetel's plans as long as they use less than 50GB per month; those wanting more data may want to consider a more conventional plan from iiNet. However, clarity over NBN service pricing should silence critics who have feared low NBN take-up due to presumed higher prices. Exetel's volume-based pricing makes eminent sense, and the company's decision not to charge users for unused bandwidth should eliminate potential barriers to take-up the services.

I am reminded of comments Telstra chief technology officer Hugh Bradlow made, months back, when I asked him whether reducing incremental cost of data would translate into cheaper or unlimited-usage data plans as Australia was flooded with inexpensive bandwidth. Not necessarily, he responded: "if you're going to be able to deliver this flood of data you need to have the capital to invest in it," he explained. "You're not going to get that with [unlimited] plans. The unit cost is falling but actual data consumption is going up faster than that — and that's unsustainable in the long term unless you actually find a way of recouping the extra value."

Will Exetel's pricing model fit the bill? Time will tell: getting 10,000 customers to pay $20 per month for NBN services may boost subscriber numbers, but it's hardly going to provide the same business results as having those customers on a guaranteed $60 per month minimum.

Changing the wholesale culture

What's even more important about Exetel's pricing is that it delivers some very real assurances about the wholesale model being pursued by NBN Co. Rather than charging a flat rate for various types of services, it appears NBN Co is charging a nominal monthly premises connection fee and a volume-based usage charge. Both would seem to be lower than Telstra's contentious copper-network access fees — which the company reportedly may raise by 20 per cent this year — and the Point Cook pricing shows that they're lower than Telstra's fibre-to-the-home wholesale pricing. This suggests that, after all the FUD about supposed $200 monthly plans, the NBN provides a quite reasonable pricing model.


Point Cook fibre-to-the-home trial the front line in NBN pricing
(House sep 2006 street image by GIRod, public domain)

Indeed, Exetel's pricing reveals that basic NBN access is far cheaper than comparable fibre services from Telstra and Opticomm, which carry Exetel's fibre services in Point Cook and various locations in NSW and Victoria. A 50Mbps service from Telstra, for example, costs $60 per month, compared with $40 per month over Opticomm and $25 per month over NBN Co infrastructure. Higher per-GB download charges — $1.50/GB to $0.75/GB compared with $0.50/GB over Telstra and Opticomm services, likely reflects the overheads imposed by Bass Strait backhaul that Linton said makes data "five times more expensive" in Tasmania than elsewhere. These overheads would be absent on the mainland, presumably promising lower NBN volume prices for the majority of Australians. (There is also, of course, the chance NBN Co is charging an artificially low price to early adopters to support its business case.)

Yet volume-based pricing won't fly for everybody: by charging people for the bandwidth they actually use, Exetel will be shunned by heavier users, who expect hundreds of gigabytes per month as some sort of birthright. This may be a good outcome for internet service providers that have long struggled with ways to subsidise those users' demands. However, as heavier use of video and online services drives the overall population's monthly usage upwards, Linton's 60/40 split is going to shift, potentially working against the company as average usage increases and punters shift elsewhere for better value.


Exetel initially advertised its prices as running over NBN Co infrastructure, but has since changed the reference to Aurora Energy infrastructure — leading many to wonder what the final NBN Co-carried prices will be.
(Credit: Exetel)

Most businesses will run screaming from volume-based pricing: a few YouTube-happy employees could eat up the month's profits before lunchtime. Ditto system updates: ever-larger service packs, being pushed out to users with some regularity, can churn through bandwidth sight-unseen. A point-point upgrade to Mac OS X, for example, can consume more than 600MB of data. Under existing plans, this update can be held off until off-peak periods to be counted against usually-healthy quotas that aren't usually fully consumed. On Exetel's plan, this update would have a very real incremental cost: $0.60. It may seem like pocket change, but when numerous users are downloading each update, bills get very ugly, very quickly.

In a per-gigabyte world, there would seem to be a case for a browser feature or plug-in that keeps a running tally of usage — and, therefore, tracks the user's internet bill as it grows throughout the month. Call it smart metering for broadband, or just a wake-up call as mums and dads cringe at the spiralling cost of streaming video services like MyTVR, iView, YouTube and catch-up video services from Australia's TV networks. Unmetered-content partnerships could eventuate to control these costs — but in the meantime, Exetel's new pricing model, no matter how it finally sits, offers glimmers of hope for many would-be users of the NBN.

Would you come out ahead with usage-based pricing? And would you sign up for NBN services at those rates?

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