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Optus NBN prices add wrinkle to land rush

Optus' NBN pricing not only dispels fears that the NBN will be prohibitively expensive, but takes an interesting shift by replacing the oft-maligned bundled landline with incentives for customers to bundle a mobile. This confirms Optus' view that wireless is a complement to the NBN — and confirms the changing nature of the fixed-line land rush as telcos jockey to maximise their customer base before the NBN hits.
Written by David Braue, Contributor

The larger the ISP that releases its NBN pricing, the less the coalition has to say about it, it seems. Breaking with tradition, there have been exactly zero pronouncements, doorstops or press releases from Malcolm Turnbull, Paul Fletcher or other Liberals slamming Optus' pricing — and for good reason, since it has proved beyond a doubt that mass-market NBN services can be delivered at reasonable prices.

But I think we knew that already. No, the most interesting thing about Optus' pronouncement lies in the way that it has been structured to play to Optus mobile customers — presumably to both keep and add new subscribers to its already-blossoming mobile numbers.

Yes, Optus wants more and more mobile customers — and to reach this goal, it has replaced the long-running requirement that broadband customers take out a landline with a requirement that its NBN customers also take out an Optus mobile service to get the lowest possible prices. Mobile customers get $10 per month off the NBN broadband prices, and its $39.99 "naked" plan is only available to those who take a post-paid mobile contract.

Sure, there's an element of obviousness to this — it hardly makes sense for Optus to force customers to bundle a Telstra landline service with their NBN connection. Rather, Optus has highlighted its naked service pricing, and targeted its landline-equivalent bundles at the upper reach of the market — those wanting 500GB or 1TB monthly download quotas. Those subscribers can sign up to a VoIP-based Optus landline, but still pay $30 a month for the privilege of getting higher bandwidth quotas. Optus is, in effect, inflating the cost of a low-cost VoIP landline and using it to subsidise the additional hit it takes from 500GB-plus NBN downloaders.

Optus is, in effect, inflating the cost of a low-cost VoIP landline and using it to subsidise the additional hit it takes from 500GB-plus NBN downloaders.

Whether or not this strategy continues long term will remain to be seen. Clearly, the high end of Optus' NBN services is pushing well into three-figure territory, and will alienate the company from value-conscious subscribers. There is already evidence that this sort of bundling is an anachronism in the age of the NBN; Internode, for one, retracted its initial requirement that customers take a voice service in its recent pricing reshuffle.

Whether or not a voice-and-broadband offering eventuates, Optus' decision to push mobile bundling to get its best NBN pricing is another nail in the coffin of the landline, which has steadily been squeezed out ever since the introduction of "naked" DSL services. Our second-largest telco is effectively saying goodbye to the very same historical legacy that landed TPG in such hot water this week. But Optus isn't taking TPG's conciliatory move by marketing the cost of its low-end services plus line rental as its flat price; its landline bundles are expensive, and it's not pretending otherwise.

Good riddance. This whole bizarre idea that customers should budget $30 a month to pay for a landline they don't want, just to carry the broadband service they do want, is a throwback to the very Telstra infrastructure dominance that the NBN is designed to remedy. At $39.99, Optus' entry-level plan is just $9 more than the entry-level price in the ADSL world — but will actually give subscribers the 25Mbps bandwidth that they've paid for.

That mobile-linked pricing should be released now, and, at the obvious sacrifice of the conventional landline, is significant; it was only a few days ago that Optus CEO Paul O'Sullivan told the Financial Review that he is ready to redouble the company's efforts in the fixed-line broadband market. "The opportunity for us in fixed-line is huge," he said. "The market is about 8.5 million, and that's before we even get into additional premises that could be opened to us in terms of enterprises and businesses."

There is a hidden agenda, of course; further comments from an Optus spokesperson suggest that the company has grown tired of waiting for NBN Co's creeping wholesale broadband agreement (WBA) to be finalised. With the NBN roll-out finally set to pick up real momentum in coming months, every day that Optus isn't in the market with retail pricing is a day it's losing customers to its rivals.

Each of those customers, in turn, is a lost opportunity to capitalise on the golden egg that Optus has been given by NBN Co. Remember that Optus, like Telstra, will be paid a per-subscriber fee for every customer that it moves from its network onto the NBN. So while it may be pushing hard for fixed-line subscribers in the short term, in the long term it will be more than ready to continue that relationship as it converts fixed-line customers into NBN-and-mobile customers.

While Telstra may be pushing hard for fixed-line subscribers in the short term, in the long term it will be more than ready to continue that relationship as it converts fixed-line customers into NBN-and-mobile customers.

Now that Optus is in the market, Telstra will no doubt feel the same way: it has a rolling 10-year NBN build to plan for, and needs to build and maintain its landline presence in areas where the NBN has not yet arrived. Expect Telstra pricing soon; it will be interesting to see whether Telstra also ties its NBN pricing to its mobile services as part of its efforts to stretch the terms of its non-competition promise with NBN Co.

Should it do so, that would be an extra boost for the company, which is already doing pretty well, with a promised buyer for every landline customer if can accumulate in the next few years. Even more instructive will be whether iiNet — which recently launched mobile services for SMBs — and Internode, which is set to launch what many expect will be a rebadged Next-G service, do the same.

Unencumbered by the strategic mandate to capitalise on a customer-bounty program, those and other ISPs will be able to build their mobile offerings and launch competitive bundles that stand in their own right; heck, if customers are going to sign up for the NBN anyway, why wouldn't they like the opportunity to save an additional $120 per year by bringing their mobiles with them?

Paired with their planned continued strategic investment in DSLAMs, ISPs will now be able to set out an NBN migration path comparable to that of Optus and Telstra. This could potentially see even lower prices when multiple products are bundled together — reflecting the commencement of a real price war that iiNet has already said it doesn't expect or want to get into. Yet early pronouncements are clearly subject to change as the NBN's competitive market unfurls its wings; the real test will be not what ISPs think now, but what they're forced to do in the future to keep ahead of the game.

Would you lock your mobile to your NBN provider just to save some money? Or do you prefer to keep your options open?

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