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Turns out the NBN is more expensive after all

Despite all evidence to the contrary, the coalition has long insisted that Labor's NBN will make broadband more expensive. The broadband prices from our largest telco have proved them correct, but the real question is: who will buy Telstra's NBN pricing story?
Written by David Braue, Contributor

After years of debate, pointed arguments and fact-filled diatribes, it turns out that the coalition is right: the NBN will be more expensive than ordinary broadband. It will cost more to sign up for, more to use in the long term, more to make phone calls and more to download your data. It won't return value for money, it's likely to struggle to enjoy the kind of take-up that the government wants and it's an overpriced, over-specified mess that will leave customers cursing the day the government ever strung together the letters N, B and N.

That is, if you stick with Telstra.

After months of keeping the market waiting, everyone's favourite incumbent played its NBN hand this week, and revealed NBN pricing that comes in two flavours: 25Mbps expensive, and 100Mbps very expensive.


Can Telstra justify charging first-class prices on an economy-class NBN? (Image by Richard Moross, CC BY-SA 3.0)

I may have simplified things somewhat — you're welcome to run through the actual pricing to see just how much it will cost you — but suffice to say that Telstra's pricing has resurrected its time-honoured tradition of charging way more than the rest of the market, leveraging its market cachet and reputation to squeeze customers for a bit more dough.

Interestingly, the company seems so determined to avoid low-value customers that it has even foregone the option of offering 12Mbps services altogether.

Some might say that this is to avoid a situation where it's marketing NBN services against comparable ADSL services, and they might equally say that Telstra's high prices are a result of not wanting to prematurely push down its ADSL prices. But I suspect that the deeper truth is that Telstra simply can't be bothered with the low-value customers who will be buying 12Mbps NBN services.

And why bother? Entry-level users are expensive to support; they don't want to take up value-added services on which Telstra depends; and they complain if they don't get what they want, feel that they're not getting value for money or have issues with being randomly overcharged.

As opposed to its long campaign of infrastructure-based blackmail, Telstra will now sink or swim on the NBN based on nothing more than its ability to convince customers to pay what it's asking.

This is one of the most important things about the NBN; as opposed to its long campaign of infrastructure-based blackmail that passed for a service and pricing strategy for years, Telstra will now sink or swim on the NBN based on nothing more than its ability to convince customers to pay what it's asking. This will, we are told, come through over-servicing them with Telstra bonuses, like its extensive service fleet, skilled technicians and gadget-filled retail shops — in essence, all the stuff that Telstra's NBN premium will fund.

The thing is — and this is something that most customers will still not appreciate — that you can get exactly the same quality of NBN service, with far more generous quotas and different value-adds, from the myriad other ISPs now lining up as retail service providers (RSPs).

If you have an affection for quirky commercials and anthropomorphic routers, you might go with iiNet. If you're more into birds of the cartoon kind, you might choose Dodo, and get some discount electricity in the process. If you like purple, choose TPG. If you want an innovative mobile-and-NBN bundle for discounted services (Nigel, have your people call my people), then you might choose Vodafone. If you just want a cheap plan, you might sign up for SkyMesh's $29.95 per month plan, which offers 12Mbps services and 5GB/10GB of data — or its 100Mbps service with a 2TB quota.

It all depends on your personal preferences — but one thing is certain. Even though careful buyers will quickly learn that they can get a 25Mbps service with 10GB/10GB quota for $39.95 from SkyMesh, untold others will flock to the Telstra website and commit themselves to paying $80 per month for exactly the same thing — with the added bonus of being forced to take a vestigial fixed phone line running over Telstra's soon-to-be-deprecated copper.

Yet, while no value-conscious buyer with an ounce of sense would commit to Telstra's plans, I'd bet that millions of customers will still run to Telstra and sign on the dotted line. For many Australians, the words "Telstra" and "communications" remain synonymous, and no amount of logic is going to change that — ever.

I'd bet that millions of customers will still sign on the dotted line. For many Australians, "Telstra" and "communications" remain synonymous, and no amount of logic is going to change that.

Judging by their determination to ignore the pricing realities of the NBN, I suspect that many members of the coalition have similarly struggled to make this cognitive leap. This is a fundamental problem with competition. It's a great idea, but, in the end, you can fiddle with the market as much as you want, but if you can't change consumer behaviour as well, you'll see your great idea sink into the sea of irrelevance.

In a market where inertia rules, this happens all the time. Loyal customers will not only pay Telstra twice as much for the same NBN service that they could get elsewhere, but they'll also even pony up for a redundant copper phone service — and they'll do it because Telstra says they have to.

Far away from the rarefied sphere of intelligent tech consumers, buying decisions really are often based entirely on brand. Qantas is the most expensive airline in Australia's skies, but it still attracts legions of loyal fliers. Name-brand milk comes from the same udders as the store-brand stuff, but many people still buy based on labels. Expensive wines often taste just the same as cheap-and-nasty plonk, but we are still happy to pay extra for the perceived value of a particular brand.

Telstra is counting on familiarity-driven behaviour to prevail, as it has been able to do so quite successfully in the past, such as when it capitalised on Optus and Vodafone languor to attract nearly one million new mobile customers in the last six months of 2011.

Can it repeat this success on the NBN? Not necessarily; this time around, Telstra is selling exactly the same access product as its competitors. It won't be able to crow about its network coverage, transfer speeds or the reliability of its services, since they'll be exactly the same, but it has a strong brand name — and even though they have a better story to tell, its competitors may find themselves continuing to struggle as they seek to prove that to a sceptical citizenry.

What do you think? Will you buy Telstra's NBN services? Are its prices a clever stopgap to discourage customers from abandoning ADSL? Or does its fixed-bundling requirement show that it has become so self-invested that it has shot itself in the foot?

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