At the recent CommsDay summit, Telstra CEO Andrew Penn argued that the current NBN wholesale price to retail service providers (RSP’s) is making it impossible for RSP’s to offer an affordable product to the consumer. This wholesale price, already double pre NBN wholesale pricing, is set to be increased still further and will only compound the issue highlighted by Mr Penn.
Over contention equals poor user experience
The larger RSP’s, such as Telstra can only manage this in two way. One is to increase the consumer price exponentially to be able to afford the “right” amount of wholesale backhaul per consumer. The other is to share the wholesale amount between many more consumers to make the numbers add up and offer a “market rate”. The latter option is described as an increase in the contention ratio; more consumers per unit of bandwidth. The first option is untenable in a market that has a price ceiling of sub $100 per month, which leaves option 2. This option means that consumers continue to pay the perceived market rate, but share their bandwidth with a larger pool of other users. This is the only way a large RSP can achieve its financial targets and maintain a decent return to its shareholders.
The future of NBN pricing
Unfortunately this inevitably leads to a less than satisfactory experience for the consumer, particularly at peak times. Many commentators discuss the fundamental technology flaws with the NBN. Its fibre to the node (FTTN) technology is already out of date, the copper path is flawed and distance from the node dictates theoretical speed etc. These issues are all valid but pale in comparison with the commercial constraints described above.
As Mr Penn stated, “This is unsustainable and ultimately the model has to change otherwise it will lead to higher long-term prices for customers.
Will ISP’s reduce their margins
This is bad for NBN, bad for the industry but most of all it is bad for customers because it will impact affordability and Australia’s competitiveness.” This statement is accepted by most industry commentators, but what can actually be done and will this lobbying achieve anything? The NBN has already stated that the wholesale price is going to increase still further. This compounds the problem, and there is little chance of any of the larger RSP’s accepting the continued diminishing margins through re-selling the NBN platform. The NBN can’t afford to reduce the wholesale price as it attempts to claw back some much needed revenue so it appears that we are at an impasse.
NBN Alternatives
The Mexican stand off between the large RSP’s and the NBN has effectively created a vacuum in the market. This vacuum is currently being filled by the smaller RSP’s and independent networks. These organisations can either thrive on the reduced margins available through the NBN wholesale model, or they are using private networks to deliver a better, lower contended service to consumers. The latter is the space in which multiple fixed wireless and private network re-sellers are thriving in the industry. They are tapping in to the wholesale product available from the larger RSP’s and completely bypassing the already congested NBN. These smaller, more competitive businesses are proliferating and creating the sort of competition that can only benefit the consumer.
The NBN and deregulation
This is one of the ultimate goals of de-regulating any industry. The irony with the telecoms market in Australia is that the policy of creating a national broadband network should have provided that competition as a consequence of the provision of a national network. Instead, its creation has seen the growth of alternative, innovative and commercially enhanced networks to bypass the monolith.
We are undoubtedly in an important transition phase in Australia and the resolution of this issue is critical to our future competitive position on the world stage. As soon as the Australian public understand the difference between the massive marketing machine that is behind the NBN and the reality of the situation, the sooner the already significant growth in private networks and innovative delivery mechanisms will become an explosion.
Andy Whitmore
Co-Founder, Our Community Broadband
