NBN pricing may dull broadband benefits: economist

Updated

A leading telecommunications economist warns that NBN Co's pricing policy will undermine the economic benefit of fast broadband.

The National Broadband Network promises speeds of up to 100 megabits per second (mbps), but not for everyone.

NBN Co is offering five different speeds at different prices, which telecommunications consultant and former Telstra chief economist John de Ridder says is artificial because, once the network is built, it does not cost more to deliver 100 mbps over the NBN than it does the slower speeds.

"They could offer the same speed, unlimited speed basically, to everybody but they choose to ration it out, charging more for higher speeds," he said.

NBN Co sells wholesale access to the internet service providers, and that access is currently priced from $24 a month for the slowest 12 megabits per second plan to $38 a month for the top of the line 100 megabits per second download speed.

In addition, there is another smaller wholesale charge based on data usage.

For end users, that means monthly NBN broadband plans start from around $30 a month for the slowest speed to at least $50 a month for the fastest.

John de Ridder says that price differentiation is a big problem if the NBN's aim is to get more Australians onto high speed broadband to transform the nation's digital economy and promote the use of new applications such as e-health and video conferencing.

"They need to recover their costs efficiently and one way of doing that is by price discrimination, but they've got the wrong idea. People are not going to be prepared to pay more for speed. They don't do it now," he argued.

"What they're doing is replicating the existing situation where a lot of people have access to more broadband speeds than they are prepared to pay [for] right now."

Mr de Ridder says this means a large number of households will just take up the cheapest 12 mbps option, which meets their current needs, but will not get the transformative experience of having super fast internet.

In other words, many consumers will buy NBN speeds to match what they currently do, rather than be experimenting with new applications requiring the faster, and more expensive, speeds the new network is capable of.

Mr de Ridder says that means a large part of the near $40 billion investment in the network could be wasted, because the pricing model encourages most households to take up the 12 megabits per second plans which are similar to the ADSL broadband many people already have.

"This pricing part is an important step towards making sure that we actually get use out of the network, which is where the benefits come," he said.

Utility argument

Mr de Ridder says NBN Co would be better of focusing exclusively on data usage charges, and give all its customers the fastest speed available in their area.

"It would be much more simple to basically charge per gigabyte of data delivered over the NBN network, just as you do with gas and water. It is a utility now. It's a public service," he added.

However, NBN Co's chief executive, Mike Quigley, says a lot of people would not take up the company's service at all if it only offered the highest speeds at a price to match.

"Not everybody will want the same speed plans. Some people will just want, for example, a plain old telephone service. You know, it doesn't make much sense to offer them a 100 mbps service," he argued.

NBN Co says the new plans are also aimed at maximising take-up of the new service by being comparable with current ADSL plans that customers are already familiar with.

"We talked extensively with our potential customers and retail service providers about what are the sorts of tiers that make sense and what sort of product offerings, and this is what we thought was the right answer," Mr Quigley added.

Telecommunications analyst Paul Budde is a prominent advocate of the benefits high speed internet will bring to Australia's economy and society.

However, he says he does not mind NBN Co offering cheaper, slower speed wholesale plans now, as long as they adapt over time to the increasing speed needs of new applications.

"The need of high speeds, other than use for entertainment, will automatically grow, and it's in the Government's interest to facilitate that," he said.

"So while that's not in place now, I am pretty sure that, either through the regulatory process or through the political process, it will be made sure that we do get the right speed at the right time and that we are not limited, artificially limited, by the speeds that have been set up now."

Indeed, Mr Budde says the lowest of those artificial limits could already be removed.

The 12 megabits a second slowest speed was set to equal the speed remote and rural satellite and wireless customers could expect, so that users would pay the same price for the same speed right across the country to meet the NBN's charter for equal access.

However, NBN Co has signed new satellite deals that will more than double remote download speeds.

"Now there is no longer a political need for the Government to limit it to 12 megabits," Mr Budde argued.

"You know, that was politically needed to say everybody, at the minimum, gets the same service. Now the Government can safely say the minimum service can be lifted to 25 [mbps]."

Topics: business-economics-and-finance, telecommunications, federal-government, australia

First posted