NBN Co has preemptively accused internet providers of harbouring a desire to milk higher rebates on faulty or slow services for “windfall gains”, even if it prolongs problems for their own customers.

The argument is laid out for the first time publicly in a rebuttal of the Australian Competition and Consumer Commission’s (ACCC’s) proposal to impose higher service standards on NBN Co, and to fine it for not living up to expectations.

To date, the accusations have only been made in private, possibly due to the damage they could inflict on the already fractious relationship between NBN Co and its major retail service provider (RSP) partners.

Somewhat bizarrely, while NBN Co claims that RSPs might game the rebates, NBN Co itself lays out a case where it says it could also game the proposed system itself, for its own advantage.

The RSP argument mostly centres on the issue of ‘pass through’ - that is, the extent to which the ACCC decides that RSPs should pass on rebates paid by NBN Co for faulty or slow services to end users.

NBN Co argues the ACCC’s rules are not prescriptive enough and will allow RSPs to profit from rebates - even using them as a regular source of revenue.

It says RSPs might try to delay fixing an underperforming service at the customer’s and NBN Co’s expense.

“Access seekers could potentially seek to game the FTTN/B/C service speed assurance rebate by choosing not to raise a trouble ticket with NBN Co or to reserve an appointment for NBN Co to attend the end user customer’s premises,” NBN Co said.

“The access seeker could instead seek to continue obtaining rebate payments for the underperforming service (particularly if the end user customer has not submitted a complaint to the access seeker).

“In these circumstances, NBN Co would not be in a position to address the issue, and the access seeker’s incentives to do so would be significantly diminished.”

NBN Co also claims tier downgrade options could be abused.

The company has long touted these options as a feature of its construct, whereby RSPs could buy a 25Mbps service but shape it to a lower speed offering.

There has been little incentive to do this in practice, because there is no real economic benefit to be gained by housing a slower service within the construct of a theoretically faster (and more expensive) one.

But NBN Co now alleges this construct could be abused by RSPs out hunting for rebates.

“Access seekers could also be incentivised to game the service speed assurance rebates by selling a retail service at one speed to the customer, and ordering a higher speed from NBN Co, to extract a rebate even where there is no corresponding access seeker or end user customer loss or disadvantage,” NBN Co said.

“For example, an access seeker could sell a retail service with a peak speed of 50 Mbps, but order an AVC [aggregated virtual circuit] from NBN Co with a PIR [peak information rate] of up to 100 Mbps.

“In these circumstances, under the proposed rebate, if the relevant AVC achieves a PIR of 48 Mbps, the access seeker would receive a rebate, despite neither the access seeker or the relevant end user customer incurring any loss.

“This is a very real risk, because some access seekers already order a higher speed tier than their end user customer has ordered and shape the traffic, to obtain higher CVC [connectivity virtual circuit] inclusions and other benefits.”

But NBN Co could also game rebate structure

Perhaps strangely, NBN Co then goes on to describe how the ACCC’s rebates could encourage NBN Co itself to game the system, in pursuit of higher revenue.

NBN Co uses the example of services that don’t meet minimum peak speeds of 25Mbps and therefore require remediation at some point before mid-2020 in order for the company to meet its statement of expectations.

As it has said a number of times previously, an RSP might sell this customer either a 12/1Mbps service or a 25/5Mbps service.

It might buy a 25/5Mbps service because the line is capable of producing close to that number, and because the customer values that extra speed above 12Mbps.

However, NBN Co argues that if it subject to punitive rebates in this scenario, it will try to foist only a 12/1Mbps service on these customers.

“Under [recently announced discounts], NBN Co will supply the 25/5 Mbps service for $37. However, if the ACCC includes [a specific peak information rate-related] rebate, NBN Co will only receive $17 in revenue for this service ($37 [minus a] $20 rebate),” NBN Co said.

“Accordingly, NBN Co will be strongly financially incentivised to only offer a 12/1 Mbps service for which nbn can earn $22.50 until it is confident it will achieve 25/5 Mbps service performance.

“In this way, the ACCC’s proposed ... rebate removes choice from end user customers and access seekers and creates a perverse incentive for NBN Co to supply a lower grade of service for a higher revenue while it works to remediate any line issues on the FTTN/B/C networks.”

NBN Co remains hopeful that the ACCC will just drop the service standards inquiry and rebate issue entirely, and leave it to “negotiation” between NBN Co and RSPs via the wholesale broadband agreement (WBA4) process.

That would, of course, ignore the very reason the inquiry exists - which is that RSPs saw the previous WBA3 process as excessively lopsided and saddled them with inadequate service standards as well as costs that they could not recoup.

Any hopes of a civil negotiation could also be more difficult given the level of distrust in parts of the industry - and accusing RSPs of wanting to game rebates, rather than cover their costs, is unlikely to mend those relationships or be met with much enthusiasm as that negotiation process continues.