NBN Co needs to coax customers onto higher speeds

NBN Co will need to entice more consumers onto plans above 25Mbps if it is to meet its revenue goal of $5 billion a year by 2020.

The network builder’s CEO Bill Morrow today said the “wholesale speed mix in percentage terms” in the first half of fiscal 2017 “has seen growth in the 25Mbps tier and below segment”.

“There are two forces at play here – there is a limited current need for the higher tier products and there is low awareness of their availability,” Morrow said.

The company has recently started a marketing campaign to raise awareness of speed tiers over 25Mbps, Morrow said. NBN Co no longer markets the tiers by speed but as “nbn 25”, “nbn50” and “nbn100”.

Morrow confirmed that NBN Co would need to see a greater percentage of users take up services with higher theoretical speeds in order to meet its 2020 revenue goal.

“As we see users demanding more product and new applications coming online, we see them [becoming] interested in taking up some of the higher speed tiers,” Morrow said.

“Equally as we see them consuming more, that will have the retailers [take] more CVC [backhaul], which will give us an ARPU [average revenue per user] lift.”

Morrow also conceded NBN Co will need to secure part of the business segment in order to increase ARPU to meet its revenue goals. The company is finalising details for its planned entry into the business Ethernet market.

NBN Co’s ARPU has remained relatively stable over a number of reporting periods, coming in at $43 per user per month for H1 2017.

Morrow said he was pleased with the stability given the company’s recent changes to the way it charges for CVC, which saw the price fall from $17.50 per Mbps to $15.75 in June, and to $15.25 in December last year.

“Even though we give a per unit price that is lower for the high usage RSPs, because they’re buying more product from us it enables us to grow our ARPU at the same time,” Morrow said.

“But we give away far more data than what we would have before with the new CVC pricing.”

Further changes to CVC pricing are possible: NBN Co has been consulting on whether to give discounts at an individual company level - currently the CVC cuts are based on aggregated usage across the industry.

However, NBN Co would not be drawn on whether such discounts would go ahead, saying only that consultations were ongoing.

Morrow did, however, point to the prospect of lower prices paid by ISPs for other NBN products.

“We spoke last year of our aim to evolve the model and give retailers greater flexibility, certainty and control of [ISPs] cost base,” he said.

“We continue to have conversations about this proposed next step in our pricing.

“As part of this proposal we would also look to re-baseline the current table of charges downward to reflect the higher usage patterns that we see in the coming years.”

First half numbers

NBN Co today reported revenue of $403 million for the six months to December 31, 2016.

The biggest contributor of revenue was the FTTP footprint, responsible for $173m; the burgeoning FTTN footprint’s revenues were $49 million.

FTTP had over 1.4 million premises ready for service and 969,670 activated as at December 31, compared to over 1.3 million ready for service and 449,258 activated for FTTN.

Revenue from CVC and NNI (network to network interface) came in at $122 million for the half.

The average amount of data downloaded by users per month over the period was 151GB. The median data usage was 67GB per user per month.

“This shows that there are clearly high levels of utility in some segments but the majority of users are actually around the 60-70GB bracket,” Morrow said.