NBN Co hopes new prices will reveal network's power

NBN Co is hoping to demonstrate its network is capable of more than what end users currently see, using new prices to tempt users onto higher-speed services.

The network builder finally provided details of the first proposed internet products under the new construct alongside new information on how a temporary price offer will work.

NBN Co had already leaked a considerable amount of what was to come: a 50Mbps residential product that came bundled with enough bandwidth to be uncongested during peak periods, and some sort of temporary price cut to decongest some existing services.

This meant the main interest in today's pricing announcement was always going to be how much connectivity virtual circuit (CVC) bandwidth the 50Mbps bundle came with, and how much it would cost.

That has now been revealed: the new NBN50 product will come “with 2Mbps of bandwidth included” at a wholesale cost of $45 a month.

There were two surprises: a second bundle, on the 100Mbps wholesale tier, that will come with 2.5Mbps of CVC for $65 a month; and a new low-end plan designed for voice-only services that is speed-limited to 50Kbps and costs $22 wholesale.

While the bundled amount of CVC tops out at 2-2.5Mbps per user, NBN Co is hoping some RSPs will pay for more.

For those that do, there is a special CVC discount.

“Included bandwidth on these new packages is just the minimum, meaning retailers can continue to purchase additional capacity as demand increases for $8 per Mbps per month,” NBN Co said in a statement.

It’s unclear how much retail service providers would price these packages for end users. Comment was being sought from a range of RSPs at the time of publication.

The new products - and the price construct they are based on - still needs to pass a five-week consultation process between NBN Co and RSPs.

For that reason, RSPs appeared cautious to comment.

“Optus is aware NBN Co is still consulting in [its] product development forum on a new pricing model,” a spokesperson said.

“The NBN product development forum is confidential and as such we’re unable to provide comment.

“[However], Optus would support structural changes to pricing that deliver better value and an improvement in experience for customers.”

A Telstra spokesperson said it was "currently reviewing the detail from NBN Co" but that it would "welcome any initiative ... that will help provide a better experience for more Australians."

"While we believe these changes will be a positive step when introduced next year, there are still a number of factors that impact speeds including in home wiring and CVC," the spokesperson said.

Discount

If the price construct passes consultation, new products would be in-market sometime in the second quarter of next year.

While that happens, NBN Co is hoping to get users onto a less-congested 50Mbps service.

It will do so through a temporary discount that is applied in two parts.

Firstly, NBN Co will sell its 50Mbps tier wholesale service “for the same access price as the 25Mbps service”. That means the 50Mbps product goes down from $34 to $27 wholesale a month.

Secondly, users of this discounted 50Mbps plan will get extra CVC bandwidth to play with.

NBN Co officially calls this “a boost of 50 percent additional bandwidth”. In practice, it’s 50 percent extra CVC for free, based on the amount of bandwidth per user that the RSP actually pays to provision.

So if they provisioned the network-wide average of 1.1Mbps per end user per month, they’d wind up with 1.65Mbps per 50Mbps promo user.

The promo 50Mbps service applies to fixed-line users only and is applicable for up to a year. It is intended as a bridge between the current and new pricing constructs.

However, it means anyone hoping for a less congested experience on the NBN will need to move to the 50Mbps tier.

Aiming high

NBN Co CEO Bill Morrow used a new position paper to outline how the temporary discount and new price construct had been created.

Morrow said there was “no silver bullet” to the company’s pricing problems, and that NBN Co had done its best to balance end user affordability, retailer margins, and the customer experience against its own economics.

“The aim is to provide the right incentives for retailers, regardless of size, to offer higher speed and capacity services, and reduce the barriers to entry to some markets,” he said.

The fact the new price construct favours both 50Mbps and 100Mbps services is a clear message that NBN Co is sticking to its current economic model.

NBN Co may never turn a profit, but if it’s to have any chance of doing so it needs more than 16 percent of its residential user base to be on plans greater than 25Mbps.

However, the price construct is a recognition that NBN Co’s strategy to date to get there - simply expecting end users will pay ever-higher amounts for internet services - is failing.

“We need plans that offer higher speeds, [but] we need to reduce retailer fears that higher speeds lead to high and unpredictable usage charges,” Morrow said.

Morrow said he hoped the 50Mbps product would in time become the “new normal” basic NBN service, rather than being a speed tier that almost no RSP currently offers.

“So it is [being] offered at a substantial discount on the current pricing - the equivalent bundle cost is around $62 [per user per month in the current construct],” Morrow said.

What is likely to remain unclear, though, is the impact that the price changes will have on the NBN’s economics.

Given the new 50Mbps bundle is priced below the $52 average revenue per user (ARPU) NBN Co needs by 2022, it must still rely on RSPs buying extra CVC to hit that number.

The company was cagey on spelling out what that might mean for its targets, and it may be mid-2018 - when the next corporate plan is due - before much is known on that front.