The bundles were introduced by NBN Co last year because of complaints about congestion, and while they cost more, include certain amounts of both access virtual connectivity and the connectivity virtual circuit charge, that ensure faster speeds.

Ivereigh said in a blog post that the problem for the RSPs would come about because most of them were buying bandwidth not directly from NBN Co, but rather from other big telcos like Vocus, Optus, TPG, Telstra and Wideband.

The smaller players give up a slice of their margin to the larger firms, which meant that their earnings would be reduced. Launtel and some others, like Aussie Broadband, buy directly from NBN Co.

"This has resulted in a margin squeeze (long predicted by industry giants such as Simon Hackett of Internode fame) between the higher wholesale prices of the NBN and the resistance by users to pay significantly more for their Internet."

He pointed out that smaller RSPs did not have the scale to connect directly to the NBN and had a limited capacity to cross-subsidise with either business traffic or other products like mobiles.

Said Ivereigh: "These smaller providers know that if they raise their prices they will lose customers. If they are stuck, due to contracts, with buying a certain amount of bandwidth from their upstream wholesalers, then this revenue loss goes straight to the bottom line."

He said there were many RSPs who were offering what he called "completely unsustainable prices" and had to be running at a loss.

"We have seen some RSPs raise prices and/or cut the products they are offering and generally it hasn’t gone well. Speaking personally we have seen the growth in our residential business slow considerably by having to increase our prices," Ivereigh said.

"My concern is that we will see many smaller RSPs go to the wall as the larger players with their significantly greater capital, lower fixed costs and ability to cross subsidise can ride out the storm a little bit longer before they too will have to raise their prices."

He said the one thing he could recommend to smaller players was to look after their customers well.

"...connect with them, tell them what you’re up to, find something other than price that makes you unique. Be open and transparent. Don’t treat your users like cattle to be herded around and discarded when no longer needed," he suggested.

"Resist the urge to compete on price, because someone, somewhere will always find a way to do it cheaper than you. Concentrate on what makes you different from the bigger companies – be nimble, be pro-active, provide awesome service, have a great network."

Ivereigh also had some advice for users. "For consumers I suggest you ask what is important to you about your RSP and the service they provide. Are you sure that it is worth changing provider because they have just announced a price rise or there is another provider out there doing apparently the same service for $5 cheaper a month?" he said.

"Ask your provider about their network, how much bandwidth they are allocating per client (2.5Mbps is great, 1Mbps is too little). Can they increase and reduce their bandwidth as they need to? If you see a cheap price, ask why. If there is no reasonable explanation it is probable that it is unsustainable and they will be getting into financial strife soon."