The ACCC chair, Rod Sims, says NBN Co should be prepared to sink the value of the $50bn taxpayer investment in the project if it means customers get better products at prices they can afford.
In a speech Sims will give to the ACCC and Australian Energy Regulator conference in Brisbane on Thursday, he will say that as the NBN nears completion next year the focus should be less on recouping the investment the government has made and more on how best to use the network.
“We must ignore those who worry about the value of assets that are sunk, and focus on how the NBN can best contribute to Australia,” he will say.
Sims told Guardian Australia in an interview before the speech that with the NBN almost completed, the question becomes what is the best use of the NBN for the Australian economy.
“If, when you consider that question, you come to the view you want to price it in a way that is much less than the cost of the build, then fine, it’s a sunk cost, in economic terms. It just doesn’t matter.”
When the NBN first began offering plans, it had a 12Mbps entry point product designed to be in line with ADSL prices today. NBN’s focus in the last year has been on promoting its higher-speed, 50Mbps and 100Mbps plans, resulting in 64% of people on the network on a plan offering more than 50Mbps.
Sims said this meant that a basic product offering had fallen by the wayside, with a focus on getting people to pay more than they do on ADSL today.
“We need to fix that. The way NBN is doing its pricing it has moved away from that,” he said.
“If you [the customer] want more, you pay more. You make the call. Once you have the anchor price there it can provide the framework for the subsequent pricing. But you need that 12/1 anchor.”
He said the ACCC is considering how it can force NBN Co to ensure the most basic NBN plans were still in the market for those who just wanted a basic service.
The warning came as the Telstra CEO, Andy Penn, called for NBN Co to drop its wholesale prices overall, risking a write-down of the value of the network Telstra one day hopes to buy.
Penn said wholesale prices had doubled under the NBN and were set to go even higher.
“The consequence of this is that it is unprofitable for operators like Telstra to resell NBN … A number of operators today are already very publicly considering strategies to compete directly with NBN using 5G,” he told the National Press Club.
NBN’s pricing model has a charge for each premises connected, plus an overall bandwidth charge to provide a certain speed of data in certain parts of the country. The more people trying to access the internet in one area, the more bandwidth the companies have to buy to service that area.
NBN currently sells the charges as bundles to retailers at $45 per month for the 50Mbps package with 2Mbps of bandwidth included, and $65 per month for the 100Mbps package with 2.5Mbps of bandwidth included.
The retailer then needs to buy bandwidth on top of that to keep up with overall user demand on their network.
Telstra has made a submission to NBN Co’s wholesale pricing review arguing that the bandwidth charge should be removed entirely, and the price of the 50Mbps and 100Mbps plans be cut to $35 and $50 per month, respectively.
Penn argued if the pricing model wasn’t changed, and customers left to go to other networks, then it would just put more pressure on pricing.
But Penn insisted he didn’t know whether reducing NBN Co’s wholesale price would lead to a write-down of the value of the network, and leave taxpayers liable for some of the cost of building the NBN.
“If they don’t get the settings right and there is a bias of operators targeting their customers to go to other technologies other than the NBN, that will push up wholesale prices and it will just compound the problem.
“My view is it’s unsustainable.”
This claim has been rejected by the NBN Co CEO, Stephen Rue, who said in a blog post the company was connecting 40,000 homes a week, and over 5.5 million homes are using the NBN today.
He said an analysis of internet prices in Australia compared to other parts of the world showed Australia was the seventh most affordable when adjusted against income per capita.
“The report also found that since 2000, Australia’s cost of living has risen 63%, while telecommunications prices fell 6%” he said.
Rue also pointed out, due to the 2011 agreement made between Telstra and NBN Co for the latter to lease the former’s ducts, exchanges and other existing infrastructure to build the NBN, Telstra is, in part, contributing to the cost of the network, at $2bn this year alone, and $1bn a year from 2021.
Underlining the debate between Telstra and NBN Co is that Telstra is the most likely contender to buy NBN Co when a future government decides to privatise the network.
Telstra set up InfraCo last year as a company with ownership of Telstra’s fixed line network assets. Penn said this company was created, in part, because under the government’s policy framework, NBN cannot be owned by a company that also sells retail services over the network – as Telstra has historically operated. The separate InfraCo could, however, own the network.
“What Telstra is doing is basically putting itself in a position that we have the capacity to be a party to or participate in the future by establishing [InfraCo],” he said.
