NBN Co pricing review : delaying tactic or the first admission of its financial dilemma

NBN Co has announced a review of its wholesale pricing. This review will be done in private with no public consultations – just consultations with its RSP customers (ie. Telstra, Optus, TPG Telecom, Vodafone etc).

This review comes after both Telstra and Optus voiced their concerns about NBN Co’s pricing and consultation methods in their feedback to the ACCC’s review of the non-price terms of NBN Co’s Special Access Undertaking.

It also comes after the ACCC chairman, Rod Sims, raised concerns in early April regarding NBN Co’s withdrawal of pricing that allows retails customers to remain at prices broadly in line with the ADSL broadband prices available in pre-NBN days.

Both of these statements have put some pressure on NBN Co and it seems the old pricing review strategy has been dragged out to try and placate the industry, the ACCC and customers. The duration of the review is not clear from NBN Co’s press release but NBN Co has deferred announced changes to its CVC charging that impacts low usage customers until 30 June 2020.

The first impression is that the review will allow NBN Co to buy some time to keep its major customers and the ACCC off its back.

Under this scenario, it is unlikely NBN Co will make substantial changes at this stage. It cannot afford to allow its ARPU to drop if it is to meet its financial objectives. NBN Co still has to raise its ARPU by around 13% to achieve its ARPU goal of $51. Any reduction in prices to allow for cheaper access for users on low speeds and low usage will make this target higher.

This is especially the case given that approximately 1 million households (or 20% of connections) are still using 12Mbps services.

However, another view could be that NBN Co has finally recognised it has an issue in the low speed, low usage market segment with competition from mobile networks and fixed wireless broadband services from Telstra, Optus and Vodafone. Low usage customers are probably better off using these networks than paying the higher charges that NBN Co is trying to squeeze out of the industry to meet its ARPU target.

NBN Co admits as much in its press release when it says that “low-income households, older Australians, renters and single person households generally have a lower incidence of connection to the nbn™ network”.

If NBN Co does not act to pick up these customer segments it may fall short of its other key metric of 73-75% of households connecting to the NBN.

So another take on the pricing review is that NBN Co is looking to find a way to balance the two competing objectives of ARPU and takeup as both are coming under pressure.

The problem for NBN Co is that the customers it is consulting with are predominantly also mobile operators who would be keen to service the low speed, low usage market segment directly with their own wireless networks.

So just maybe this is the first step on a long journey by NBN Co recognising that the NBN business model is fundamentally flawed financially.

This will not be a happy journey for NBN Co Chairman, Ziggy Switkowski, who only late last year told a Senate Estimates hearing that his personal view was that the government would not need to write-down the estimated $51 billion (equity and debt) funding required by NBN Co.