The NBN Pricing Debacle

The NBN Pricing Debacle

Data usage grows while broadband subscription slows

Australians love the Internet. According to Prosperity Media, there were over 22 million Internet users in Australia as of January 2021. And although Internet subscriptions have slowed a little bit in recent years, data usage has continued to grow at an extremely fast rate.

According to the Australian Bureau of Statistics, data consumption has outgrown the number of subscribers in Australia.

According to the Australian Bureau of Statistics, data consumption has outgrown the number of subscribers in Australia. Source.

But why has broadband subscription slowed over the years? As of January 2021, Internet penetration was already at 88%, so perhaps there’s simply not much growth left because subscriptions are almost at their peak.

But maybe there’s another explanation – perhaps wired broadband subscriptions are just too overpriced and unreliable when compared to their wireless counterparts. If that’s the case, then part of the blame falls on the National Broadband Network Co (NBN). This isn’t a new concept – many Australians aren’t pleased with their wired Internet services. And when it comes to the NBN, many service providers aren’t pleased with their pricing either.

In this post, we’ll explore how the NBN pricing debacle could affect the future of Internet connectivity in Australia.

How the NBN works

The NBN is the government’s answer to wired broadband. The service is pretty much government run, but subscribers purchase it from the private service provider of their choice. In other words, telcos purchase NBN service wholesale and then resell it to you.

The NBN made a lot of promises regarding high speeds – exactly what was needed to handle Australia’s increasing data demand. But so far, those promises haven’t really been kept.

A quick Google search will turn up bad reviews regarding NBN service, including everything from slow speeds to non existent service. We’ve written about an NBN subscriber who didn’t have any Internet connectivity for 6 weeks after installing NBN, and you’ll find a lot of similar stories out there.

Australian subscribers continue to complain about their NBN service.

To make matters worse, because NBN service is sold to customers by telcos, those telcos tend to get the bulk of the customer complaints. One can imagine how this could cause friction between telcos and the NBN, but it goes even further than customer complaints.

How the NBN pricing scheme has been a pain for telcos

Subscribers aren’t the only ones complaining about the NBN – telcos are too. The reasons are different, however – telcos have a problem with how the NBN pricing scheme is structured because it doesn’t give them enough room to turn significant profits.

The NBN sells to telcos based on both fixed and variable prices:

  • The fixed rate is referred to as Aggregated Virtual Circuit (AVC), where the NBN charges telcos per each subscriber that connects to the network.
  • The variable component of the pricing structure is referred to as Connectivity Virtual Circuit (CVC), where the NBN charges based on bandwidth usage.

The two-part pricing system means that pricing varies based on customer usage – more customers (which is usually a good thing) means more bandwidth, which means more CVC charges. This causes problems for telcos who have to either absolve the price hike based on increased usage, or increase their broadband charges. Both scenarios are unwelcome – the former means the telco will have to run at a loss, and the latter means the telco will lose its competitive edge if they increase prices.

What telcos are suggesting

Telcos want NBN Co to charge a flat rate – per customer only. As we mentioned, the current pricing scheme means telcos have to pay a variable cost based on their customers’ bandwidth usage. This means less profit for telcos, as well as an unpredictable budget.

After years of complaints by telcos, NBN Co is now finally addressing the CVC scheme. They acknowledged, in their recent pricing review consultation paper, that telcos have complained about variable pricing based on bandwidth.

However, NBN Co pointed out that even a flat rate-only pricing scheme would have to take into account the inevitable loss in revenue that would result from scrapping CVC. That is, the flat rate would have to cost more than the current AVC flat rate.

Regardless of what the new AVC flat rate would be, it likely won’t be as bad as the current variable pricing scheme. But as welcome as this may sound to telcos, they can’t rejoice yet – NBN Co doesn’t plan on rolling out any flat rate-only pricing before November 2022.

Final words – How the NBN pricing debacle could change the future of broadband

Telcos are eager for a change in the NBN landscape. They want flat rate pricing, but the NBN will not roll out any such scheme until late next year. However, telcos believe that if any such flat rate scheme is on the table and being considered, then the NBN should unveil it during the current pricing review to allow telcos have a say in the matter. The NBN hasn’t committed to allowing any such participation from telcos, which isn’t such a great move for gaining their confidence.

So what could come of this? Well, perhaps the NBN could give telcos what they want, or perhaps they won’t. In the case of the former, customers could see wired broadband become a viable option for improved Internet connectivity at lower costs. In the case of the latter, however, telcos may decide to press full on with 5G as a direct competitor to NBN service (even while selling NBN service as well).

The 5G rollout is fully underway. Telstra 5G coverage is now 75 percent of the population, and mmWave spectrum was allocated to telcos earlier this year, setting the landscape for even faster 5G connections.

If 5G lives up to the hype, then who would need wired Internet service? Optus is already marketing their 5G fixed home broadband as a primary option for customers, and they have even started wholesaling that network to MVNOs. That service offers unlimited data without caps for $70 per month, and a minimum guaranteed speed of 50Mbps – both great features when compared to NBN services at a similar price point.

Using Optus as an example, 5G home broadband could certainly become the better option for Australians looking for broadband service in the future. We will have to wait and see how NBN Co responds to the current revolt by both retailers and subscribers.

Neil Aitken

Having worked in 3 countries for 4 telcos on both voice and data products, Neil is in a position to give you the inside track. Get beyond the marketing messages to the best plan for you.