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Communications Minister Mitch Fifield eases NBN charge concerns
Communications Minister Mitch Fifield says the price NBN is charging to deliver data over the national broadband network, which is threatening future profits of telecommunications companies, is not set in stone and will be reduced.
Investors saw the first real impact of the high wholesale access charges on Tuesday after
David Teoh's TPG Telecom warned that its margins will be cut as more users switch to the NBN under the current pricing model.
TPG shares have been savaged since, dropping 24.5 per cent since Tuesday, while shares in Vocus Communications have dropped 10.4 per cent.
Mr Fifield said that "NBN is acutely aware of this issue." The
NBN is under increasing pressure over the charges as telco entrepreneurs warn that the industry may reach a point where some companies may go broke.
"NBN is trialling offering a discount for those RSPs [retail service providers] who purchase greater amounts of network capacity, NBN have indicated there will be further unit price reductions in CVC, so this isn't set in stone. NBN is not going to cut its nose off to spite its face," Senator Fifield said.
"I should also acknowledge that the NBN is only seeking a modest rate of return of 3.5 per cent. NBN prices are subject to the scrutiny of the ACCC [Australian Competition and Consumer Commission] and that the NBN is only entitled to seek to recover its efficient cost."
NBN will begin consultation with industry shortly on a new pricing model, seeking to move from the connectivity virtual circuit pricing model to an RSP-specific discount structure.
Revised pricing on the way
An NBN spokesperson said after talking with industry a revised pricing model would be in place in the second half of this financial year.
In April, NBN implemented a industry-based discount model where the CVC price falls the more bandwidth RSPs allocate to each of their customers.
"The CVC price fell by $1.75 in June this year and we expect it to continue to fall as demand for bandwidth grows – that's the way the model is designed. We continue to review our pricing structure to ensure it supports uptake and usage, and meets our obligation of providing broadband at affordable prices," the NBN spokesperson said.
For a 100 megabit per second connection, RSPs in Australia pay a $38 a month access circuit charge (AVC), a per customer-based charge, and the more controversial CVC charge of $15.75 per megabit per second.
Industry experts have said the high costs under the current pricing model have led to retail services providers, who buy wholesale internet access from NBN and sell it to consumers, shunning promotion of high bandwidth plans because of the costs.
Vocus chief executive
Geoff Horth said the fixed-cost pricing model for the NBN should be looked at.
"It is a industry issue ... we think that in the long-term interests of the country, we need to get to a point where the take-up of services, people are buying more and more of the high speed plans."
A similar model to New Zealand's fibre provider Chorus, which charges a flat fee of $NZ40 per month with no additional usage charge.
"We've got to break this disconnect and get to a point where we're motivated to sell those high-speed plans," Mr Horth said.
Pricing a "tough issue"
According to NBN's annual report, just 14 per cent of fixed-line end users use the 100 megabit per second download/40 megabit per second upload speed tier. Close to half used the 25/5 Mbps tier while 32 per cent used the 12/1 Mbps tier.
Mr Horth, whose company sells broadband in New Zealand, said 70 per cent of users in the country elected a 100 Mbps service.
Telsyte managing director Foad Fadaghi said the CVC pricing issue is a tough issue for NBN.
"On one hand keeping CVC pricing ensures the NBN and its owners [the public] get a good return on the NBN investment, on the other hand it makes it harder for smaller ISPs to compete that haven't got the scale of the larger players, and makes consumers pay higher prices than otherwise," Mr Fadaghi said.
"There is a risk if CVC pricing is lowered it will make it harder for NBN to attract private capital down the track, or even improve services for consumers. It might be a case of short-term pain for longer-term gain."
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