NBN Co makes "dramatic" cuts to wholesale prices amid industry pressure

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NBN Co makes "dramatic" cuts to wholesale prices amid industry pressure

NBN Co will discount wholesale prices on its two premium internet access plans following months of pressure to revamp its pricing structure.

The plans include a new price for the 'NBN 50' wholesale bundle at $45 per month with 2Mbps bandwidth included – 27 percent discount on the current pricing model.

The new 'NBN 100' wholesale bundle will cost $64 per month with 2.5Mbps capacity, representing a 10 percent price cut.

NBN Co will also discount the price of purchasing additional bandwidth by almost 50 percent from $14 to $8 per 1Mbps.

In additional to the new prices, NBN Co will also offer a new voice-only, low-usage access plan with 50kbps of data, enough to cover basic telephony.

However, usage charges for this entry-level speed tier "will increase significantly, recognising this tier is not suitable for a full high-speed broadband experience", according to NBN Co.

More than 80 percent of NBN end users have purchased speeds of 25Mbps or less, the network builder revealed.

"Due to competitive pressures, most retailers seem reluctant to take the opportunity to differentiate their product and offer a high-speed service with a high-capacity component for a premium price," NBN Co chief executive Bill Morrow said.

"The industry has traditionally gravitated towards ‘unlimited’ data plans around the $60 price point, which typically deliver speeds of up to 12Mbps. This proposition sounds good value and similar to what people have now, so it’s an easy migration pitch.

"However, the problem with unlimited plans at a fixed benchmark price is that retailer profit margins gradually deteriorate as consumers use more data. Meanwhile, the data consumption growth rate has been trending upwards by more than 20 percent each year. So the results are inevitable – retailers are slowly losing profits, and/or ‘choking’ the speeds available at peak times."

NBN Co intends to make the NBN 50 wholesale bundle “the new normal” for retailers to pitch as the NBN’s flagship product.

To help transition to higher speed tiers, NBN will offer the NBN 50 wholesale bundle for the same price as the NBN 25 bundle for the next 12 months.

AVC speed tiers and CVC bandwidths proposed for inclusions in the new NBN bundles (Source: NBN Co)

The new bundles are expected to go live in the second quarter of 2018, while wholesale discounts are available from today.

Morrow said the company had acknowledged that a “one size fits all” mentality to pricing doesn’t work when it comes to pricing and capacity for different sized telcos.

“Fundamentally, where we are heading is to a rebalancing of access and capacity charges with minimum capacity per user to support product differentiation at the retail and wholesale level, with the aim to improve the end user experience,” he said.

He added that the new options should also lower the barrier to entry for telco startups to enter the market.

“We also recognise that we need to do something dramatic, and quickly, to encourage retailers to get end users onto higher-speed plans, as growth during peak hours continues to develop on the network.

In response to pressure to revamp its wholesale pricing structure, Morrow told a senate committee in August that ISPs were to blame for promoting a “land grab” mentality to sign up as many customers as possible without considering customer service, and that ISPs weren’t interested in charging customers more for services, leading them to purchase slower speeds.

The federal opposition took the opportunity to attack the government over what is called a "second-rate NBN" and questioning the Budget impact of the price cuts.

Michelle Rowland, shadow minister for communications, said: “Australians have lost confidence in the NBN and these changes appear to be a modest step towards addressing poor experience during peak hours, which is just one of the many frustrations being experienced by consumers on Malcolm Turnbull’s second-rate NBN.

“These pricing changes suggest NBN Co can no longer maintain its business model, which would be tantamount to declaring a taxpayer write-down on the value of the network."

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