NBN may diminish regional broadband services: Internode

Internode has warned that access to broadband services in regional areas may actually decrease under the National Broadband Network (NBN) due to the costs NBN Co charges retail service providers (RSPs) to supply services.

Speaking at a Joint Committee hearing, general manager regulatory and corporate affairs at Internode, John Lindsay, said regional service providers – particularly those that operated their own networks – were under threat due to the fixed $20 per megabit fee NBN Co charges.

According to Lindsay the issue was that fee was a “fairly arbitrary number” which was not in line with the costs experienced by network operators whereby costs decreased relative to an increasing volume of network traffic.

“Largely our backhaul costs in capitals cities are fixed costs so as our traffic on those networks rises, our costs remain largely static,” he said.

“So, our cost per megabit to use those networks actually falls as the costs remain the same as the traffic rises.

“The challenge for existing regional service providers is that they have all the traditional overheads of connecting to the NBN, all the overheads of running their existing network, and they are already operating on very squeezed margins…

“It means that in the build up to the NBN, those regional service providers face significant increased costs and a dual network operating overhead which is really likely to spell the end of them.”

Lindsay said there was a “huge amount of uncertainty” as to what it would cost the company to supply services in regional areas and the company was yet to decide whether it would supply NBN services to existing regional ADSL subscribers.

Responding to questioning from Senator Nick Xenophon, Lindsay agreed that as a result of NBN Co’s fees, less competition in regional areas may arise.

“It is likely that there will be less competition in regional areas on the basis that the cost of entering or remaining in the market is likely to be significantly higher than it is today,” he said.

Lindsay’s comments follow similar remarks from Internode chief Simon Hackett in July that NBN Co's business model and concentrating virtual circuit (CVC) pricing were financially unviable.

Lindsay also reiterated Internode’s critique of the 121 points of interconnect arguing that the location of these had also been selected arbitrarily by the ACCC which had only taken into regard that there was “the potential for competitive backhaul, rather than the presence of it at the points of interconnect.”

“We think the 121 points decision should be reversed, largely on the basis is that there is actually no competitive provision of backhaul and it imposes significant extra costs on retail service providers,” he said.

Lindsay said that as at mid last week Internode has some 466 active NBN services, of which about half were on the Tasmanian NBN network. The company had added about 80 new NBN services in the past week.

He said the majority of the NBN services – which are offered as free trials -- were connected to 100 megabit plans but the company expected to see most of these revert to either 25 or 12 megabit plans once customers were asked to start paying for the services.

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