MyNetFone CEO says NBN prices will rise

NBN prices will increase once companies have to rely on connecting to the NBN via permanent points of interconnect, according to MyNetFone's CEO.

Rene Sugo, CEO of VoIP services company and ISP MyNetFone, believes RSPs will increase their National Broadband Network (NBN) prices once interim points of interconnect (POI) are removed, because current consumer prices are unsustainable.

Sugo told Computerworld Australia that while larger telcos are currently engaging in aggressive NBN pricing, he suspects current pricing models have been based on the use of interim POIs and do not take into account the eventual removal of the interim POIs.

“We don’t feel that these guys have priced a sustainable price for the future once NBN [Co] says you can no longer use the interim points of interconnect and you need to use the proper points of interconnect,” Sugo said.

"...we anticipate that retail prices will increase once the permanent POIs are rolled out ... because at the moment the majority of services are being delivered off interim POIs which have little or no bandwidth costs because these POIs are in capital city areas where the backhaul costs are negligible. The permanent POIs will be spread out geographically around Australia, so in many cases they will have a higher backhaul cost, which would have an impact on the price.

“I think you’ll see the cost to the consumer go up in 12 to 24 months once the full cost of the NBN has come through … once they realise … the cost of actually getting to all these regional sites to interconnect customers."

Sugo said it is still too early to tell how much consumer prices could increase once interim POIs are removed.

There are currently four interim POIs which companies are using to connect users to the NBN. Eventually, these interim POIs will be transitioned to 121 permanent POIs over the next three years.

The transition to permanent POIs could also mean regional Australia misses out, according to Sugo.

“Once the final POIs come into action they will be spread out through regional Australia, which has a much higher cost to build to due to the large distances involved,” he said.

This will result in higher consumer NBN prices, he said. It could also mean some NBN providers choose not to service regional areas at all, Sugo said.

"Some smaller players might opt to only directly service major areas," Sugo said.

Chris Coughlan, consulting director at Telsyte, said while it would be unlikely that NBN prices would increase, RSPs will incur costs to connect their points of presence (POPs) to the POIs.

"To offer a national service the RSP will need to connect to each of these POIs, some will be with be in the cities and others in regional Australia," he said.

The cost to connect the POPs to the POIs will depend on several factors, according to Coughlan. For example, the distance between an RSP's closest POP and the POI; the amount of transmission they need to and from the POI; and the number of transmission providers that service the POI, as this will create the necessary competitive market to enable competitive transmission pricing.

"The cost of this transmission can be significant and RSPs will need some scale, in terms of customers, off a POI to cover the fixed costs of servicing these customers. If they have doubts about their ability to build this scale, they may choose not to service some locations or buy through a wholesale intermediary, such as Telstra or NextGen, until they have the scale to justify going direct," Coughlan said.

"While costs for RSPs will increase as NBN Co moves from their city-based interim POIs to the final POIs, the RSPs would have been aware of this when they did their business case and set their retail prices. I very much doubt they will increase prices when this occurs."

However, Coughlan mirrored Sugo's statements that regional areas might be affected.

"Most RSPs will try and offer a national price and I can't imagine that the larger ones - Telstra, Optus, iiNet and TPG - will differentiate prices in regional areas. A more real possibility is that some RSPs may not provide services in areas that are costly from a backhaul perspective, therefore limiting the choice for consumers in those locations," he said.

"[However], in the longer term, as backhaul is provided to the majority of these 121 POIs from multiple providers, the price will drop and the incremental cost in these areas will slowly diminish."

Paul Budde, telco analyst at BuddeComm, also suggested it was unlikely NBN prices would increase.

“I find [it] very hard to [believe] that retail RSP prices are going up, with now more than 40 RSPs competing in this market ... Competition in this market is ferocious already, why would that change?” he said.

“The high level of retail competition will keep this market in check. The wholesale prices set by NBN Co are under the control of the ACCC and I can’t them see agreeing to any unwarranted price increases.”

Another potential scenario Sugo suggested was larger telcos will need to lower their margins as they make the shift from running services on their own DSLAM infrastructure and the larger profits that brings.

“Larger telcos at the moment are making a lot more money out of DSL because they have DSLAM infrastructure and they get quite a low cost model, whereas when we go to [the] NBN, everyone has the same cost model because NBN [Co] is providing last mile access,” Sugo said.

“They’re now going to be forced to adjust either to lower margins or they’re going to have to put their prices up to maintain that same level of margin.”

While smaller companies have an advantage because they are used to operating on lower margins, Sugo said, the NBN will also potentially be more challenging for smaller companies.

“…[the] NBN’s gone for a large number of points of interconnect, which does make it a bit challenging for the smaller guys to reach full footprint coverage of the NBN,” he said.

“Certainly the capital cities will be reasonably competitive, but the regional sites are more difficult to get to and that’s where some of the smaller guys will suffer in getting access to all the points of interconnect.”

In order to compete with larger companies, Sugo said smaller companies will use the NBN to sell additional applications on top of access to the network. Non-telco companies could also enter the NBN market ‘over the top’, Sugo said.

“At the moment it’s not viable for [companies such as Google and Apple] to resell DSL or VoIP because it’s too complicated [and] it’s too messy ... But if NBN [Co] lives up to the expectation of providing high quality ubiquitous broadband with very smart business-to-business systems, then it would definitely open the door for one of these non-telco [companies] to come in,” Sugo said.

Google has already signalled its intentions to enter the broadband market in the US, last night announcing it has "embarked on a journey" to bring ultra-high speed broadband to Kansas City under Google Fiber, which it states is 100 times faster than America's current average broadband.

"Gigabit speeds will get rid of these pesky, archaic problems and open up new opportunities for the web," the company said in a blog post.

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11 Comments

Abel Adamski

1

Remind me

How come we have 121 POI's when the NBN's goal was I believe a practical 14 ?

Not NBNCo's decision but one foisted on it

MEh

2

Doesn't matter if it was NBNCO's choice, prices still going up. Turnbull has said it, Quigley has admitted it, Simon from Internode said it for years.

Thank god for wireless competition.

Francis Young

3

@MEh, troll away.

The ACCC was lobbied by four large fibre owners to require NBNCo to provision 202 POIs, but it arbitrarily chose to up them from 14 to 121.

NBNCo engineers proposed the technically optimal architecture to be two redundant POIs in each capital city, which as Rene Sugo says cost almost nothing to link to.

This stupid decision costs small providers more, because they must by third-party longhaul to reach regional and outer suburban customers. It entrenches the advantage of four providers. It costs NBNCo more to operate 121 POIs than it would to operate 14.

In short, the ACCC stuffed up, and it is to be hoped that it swallows its pride, admits it got it wrong, and acts FOR Competition and Consumers by allowing the engineers to design the netork, not the lobbyists.

karl_w_w

4

@MEh "prices still going up"
Really? One guy says 'prices might go up' and you immediately conclude that it is going to happen? You must have a time machine!

Or more likely, considering everything else negative that's been said about the NBN has either not come true or simply been a lie, why don't we wait and see on this one hey?

Industry Observer

5

I would tend to agree with Paul Budde, prices are unlikely to rise. It is probably worthwhile to note that Paul is the only independant commentator - every other quoted person has a vested interest

gnome

6

@5 IO, you are quite right about the lack of objectivity, or in some cases blatant political trolling, that seem to go with the territory of negative comments and FUD about NBN.

Paul Budde is completely independent and is recognised around the world for his high standard of communications expertise. I'd rather hear his views than those of some political droid with a small and one-track mind.

karl_w_w

7

@6
To be fair to Rene Sugo, his interest isn't political it's financial.

seven_tech

8

I'd have to agree with Paul Budde on this one.

A similar thing was said about 12 months ago by Internode, about the CVC rebate had already been factored into pricing plans as an assumption before NBNCo officially announced it.

This is repeating old information for, as far as I can see, PR. Rene has had a fair few high profile pieces appear lately- His comments about the Coalition plan not being cheaper after Turnbull's response to Conroy at the Press Club. His company being awarded the VOIP contract with the TAS government. And now this.

In my mind he's simply capitalising on the PR available, being a relatively small ISP, taking what he can get. And in this case, incorrectly by the looks of it. There's nothing to suggest that the increased cost of using the 121 POI's wasn't already factored in. After all, it was the big 4 that negotiated the rise in numbers, so they would've known first what costs they'd be up for with the 121.

There is merit in the idea some RSP's won't offer services to some regional POI's, but this is a known factor. It's one of the reasons many of us who agree with the NBN have been advocating to go back towards the original centralised 14 POI's.

None of this is new information. It's simply regurgitated in a slightly controversial way to generate PR. I just wish Rene would've really thought about it, because by putting out the idea the NBN will get "heaps" more expensive down the track, he's generating mixed signals after being so obviously in favour of the NBN AND criticising the Coalition's "plan", or lack thereof.

stephend

9

Having looked at the current pricing models and the costs from NBNco I can assure you the current Retail Service offerings will increase over time as the realisation of the full 121 POIs and the CVC cost structure starts to come into consideration.

In NBNco own pricing models, they used a 250:1 contention ratio which is by far not sufficent to deliver a quality service. The CVC is one of the most expensive parts of NBNco cost model, and thus a more likely 100:1 contention ratio at 2.5 times the cost will be required.

Currently a 25/5Mbps access service is $27 per month, the CVC (once the rebates are removed) equates to $5 per month on a 100:1 contention ratio. Then there is the NNI @ $1200 per month per 1Gbps, plus the backhaul from the 121 POIs to the ISPs POP.

When you add all this up the REAL cost (once the nbnco marketing rebates are removed) approaches $35 per month for this 25/5Mbps service, leaving some ISPs with at little at $15 margin.

BTW: I dont own an ISP and I dont have a vested interest, I just understand the modelling something which I doubt Paul Budde does.

Stephen

10

Having looked at the current pricing models and the costs from NBNco I can assure you the current Retail Service offerings will increase over time as the realisation of the full 121 POIs and the CVC cost structure starts to come into consideration.

In NBNco own pricing models, they used a 250:1 contention ratio which is by far not sufficent to deliver a quality service. The CVC is one of the most expensive parts of NBNco cost model, and thus a more likely 100:1 contention ratio at 2.5 times the cost will be required.

Currently a 25/5Mbps access service is $27 per month, the CVC (once the rebates are removed) equates to $5 per month on a 100:1 contention ratio. Then there is the NNI @ $1200 per month per 1Gbps, plus the backhaul from the 121 POIs to the ISPs POP.

When you add all this up the REAL cost (once the nbnco marketing rebates are removed) approaches $35 per month for this 25/5Mbps service, leaving some ISPs with at little at $15 margin.

BTW: I dont own an ISP and I dont have a vested interest, I just understand the modelling something which I doubt Paul Budde does.

Abel Adamski

11

Skynet indicated they have been used to about a $7 margin in the past on their sattelite plans, so happy with the same on the NBN.
NBNCo has indicated that as higher plans dominate, prices will fall.
Note Telstra increasing line rental as customers fall off and maintenance rises.
As employment is increasingly casualised and people have to move more often, renters find the cost of Phone line connection for one years service is ridiculous, FTTN and VDSL would find similar issues. However the FTTP with a standard RJ45 connector and minimal fast .connect cost becomes viable

The anti NBN are always assessing in the basis of a single user with a single device. For some that would be so, however most homes would have multiple users. Plus ther are a surprising number who are operating home smalll businesses, some of who'm will grow.

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