Short-term pricing could be key to NBN Co's ROI, ACCC says

The authority's chairman has suggested long-term pricing could be detrimental to NBN Co's financial return.

Rod Sims, chairman at the Australian Competition and Consumer Commission (ACCC), has said the right regulatory environment is key to prevent high prices and poor service quality on monopoly-run infrastructure such as the National Broadband Network (NBN).

Sims told a John Curtin Institute of Public Policy conference in Perth today that monopolies are typically regulated to set prices to achieve a set rate of return on assets.

“A key difference between the NBN and other established monopolies regulated by the ACCC is that NBN Co will incur significant costs up-front to build the network and customers are only progressively acquired as the rollout is undertaken,” he said.

“It follows that, in the early days of the NBN, applying a rate of return on capital would lead to excessive prices.”

NBN Co is proposing to set prices at levels similar to what consumers are already paying for broadband services.

However, Sims said fixing prices for the long-term could mean NBN Co will only be able to cover the cost of building the network and not generate a return on investment. Sims said it might become possible that the only way NBN Co could receive its regulated rate of return would be to build a network which is capable of providing higher speeds and if consumers continue to demand more data.

The role as regulator would mean the ACCC needs to consider what prices need to be fixed and for how long, Sims said.

“It will be interesting to see how this plays out. What is clear, however, is that discussion of the regulatory arrangements for the NBN are likely to focus heavily upon the incentives they create for NBN Co to behave in ways which lead to positive outcomes for consumers,” Sims said.

NBN Co is due to release a revised special access undertaking (SAU) in the coming weeks, with the ACCC suspending its assessment of the SAU in June this year in anticipation of receiving a revised document.

The document is designed to guarantee fixed wholesale prices over the next five years to service providers and provide a regulatory framework for NBN wholesale services over 30 years. It has also been created to work in conjunction with the wholesale broadband agreement (WBA), which defines commercial arrangements between NBN Co and ISPs over shorter time spans.

NBN Co originally submitted the SAU in December last year, with the document being widely criticised by the industry and ISPs.

Malcolm Turnbull also attacked NBN Co CEO Mike Quigley over the SAU, stating NBN Co’s back-down with its revised SAU means the CEO can no longer claim that a government-run “communications monopoly” will be friendlier than a private sector option.

Follow Stephanie McDonald on Twitter: @stephmcdonald0

Follow Computerworld Australia on Twitter: @ComputerworldAU

4 Comments

Abel Adamski

1

Malcolm

Really.
Reality and History would disagree.
Not only with Telstra but also Worldwide

Mathew

2

Good to see that the ACCC acknowledge that NBNCo will have all the same bad monopolist problems of high prices and poor service that Telstra had (even prior to prioritisation). Value in broadband market only improved when Telstra's competitors were able to install DSLAMs in local exchanges by passing Telstra. The option to bypass NBNCo won't exist.

ACCC are also acknowledging that ARPU needs to rise for NBNCo to make a return on investment. Retail 1Gbps prices are going to come as a shock to people when the service is released to the public.

Francis Young

3

"Sims said it might become possible that the only way NBN Co could receive its regulated rate of return would be to build a network which is capable of providing higher speeds and if consumers continue to demand more data."

This is excellent news, because the network which NBNCo is building can certainly deliver faster (terabit) speeds and consumers consistently demand more data. It is only Malcolm Turnbull's copper-delivered or wireless-dominated alternatives that cannot.

Implementing the Senate Committee recommendation to retain the NBN in public hands in perpetuity would guarantee that parliamentary oversight of wholesale pricing in this natural monopoly can be set to deliver optimal national and end user outcomes.

As a side issue, ROI to government considered only as direct wholesale revenue profit on a construction project is very narrow. For instance, government coffers also get increased taxation revenue generated by businesses and individuals that have been enabled by everyone - business and customers - having reliable high speed broadband that increases their earnings and/or cuts their expenses.

gnome

4

@2 mathew, not sure what you mean by 'all the same bad monopolist problems of high prices and poor service that Telstra had (even prior to prioritisation).'
Some people might unkindly suggest that Telstra never used much prioritisation about enduser service...

But you really outdo your long history of non sequiturs by declaiming that 1Gbps NBN access will cost more than a standard 12Mbps plan. OMG, who would have thought it?

Comments are now closed

Telstra targeted in class action lawsuit over late fees

READ THIS ARTICLE
DO NOT SHOW THIS BOX AGAIN [ x ]