Short-term pricing could be key to NBN Co's ROI, ACCC says
- 13 September, 2012 12:42
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.
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