iiNet's Malone: Government must subsidise NBN prices - updated

Australian Internet users are so price sensitive, $15 more a month will mean consumers stay on slower speeds or opt out of broadband altogether

In spite of the many potential benefits of the National Broadband Network (NBN), many Australians may simply be unwilling to pay the price required to gain access to super fast broadband, according to iiNet managing director, Michael Malone.

Speaking at a roundtable at the Telecommunications Reform Forum in Sydney, Malone said that the sensitivity of Australian Internet users meant that speed would always play second fiddle to price.

“Pricing really matters in this market,” he said. “I hark back to 2006 when our pricing for off-net customers was changed radically by Telstra’s new management team. We gave customers the choice of having speeds reduced by two thirds or paying $15-20 a month extra for their service. Out of 30,000 customers 96 per cent of customers took the lower speeds.”

Malone said that the clear view was that customers were selecting a price point they could afford to pay for telecommunications. In his estimation, this was about $50.

“If you ramp that pricing up people will opt out for lower speeds or opt out of the market,” he said. “So the government has to come clean on the commercial discussion and say that this thing [the NBN] can’t work on a pure price return on the money invested in it, and say that we want it for good public policy reasons ... and directly subsidise it."

Ian Martin, a telecommunications investment advisor at the Royal Bank of Scotland, said the mammoth cost of the NBN means it is highly unlikely that access pricing will be anywhere under $70 per month.

“I just don’t see how you can spend $20 billion, $30 billion, whatever NBN Co does, and not see access prices go up,” he said. “I don’t know how that’s going to be addressed; no one seems to be focused on where those access prices may go.

“You hear some throw-away lines from the Prime Minister about $40-70 but to get there we have to go from a $15-$17 ULL [unconditioned local loop] price. We saw what happened when it was proposed by the ACCC to put it up to $23.60 over three years; the push back from industry was so strong that I just don’t see how we’re going to get to the sorts of prices that can sustain NBN Co commercially without a massive write-down from the government.”

Updated: NBN's 100 mbps too slow

Commenting further on the NBN, Malone expressed concerns that the NBN's 100mbps speeds may in fact be too slow and that speeds, may be better placed nearer to 1gbps.

“100 megs may be pitifully low for where need to be in five years,” Malone said. “Today, if you were deliver down three, four, five simultaneous HD TV stations – which is what you get now on free to air -- plus 20megs of broadband, that will take you to 100 megs.

“Why are we building a network that isn’t going to be deployed for five years based around an assumption that people will get equivalent speeds to what they get now? This is not 100 megs of broadband – it’s 100 megs of access. I’m worried we’re setting the bar so low."

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Tags Michael Malonenational broadband networkiiNetaccess pricingNBN

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