Optus calls for wholesale price cap on NBN Co

Telco worried about NBN Co's monopoly, and effects on wholesale pricing

Australian telco Optus has called for a price cap to be placed on the NBN Co's wholesale pricing to retail service providers (RSP) on the National Broadband Network (NBN).

Speaking at a Senate select committee on the NBN, the telco's general manager of Networks, Michael Wagg, said that the NBN Implementation Study's recommendation to increase wholesale pricing to RSPs each year by two or more per cent wasn't realistic in the current telecommunications market.

"Because [NBN Co] is a monopoly network, we would be concerned if this sort of network could continue to increase its wholesale prices without any reflection on the retail market," Wagg said.

In its submission to the Senate select committee, Optus suggested a wholesale pricing cap be put in place to prevent NBN Co from unnecessarily increasing prices for providers, which could push up prices for the end consumer.

"We expect there to be quite vigorous competition over time, and therefore we would expect there to be downward pressure on potentially retail prices either in terms of absolute dollars or the services you get for those dollars," Wagg told the committee.

Optus' warning follows similar criticisms about the implementation study voiced by economic consultant, Dr Henry Ergas, earlier in the day. Ergas said the consultants behind the study, from KPMG and McKinsey & Company, were optimistic in their assumptions about a rate of return, and agreed with Wagg that yearly increases in wholesale pricing were not realistic when compared to current telco practices both locally and internationally.

Optus also suggested that ACCC issue clearer pricing guidelines "up front in terms of what's acceptable and what's unacceptable in wholesale pricing". Under Optus' submission, these guidelines would be implemented in legislation surrounding the governance of NBN Co.

Wagg's concerns about wholesale prices largely revolve around the potential privatisation of NBN Co by year 15 of the proposed network. He said the NBN's ubiquity was quite likely in the future, which would mean RSPs had no say over the prices they were charged for access.

"I think it's entirely reasonable to say that in 30 years time, 75 per cent of consumers or businesses will be taking their services off the national broadband network," he said, adding that copper networks would likely be extinct by that time.

The ACCC’s executive general manager of regulatory affairs division, Mark Pearson, told the Senate committee that the watchdog had no qualms about NBN Co becoming a monopolistic carrier.

“If kept at wholesale-only, it is an improvement on having a vertically integrated provider with those kinds of powers,” he said.

However, Pearson said that the ACCC did have some concerns over the NBN’s potential to influence the market through standardising on certain forms of technology as the basis for the provision of high speed broadband.

“We have no concern on the NBN as monopoly infrastructure, but we wouldn’t like to see a monopoly through technology that locks in 10, 15 years down the track,” he said.

With reporting by Tim Lohman

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Tags optuskpmgNational Broadband Network (NBN)Australian Competition and Consumer Commission (ACCC)McKinsey & CompanyNBN Implementation Study

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