Pricing not to blame for low take-up of high speeds, NBN CEO says

End users on the NBN are ‘gravitating to speeds that meet their needs,’ Bill Morrow said today

End users on the National Broadband Network are “gravitating to speeds that meet their needs” — and in most cases that is 25 megabits per second, according to NBN’s CEO, Bill Morrow

Morrow’s comments were made today at an event staged in Melbourne by the American Chamber of Commerce in Australia.

NBN’s most recent set of financial results revealed that as of 31 March, 25/5Mbps connections accounted for 52 per cent of all active fixed line services. The second most popular choice was the entry-level 12/1Mbps speed tier at 29 per cent, followed by the fastest 100/40Mbps tier (14 per cent), 50/20Mbps (4 per cent), and 25/10Mbps (1 per cent).

On the fixed wireless front, 78 per cent of households with active NBN services had opted for 25/5Mbps connections. Seventeen per cent had 12/1Mbps connections and 5 per cent had the highest wireless speed tier of 50/20Mbps.

Eighty-three per cent of all NBN-activated homes have opted for 25Mbps or less, Morrow said in remarks prepared for the AmCham event.

Morrow denied that NBN’s wholesale pricing scheme is to blame for the low uptake of higher speeds on the network.

In addition to a per-user access charge, NBN levies a monthly charge on retail service providers (RSPs) based on the amount of capacity they commission to serve end users. In the past, telcos have criticised NBN’s ‘Connectivity Virtual Circuit’ (CVC), arguing that it squeezes margins and can lead to under-provisioning and consequently poor end user speeds.

NBN has rolled out a CVC discount scheme to offer some relief for RSPs.

Morrow said that it wasn’t “price premiums to imposed by NBN” holding back take-up of high-speed plans. “Those higher speeds are only slightly more at $8 per month over the billing period, which is around $2 per week.”

“Nor is it to do with tech, as demonstrated by our fibre to the home customers who have access to the highest tiers but are doing the same thing,” he added. “Seventy-nine per cent of them have opted for the lower speeds.”

Morrow said in his speech that “very few” Australians currently require gigabit speeds. Although NBN’s fibre to the premises (FTTP) connections currently support gigabit speeds, no RSPs currently offer them.

“The fact is, the very few applications that demand this amount of data simply aren’t at scale yet,” the NBN CEO said, citing the experience of Google Fiber, which rolled out gigabit services in Kansas City.

“Gigabit internet has not led to the bonanza many expected,” Morrow said.

“On top of the lack of applications requiring such speeds, one of the big barriers to gigabit internet in Kansas City is the cost of construction. Google has now placed a hold on their Google Fiber platform to re-assess the economics.”

Earlier this year Singapore-headquartered RSP MyRepublic entered Australia saying that it would attempt to bring gigabit broadband to end users over the network but the RSP has argued that NBN’s pricing scheme is not conducive to high-speed offerings.

The AVC and CVC pricing constructs “would suggest that a retail product based on the NBN 1Gbps speed tier would retail over $300 per month, compared to MyRepublic’s retail pricing of $49.99 (SGD) per month in Singapore and $129.99 (NZD) per month in New Zealand,” MyRepublic argued in March.

Morrow said that “although installing gigabit speeds today for everybody would be a significant investment with a questionable rate of return,” the technologies that NBN is rolling out “each have a very clear upgrade path into the future”.

“Ongoing advancements in technology and content mean that the demand for faster internet will continue to grow in the years to come and our business model allows for this,” the CEO said.

“We are trialling the technologies we will use. And we have a close eye on the market for new entrants and innovations in this space. We’ve built the network so it’s readily scalable.And, as the need grows, we will put those technologies in place.”

Those upgrades will be funded by NBN, not the government, Morrow said.

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