NBN Co has recently announced changes to wholesale prices charged to retail service providers (RSPs) from October 2018. These changes mean consumers can expect to pay higher prices to access NBN services.

At the same time consumers can expect to have an improved experience as congestion in the network is addressed through greater dedication of bandwidth per individual customer.

The proposed changes to wholesale pricing will likely result in significant disadvantages for consumers on low incomes. ACCAN has been advocating for more affordable broadband and would like to see low income measures to address fairer NBN pricing.

How does NBN wholesale pricing impact consumers?

In basic terms, the wholesale price sets a price floor or minimum price for NBN retail service providers (RSPs). For retailers, the wholesale price represents the amount NBN Co charges them for providing the underlying NBN service. This cost is passed onto customers by RSP’s in addition to a profit margin, resulting in price hikes.

If RSPs don’t increase prices, the additional cost of NBN services will be borne by the retailer with falling revenue and profitability. As a consequence, retailers have strong incentives to pass on wholesale cost increases to consumers when NBN Co increases wholesale prices.

How are prices changing?

Historically NBN prices were set using two components; the first being a fee for accessing the network and the second a charge for the amount of bandwidth a provider purchased on behalf of consumers. As a result of over-pricing bandwidth and underpricing access, consumers initially experienced poor service quality prior to steps taken by NBN to ensure sufficient bandwidth was provided resulting in improved speeds.

To correct these problems, NBN has developed a new pricing model bundling both access and a minimum level of bandwidth for a uniform fee of $45. Although the new approach is likely to improve the user experience, for many consumers it is likely to be accompanied by significant price increases; particularly for consumers on entry and low-use plans.

Which consumers are going to be affected?

Almost all consumers currently accessing NBN fixed services (Fibre, FTTB, FTTN and HFC) are going to be impacted by the proposed pricing changes, although consumers can expect that these changes will arise when they next renew their contract. For consumers joining the NBN after October these changes will likely be reflected in their new contract for NBN services.

Customers using entry or low-speed services are going to be affected the most by these changes with these consumers currently representing the vast majority of users with 1,103,421 using the 12mbps and 1,306,760 using the 25mpbs service offerings.[1]

What is the impact for consumers on different services?

NBN plan:

Entry-level 12mpbs

• The minimum wholesale cost will increase from $24 to $45 under the new model, noting that under the historic model bandwidth is charged for separately and therefore is not reflected in the $24 minimum wholesale cost.
• If the increase in wholesale charges are fully passed through, consumers will pay an increase in prices of $21 per month or $252 per year.
• If the increase is passed through to the more than a million consumers on the 12mpbs plan the resulting increase in prices would amount to an additional charge of $22.3m per month or $268m per year.*

Low-speed 25mbps

• The minimum wholesale cost will increase from $27 to $45 under the new model, noting that under the historic model bandwidth is charged for separately and therefore is not reflected in the $27 minimum wholesale cost.
• If the increase in wholesale charges is fully passed on, consumers will face an increase in prices of $18 per month or $216 per year.
• If the increase is passed through to the more than a million consumers on the 25mbps plan the resulting increase in prices would amount to an additional charge of $20.4m per month or $245.1m per year.

Moderate-speed 50mbps

• The increase in the minimum wholesale cost for consumers on this service is more modest with prices increasing from $34 to $45 under the new model. It is important to note that bandwidth is charged for separately under the historic model and therefore is not reflected in the $34 minimum wholesale cost.
• For consumers on this speed tier, although the minimum wholesale cost will increase the actual wholesale price faced by consumers may decline or remain the same. This is because under the historical model the lack of included bandwidth meant that retailers had to pay for bandwidth as a separate element and this formed a significant component of the wholesale cost. Accordingly the inclusion of a minimum level of bandwidth in the new model has resulted in a decline in expenditure on this wholesale cost component and may result in reduced overall wholesale costs.

[1]. https://www.accc.gov.au/regulated-infrastructure/communications/national-broadband-network-nbn/nbn-wholesale-market-indicators-report/reports

* ACCAN estimates, based on publicly available data concerning increases in wholesale charges and reported numbers of users accessing speed tiers set out in the NBN’s Wholesale Market Indicators Report (for the quarter ending 31 March 2018).The presentation of these estimates have been revised for clarity, though underlying figures have not changed.