In mid-August NBN Co announced changes to wholesale prices charged to retail service providers (RSPs) e.g. Telstra, Optus, and others for fixed wireless services. We’ve taken a close look at what this is likely to mean for consumers, and this is where we’ve landed.

ACCAN has concerns that the proposed changes to pricing for fixed wireless will result in a material disadvantage to those consumers on low incomes that live in regional areas where nbn services are provided by fixed wireless towers. In particular, the movement to uniform prices will result in consumers currently accessing more affordable, albeit slower NBN fixed wireless offerings, being priced out of the market.

These changes follow similar changes in the way that fixed line services have been priced, and bring the wholesale pricing of fixed wireless services and fixed line services into alignment. ACCAN’s concerns regarding the changes to wholesale fixed line services can be seen here.

How does NBN wholesale pricing impact consumers?

In basic terms, the wholesale price sets a 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 rises.

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

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 consequence of high prices for bandwidth and lower prices for access, RSPs did not purchase enough bandwidth from NBN Co. This was one reason why consumers initially experienced poor service quality prior to steps taken by NBN to ensure sufficient bandwidth and improved speeds.

To help address 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 wireless services are going to be impacted by the proposed pricing changes, though consumers can expect these changes will impact them when they renew their contract. For consumers newly joining the NBN fixed wireless network these changes will likely be reflected in their new contract for NBN services.

Customers using entry level or low-speed services are likely to be affected the most by these changes with these consumers currently representing the vast majority of premises connected to the fixed wireless network.

What is the impact for consumers on different services?

Entry Level 12/1mpbs users

There are 40,761 premises connected to the 12/1mpbs service offering as of 30 June 2018; this represents approximately 17% of total users. For consumers on this service offering, the proposed pricing changes are likely to result in significant detriment, as increased minimum wholesale costs push up retail prices for entry level services. Additionally, the increase in minimum wholesale cost may impact on the types of products and offers customers receive from their telco provider.

ACCAN is concerned that consumers on the 12/1mbps service will be disadvantaged as NBN pricing structure limits the potential for retailers to offer services at various levels of quality (in terms of speed or volume of data) that are reflective of consumers’ individual needs. A reduction of service offerings means that consumers will have less opportunity to select services that are appropriate to their needs. As a result, consumers will face increased prices or alternatively need to purchase services that represent less value for money to them than their current service, potentially leading to a reduction of their standard of living.

25/5mpbs users

There are approximately 180,000 premises connected to the 25/5mbps service offering as of the 30 June 2018; this represents approximately three quarters of all consumers on fixed wireless services.

For consumers on the 25/5mbps service the implementation of bundled pricing will ensure a minimum level of bandwidth provision. This will ease congestion during peak periods and improve their experience using the fixed wireless network. However, for price sensitive consumers accessing low cost 25/5mbps offerings, the increase in the minimum wholesale cost may result in them being worse off, as a result of either increased prices or alternatively having to substitute this service for a less suitable service.

In the absence of detailed market data, it is difficult to assess the extent to which specific groups of consumers accessing the 25/5mbps service may be advantaged or disadvantaged by the proposed changes. ACCAN does, however, have concerns that some vulnerable consumers may face detriment as a result of the changes. To this end, ACCAN supports further refinement of the pricing and product offerings currently available on the fixed wireless network to ensure that low income consumers do not suffer unnecessary hardship.

25-50 mbps users

As of the 30 June 2018, there are 23,493 premises connected to the 25-50mbps service offering, representing approximately 9.5% of customers. For these consumers, the revision of pricing appears to be offset by the additional provisioning of bandwidth. Consequently these consumers are likely to benefit from the move to bundle pricing.

What needs to happen?

Low income consumers have little capacity to absorb increases in the price of baseline services, and in many instances may be forced to go without broadband internet as they cannot or will not pay more. Where they do not do so, they face increased financial hardship and deprivation as the increased cost of access to the network reduces their capacity to meet the cost of living.

Given the vulnerability of low income groups to increased prices, and the presence of low income consumers within the fixed wireless network footprint, there is a need to develop product offerings that meet the needs of this user group. ACCAN considers that the potentially significant negative impacts on consumers can be addressed through:

• The creation of a basic voice service offering for consumers on the fixed wireless network
• The creation of a baseline broadband offering for consumers on low incomes in the fixed wireless network footprint

¹ Bandwidth refers to the amount of capacity for data throughput available for a premise at any given point in time. The more dedicated bandwidth that a connection has the more reliable and consistent it is in providing speeds. A common analogy is a highway, with bandwidth representing the number of lanes – although the addition of lanes does not change the maximum speed limit, it can reduce congestion during peak times and increase the average speed attained.