Another war is brewing between NBN Co and Aussie telecommunications companies over the exorbitant wholesale prices charged, which retailers then pass onto customers.
NBN Co released a pricing review paper yesterday whereby it proposed a 10% discount to its extra capacity charge, which is officially known as ‘connectivity virtual circuit’ (CVC).
Telcos have previously compared the CVC to an excess data charge and have called for it to be scrapped. Telstra CEO Andy Penn said last week that it was time for NBN Co to come up with a new pricing structure, however NBN Co claimed in its review paper that any decrease in CVC would result in a corresponding increase in the fixed component of its pricing.
“We want to continue to see increases in customer satisfaction [and] we do have financial commitments as this is a user-pays model, so we need to generate enough revenue to reinvest in the network to provide better service into the future. Outside of that, we are open to alternative models” [NBN Co chief customer officer Brad Whitcomb said]…
These proposed changes to wholesale prices amount to tinkering at the edges and won’t fix the fundamental structural factors behind the exorbitant prices charged to broadband retailers by NBN Co.
NBN’s wholesale prices are high because the former federal Labor Government classified the project as an “investment”. This required NBN Co to deliver a commercial return to the government and meant the NBN needed to cover its costs as well as earn a margin. In turn, NBN Co was forced to charge ISPs high wholesale prices, which they then passed onto Australian consumers.
Ultimately, the solution to the NBN’s pricing issue is for the federal government to write down the project’s value to reflect its true worth.
The Parliamentary Budget Office reported that the “fair value” (or saleable value) of the NBN was just $8.7 billion, which is less than one-third of the government’s equity investment. Therefore, the NBN probably requires a write down of around $20 billion.
Doing so would reduce the required rate of return and enable NBN Co to cut wholesale prices for ISPs and by extension consumers.
A reform of this nature would also require the federal government to treat the NBN like an essential utility service, instead of a commercial project seeking a commercial return.
In short, Australians will continue to be overcharged for broadband unless the federal government writes the NBN’s value down to reflect its actual true value.