A Next Generation Wholesaler’s View of the NBN
MNF Group was recently given the honour of having a paper published in the Australian Journal of Telecommunications and the Digital Economy (AJTDE). The paper was written by CEO Rene Sugo and Brand Manager Sarah Branson. It provides a next generation wholesaler’s view of the NBN and shows how retail service providers can succeed in an NBN world.
The NBN was intended to provide a level playing field for telecommunications companies by giving them equal access to the network. What was supposed to reduce Telstra’s monopoly of broadband services, has actually increased their market share from 41% of DSL customers to 48% of NBN customers. The paper looks at the true cost of providing NBN services to end-users, showing how the model is flawed and will affect the quality of service in Australia. There are a few key elements in the NBN’s business structure that make it difficult for smaller telco providers to enter the market.
The NBN’s requirement for an access seeker (Telecommunications Company) to access 121 points of interconnect around Australia, creates a major barrier to market. Accessing these POIs has a significant initial and ongoing connection cost, often too much for even a mid-sized telco provider to front. Because they can’t access the NBN directly, smaller providers have to rely on larger Tier 1 providers for wholesale access. This allows the tier 1 providers to dictate the retail prices of the tier 2 providers and skew the NBN’s ‘fair pricing’ initiative.
Another issue is the amount of connectivity virtual circuit (CVC) bandwidth being purchased by Access Seekers in order to service end-users. The NBN is selling broadband to be purchased in minimum blocks, for service providers to then resell. Taking into account the growing demand for data per household, the amount a provider pays to keep a customer connected is expected to skyrocket – while customers will expect to still be paying similar rates to their former DSL service. This will create a situation where the profit margin on reselling NBN is so low, that providers won’t be breaking even. They’ll have no option but to reduce the bandwidth that can be shared across their customers, creating slow speeds, buffering, and a poor user experience.
With customers given the option of paying premium rates for a decent connection or dealing with slow download speeds, it’s likely they could be driven to alternative broadband technologies. Mobile phone plans for example, are continually offering more data inclusions whilst maintaining current retail price points; this will ultimately make wireless mobile a more affordable household alternative. This kind of competition threatens the NBN’s goal of the 80% market share it needs to pay off its construction. The NBN will then have to raise connection prices further to make up for their losses and potentially drive away more customers.
While the rollout is too far advanced to change the 121 POIs, the paper recommends that the CVC pricing model be altered so it’s more inclusive of industry diversity and more sustainable. For example, if the government were to write-off some of the costs of the network build, the NBN would not have to pay back so much in revenue, and a review of the way NBN services are priced could be undertaken. If no changes are made, there will be strict parameters around the quantitative aspects – like download speeds and price. In this case, the paper recommends that tier 2 providers compete by instead modifying the user experience by offering superior systems that reduce the need for extra staff and other costly overheads.
The AJTDE is a peer reviewed journal offering insights into the telecommunications industry – advancing knowledge, learning and research worldwide.