NBN roundtable returns focus to customer needs – and NBN Co’s costs

Retailers selling NBN services have sought to prioritise customers’ expectations of broadband services in critical discussions that promise to radically shake up the way NBN services are priced.

The retailers, together with other stakeholders, attended a roundtable discussion with Chatham House rules last month convened by the Australian Competition and Consumer Commission (ACCC) and NBN Co.

Both the ACCC and NBN Co released discussion papers before the roundtable, pointing to their present thinking around long-term pricing models.

The model that most retailers are advocating for is a single flat-price wholesale charge, and the removal of variable charges that create problems when trying to set retail prices.

A summary of the roundtable [pdf], released today, still shows a “preference” among “several attendees” for a flat-rate pricing model.

The issue of flat-pricing has so far been dominated by whether it can be achieved in a way that satisfies NBN Co’s economics.

However, attendees of the roundtable sought to refocus the discussion around customers’ needs, while questioning whether NBN Co’s spending – and therefore cost recovery needs – were efficient.

Both of these are important.

On needs and expectations, attendees said “consumers have certain expectations about the NBN in relation to quality of service, price and choice.”

Any changes to NBN Co’s price or non-price terms “should allow these expectations to be reasonably met,” attendees are reported as saying.

One attendee noted that “consumers still expect steady (or even falling) prices for the same (or better) service quality.”

“In particular, consumers remain reluctant to materially increase the proportion of their income that is spent on telecommunications services,” the ACCC summary notes.

“A number of attendees expressed their support for measures that would keep affordable NBN products in the market.”

Concerns were also raised around the extent to which the NBN closed the “digital divide” between cities and the bush.

“Consumers have an expectation that the NBN will narrow the digital divide and so an objective of uniform national pricing should help guide this process,” the ACCC paraphrased one attendee as saying.

On the issue of NBN Co’s costs, and its ability to recover them and make a commercial return, it appears there was considerable debate.

This has some history; Telstra has been angling for a full breakdown of NBN Co’s costs since April last year.

The ACCC has indicated it is also keen to understand NBN Co’s costs, with chair Rod Sims separately saying that NBN Co’s ability to generate financial returns should take a backseat to pricing and usability.

That, together with the roundtable discussion, sets a clear expectation that this regulatory process – to redesign the NBN special access undertaking (SAU) – is likely to be the one that finally digs into NBN Co’s financials.

“Many attendees agreed that there is a need to undertake an assessment of the efficiency of the expenditure incurred by NBN Co during the rollout of the NBN, including NBN Co’s capitalised losses,” the ACCC summary notes. 

“Attendees (retail service providers, in particular) considered that the revised SAU should provide for NBN Co’s costs to be assessed on a forward looking basis (i.e., ahead of incurrence), as should the efficiency of investment plans.”

This led to a conclusion that a “new building block model should be developed.”

A building block model or BBM is used to “estimate prices that reflect efficient costs.” [pdf]

In the past, one was used by the ACCC, for example, when setting regulated prices for wholesale access to Telstra’s fixed-line network.

“Several attendees supported the development of a new BBM,” the ACCC summary states. 

“They agreed with the following observations: the existing model used to assess compliance with the current SAU long term revenue constraint does not provide linkages between the efficient costs of the NBN and the prices charged for NBN services.  

“The ACCC’s development of a new BBM needs to be a transparent process and access seekers should have the opportunity to be involved in its development.

“[And] the BBM should be capable of attributing costs to specific NBN services, such as between mass market services and enterprise services.”

That last point could also flush out the extent to which NBN Co has cross-subsidised its incursion into the competitive enterprise and government market using its residential business, a long-held suspicion in parts of the industry.