NBN affordability a growing issue

Speakers: 
Mr Rod Sims, Chair
Conference: 
CommsDay Summit
8 April 2019

ACCC Chair Rod Sims delivers an address to the CommsDay Summit in Sydney. Mr Sims discusses how the cost of NBN plans is becoming a growing affordability issue for people on lower incomes, with the plans now more expensive than what most consumers pay for equivalent ADSL plans.

Transcript: 

Check against delivery

Five million homes and businesses are now connected to the NBN. NBN Co reports its missed appointments are down to 5 per cent, but you don’t have to look far to find someone who has had a poor experience getting connected.

One of our staff who lives 7 km from the Sydney CBD recently had three missed appointments in a row before getting connected. The staff member had to be at home on a weekday from 1–5 pm each time and, each time, on the day, no one showed. And there was no message to say no one was going to show.

The staff member, being reasonably informed (perhaps arguably more so than the majority of the thousands of other customers who have had appointments missed), asked the retail service provider (RSP) for compensation but was told there was none available as it was NBN Co who had missed the appointment.

After some insistence, the retail service provider waived the first month’s connection fee to the tune of about $70.

Stories like this are common, and while we understand from NBN Co only 5 per cent of appointments were being missed at the time, our staff member felt statistically blighted to have had three of them.

We have seen many changes and disruptions to the telecommunications industry in recent years, and I suspect there is still much to come. These stories are a reminder that it is not only industry that is being disrupted, but also people’s lives.

This person is now connected, and has less than half the speeds they were promised on a 50 Mbps plan, and much less depending on which room of the house they are in. The retail service provider, and I won’t name names, is looking into it, but the process has been time consuming. The speeds can be as low as 2–3 Mbps. The cable service the person was previously on performed much better by comparison.

That is why we believe the work the ACCC is doing, for example, in its Measuring Broadband Australia program and on its advertising guidance is so important. RSPs are now being up-front with consumers about the busy hour speeds that they can typically deliver on their NBN plans, because of this speed guidance, but also in the knowledge that the Measuring Broadband reports are available to provide an independent view of their overall speeds.

This is a significant turnaround from the situation two years ago.

Consequently, all consumers can now be more confident and informed when choosing their NBN plan, whether they want the fastest NBN speeds available or a more basic service. Our Measuring Broadband Australia program tells us most fixed NBN connections are receiving the speeds they are paying for most of the time. And that’s a big improvement from where we were just a few years ago, and also reflects well on the NBN overall.

So with that rather lengthy introduction, I would like to thank you for the opportunity to speak about the work the ACCC is doing in the communications sector. Today I will cover five topics:

  1. NBN entry-level pricing
  2. NBN pricing and non-discrimination obligations
  3. Wholesale service standards inquiry
  4. Business and enterprise services, including potential concerns about mission creep, and
  5. Spectrum.

1. NBN entry-level pricing

In the past six months, following a fundamental revision by NBN Co to its wholesale pricing, we have seen fewer service providers willing to supply basic speed services over the NBN. Those still offering this service are under very significant margin pressure.

Under the new pricing, the cost of accessing the NBN to supply a 12 megabit service has increased substantially and is now, amazingly, close to the cost to supply a 50 megabit service, with this gap likely to narrow further.

Resellers were the first to exit, but the impact is becoming more evident in the offerings of established national retailers.

To give one example, Optus increased its asking price for new customers acquiring an entry-level NBN plan to $80 per month — a $20 increase. Extraordinarily, this was $10 more expensive per month than its 50 megabit plan.

There are two problems with all this.

There is a fundamental question of fairness here for those on low incomes. Previously, and currently, for around $50 per month a consumer could connect to a competitive ADSL and voice plan with a 100 gigabyte (GB) quota that covered a typical household’s needs, or pay $60 for an unlimited quota plan that would support heavy internet users.

However, it is unlikely that similar plans will be supported on the NBN for much longer. And we are now observing prices of low-speed NBN plans offered to new customers that are at least $10 per month higher than what consumers paid for equivalent plans on the ADSL network.

This brings us to the second problem, which is more fundamental.

NBN pricing overall is no longer being set by reference to the prices that were available on ADSL networks. This was always a key requirement if the NBN was to promote competition and encourage efficient use and investment in broadband markets.

Let’s not forget the very purpose of building the NBN was to make broadband faster, and more accessible and affordable for all.

We were never meant to get to a situation where some consumers, in switching to the NBN, will be left worse off by paying more, or getting less.

We believe NBN Co’s entry-level services should be anchored to existing ADSL pricing. This is only fair to consumers because they have no choice but to move to the NBN as their existing services are being withdrawn.

And equally important, consumers that already want the higher speeds that the NBN makes possible also stand to benefit. This is because the higher asking price for higher speed plans will be much more likely to reflect the additional value those speeds represent to the consumer.

This also provides a discipline on NBN Co to ensure it invests and operates efficiently so its higher speed services can represent additional value to the consumer.

Provided that the ADSL-like pricing remains available, consumers can always vote with their wallets if they consider the higher speed plans too expensive.

This trade-off between price and quality is hardly revolutionary. It is how even the most rudimentary markets work.

Consumers who cannot currently access the speed of their chosen NBN broadband plan are also affected, perhaps more than others. These consumers are in the unfortunate position of being asked to pay for speeds they can’t get, without a viable lower priced service on offer from their service provider, and little assurance that their connection will be fixed any time soon.

This is not an insignificant number of consumers. On our reckoning, around one in eight NBN fixed-line connections do not come close to providing the full speed of the consumer’s plan. This increases to as many as one in four plans supplied over FTTN connections on the 50 megabit speed tier.

This says to me that not only have we lost the anchor but we are quite possibly charting a course that favours meeting NBN Co’s revenue projections, at the expense of the NBN’s potential to benefit the economy, and consumers.

I acknowledge that NBN Co has recently pushed back the removal of its dimension-based CVC discounts for two months until 31 July and this can potentially allow NBN Co and its RSPs to consider and operationalise any subsequent product or pricing changes.

In this regard, what would help in addressing our concerns would be for NBN Co to revisit its entry-level bundle offer, or introduce a new offer, so that there is healthy competition at the $60 price point for the supply of an unlimited NBN broadband plan with busy hour speeds that compare favourably to what was available on ADSL.

2. NBN pricing and non-discrimination obligations

There is an additional benefit in NBN Co revisiting its approach to pricing in this way.

When NBN Co was created it was, for very sensible reasons, tasked with strict non-discrimination obligations. As a result, NBN Co is required to offer retail service providers the same commercial terms.

One of the noticeable features of NBN Co’s current approach is that it effectively offers two sets of prices, with different cost outcomes depending on which set the RSP can use. It is all quite complex, but in short there is currently a high buy-in to use the wholesale bundle offers, which come with a much more attractive CVC price, across all the NBN broadband speed tiers. As a result RSPs who have a greater share of customers who don’t use much internet, such as older Australians, are going to find it difficult to compete.

Revisiting the bundle offers at the entry level as I have outlined would reduce this buy-in and better allow all RSPs to access more attractive CVC pricing.

3. Wholesale service standards

In my discussion so far on the price-quality trade-off, I have referred to product quality in terms of speeds; both peak speeds and busy hour speeds. However, this is not the only aspect of service quality we are looking at.

We have a current inquiry into wholesale service standards on the NBN. These standards cover matters such as the time taken to connect new customers and fix faults, and keeping scheduled appointments.

If the wholesale standards are high, RSPs can offer strong service commitments to their customers. However, if any of these activities are not up to scratch, RSPs and, more importantly, the consumer will bear the pain. This goes to the story I began with, where the RSP paid the customer $70 effectively because NBN Co didn’t show up three times to connect the service.

The first phase of our inquiry revealed that NBN Co’s service commitments were not adequate. We identified a range of measures that we considered would make an immediate improvement to consumer experiences and proposed some interim regulatory measures while we considered the longer term measures.

We were pleased that NBN Co accepted our concerns. In September 2018, NBN Co offered, and we accepted, an enforceable undertaking in which it agreed to make some immediate improvements to its service level commitments.

The improvements made are intended to increase NBN Co’s incentives to meet its commitments. For example, NBN Co agreed to pay a rebate to RSPs if it misses its service levels for all connections, or fixing all faults. It also has to pay a rebate for missing an appointment.

NBN Co is also providing more information to RSPs and to consumers around its connections. NBN Co will be able to tell customers when and where fixed wireless cells are congested.

This is not the end of our inquiry. We are now looking to the longer term service standards to ensure good consumer experiences. Where NBN Co’s actions are necessary to support an RSP to deliver a service to its customers, we want to make sure it faces the right incentives to meet its obligations.

One aspect we’re looking at is the structure and size of rebates. Rebate payments can be an important incentive on a company to improve its performance. For instance, if the rebate escalates the longer it takes to fix a fault, or a daily rebate payment is incurred, the incentive to fix the problem also increases.

We are also examining whether retail obligations to provide certain consumer safeguards are appropriately supported by wholesale service commitments. These include priority assistance services, the customer service guarantee and the recent safeguards introduced by the ACMA to improve consumer experiences on the NBN.

This inquiry coincided with a major turning point for NBN Co. There are now more NBN services in operation than legacy CAN services. It is more important than ever that NBN Co faces the right incentives to ensure that its wholesale obligations support the delivery of good retail services and experiences.

4. Business and enterprise services: mission creep?

NBN Co has recently sharpened its focus on business services. This is understandable given this is a higher yielding segment, and that all business services that are being served on the Telstra copper access network now face mandatory switchover as the NBN becomes available in their area.

Perhaps more controversially, NBN Co has also released new products and services for enterprise customers. The controversy arises as this market has previously been served by a number of RSPs using their own networks, particularly in business districts.

Naturally this has raised the question as to whether this is a positive step, or represents some mission creep on the part of the government business, since high-speed connectivity was largely available on request to enterprise customers.

In our view: it depends.

If NBN Co can operate within its non-discrimination obligations then perhaps a good case can be made that NBN Co’s entry will bolster competition, as more service providers can enter downstream enterprise markets on a national basis.

Telstra has dominated the lucrative enterprise and government market as large corporates and government agencies tend to acquire services on a ‘whole of business’ basis, and historically only Telstra had ubiquitous infrastructure to meet this need.

As large corporate customers typically require supply to multiple premises an entire corporate account may be lost, even where only one such location is inaccessible. In this regard, the supply of wholesale enterprise services by NBN Co has the potential to promote competition by lowering barriers to entry for smaller service providers and enabling them to serve areas where Telstra is the only other infrastructure provider.

On the other hand, if some service providers are treated more favourably than others, there is a more significant risk of simply crowding out other network operators, without much offsetting benefit from more competitive service offerings emerging over the NBN.

I recognise that there are legitimate concerns in the room as to how this will all resolve, in some part fuelled by uncertainty and lack of transparency as to whether better commercial terms have been offered in bilateral negotiations as NBN Co has established a presence in the market.

We understand the importance of adherence to the statutory non-discrimination obligations by next generation network operators (including NBN Co), and are looking closely into this to ensure compliance.

5. Spectrum

I will conclude with a few observations about the importance of spectrum for competition in new and emerging mobile networks.

I have previously outlined the ACCC’s strongly held views that competition considerations be given weight in the management and allocation of spectrum. This is fundamentally important.

We know that spectrum is a scarce but essential resource for operators. The amount of spectrum held by an operator is a key factor that will determine the price, quality and coverage of its services. As such, it is a critical driver of competition in downstream markets. Without sufficient spectrum across the relevant frequency bands, a network operator will be restricted in its ability to compete against other operators.

While it is tempting to use price as a means to ration scarce spectrum in a contested market, to do so can easily lead to anti-competitive outcomes. This would be detrimental to the markets and detrimental to consumers.

Instead, decisions about the management and allocation of spectrum need to explicitly weigh up the impact those decisions will have on competition. This may mean that allocation limits are set by taking into account all spectrum holdings of an operator, not just holdings in the relevant band. Or it may mean reconsidering the allocation framework and design of auctions. We know that getting new spectrum supplies to market can be a long and complex process.

Where there are other opportunities to increase the supply of spectrum, such as reallocating spectrum when licences expire, they must also be considered in the context of promoting competition. That is, the presumption must be that they will be made available to the market, rather than having licences simply rolled over which locks in current market structures.

We have true 5G on the horizon. The current 5G is enhanced mobile broadband, which is all well and good but not transformative.

Now, I have said this before and I will say it again: we are close to a future where wireless telecommunications is no longer a wholesale input for industries but the indispensable 'technological backbone' for many industries. It must be supplied at a competitive price.

My simple point is that this indispensable input needs to be supplied in a competitive market; one where operators have not been locked out due to lack of spectrum. It would be a poor outcome for competition and consumers if true transformative 5G is simply sold to the highest bidder and so available only through a limited number of networks.

We must all understand that in bidding for spectrum, companies will have as much incentive to buy spectrum to keep it from their competitors as they do to use it. It is completely naïve not to realise this. Our spectrum management and allocation framework must reflect this basic commercial issue.

Conclusion

Once again, thank you for the opportunity to speak with you here tonight. 2019 will be a fascinating year, and there is much to be done. The ACCC will continue our efforts to make markets work, especially in the communications sector.

Thank you.

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