23 August, 2011 Leave a comment
In it, he made numerous claims about future NBN pricing, referring to a discussion paper released by NBN co in July 2011, asking for submissions before it is submitted to the ACCC for approval.
So right off the bat, Turnbull’s implication that anything in this document is actually set in stone, is incorrect. It hasn’t even been submitted to the ACCC yet, let alone approved by them.
Pulling the PR apart, it doesn’t take long for the falsehoods to leap out. The first and second paragraphs are demonstrably false. He says:
“NBN Co is seeking the right to raise prices for most of its services – including broadband plans for business, streaming video, and any consumer plan offering faster downloads than today’s ADSL2 – by up to 5 per cent per annum more than inflation for the next 30 years……If NBN Co’s proposal to the ACCC is accepted, only its basic broadband offer (12 megabits per second downloads and 1 megabit per second uploads) will be subject to strict price caps until the late 2020s.”
The paper actually specifies the following, in relation to NBN’s wholesale pricing:
1. For the first 5 years, there can be no increase in price whatsoever for the AVC* entry speed (currently 12/1Mbps) or the most popular speed (whatever that may be). There can also be no increase in the CVC* component. (See below for an explanation of AVC and CVC)
2. For the next 25 years, the price of the entry speed (currently 12/1), the most popular speed (whatever that may be), and the CVC charge can be increased by no more than half of the CPI increase in any year. Cumulative increases are not permitted. NBN Co can apply to vary the contents of the “Price controlled product basket”, but any change must first be approved by the ACCC. Products outside the “price controlled basket” may be increased at a maximum of CPI+5%, but not if it would lead to the NBN making a profit.
3. The NBN is not permitted to make a profit. It must limit its revenue so that it does no more than break even.
In practise, these rules mean that the cost of the NBN for the vast majority of users is not permitted to increase at all for the first 5 years, and only permitted to increase at half the inflation rate for the following 25 years. This means that in real terms, the monthly price of the NBN service will fall each year by at least 50% of the CPI for the majority of users for at least the next 30 years.
Now let’s look at a few more of Turnbull’s statements:
“Between 1997-98 and 2008-09 inflation-adjusted prices fell 34 per cent for fixed-line telephone services and 49 per cent for mobile services, according to the ACCC.”
This is nothing more than a cherry-picking exercise from ACCC data. While some call charges have fallen, line rental has skyrocketed. Because the vast majority of Australians are required to pay line rental in order to get broadband (whether they want a home phone or not), this means the real cost of broadband has increased as well, not withstanding the increased data allowances and speed improvements that have occurred over time.
In 1998, telephone line rental was $11.65 per month. In 2011 it is $34.00 per month. That is an increase of just under 300% over a period when the average inflation rate was about 3% per annum. This year alone, Telstra increased line rental by 13.3%, thereby increasing the cost of phone and broadband for almost every Australian.
“We know that lack of affordability is a critical contributor to the digital divide. We also know that eliminating competing infrastructure to protect a vastly over-capitalized statutory monopoly, as Labor has with the NBN, creates both the means and the motive for higher prices than a competitive market would deliver.”
“The whole justification given by the Government for building the NBN is to provide most Australians with access to super fast broadband at 100 mbps. And yet it is now quite clear that the consequence of spending over $50 billion will be that speeds comparable to ADSL2 will be available at similar or somewhat higher prices, but that the super fast speeds will only be available at higher and, over time, even higher prices making access to broadband less affordable.”
The NBN has neither the means nor the motive to increase pricing. We have already seen that they are proposing heavy restrictions on themselves for price increases, limiting the most popular products to increases of half the inflation rate, at most. Far from having a motive to further increase them, they will be required to set pricing so low that they do nothing more than break even. Contrast this to the current private sector, which expects to deliver profits of at least 15% on any project, and it’s not hard to see what will result in the lower pricing. Thanks to Telstra we can already see just how bad it would be, with their Brisbane fibre project set to charge prices about double the NBN’s while providing lower speeds. So much for the “lower prices of a competitive market”.
Of course, we know already that the $50 billion figure quoted by Turnbull is creative accounting at its best. However, the claim that the NBN will offer ADSL2-speeds at “similar or somewhat higher prices” is also demonstrably false. Thanks to Exetel’s NBN pricing release last month, we can now see that “ADSL-comperable” NBN speeds (which are actually about 50% higher than the average for ADSL2+) are available for some 30% less per month than current phone/ADSL2+ services. The news is even better if you’re currently a Telstra ADSL2+ customer. In your case, Exetel will give you 5x the speed and 40x the data for the same monthly price.
The NBN’s discussion paper is constantly at pains to point out that their primary goal is to set prices as low as possible in order to achieve the highest possible takeup rate. Far from Malcolm’s claim that they have a motive to increase pricing, the opposite is true. The lower their pricing, the higher the takeup, and the easier it will be for them to achieve their goals.
*AVC and CVC:
The NBN wholesale pricing charged to ISPs is made up of two major components, the AVC and the CVC. Each speed tier has a different AVC cost (eg: $24 for 12Mbps, $34 for 50Mbps). The CVC is a flat rate charged to internet providers based on the total speed they purchase to be shared by all of their customers. NBN Co estimate that the CVC component of their pricing typically accounts for between 1 and 3 dollars of the ISP’s cost to provide you with a service. This CVC component is part of the “price-controlled basket” irrespective of what user speed is chosen.