October 6, 2022
NBN Co has come under industry pressure to improve its minimum commitments to service quality and to be more transparent about its network performance. The company also revealed more details about proposed mechanisms to cap price rises in a forthcoming revision of the special access undertaking (SAU). The SAU is the key regulatory document that…

NBN Co has come under industry pressure to improve its minimum commitments to service quality and to be more transparent about its network performance.

The company also revealed more details about proposed mechanisms to cap price rises in a forthcoming revision of the special access undertaking (SAU).

The SAU is the key regulatory document that sets price and non-price terms for the NBN through to 2040, and is currently undergoing a review.

The Australian Competition and Consumer Commission (ACCC) quietly published extensive notes [pdf] of a mid-August meeting between it, NBN Co, government officials and industry, at the end of last week.

The meeting was set up to workshop a refreshed model for the revision of the SAU; NBN Co withdrew the last SAU revision following government feedback.

Government officials said a new SAU would need an emphasis on service quality, not just pricing.

NBN Co intends to fold minimum service standards that are part of its negotiated wholesale broadband agreements (WBA) into the SAU.

It has so far been unclear what this might look like, but the meeting confirmed these would be existing standards in WBA version four, which was released in 2020.

However, service standards in the WBA have long been a contentious issue.

Issues such as the thresholds for declaring a fault – which would require technicians to do a site visit – and the amount of notice given for maintenance works have so far been aired during 2022.

At the ACCC meeting, multiple participants are said to have “queried” the lack of relationship between NBN price rises and baseline service standards. 

Even under a revised SAU, retail prices are expected to keep rising, without any corresponding commitment from NBN Co’s side to better its services.

The meeting notes indicate NBN Co offered only vague assurances in this regard; the wording is the closest the document comes to criticising the company’s position.

“NBN Co advised the forum that it would further consider whether it could lift some of its service levels as part of its pending SAU variation proposal,” the document states.

“NBN Co also noted that work is underway to improve the operational processes that it uses to provide network  outage notifications which could enable stronger performance against this service level. 

“Further NBN Co noted it is working to provide greater clarity over the service performance thresholds that it would use to determine whether it would accept a fault report, as well as the additional measures it will take so that its networks do not become congested. 

“However, the timing of these improvements was unclear.”

Retailers also wanted to see action on service standards as a standalone issue.

Historically, copper-based services have some of the worst performance. 

NBN Co is in the process of overbuilding part of its fibre-to-the-node network with fibre-to-the-premises, and its recent statements have indicated its future is much more tied to full fibre.

However, retailers are worried that improvements to service standards will be left entirely to the overbuild process.

That is, service standards will gradually improve as copper connections are removed from the network, but there won’t be much specific action on standards outside of that.

“Some participants queried whether this [FTTN to FTTP upgrade] program alone would be an adequate response given the potential time involved in progressively delivering the fibre upgrade and then migrating affected services,” the summary states.

Retailers also backed much more public commitment to service standards from NBN Co.

“The forum … discussed whether there should be regular public reporting on service quality and how this should best be established,” the summary states.

“In this regard, there was strong support for public transparency over service quality so improvements on known quality issues could be tracked and emerging issues more quickly identified.

“There was also broad support for public reporting arrangements to be established through a record keeping and reporting rule under Part XIB of the Competition and Consumer Act to complement the operational reporting contained in the SAU.”

Revenue impact

At the meeting, NBN Co showed off some modelling of its intended new price model, which would shift to flat wholesale pricing for 100Mbps and above from July 2023, and take a further three years to do the same for 50Mbps and below.

Using July 2022 actuals – on product mix and network usage – as a baseline, NBN Co said that its proposed changes “would result in a $0.30 cent per month increase in average TC-4 yield”.

TC-4 or Traffic Class 4 covers standard broadband services on the NBN.

The company also offered some specific tier guidance: “rises in the monthly yields of the 12Mbps and 50Mbps speed tiers of $1.60 and $1.80 respectively and a reduction in the 25Mbps speed tier by $2.60.”

“NBN Co claimed that the latter reduction along with that of the ‘voice only’ product would largely offset the yield rises for the 12Mbps and 50Mbps speed tiers,” the summary states.

It’s not clear from the summary what period of time these average revenue per user (ARPU) numbers cover.

As in past discussions, retailers sought a better explanation from NBN Co about the assumptions that underpin its price proposals.

There were also concerns raised that higher tier pricing was being reduced at a greater rate than for lower tiers.

Additionally, participants tried to make sense of a new set of mechanisms that guide the price rises that NBN Co could make every year.

Effectively, these cover price rises “in line with the CPI [consumer price index]” through to 2030-32, and then calculated to a formula of “CPI minus X” beyond that.

Interestingly, the summary shows that NBN Co’s “current thinking is that the X value in the CPI [minus] X constraint could either be negative or positive”.

However, the impact of NBN Co using a negative X value would be offset by some further constraints: whatever the entry-level speed tier is, price rises would be “no greater than CPI”, while “for other products, average prices would be capped at the higher of CPI or five percent.”

NBN Co is expected to formally lodge an SAU revision in October, with a view to an approved version being in place by mid-2023.

The ACCC is limited in how it can respond to a proposal, only being able to accept or reject it outright.

Source