Optus predicts NBN Co’s drive to 100Mbps will backfire
NBN Co’s plan to “coerce” users of its most popular 50Mbps tier onto 100Mbps services could backfire and lead to a mass downgrade to 25Mbps instead, Optus has said.
In a critique published on Friday [pdf], Optus said a planned price hike on the 50Mbps tier would “bifurcate” the NBN market – “into entry level 25Mbps services and higher-priced 100Mbps services.”
NBN Co is proposing to price 50Mbps and 100Mbps services roughly the same to encourage a mass migration of customers up to 100Mbps.
However, unlike the last time it attempted to set a new default tier – where it lowered the price of the 50Mbps tier to encourage upgrades from 12Mbps and 25Mbps – this time NBN Co is raising prices to make the 50Mbps tier look unattractive compared to 100Mbps.
There’s also an extra layer of complexity this time because structurally, the 50Mbps and 100Mbps services would be very different.
The 100Mbps tier would have flat, predictable pricing at a wholesale level, whereas 50Mbps would retain the current fixed and variable cost components; the idea being retail service providers are incentivised to push users up to 100Mbps to make service management easier.
However, retailers do not like the strategy.
“It appears the intent of the proposed pricing is to move the wholesale 50Mbps price towards 100Mbps over time, while maintaining the current price level through the 25Mbps wholesale product,” Optus wrote.
“Optus does not support this trend.
“The combined impact of these movements is to effectively force the majority of the market down to 25Mbps speeds in order to maintain current retail prices; or to force end-users to pay more to move to 100Mbps speeds.”
Optus predicted most of its 50Mbps customer base wouldn’t upgrade.
“Optus expects that the majority of its existing 50Mbps will opt to move down to 25Mbps rather than pay more for 100Mbps – particularly where many households still suffer from underperformance and technical line limitations,” it wrote.
“This is not the outcome we want, nor the outcome NBN Co wants, nor should it be the outcome the ACCC allows.”
Optus withheld the exact number of customers it anticipates will downgrade to 25Mbps, if NBN Co goes ahead with its plan.
The telco said it was supportive of setting 100Mbps as a default tier, but that NBN Co’s approach is wrong.
“There is nothing wrong with trying to move the market to accept 100Mbps as the base product,” Optus wrote.
“This is in fact occurring in most other markets around the world and is a trend that Optus encourages.
“However, unlike in other markets like New Zealand, [NBN Co] continues to attempt to coerce end-users onto 100Mbps rather than encouraging consumers to choose 100Mbps.
“NBN Co should be trying to pull consumers up to 100Mbps by making the product commercially attractive.
“It is not appropriate that a significant price hike is imposed on this customer base without any change to the product offer, including any service level commitments.
“There should be a significant and tangible ‘more for more’ requirement that must be met before such a detrimental price shock can be levied.”
Optus also believes customers that did move up to 100Mbps would face further price increases, an argument also raised by TPG Telecom.
In a separate submission, Telstra criticised NBN Co for trying to force retailers to mass-migrate customers to access simpler wholesale pricing.
Telstra noted that one effect of the move could be that retailers serve their current 50Mbps customer base with 100Mbps services that are shaped to 50Mbps speeds.
This strategy has worked for other retailers, but isn’t one Telstra thinks should be encouraged.
“Telstra is not prepared to migrate customers to 100/20 but shape them to 50/20 just so NBN Co can report higher uptake of 100/20 while customers actually receive 50/20; the cost of Telstra contacting millions of customers to initiate a conversation with them about moving up speed tiers and pay higher retail prices is prohibitive,” it said. [pdf]