Business Analysis

Watchdog rejects NBN Co pricing proposal

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The ACCC has once again rejected NBN Co's proposal for competitive pricing (Image by Dan Jensen)

NBN Co is once again facing an uphill battle as the ACCC has rejected its proposal for pricing over the coming decades, writes Paul Budde.

THE AUSTRALIAN Competition and Consumer Commission (ACCC) has been working with the Government, NBN Co and retail service providers (RSPs) to establish price and service standards that will govern the NBN's operation, known as Special Access Undertaking (SAU).

The current process has been ongoing since early 2021, with the latest draft decision set to reject NBN Co's proposed price and non-price terms for the NBN's operation. However, ever since the NBN has been in operation, there has never been a fully accepted SAU regime. Basically, the industry had muddled on with the regime, without even coming to a fully accepted regulatory regime.

In the meantime, NBN Co has indicated that it will try again in June with a new SAU proposal and also mentioned it keeps committed to key reforms.

The NBN has faced ongoing criticism for its pricing and service standards, with some customers reporting poor speeds and connectivity issues. As we have argued before, we need better prices and services for the NBN Co to stay competitive.

The SAU is the regulatory document that outlines the price and non-price terms that will govern the NBN's operation. The latest proposed SAU was lodged by NBN Co in November 2022 and has been under consideration by the ACCC since then.

The ACCC's draft decision to reject the latest SAU proposal won't come as a surprise to NBN Co, as it has been expecting this outcome since at least March 2023. This is the second time that NBN Co has had to withdraw an SAU proposal in a year, making changes before resubmitting it.

The ACCC can only accept or reject an SAU proposal outright. It can suggest changes, but it cannot make those changes itself. The rejection is due to uncertainty created during the first three years of the agreement and the projected arrangements post-2032.

One of the main issues with the proposed SAU is that it would raise the price of NBN Co's most popular residential product, its 50/20Mbps service, while leaving service standards set at 2020 levels. The ACCC is unhappy about the prospect of no service level improvements before 2026.

It is not immediately clear what recourse the ACCC deems acceptable. It is uncertain whether it wants higher standards embedded in the SAU from day one or whether it wants to see an action plan for higher standards emerge over time. The ACCC has called for a commitment to consult with retailers and consumer advocates over planned service improvements, which would assist NBN Co in resolving issues that drive poor consumer sentiment.

NBN Co is pinning future service standard improvements to having more of its network operating on full fibre, but this upgrade work will take years to complete. The company is concerned that raising standards before that would come at a financial cost it cannot afford. It has previously offered only limited-service improvements in the first three years, although it now says it will publish an “annual service improvement plan” for those three years to provide transparency around initiatives focused on uplifting the RSP or end-user experience commencing or continuing in the next 12 months.

In addition to service standards, the ACCC does not like the prospect of convergence of 50Mbps and 100Mbps pricing, a distinct possibility under the current SAU proposal. The ACCC clarified that it had no issue with NBN Co raising the wholesale price of 50/20Mbps services by $5 a month or with a gradual phase-out of CVC bandwidth charges to mid-2026.

The ACCC wants NBN Co to cap the amount that can be charged for a 50Mbps service. It has asked NBN Co to consider introducing a cap on the combined charge for buying a service under the standard 50Mbps wholesale offer so that a service acquired under this wholesale offer would not cost more than the higher bandwidth 100Mbps wholesale offer. And the potential costs for these services would be limited to a more reasonable range.

Paul Budde is an Independent Australia columnist and managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.

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