NBN Co faces ACCC challenge to set prices

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NBN Co faces ACCC challenge to set prices

With particular focus on finding affordable options.

NBN Co is facing a formal challenge to its ability to set its own wholesale prices with the Australian Competition and Consumer Commission (ACCC) opening a new inquiry with a particular focus on entry-level pricing.

The move is a fresh blow for NBN Co, which now faces both service standards and pricing regulations.

However, the ACCC’s intervention on entry-level pricing is also two years in the making, the result of a sustained campaign by NBN Co to squeeze customers on its cheapest plans, with disastrous results.

Though NBN Co has largely backed down on the 12Mbps squeeze, the damage has been done with an exodus of users from the tier, as providing services on it became uneconomic for retail service providers.

That became a major policy problem, since the 12Mbps plans are the closest to ADSL replacement services, and with ADSL-equivalent pricing evaporating, NBN Co created its own affordability crisis.

It appears NBN Co’s own pricing inquiry was the last chance it would be given to solve the problem by itself. 

So far, that process has resulted in nothing tangible - only the promise of a future consultation paper. This is despite RSPs and other organisations having proposed affordability responses for some time.

The ACCC even said in April that entry-level NBN prices should be anchored to those of ADSL - to little response.

It appears the ACCC’s patience has finally been worn out.

Entry-Level Broadband (ELB) product targeted

“The ACCC will consider whether Australians are able to access basic broadband plans at fair and affordable prices, as part of an inquiry into NBN wholesale charges launched today,” it said in a statement.

“We have concerns that NBN Co’s wholesale pricing has resulted in unfair outcomes for those consumers who have no need for, or do not want, higher speed plans,” ACCC chair Rod Sims said.

“Most consumers have no choice but to migrate to the NBN if they want to keep their home service active, but are at risk of not being able to obtain a comparable NBN service at a similar price to their ADSL service.”

Sims said the ACCC inquiry would particularly examine NBN Co’s entry-level bundle (ELB), which is the way some RSPs have been forced to deliver 12Mbps services for existing users.

(The other choice is to serve them on a legacy pricing model, but this is also an expensive option).

Optus’ case study on ELB isn’t pretty, with millions of dollars spent each month on “overage” charges, causing it to try and move large numbers of users elsewhere.

The ACCC’s pricing intervention answers calls from industry players.

Vocus CEO Kevin Russell suggested in September that the ACCC had options to intervene on NBN Co’s pricing if nothing was done to make it more affordable.

Russell said the battle to have NBN Co reinstate cheaper plans is “personal for us at Vocus”. He said that low-income users were the “‘forgotten people’ in NBN Co’s product lineup”.

Discount removals targeted

It appears the ACCC has also used other submissions to NBN Co’s pricing inquiry as evidence of the need to intervene.

Both Telstra and Optus called for NBN Co’s price-setting power to be reined in. NBN Co’s ability to set prices and withdraw offers with little consultation had caused both major RSPs grief.

“There are no formal processes or oversight governing the Discounts, Credits and Rebates which means that NBN Co can change these quickly, without consultation, to the detriment of RSPs and ultimately their customers,” Optus said.

The ACCC said today that it is “concerned about NBN Co’s continued use of discounts to adjust access prices.”

“The ACCC is concerned that these arrangements may not be providing enough certainty for RSPs as they develop and promote their retail offers,” it said.

“This lack of certainty creates unnecessary risks that may ultimately be passed on to consumers, who may face higher prices and reduced quality and product offerings as a result.”

WBA4 discussions get interesting

NBN Co CEO Stephen Rue made a last-ditch pitch to RSPs at the CommsDay Congress in Melbourne last week to stick with a commercially-negotiated process.

For NBN Co and RSPs, that has now kicked off in the form of the Wholesale Broadband Agreement number four, or WBA4.

“In our view, the WBA4 can fulfil two main functions – first, it can continue to govern the supply of NBN Co’s products and services to RSPs; and second, it can support a more collaborative partnership with industry to drive co-investment in the performance of the network and deliver a better experience for customers,” Rue said.

“As an industry we should seek commercial arrangements between NBN Co and our retailers with customer experience in mind.”

But there is likely to be lingering distrust of the process. 

NBN Co has spent the past two years fighting allegations that it coerced RSPs into signing up to unfavourable terms in the previous version of the agreement, WBA3.

That led to the creation of the ACCC’s wholesale service standards inquiry, which looks set to result in a final access determination (FAD) which would set new baseline expectations for how NBN Co conducts itself when supplying services.

It now faces a similar FAD mechanism for pricing, which the ACCC also wants in place before WBA4 can take effect.

The timing is critical: a pair of FADs would provide RSPs with an invaluable fallback position in the event that WBA4 negotiations don’t lead anywhere.

“The inquiry will allow the ACCC to make a final access determination (FAD), should one be needed, ahead of the expiry of the current wholesale broadband agreement at the end of November 2020,” the ACCC said.

“Any FAD would provide access seekers with certainty about the terms and conditions of the access to the NBN that would apply should they be unable to reach a new commercial agreement with NBN Co at that time.”

Sims said the ACCC’s pricing inquiry would still take into account NBN Co’s commercial reality. However, it appears the balance could be brought more to consumers than fulfilling NBN Co and the government’s economic goals for the project.

“We are interested in what changes can be made quickly to promote competition and the interests of consumers, while allowing NBN Co the opportunity to grow its revenues, invest in its business and earn an appropriate rate of return,” Sims said.

NBN Co's response

NBN Co said in a statement it "welcomed any additional options the ACCC may identify through its Access Pricing Inquiry to promote competition and the interests of customers, while allowing NBN Co the opportunity to grow its revenues and re-invest in the network."
"NBN Co has been working cooperatively with the ACCC, RSPs and industry groups to ensure our entry level wholesale pricing provides a smooth transition for customers migrating from legacy phone and internet services to the NBN," a spokesperson said.

NBN Co introduced "a modified 12/1 Entry Level Bundle (mELB) discount on 1 October 2019", which, the company said, allows RSPs "to develop affordable 12/1 broadband plans for a similar price to legacy products, with either capped or uncapped data inclusions." 

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