NBN Co may cap excess bandwidth charges paid by internet providers

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NBN Co may cap excess bandwidth charges paid by internet providers

Commits to fast-track long-term pricing discussions via ACCC.

NBN Co is proposing to introduce a conditional ‘soft cap’ on the excess bandwidth charges that internet providers incur as broadband usage increases.

The soft cap idea is contained in a follow-up consultation paper as part of NBN Co’s current pricing inquiry, and is touted as a response to calls from the likes of Aussie Broadband to reinstate a bandwidth bonus that ran through much of 2020.

Reinstating that specific excess fee holiday is “not financially sustainable in the long-term,” NBN Co said today.

In its place, however, the company is proposing to introduce a “soft cap” on excess charges, assuming certain conditions are met.

The main condition is based on a spike in a retail service provider's (RSP's) costs: if costs went up 7 percent or more on either a three-month rolling average or on the January to March 2021 quarter, before any rebates, the 'soft cap' would kick in.

There are some protections on NBN Co's side to that, principally a fair use policy that allows for an up to 30-40 percent increase in connectivity virtual circuit (CVC) - bandwidth - usage.

Sudden spikes above that 40 percent would raise flags that would require further investigation.

RSPs also need to keep their monthly churn "below [their] historical annualised churn rate plus 10 percent”. 

"In terms of the fair use policy we’ve got here, we’ve set a boundary which we think would be within the bounds of what fair use would be, and if you got beyond that point you’d have to question why they were getting up into those levels of usage," NBN Co's executive general manager of commercial Ken Walliss told iTnews.

The fair use limit is designed with RSPs' usage forecasts in mind, according to chief customer officer Brad Whitcomb.

"The reason we put this in place is that one of the things we asked through this consultation was for retailers to share with us their forecasted growth of usage into the future," Whitcomb told iTnews.

"What we got back were some very divergent views. That’s not entirely unexpected given they have very different customer bases, they’re coming from different starting points and maybe have different views around future Codec rollout etc.

"Seeing those differing views, [combined with] speculation around a rapidly growing NBN ARPU [average revenue per user], which has been forecasted by some retailers and I think was tied to this belief that there could be a very rapid increase in usage - we wanted to create some certainty for RSPs that do believe there will be this significant growth in the future, that their exposure to that growth from a financial perspective would be capped."

Walliss added: "The 30-40 percent increase we’ve mentioned there is something that even with the significant range of usage forecasts, it would cover those scenarios."

"The 30-40 percent is meant to be the anchor point for that so-called fair use," Whitcomb said.

"If it grew all the way up to 40 percent, it’s hard to imagine how that could happen in the timeframe we’re talking about, with some completely different phenomena happening, and then we’d have to revisit what we’re doing in that circumstance and what’s driving that.

"That’s why we’ve said 30-40 percent. It’s a number that’s meant to be something that you couldn’t hit under normal circumstances."

NBN Co is proposing to run the soft cap offer from December 2021 to December 2022.

“Based on the usage growth estimates provided by RSPs, this threshold is estimated to provide significant cost savings in these scenarios,” NBN Co added in its consultation paper.

Long-term change discussion brought forward

Another major shift by NBN Co is to bring forward discussions on future pricing constructs by initiating a special access undertaking (SAU) variation process with the Australian Competition and Consumer Commission (ACCC).

NBN Co said in its first pricing review paper that it hoped not to have these discussions until at least FY23. 

That was met with scorn from across the industry, which went into the consultation having already laid out what it wanted: a single flat-rate charge for NBN services, instead of a charge made up of fixed and variable components.

NBN Co’s position became untenable last month once it revealed it had modelled a flat-rate charge but not shared it with anyone.

“In light of Industry’s request to implement future changes to its pricing construct as soon as possible and the ACCC’s preference to engage directly with retailers and other stakeholders on a sustainable, long-term pricing framework, NBN Co intends to initiate an SAU variation process that will also serve as the vehicle for further consultation on long-term pricing reform,” the company said.

“NBN Co intends to provide a discussion paper to industry outlining the key elements of our proposed approach to the SAU variation in May 2021.  

“We understand that the ACCC may also seek industry views on our proposed approach prior to any lodgement of the variation.”

The SAU process will also address some long-delayed administrative changes to the SAU, and revive talk of a “targeted, long-term, low-income offer”, which has been on the roadmap for some time.

Sticks with current price model

The main chunk of the first consultation paper put two options in front of RSPs for how pricing would evolve in the short-term.

Neither option was particularly palatable, and both pointed to price increases that would likely need to be passed through to users sometime this year.

NBN Co said that “industry feedback did not provide a clear preference between the two options proposed” - polite phraseology for the indifference expressed by most providers.

Still, NBN Co has decided to go with ‘option one’, which largely keeps things as-is and provides for some small increases to the bandwidth that comes bundled with services.

It will stick to existing increases in 2021, and proposes to add “between 0.1Mbps to 0.75Mbps of additional connectivity virtual circuit [CVC, bandwidth] inclusions to the 25/5Mbps and higher speed tiers” in May 2022.

Slightly larger increases are on the cards at the top end of the range for the same timeframe.

“Bandwidth [CVC] inclusions for the Home Ultrafast [gigabit] speed tier will increase from 6.25Mbps to 7Mbps from May 2022 and capacity for the Home Superfast [250Mbps] will rise from 5.25Mbps to 5.75Mbps, with any unused CVC able to be shared across other speed tiers,” NBN Co said.

More to come

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