The National Broadband Network Company has published an extensive statement explaining its pricing rationale on broadband forum Whirlpool in an apparent attempt to comprehensively respond to continued strident criticism from industry luminaries Simon Hackett and Bevan Slattery about its model.

NBN Co had previously published a statement on the matter on Whirlpool last week on 9 April. However, the post appeared to do more to stimulate debate about its pricing model than quell it — with 28 pages worth of comments — representing hundreds of posts — racking up in a debate about the issue on the thread over the past week.

The debate about NBN Co’s pricing model as a whole was kicked off in late March when Internode managing director Simon Hackett gave a landmark speech describing the model as “insane” for small internet service providers, warning that none will survive their walk through the “valley of death” transition from the current copper network to the fibre future envisioned by the Federal Government.

In the new post, NBN Co spokesperson Scott Rhodie went into a great deal of detail about the mechanics of the company’s pricing model, which includes both a basic per user charge for connecting end user customers to NBN Co’s network (the ‘Access Virtual Circuit’), as well as a charge based on data usage (the ‘Connectivity Virtual Circuit’).

Hackett has argued for the balance between the two ‘$x and $y’ charges to be changed, with the CVC pricing to come down and the AVC pricing to rise.

However, Rhodie argued that NBN Co’s model aimed to be comparable to existing broadband charges so that ISPs could migrate their customers onto the NBN, pointing out that NBN also expected the CVC charge to come down in the longer term as customers used more data over the much higher capacity NBN network.

“We’ve tried to make the balance such that even more end users will come on and purchase higher speeds than we have predicted, which will then enable us to even further lower the usage (and possibly access) charges,” he wrote.

Rhodie also noted that NBN Co’s wholesale pricing model was also used in other markets around the world. “The balance may be different, based on their market dynamics, and how usage is charged may differ in some markets … Australia is at the forefront of how to price superfast wholesale broadband (NB wholesale, not retail), but it is not alone,” he said.

Overall, Rhodie emphasised that NBN Co took consultation with the telecommunications industry very seriously. “… by joining Whirlpool we wanted to open a new avenue for interaction and transparency,” he wrote.

“NBN Co has come up with a wholesale pricing construct that we think best meets the objectives set for us by our shareholder, the Commonwealth Government. What has been published is simply what we regard as the most appropriate way to recover the cost of the network in light of these objectives. Other people will no doubt have a different view, but as [Whirlpool user] Myne noted: “Will there be a consensus on every point? Hell no.”

Most users have overall welcomed NBN Co’s engagement in the forum as a positive sign of the company’s willingness to engage, however Rhodie’s post was met with howls of protest from at least one quarter.

“This is disgraceful,” wrote PIPE Networks founder and NEXTDC chief Bevan Slattery on Whirlpool in response to Rhodie’s post. Slattery has been a long-time critic of the NBN proposal as a whole, and has joined Hackett in recent weeks in criticising the company’s pricing model.

“NBN Co is trying to misrepresent and mislead the public about the true costs to all Australians. The capacity and customers experience this is being built from based upon your own business plan simply is not representative of these examples,” Slattery wrote.

“So instead of giving real world examples to the plans that are 1,000GB per month, NBN Co decides to not respond for a week and fails to reply to some other real world examples. It retorts with fluff from marketing about $x and $y. NBN Co doesn’t appear to have the courage, conviction nor confidence to give all Australian’s a view of what the real cost of its vision is.”

Image credit: Juha Soininen, royalty free

Related posts:

1. NBN Co releases wholesale pricing calculator
2. Conroy has “stuffed up” NBN pricing, says Hackett
3. ‘Insane’ NBN pricing will kill small ISPs: Hackett
4. Internode unveils NBN pricing
5. Internode hints at NBN pricing change

Tweet

1. HC
   Posted 15/04/2011 at 3:21 pm | Permalink | Reply

   Yes yes, we can always look forward to the ever so wise and impartial words of Internet sage Bevan Slattery, why everyone on Cesspool takes what he says seriously anymore is beyond me but the fact that NBNco have a representative posting there now cant be helping their case either so I guess they are even.

   Of course everyone is going to bitch and moan about the NBN it seems to be the Australian way, always talk, never any action or not enough action, threads on Cesspool regarding the NBN highlight that nicely.

2. Schwolop
   Posted 15/04/2011 at 3:37 pm | Permalink | Reply

   Quoting him here seems to have caused a rather strong reaction too…

   http://forums.whirlpool.net.au/forum-replies.cfm?t=1675718&p=29#r577

   • Renai LeMay
     Posted 15/04/2011 at 3:44 pm | Permalink | Reply

     Heh bit of a dummy spit … ;)

   • PointZeroOne
     Posted 15/04/2011 at 4:16 pm | Permalink | Reply

     What does he expect posting on a public forum?

3. Adam
   Posted 15/04/2011 at 4:26 pm | Permalink | Reply

   I think it’s fair enough in some respects.

   When he is posting on WP he is not representing PIPE but having his own opinion. He’s not marked as a representative of the company on the forum, and having his quotes plucked out of that thread and quoted in an article like this in a manner that links him to his employer is a bit rough.

   If he had a PIPE employee tag on the forum I would call fair enough, but assuming to link him to his employer without his approval is a bit rude.

   Shame that this kind of thing chases off participation and frank comment and opinion from people who are quite well informed in the industry. Communities loss. :(

   • Renai LeMay
     Posted 15/04/2011 at 4:33 pm | Permalink | Reply

     Bullshit. He’s the CEO of an ASX-listed company — there is no reason to hold back from reporting on comments he makes on a highly controversial and public Whirlpool thread. He knows this.

     • Jasmcd
       Posted 15/04/2011 at 6:48 pm | Permalink | Reply

       100% Agree. In fact if a Pipe employee stated their support for the NBN on the record and then listed reasons why Slattery was wrong, I would be surprised if they were not fired, or at least heavily reprimanded.

     • RS
       Posted 16/04/2011 at 2:46 pm | Permalink | Reply

       Indeed Renai (RS sucking up for being sinned binned previously…LOL)..

       But seriously…

       Surely Bevan can’t believe that it’s ok for him to blurt out his thoughts, but be immune to any subsequent negative reaction thereof…

       Can he?

       • Renai LeMay
         Posted 17/04/2011 at 11:27 am | Permalink | Reply

         Let’s not knock Bevan too hard … he is aware of the consequences of his actions and is a courageous guy for speaking out when he can — I respect him.

   • PointZeroOne
     Posted 15/04/2011 at 4:35 pm | Permalink | Reply

     If he was just some admin or tech working for Pipe that’d be different

   • Noel Robinson
     Posted 15/04/2011 at 8:47 pm | Permalink | Reply

     Adam,

     I believe Mr Slattery departed Pipe Networks some time ago, following its acquisition by TPG. It would therefore be most inappropriate for Slattery to now claim or imply that he is an employee or spokesman for Pipe Networks.

     For the record I consider Slattery to have done miracles when he was at Pipe Networks, with the construction of competitive international fibre connecting Australia to the world. This act single-handedly broke down the the high cost of overseas data transport and allowed the introduction of the affordable retail 1TB plans that we see today. It also made Pipe Networks a very attractive takeover target, boosting the share price and handsomely rewarding investors in a notoriously risk-prone industry. Slattery made everyone a winner except, perhaps, the oligopoly-priced legacy data transporters.

4. Bevan
   Posted 15/04/2011 at 4:56 pm | Permalink | Reply

   Renai,

   Strange reaction. I know that when I make a comment on WP journos do have the right to report it. I even acknowledged that in my post. I stated that it’s “part of the territory”.

   It is a controverversial matter and you had a right to report on it. I just didn’t think people would.

   Also you are right, that if I make comment then it will regardless reflect back on NEXTDC.

   I am not saying anything to the contrary. I am merely saying it’s just not appropriate for me to comment anymore considering the points raised above.

   • Renai LeMay
     Posted 15/04/2011 at 5:05 pm | Permalink | Reply

     Hmm. I don’t really agree, Bevan, with the idea that your opinion about the NBN damages NEXTDC — I would hope that your customers would judge you on the strength of your datacentre environments rather than what you think about NBN pricing.

     In addition, I would encourage you and others to continue to speak out about NBN pricing — this is an important issue that deserves debate, and you and Simon are two of the most informed people in the industry on these issues courtesy of founding PIPE and Internode. In addition, neither of you have a whole lot to lose by doing so.

     • deteego
       Posted 15/04/2011 at 5:40 pm | Permalink | Reply

       No offense Relai, but I think he would know more then you if the comments he makes will have an effect on NEXTDC. Its not even really a question of customers, but shareholders and potential conflict of interest

       In any case, Bevan is right. NBNCo will not change their mind, the NBN is a purely political exercise, and even as pointed out by Scott Rodie, this is what NBN has to do in order to pay off the massive CAPEX.

       Simon’s suggestions would never happen either, for reasons that Scott Rodie also stated, the extremely light dialup users would end up paying more (although either way, someone will pay more, its just that this demographic is more politically sensitive)

       As they say, be careful what you wish for, the devil is in the details (although on a separate note, the odds of Labor winning the next election is looking slimmer and slimmer)

     • toshP300
       Posted 15/04/2011 at 6:15 pm | Permalink | Reply

       *neither of you have a whole lot to lose by doing so.*

       lol. we’re talking about challenging an emerging giant, government-controlled monopoly which every player in the industry with have to deal with in the future if it gets built.

       actually, i was slightly thrown back (and also inspired) by how frank and honest Bevan’s criticisms and comments on the NBN were in a public forum.

       • Renai LeMay
         Posted 15/04/2011 at 6:48 pm | Permalink | Reply

         Bevan and I are very similar at times, I think … we both talk quite a bit, very loudly in public about controversial issues, and then get a bit annoyed at ourselves afterwards for causing a bit of a ruckus ;)

   • Paul Jones
     Posted 15/04/2011 at 6:19 pm | Permalink | Reply

     Bevan, I’ve always thought your comments on the NBN have been quite strange at times,and bordering on petulant in recent times, but I’m still a shareholder in NXT because I see that’s something you’re quite good at. I also would encourage you to keep commenting about the NBN *where appropriate* but perhaps you might like to take a chill pill to ensure you don’t sacrifice your professionalism while defending ideological values, and give other people the grace to have a different view. Keep up the good work!

5. Zoidster
   Posted 15/04/2011 at 5:16 pm | Permalink | Reply

   So when is Beven going to rollout broadband to help us and the ISP’s then?

   I was pretty sure they could have teamed up, lease some ducts and pits through Telstra, but it’s oh so easy to argue with NBNCo pricing.

   All Talk and No action.

   NBN is big project, far more than what Beven could estimate.

   I’ve been waiting since the prioritization of Telstra, and we are still arguing.

6. Jim
   Posted 15/04/2011 at 5:21 pm | Permalink | Reply

   I use to be a big fan of Bevan until he told us Pipenetwork shareholders it was a great time to sell due to the NBNco anti duplicate network policy. Only to see Bevan start Pipenetworks 2.0 in NextDC and still crying over the same thing.
   He lost my faith and lost my investment.

   • deteego
     Posted 15/04/2011 at 5:49 pm | Permalink | Reply

     Uh, NEXTDC deals with data centers, and not fiber rollouts. NEXTDC ain’t no Pipenetworks 2.0, in fact the only real thing that the companies have in similar is being in the telecommunications industry and having the same CEO

     • Zoidster
       Posted 15/04/2011 at 6:09 pm | Permalink | Reply

       That was Jim’s point.

7. toshP300
   Posted 15/04/2011 at 9:52 pm | Permalink | Reply

   NBN Co spokesman: “If only an access charge is used (i.e. $Y equals 0) it becomes more expensive to connect end users that don’t use the service a great deal (i.e. dial-up equivalent), and as a consequence Access Seekers will have an incentive to only market to “high end users”. It could also effectively make ordinary household users subsidise the generally higher usage of business users.”

   assume that you retain the sliding scale AVC charge which varies according to connection speed and discard the CVC component.

   obviously, the higher speed connections will offer greater value to subscribers and should be priced at the higher end of the AVC scale. conversely, the 12/1 plan will be the cheapest.

   we can draw two conclusions:

   (i) value-added products which necessitate higher speeds and greater data usage will require the higher speed connections. as a result, “access seekers” will earn greater margins from products marketed at “higher end users”. however, there’s no reason why they won’t also market to “lower end users” – higher subscriber volumes in the lower-priced market segments would offset the lower product margins in these segments.

   (ii) given that AVC charges correlate positively with connection speed and “ordinary” household users are non-”power users”, it’s higher-end, “business users” (and other “power users”) who subsidise “ordinary household users”. from the network operator’s perspective, proportionately less revenue is earnt from “ordinary users” (on a per subscriber basis) to cover capital costs.

   on the other hand, if you had a flat AVC charge which does not vary according to connection speed (which is clearly not feasible as everyone would subscribe to the fastest speed), then there’s no cross-subsidisation going on.

   NBN Co spokesman: “If you go fully with usage charging (a.k.a. user pays) then it drives everyone to skimp on their usage, and there is a risk that users will not get the experience the NBN is expected to enable.”

   if you discard the AVC charge (or set it at a nominally low price) and retain the CVC component, the CVC charge will have to be adjusted upwards to make-up for the loss of AVC revenue. so, what you gain by not having to pay the fixed tariff (AVC) is offset by higher payments on the variable tariff (CVC).

   either way, the very existence of a CVC charge creates an artificial scarcity and “drives everyone to skimp on their usage”. hence, to quote, “there’s a risk that users will not get the experience the NBN is expected to enable”. the pricing and incentives mechanism with respect to data usage under an “all-CVC” pricing model is identical to the current proposed pricing model. hence, the undesirable outcomes that NBN Co apparently wishes to avoid are exactly the outcomes of the current proposed pricing model.

   NBN Co spokesman: “The balance that NBN Co has come up with has been to price the access charge such that it is comparable to existing access charges for Access Seekers to migrate their end users to the NBN.”

   NBN Co spokesman: “Note, the CVC (i.e. the usage component) has nothing to do with backhaul. It is simply the one of the most efficient ways of measuring usage.”

   well, there’s no data usage (variable tariff) component in wholesale charges when accessing the copper network – so there’s no valid comparison at all. we’re transitioning to an entirely different access network pricing regime under the NBN.

   more deliberately false and misleading statements from NBN Co’s spin-meisters.

8. mathew
   Posted 15/04/2011 at 10:02 pm | Permalink | Reply

   Simon Hackett makes some very interesting comments in this post about the cost of ports:

   http://forums.whirlpool.net.au/forum-replies.cfm?t=1675718&r=28894808#r28894808
   NBNCo are surely projecting some -average- income-per-port that is based on their weighted projections of sales at each port speed.

   They could charge that average to everyone, and open the ports up to full speed for everyone (this is my personal preference, FWIW).

   This post, talks about underlying costs of the network:
   http://forums.whirlpool.net.au/forum-replies.cfm?t=1675718&r=28897862#r28897862

   Here are two (of several) characteristics of the current NBNCo pricing model (that are copied from the Telstra Wholesale model):

   - It charges more for a higher port speeds ‘just because’ (and where there is no actual operating cost difference in physical network when the port speed is changed), and

   - It charges twice as much for using twice as much capacity in a dark fibre backhaul whose actual operating cost is fixed (i.e. using twice as much capacity costs no more in practice).

9. toshP300
   Posted 15/04/2011 at 11:12 pm | Permalink | Reply

   i think this would have been a more appropriate picture for this article ;)

   http://2.bp.blogspot.com/_g2L5HeFwC_I/R1PYHzpRw8I/AAAAAAAABEs/i5FekqsA5j8/s1600-R/blood19.jpg

   • Renai LeMay
     Posted 15/04/2011 at 11:54 pm | Permalink | Reply

     Heh I just might use that picture next time if it’s Creative Commons; It’s excellent :)

10. CMOTDibbler
    Posted 15/04/2011 at 11:24 pm | Permalink | Reply

    Have an original thought rather than criticise those who have.

    • NightKhaos
      Posted 17/04/2011 at 12:03 am | Permalink | Reply

      On what was this in response too?