opinion After Telstra revealed plans yesterday to at least double the data quotas on all of its bundled broadband plans, your writer took a bit of time out to compare similar plans with rival telcos to see just how competitive Telstra’s new plans were. And we noticed a funny thing.

Most of Australia’s major fixed-line telcos have standardised their pricing on mid-range bundled broadband, telephone and IPTV plans around the $109 mark.

Firstly, let’s take Telstra. All of Telstra’s new bundled plans offer three main components; a home broadband connection (typically ADSL2+), a traditional PSTN fixed-line telephone line and the company’s stellar T-Box IPTV set-top box, which we consider one of the premier such offerings in Australia.

However, out of the range of plans on offer, the most popular of Telstra’s bundles is likely to be its $109 monthly plan. There are two lower-priced plans, but both are unacceptable, because they feature either a paltry 5GB of downloads or an extremely basic phone plan which doesn’t even include local calls.

There are two higher plans — but at $139 and $159 per month, they’re a step change higher in price, for negligible returns, unless you need 200GB of data each month or make many phone calls to STD lines or mobiles — and the widespread use of mobile phones these days would diminish that factor, we believe.

Then there’s iiNet. The company’s most popular ADSL2+ plan is likely to be the one featuring 100GB of on-peak, and 100GB of off-peak data, for $49.95 per month. Bundle in a home phone for $29.95 a month, and the company’s FetchTV service for another $29.95 a month, and you get $109.85.

It’s a similar story when you look at Internode’s Easy Bundle plan — for $79.90 a month, you get 150GB of quota. If you add in the $29.95 for the company’s own FetchTV IPTV service … yet again, you come up against the $109 figure.

Of course, both iiNet and Internode also offer an internet telephony service, which Telstra does not. But interestingly, these extra services don’t change the price much — if you pick VoIP instead of PSTN from iiNet, you’ll pay only about $10 less, and it’s a similar story with Internode. Both increase the price of your base broadband service to maintain their margins if you choose not to have a PSTN line attached.

We can’t directly compare Optus’ offerings with the rest of the ISPs … as we couldn’t find any IPTV service or even the company’s cable television plans listed on its web site. Things may get a little bit more clear when the company launches its own FetchTV service.

And of course there was one outlier — TPG — which offers a similar voice, telephone and IPTV bundle for the paltry price of $49.95 a month. Of course, this low price — more than half as cheap as the other major ISPs for a similar offering — makes the buyer a great deal suspicious. Has TPG scrimped on customer service or technical stability to get prices this low? What is the quality and range of its IPTV service like compared with those of its rivals? These are questions worth asking.

Now, if the $109 price range for a mainstream bundled triple play service is what Australian ISPs are expecting to charge in the near future, there are some interesting implications for the National Broadband Network.

The NBN Corporate Plan released last year specified that pricing charges for the Access Virtual Circuit component of carrier access to the NBN would be set at $38 a month for a 100Mbps connection (with 40Mbps upstream).

It appears as if the ISPs are not making much overhead on top of whatever they are paying FetchTV to retail their own branded versions of its service. In addition, as Internode chief Simon Hackett has consistently pointed out over the past few months, it appears as if the Connectivity Virtual Circuit component of the NBN pricing, which is priced initially at $20 per Mbps, will also cost ISPs a pretty penny.

In addition, it seems clear that much of the ‘fat’ currently found in Australian broadband pricing is coming about due to the costs of bolt-on line rental. Sure, ISPs like iiNet and Internode do offer VoIP alternatives that can be bundled with naked DSL. However, it is also clear that even these leading ISPs are still attempting to push customers towards the traditional line rental option — presumably because it offers them some extra margin. In an NBN world, however, PSTN plans will cease to exist, and those extra margins will disappear.

When you take all of these factors into account, it seems clear that there won’t be much margin in an NBN world for ISPs who take today’s mid-range triple play price of $109 and apply it to fibre options. Even NBN Co’s lower-speed plans don’t look like mitigating this; they only go as far down as $24 a month for the AVC pricing on a 12Mbps plan.

Of course, there are those; such as your writer, who would indeed be happy to pay quite a bit more than $109 a month for a dedicated fibre connection to their house, plus telephone and entertainment add-ons.

It just remains to be seen if Australia’s ISPs will be able to convince the rest of Australia’s broadband buyers that a higher price will be right. Thoughts?

Image credit: Rafal Moreno, royalty free

Related posts:

1. Will Telstra’s LTE hit price parity with the NBN?
2. BigPond price cuts anger Internode, iiNet
3. Nextgen’s wholesale ‘no magic bullet’, says Hackett
4. Reality check: Internode is not ‘price gouging’
5. Tasmanian NBN pricing so far is horrible

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1. Aryan
   Posted 08/06/2011 at 12:16 pm | Permalink | Reply

   Good analysis. Just one point, I don’t think iiNet and Internode’s margins are much higher when you bundle a PSTN service with their plans, as opposed to going NakedDSL and VoIP. I think they advertise their PSTN budnling mcuh more simply because it is easier to sell. To go NakedDSL, the customer will lose their PSTN number (porting it to VOIP is still a pain) and then has to switch off their PSTN connection, and wait for Telstra to take their sweat time to connect the circuit back. This whole process generally takes at least a month, during which the customer will be left without any Internet connection.

   Basically, the pain (artificially caused by Telstra) of switching over to NakedDSL is what’s stopping these providers from heavily pushing Naked. Unless you are moving house, or going on a one-month trip or something, it is much easier to get these customers to just bundle their current PSTN number, keep their phone number and everything, and swith them over.

   But if someone does take the extra step of going naked, the savings can be tangible.

   • Renai LeMay
     Posted 08/06/2011 at 12:27 pm | Permalink | Reply

     Cheers!

     With respect to your point … if this was the case (re margins), then why do both Internode and iiNet actively raise base broadband prices when customers choose a VoIP line?

     • R
       Posted 08/06/2011 at 6:37 pm | Permalink | Reply

       Because people who bundle their landline as well are less likely to churn away a bundle, so the incentive is to get them all together. Its smart marketing.

   • PointZeroOne
     Posted 08/06/2011 at 2:18 pm | Permalink | Reply

     “This whole process generally takes at least a month, during which the customer will be left without any Internet connection.

     Basically, the pain (artificially caused by Telstra) of switching over to NakedDSL is what’s stopping these providers from heavily pushing Naked.”

     I was without net for about a week when switching over to Naked.

   • Tel
     Posted 09/06/2011 at 9:45 pm | Permalink | Reply

     People generally rethink these things when moving house, at which time their lives are disrupted anyhow, and they just go straight to naked/voip in the new house.

     As for IPTV, hmmm iiNet gives you access to ABC as part of their standard service, and with a cheap PVR and free to air digital TV it doesn’t seem worth paying extra for IPTV, not to me anyhow.

2. alain
   Posted 08/06/2011 at 2:40 pm | Permalink | Reply

   I don’t know why you say you lose your PSTN number, a friend went from Telstra Homeline Budget and Internode BB to iiNet Naked DSL, kept his original PSTN number which was transferred to iiNet VoIP which is part of the Naked DSL package anyway and it all took about a week from the online order day.

   I don’t dispute it can take longer than that, but it also can also be much shorter, the BB was up first followed by the VoIP activation and number transfer 48 hours later.

   Naked DSL is heavily pushed from what I see from the advertising, especially iiNet and TPG, the problem is mainly the reluctance from the bulk of the residences to break those PSTN apron strings from dear old mother Telstra.

   • Randy
     Posted 08/06/2011 at 3:12 pm | Permalink | Reply

     Alain.

     There is a 10-15 day wait to transfer to iiNet naked DSL if you are an existing iiNet ADSL 2 customer. You are without an net connection whilst this happens.

     https://iihelp.iinet.net.au/Naked_DSL_upgrades_and_relocations#toc_0

     • alain
       Posted 08/06/2011 at 3:30 pm | Permalink | Reply

       Yes I know what it says, I was just describing one persons experience, perhaps they were just lucky, the point about the PSTN number transfer remains though.

3. Thrawn
   Posted 08/06/2011 at 4:02 pm | Permalink | Reply

   TPG runs a complex multi-tier product set unlike the other majors. That more closely mirrors their underlying cost-base.

   TPG tiers are basically:

   TPG Off-Net service (equivalent to the Telstra retail product and other vendor’s Off Net product. I think Optus doesn’t do Off-Net product for new customers at all).

   TPG ADSL2 Broadband (LSS + WLR $30′ish). For customers who still wants a Telstra voice service for reliablity reasons, such as myself.

   TPG ADSL2 Homephone (ULL + VoIP in phoneline $20′ish). Cheaper Telstra wholesale cost, resulting in cheaper retail price.

   Large vendors like iiNet, Internode takes a similar approach as well. Then TPG takes it to a further level with cheap unlimited plans available on only specific exchanges where it can get cheap (aka PIPE) backhaul.

   And you really can’t compare Bigpond’s, FetchTV and TPG’s IPTV products.

   T-Box’s IPTV is basically about $10/month only for the hardware. Hardly any real content.
   FecthTV’s $30/month IPTV content is sort of ‘Half Foxtel’ which is valuable and costly to obtain plus hardware.
   TPG’s IPTV $0/month doesn’t really have any content of value (aka, very cheaply obtained) and no hardware. Doesn’t really count as IPTV yet.

   So iiNet, Internode pricing is actually fairly close to TPG where its not backhaul constrained. Telstra pricing is expensive, but not bad if you consider that you’re really paying for rural service capability which nobody else provides cheaply anyway (plus potential HFC option).

4. Brett Haydon
   Posted 08/06/2011 at 5:13 pm | Permalink | Reply

   I expect 25 Mbps and then 12 Mbps will be the aggressive price points for acquiring customers on the NBN.

   iinet have said their margins on adsl 2 naked are higher than non naked, but the economics of the NBN are quite different to adsl so it’s nearly impossible to know how this will play out.

   That said, Telstra velocity is probably the high water mark.

5. Philip
   Posted 09/06/2011 at 3:11 pm | Permalink | Reply

   Looks like European prices are cheaper – In France, Darty is currently bundling 100mB, phone, and HD IPTV for 37.90 euros per month, or around AUD$51.
   The Darty IPTV benefits from including all the “free-to-airs”, including the locals from each region.
   Saw it last month, it works fine.
   Refer – http://www.dartybox.com/presentation/tres_haut_debit_internet_telephonie_television.htm

   So am I missing something ?
   There’s more fibre and more competition in France, but that price is around half that AUD$109.

6. RS
   Posted 09/06/2011 at 6:03 pm | Permalink | Reply

   Maybe because France has 3 x the population and is 1/10th the size of Australia…!

   • Michael Wyres
     Posted 10/06/2011 at 9:30 am | Permalink | Reply

     Heh…my experience of France – (the parents-in-law have a house about an hour north of Toulouse) – is that when it works, their communications are great, but when there’s a problem – they are completely useless at getting it operational.

7. deteego
   Posted 09/06/2011 at 6:07 pm | Permalink | Reply

   TPG’s pricing is so low due to the fact that they own all the infrustructure (both DSLAMS, local, national and international fiber links) apart from the last mile (which obviously goes through Telstra), so their internal costs for actually providing internet is very low

   That compounded with the fact that TPG doesn’t spend as much on customer service (its serviced internationally, instead of locally like iinet or internode) and they don’t spend as much money marketing on their brand (like iinet does with BoB and whatnot)

8. toshP300
   Posted 10/06/2011 at 12:29 am | Permalink | Reply

   *In addition, it seems clear that much of the ‘fat’ currently found in Australian broadband pricing is coming about due to the costs of bolt-on line rental.*

   the current structure of wholesale access pricing is designed to guarantee a mininum level of revenue for Telstra for each connection. this is basically the line rental which you’ll have to pay regardless of whether you want ADSL or not. Telstra receives the WLR fee on every connection because phone services are “bundled-in” (just like the NBN).

   the only exception is naked ADSL where the entire line is cut-over to another ISP. however, the cost of providing ADSL on a ULL ($16) is much higher than the cost of providing it via LSS ($2.50) (which has to be bundled with WLR). the whole logic is to guarantee a “minimum” level of revenue for Telstra per connection and this is largely tied to “voice”.

   hence, calling the line rental fee “fat” is a mischaracterisation. Telstra used to pay the bills solely from voice charges. with the secular decline in PSTN revenue, it has to make up the deficit from broadband revenues just to maintain constant “total revenue”.

   essentially, the structure of WLR/LSS/ULL charges guarantees Telstra a minimum revenue of $20/$16 per connection. the rest of the required “total revenue” comes from whatever broadband revenue it can generate. if a customer switches to naked, they get LESS than the line rental. if a customer subscribes to a competitor ISP for ADSL, they only earn an extra $2.50 (LSS) per connection on top of line rental.

   no wonder Telstra will and has done everything to maximise its broadband market share. this is just to stop their total fixed revenues from going backwards.

   *Sure, ISPs like iiNet and Internode do offer VoIP alternatives that can be bundled with naked DSL. However, it is also clear that even these leading ISPs are still attempting to push customers towards the traditional line rental option — presumably because it offers them some extra margin.*

   well, basically, at current prices of $20 WLR, $16 ULL and $2.50 LSS, you can get a PSTN voice service for an extra $6.50 per line (not much). if there was a wider gap between WLR+LSS and ULL only, then you could offer better relative value to a customer with naked plans.

   i don’t think ISPs earn any margin on reselling the WLR… they just pass the cost along and try to make their margin on the ADSL service ($2.50 LSS).

   which explains your observations below:

   *if you pick VoIP instead of PSTN from iiNet, you’ll pay only about $10 less, and it’s a similar story with Internode. Both increase the price of your base broadband service to maintain their margins if you choose not to have a PSTN line attached.*

   i.e. they’re just replicating the Telstra pricing structure of enforcing “voice-bundling”. you pay for a phone whether you want it or not.

   from Telstra’s POV, (a minimum level of) voice revenue is “guaranteed”; broadband revenue (which they need to grow to offset declining PSTN revenue) they have to fight tooth and nail for, just to maintain constant “total fixed revenues”.

9. Michael Wyres
   Posted 10/06/2011 at 7:46 am | Permalink | Reply

   Local Number Portability (LNP) is an interesting beast, and there are quite a number of factors which can affect whether or not your number can be ported from one carrier to another.

   Firstly, both the losing carrier and the receiving carrier must be able to support LNP at a technical level. This used to be the main difficulty, but is a much less significant issue than it was, say, five years ago. There are still some carriers who can’t offer though, depending on the size and nature of their PSTN interconnect arrangements, and whether they choose to make it available or not. Fortunately, most see the value these days.

   There are also different categories of number, some of which are not able to be ported. The most common of these in Australia is the “transit number” – a number which “exists” on an exchange in one location as a redirect to another number, usually in a different location. Companies sometimes use these in blocks to save call costs between interstate offices, as these numbers are generally cheaper to rent than “standard” numbers, and most carriers offer lower call rates between each side of this “transit path”.

   A lot of VoIP companies took advantage of this lower cost to help lessen their wholesale costs, only to discover these numbers are not portable, and are not able to display CND due to their “non-certain” location or originating termination point.

   Certainly I have seen LNP being less of a issue over time – but there are still large ranges of VoIP numbers that have barriers to LNP functionality.