Update: Hackett has published a blog post with the slides from his talk, which are very instructive to his argument.
Internode managing director Simon Hackett today described the National Broadband Network’s pricing 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.
According to Hackett, the NBN’s pricing model will only be feasible for ISPs with larger than 250,000 customers – which only five retail ISPs in Australia can boast – Telstra, Optus, TPG, iiNet and Internode itself, which will just reach the cut-off mark.
For ISPs with 250,000 customers or more, Hackett told the Communications Day Summit in Sydney this morning, it would cost as little as $27.28 per month plus GST, according to his calculations, to connect customers to the fibre infrastructure as it was rolled out.
However, the Internode chief said, the price rose dramatically as the number of customers fell – so that for a national ISP with only 10,000 customers spread out across Australia, the cost of connecting to the NBN would be as high as $106 per month per customer. “I just gave you insane,” he said. “At 10,000 customers, it’s insane to connect to this network, as a national provider. A 10,000 customer provider is insane to connect to this network.”
According to Hackett, there were several fundamental problems with NBN Co’s pricing model as laid out in its business plan published late in 2010. For example, he said, the decision by the Australian Competition and Consumer Commission to set the number of points of interconnect around Australia where ISPs could connect to the network at 120 nationally disadvantaged smaller ISPs – who would be forced to provide what NBN Co calls a Connectivity Virtual Circuit (CVC) connection to all of these locations in order to provide a national service.
Hackett has previously advocated a model where NBN Co would provide as little as 14 points of interconnect – which he said would serve smaller ISPs much better. A model with more points of interconnect would serve larger ISPs like Telstra and Optus, he said, which already had infrastructure around Australia.
Secondly, he said the cost of that CVC circuit was too high – it should come down dramatically. Instead, NBN Co should charge more per month for each individual customer connection.
If NBN Co’s pricing model didn’t change, Hackett argued, the only way which smaller ISPs would be able to afford to connect to the network would be through larger wholesale players like Optus and Telstra. Speaking before Hackett at the same conference today, Optus managing director of its wholesale and satellite divisions, Vicki Brady, confirmed the company was planning to offer wholesale NBN services.
“This is why Vicki Brady wants to sell wholesale services to 10,000-customer ISPs – because they’re dead without it; Quite deeply,” Hackett said.
In addition, the Internode chief said it wasn’t just smaller players who would be affected by the pricing structure that NBN Co has outlined.
Hackett pointed out that even ISPs like Internode – which has about 250,000 customers — would need to gradually migrate its customers onto the NBN fibre gradually over the next decade. This means that it would need to suffer the claimed high connection costs until it bulked enough economies of scale through customer connections.
“How many retail national service providers do you think the NBN is planning for?” Hackett asked. “The feeling of the rhetoric is that there wil be hundreds of them. It’s actually just five. We’re the number five player in the industry. Anyone smaller than us, never gets across the valley of death.”
NBN Co will be invited to respond to Hackett’s claims.
Video credit: Delimiter