Internode managing director Simon Hackett has published an impassioned statement responding to the National Broadband Network Company’s attempts to explain its pricing model, accusing the fledgling fibre monopolist of “crystal ball gazing” with regard to its predictions of how much usage its network will see.
The debate about NBN Co’s pricing model as a whole was kicked off in late March when 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.
Over the past few weeks, NBN Co has made a number of public attempts to further explain its pricing model, going into great detail about why it had chosen the specific mix, as well as this week publishing an online calculator that allows users to calculate projected wholesale costs for providing services to its planned network.
However, in a statement published yesterday on broadband forum Whirlpool, Hackett returned fire on NBN Co.
“Right now, you are arbitrarily choosing parameters that match your crystal ball gazing on exactly how much aggregation capacity will be needed and what mix of port speeds customers will select,” he said, accusing the company of trying to make its average cost per end user equal a total of $33 per customer per month that it required for its business plan.
“You’re doing that at what I consider to be a high risk of being wrong (over or under) that average in practice,” Hackett added. “And yet you can’t afford to be over, OR under, in practice.”
At the heart of the debate is the mix between the basic per user charge for connecting end user customers to NBN Co’s network (the ‘Access Virtual Circuit’), as well as a charge based on data usage (the ‘Connectivity Virtual Circuit’). Hackett has argued for the balance between the two ‘$x and $y’ charges to be changed, with the CVC pricing to come down and the AVC pricing to rise.
In his statement, Hackett said NBN Co could actually abandon its AVC/CVC pricing altogether, and simply charge ISPs a flat fee of $33 per use per month to connect customers to its network. “Why not simply charge $33+GST per month per customer, as a fixed cost, and be done with it?” he asked. “Wouldn’t that generate you precisely the income your plan needs, and result in completely de-risking the chances that you might not earn exactly the right income from the network?”
The Internode MD argued NBN Co could give ISPs the choice – either accept a flat $33 per user per month fee (with no extra connectivity CVC charge), or let the ISPs buy according to the existing variable-based pricing model, with changes for higher speeds and higher volume.
“The principle this works to is that a ‘good’ monopoly should charge a strict margin on top of its true build and operate costs, rather than charging based on parameters that are not actually related to changes in real world cost,” he said.
Over the past several weeks, NBN Co has demonstrated a marked increase in its interaction with the end user community, joining broadband forum Whirlpool and actively posting to its Twitter account. The moves have been broadly welcomed by the community. Hackett ended his post by saying he hoped the fibre monopoly didn’t stop engaging in the debate.
“Great to see you participating here. Don’t stop now :)” he said.
Image credit: Internode