Telstra warns on NBN pricing

The telecommunications industry has reacted against the National Broadband Network’s special access undertaking, with Telstra questioning the company’s wholesale access price – just as the network begins to ramp up its construction efforts.

Although telcos have reacted against specific moves by the NBN Co. previously, this is the first time Telstra has marked a disagreement after signing the $11 billion agreement with the Government that will see the telco hand over much of its infrastructure.

The new submission is in response to the special access undertaking (SAU), which was released in December and spells out a number of rules and framework for the network’s operations and pricing for the next 30 years.

Telstra notes a number of issues, including that NBN Co. will have too much control over pricing for new products. “There is a question as to whether the Long Term Revenue Constraint will operate as a real constraint on pricing over the proposed 30 year term of the NBN Co. SAU”.

Telsyte senior director of research consulting Chris Coughlan told SmartCompany this morning Telstra’s complaints were completely valid.

“This SAU is not really a safety net as it has been in the past. That’s certainly a concern, and I think all parties have said that’s a concern.”

“For example, 30 years for the agreement is just far too long – I think all of Telstra’s claims here are quite reasonable.”

One major argument from Telstra is that the NBN Co.’s cost of capital will be 8.6%, which could ultimately lead to “unnecessarily high” broadband prices.

“Wholesale prices would be higher than necessary, which would likely result in less incentives for retail service providers to compete with one another,” the submission says. “Retail prices would also be higher than necessary.”

The whole structure of NBN’s pricing is so it can generate a 7% rate of return, a figure which has been touted as part of a promise to make the NBN revenue positive.

And while the NBN Co. has promised to keep prices the same until 2020, Telstra says the “limited” nature of the packages may mean the NBN introduces new products. And the company would have too much control over these prices, Telstra argues.

It notes that over the 30 year lifespan of the agreement “many new products will be introduced as technology evolves and preferences change, potentially rendering many of the current suite of products obsolete”.

The same submission also argues there may not be enough regulatory watch on NBN Co.’s expenditure – arguments Coughlan says are completely valid.

“All of Telstra’s claims here are quite reasonable,” he says, although says NBN Co. may not be willing to change its prices too quickly.

“Essentially the pricing the NBN Co. has developed provides the return the Government is looking for. It’s engineered to provide that rate, and I don’t think the NBN Co. has a lot of scope to lower it.”

Other telcos have taken issue with the SAU as well, with iiNet noting in its submission the wholesale broadband agreement is able to provide certain services under terms and conditions that have not been approved by the ACCC.

“In light of NBN Co.’s refusal to voluntarily implement what seems to our Clients to be a sensible, straightforward and uncontroversial way of solving the Problem, our Clients believe that the ACCC should consider refusing to accept the SAU unless the SAU contains a commitment to a Pass Through Clause,” the submissions states.

Such a clause would allow access seekers to obtain “access determinations” and binding rules of conduct.

Vodafone Hutchison Australia also said in its own statement it wants a similar change.