Mr Rue’s comments have sparked speculation from some retailers that NBN Co, with lower operating costs following job cuts, may reconsider its controversial pricing proposal to compete more effectively against fixed wireless alternatives and other threats such as Elon Musk’s Starlink.
Skepticism about reduced prices
Morningstar analyst Brian Han said he doubts that’s the case.
“I’ll believe it when I see it,” Mr. Han said. “The price war has been going on for a long time and retailers have been pushing NBN Co without much change for a long time.”
Retailers have long complained that the wholesale cost of reselling NBN services is too high, eroding margins and imposing higher costs on users. And with the rollout of their 5G cellular networks, they are now offering higher-margin fixed wireless, bypassing the national network, at lower prices.
While a typical 50Mbps download speed on the NBN costs about $70 a month, Optus and TPG offer fixed wireless internet at the same speed but $10-$15 cheaper to lure customers. TPG added 58,000 fixed-line Wi-Fi subscribers in the six months ended Dec. 31, and Macquarie equity analysts believe half of the increase is due to TPG “actively changing its NBN subscriber base.”
The latest data from Australia’s Competition and Consumer Commission, released just this month, showed that the total number of NBN users fell by 9,000 to 8.1 million by the end of December.
Wholesale price wars
Last November, NBN Co resubmitted its wholesale pricing proposal — known as Special Access Enterprise, or SAU — to the ACCC, which lowered prices for the fastest speeds of 100 Mbps and above, writing reimbursement of around £31 in regulatory costs $.5 billion according to a revised statement from ab Expectations.
But the proposal resulted in price hikes for the most popular 50Mbps plan, which NBN Co said was needed to secure a standalone investment-grade rating in order to take on debt going forward – alarming retailers, which one saw further threats to their profits.
“There is a clear potential for low-use consumers to face significantly higher prices at the end of the first regulatory period unless new products or offers are developed first,” the competition watchdog also warned earlier this year. It will publish a draft decision on the proposal in April.
An industry source, who spoke on condition of anonymity as she was banned from speaking publicly, said the ACCC had “made it clear that it would not accept the current proposal” and predicted that NBN Co withdraw and make a new proposal to save face.
However, others agree with Mr. Han. They say the job cuts seemed routine as NBN Co had already shrunk 40 percent from the 6,800 people it employed in mid-2018.
NBN Co’s existing price proposal also contributes to a continued reduction in labor costs now that the network is complete. “With the completion of the original construction,” says the company’s supporting documents, “labor costs are expected to decrease.”
NBN Co acknowledged competitive threats in the same filings.
“[Mobile network operators] are increasingly promoting 5G home broadband products as an alternative to NBN services and pricing them below comparable NBN-powered retail services,” it said in November.
NBN Co said some competitors have spent billions of dollars rolling out 5G networks and that “the investment is justified by the expectation of generating incremental returns by competing with NBN to both generate revenue from growing their mobile subscriber base to increase as well as to avoid costs”.
“NBN also expects that this investment and competitive behavior will continue and that competition will increase in the future,” it said.
Telstra, meanwhile, has specifically suggested that NBN Co write off the entire $44 billion cost of building its network because the build was so inefficient. The company added in a filing with the competition regulator regarding the proposed price that the $31.5 billion in historical costs that NBN Co had already written off in December did not go far enough.
