THE company rolling out the National Broadband Network last night vowed to freeze wholesale prices for the next five years, but it only applies to the cheapest and slowest packages of internet services.
The NBN Co also promised that in later years, price rises on all its services would be limited to half of the consumer price index for the next five years – allowing the Gillard government to maintain its promise to drive down real wholesale prices over time.
But the price freeze only applies to the entry-level 12 megabit-per-second service and excludes the ultra-fast 100Mbps that the government has insisted will provide social benefits with services such as 3D imaging.
Last night, economist Henry Ergas warned consumers could still face higher internet bills.
“All they are really doing is shifting the pain from today until tomorrow,” Dr Ergas said.
The NBN Co’s announcement was “essentially a way of coming to a good headline outcome”, but households would ultimately have higher bills as retailers passed on a usage-fee based on the amount of data transmitted, he said.
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The NBN Co’s corporate plan assumes this usage will grow sharply as video-on-demand and other services become more popular, he said.
However, the NBN Co’s head of product development and industry engagement, Jim Hassell, yesterday said the plan provided certainty for telephone and internet service providers about the wholesale prices they would pay to access the NBN.
“It is in the long-term interests of consumers and businesses because it supports the objective we have been set to offer a uniform national wholesale price for our basic services,” Mr Hassell said.
The NBN Co’s vow on wholesale prices was contained in the company’s so-called “special access undertaking”, which it lodged with the Australian Competition & Consumer Commission yesterday. After a bitter backlash, the NBN Co abandoned an earlier proposal that would have given it the ability to increase prices for business broadband and super-fast services by up to 5 per cent more than inflation.
Now that the NBN Co has lodged the undertaking with the competition regulator, a formal review led by the ACCC to assess the reasonableness of the proposal and public consultations will begin. The document sets out the terms of access to 2040.
Under the plan, the prices of key products would be frozen until June 2017. Specifically, basic access would be $24 a month, the usage-based fee at $20Mbps per month and prices for a physical port where service providers connect their backhaul to the NBN.
The NBN Co argues these prices will compare favourably to wholesale costs of supply on legacy networks, such as Telstra’s copper lines.
Price rises on all products will be limited to half of inflation at one year and cannot be accumulated if they are not used – allowing the NBN Co to commit to prices falling in real terms.
But the NBN Co can ask the ACCC to approve further price rises if this is “not inconsistent” with government policy and provisions in the Competition and Consumer Act.
As well, under the plan the NBN Co has promised that it will recover no more than its “prudently incurred” costs.
This appears designed to avoid the criticism that has dogged energy network companies, which have been accused of increasing power bills because of overspending to “gold-plate” their infrastructure.
The NBN Co’s plan involves a regulatory rate of return on its assets of 3.5 percentage points above government bond rates. Late yesterday, government 10-year bonds were trading at around 4 per cent.
But this will be reviewed before a privatisation that is planned after a number of hurdles, including the completion of Productivity Commission inquiry and a declaration from the Finance Minister that the conditions are suitable for a sale.
Dr Ergas said he questioned the basis for the NBN being off-budget on the grounds it would generate a commercial return.
NBN Co boss Mike Quigley recently told a Senate estimates hearing that the business plan was aiming “to take pricing down as fast as we can take pricing down”.