NBN to drop CPI+ price mechanism: Quigley

James Riley
Tuesday, 18 October 2011 22:19

IT Policy - Government Tech Policy

The NBN Company is likely to withdraw a request for a "price shock mechanism" - which would allow it to increase prices for its wholesale services by up to five per cent above inflation - as being of little value, NBN Co chief executive Mike Quigley has told a senate committee.

The intention of the NBN Co business plan was to reduce prices over time and would be reflected in the special access undertakings it is negotiating with Australian Competition and Consumer Commission.

Mr Quigley said although a CPI plus five per cent price shock mechanism was included in a discussion paper issued by the company on the special access undertakings, it was unlikely the "mechanism will survive the on-going discussion."

"We are likely to withdraw that because frankly it is of little value to us as we analyse it," Mr Quigley told the Senate estimates hearing.

"We are going to try to ensure that our special access undertaking is absolutely in line with what we are intending to do with our business plan, which is to take pricing down as fast  as  we can take pricing down - consistent with providing uniform wholesale prices right across the country and providing a reasonable return to the shareholder."

"The whole aim of this company ... is to provide a return to the Government over the long term which is somewhat above the long term Government bond rate, and to keep prices as low as possible," he said.

Opposition communications spokesman Malcolm Turnbull has been arguing the price shock mechanism was in place to allow NBN Co to inflict an annual price hike on consumers in order to pay for the $36 billion project. Mr Quigley says this is not the case and that pricing would fall over time.

A price comparison released this week that found internet connections are likely to be 23 to 43 per cheaper through the NBN than ADSL2+ for similar speeds was roughly in line with NBN Co's analysis of the retail market.

Mr Quigley said the expectation was that the broadband services available through the national broadband network would be cheaper and faster than comparable plans available through ADSL2+ services.

The study by price comparison website WhistleOut looked at four internet service providers (ISP) that have publicly announced NBN pricing plans: Exetel, iPrimus, iiNet and Internode. The study found an average reduction between 23 and 43 per cent on plans where NBN speeds were limited to 12mbps - similar to the maximum available speed for most ADSL2+ services.

On average, most NBN services through the four ISPs limited to 25mbps were slightly cheaper than ADSL2+, but were about 2.5 times faster.