NBN: Interesting Tidbits from Quigley

Following up on my previous post in regards to the shape of end-user NBN services, I thought I would discuss a few interesting comments made by NBN Co CEO Mike Quigley at the morning Q&A session at the NBN Customer Collaboration Forum last week in Melbourne.

While I will be presenting his comments as “quotes” – they are not exact word-for-word quotes, only regurgitated from my notes and I’m not the best shorthand note taker in the world! The content is however 100% accurate. Comment number one was about volume pricing, in which he stated:

“No single service provider will receive any wholesale volume pricing from NBN Co.”

This is a very important result for the industry. In simple terms, on a connection by connection basis, the wholesale price of NBN services to Retail Service Providers (RSPs) will be the same across the board. An RSP with 1,000 customers requesting an end-user service of a particular dimension from NBN Co, will be charged the exact same price for that service as an RSP with 1,000,000 customers requesting a service of the exact same dimension.

Size of the RSP will not be a factor.

What this does for the industry is allow every RSP to compete on equal wholesale customer access terms with every other RSP.

The big players will no longer be able to squeeze the smaller players on wholesale price – a practice currently common in the industry. Telstra – (as the incumbent dominant wholesale provider) – has a record of ACCC intervention when presenting retail pricing to Bigpond customers that is LOWER than their wholesale pricing to other ISPs. Most recently, Internode has had a very public spat with Telstra over wholesale pricing.

The structural separation of Telstra, and the common wholesale pricing structure under the NBN should eliminate these unfair practices forever.

Next up was a statement in response to a question from the floor about extending the reach of the fibre footprint beyond the 93% coverage in the current plans. Quigley confirmed:

“We are open to extending fibre beyond 93% coverage to interested groups willing to share the cost.”

The specific example he gave in responding to the question was that, for example, a group of farmers along a road who might be in the 94th percentile of the total NBN footprint, might be able to get together and provide the gap funding.

That is, NBN Co would look at funding the build for their situation as if they were part of the 93rd percentile, and as a group the farmers would need to fund the gap to get the build completed. This will interest a lot of communities just outside of the 93% fibre footprint who would otherwise receive wireless or satellite service from NBN Co.

Finally, one for the financial boffins, and what would be done with any “profits” generated by NBN Co:

“Any ‘profit’ above the expected IRR of 7% will be used to push wholesale pricing down, and not used as ‘profit’ as such.”

Quigley was quite strong on this point, reiterating that NBN Co are not interested in profits per-se – their primary goal is to deliver the IRR of 7% to the government to repay the debt funding used for the NBN build, as described in their corporate business plan, released late last year.

As long as the 7% IRR is reached to repay the debt, the “profits” over and above the 7% will “fund” lower wholesale pricing to the RSPs – in real world terms, this means as more and more usage develops on the network, the wholesale pricing will be able to be reduced.

With an announcement today that Telstra and NBN Co have agreed to commercial terms for the decommissioning of the Telstra copper network and the migration of existing Telstra customers on to the NBN, the question of just where NBN uptake will come from has been largely answered.

Prepare for the future.