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Tuesday, 23 August 2011 05:49

Turnbull's NBN Co price warnings only half the story

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Shadow Communications minister Malcolm Turnbull has issued a lengthy press release claiming that NBN Co is seeking the freedom to hike its wholesale prices at rates way above inflation, but this is a gross over-simplification of a very complex issue.

Under the headline "Consumers will pay for Conroy's roadmap to monopoly," Turnbull states "NBN Co is seeking the right to raise prices for most of its services - including broadband plans for business, streaming video, and any consumer plan offering faster downloads than today's ADSL2 - by up to five percent per annum more than inflation for the next 30 years."

He draws this conclusion from NBN Co's discussion paper, released last month, on the special access undertaking it is preparing to lodge with the ACCC. In particular Turnbull focuses on "NBN Co's plan to be able to charge annual price hikes of up to five percent above inflation on most of its products." This he says, "contrasts with large real declines in the cost of telecommunications in Australia and other OECD economies in the past two decades."

The discussion paper, however frames this five percent figure as a maximum increase NBN Co will be able to impose to prevent 'price shock' to customers, even if its costs warrant a greater increase.

"The price shock mechanism operates to limit NBN Co's ability to increase the actual prices of products. It will apply to all NBN Co products and will operate to limit NBN Co's ability to increase prices by prohibiting actual price increases of an individual product within each financial year of greater than five percent above CPI."

What Turnbull's statement fails to address at all is that NBN Co is wrestling with the preparation of a document that must, to some extent commit it for 30 years but at the same time contain sufficient flexibility for it to deal with the unforseen.

As the discussion paper says: "A critical component of the SAU is the Long Term Revenue Constraint Methodology (LTRCM). As part of the overall package in the SAU, NBN Co will be committing to only recover a regulated rate of return on its network investment which will allow it to recover its prudently incurred costs, inclusive of a regulatory cost of capital, but no more. This principle will apply for the 30 year term of the SAU."

Quite a challenge, and hardly fair to single out one aspect as foreshadowing excessive price increase. But, hey, that's politics for you."

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