Tuesday, 21 August 2018 11:22

Smaller NBN RSPs may be in trouble after October: claim Featured

Smaller NBN RSPs may be in trouble after October: claim Courtesy: NBN Co

Smaller retail service providers who are selling NBN connections may be forced out of business after October this year when the bundles sold by NBN Co more or less become the single way that RSPs buy bandwidth from the company, Damian Ivereigh, chief executive of the small Tasmanian ISP Launtel, claims.

The bundles were introduced by NBN Co last year because of complaints about congestion, and while they cost more, include certain amounts of both access virtual connectivity and the connectivity virtual circuit charge, that ensure faster speeds.

Ivereigh said in a blog post that the problem for the RSPs would come about because most of them were buying bandwidth not directly from NBN Co, but rather from other big telcos like Vocus, Optus, TPG, Telstra and Wideband.

The smaller players give up a slice of their margin to the larger firms, which meant that their earnings would be reduced. Launtel and some others, like Aussie Broadband, buy directly from NBN Co.

"In a nutshell as the rollout of the NBN nears completion, we are seeing more and more users being forced to move over to the network," Ivereigh said.

"This has resulted in a margin squeeze (long predicted by industry giants such as Simon Hackett of Internode fame) between the higher wholesale prices of the NBN and the resistance by users to pay significantly more for their Internet."

He pointed out that smaller RSPs did not have the scale to connect directly to the NBN and had a limited capacity to cross-subsidise with either business traffic or other products like mobiles.

Said Ivereigh: "These smaller providers know that if they raise their prices they will lose customers. If they are stuck, due to contracts, with buying a certain amount of bandwidth from their upstream wholesalers, then this revenue loss goes straight to the bottom line."

He said there were many RSPs who were offering what he called "completely unsustainable prices" and had to be running at a loss.

"We have seen some RSPs raise prices and/or cut the products they are offering and generally it hasn’t gone well. Speaking personally we have seen the growth in our residential business slow considerably by having to increase our prices," Ivereigh said.

"My concern is that we will see many smaller RSPs go to the wall as the larger players with their significantly greater capital, lower fixed costs and ability to cross subsidise can ride out the storm a little bit longer before they too will have to raise their prices."

He said the one thing he could recommend to smaller players was to look after their customers well.

"...connect with them, tell them what you’re up to, find something other than price that makes you unique. Be open and transparent. Don’t treat your users like cattle to be herded around and discarded when no longer needed," he suggested.

"Resist the urge to compete on price, because someone, somewhere will always find a way to do it cheaper than you. Concentrate on what makes you different from the bigger companies – be nimble, be pro-active, provide awesome service, have a great network."

Ivereigh also had some advice for users. "For consumers I suggest you ask what is important to you about your RSP and the service they provide. Are you sure that it is worth changing provider because they have just announced a price rise or there is another provider out there doing apparently the same service for $5 cheaper a month?" he said.

"Ask your provider about their network, how much bandwidth they are allocating per client (2.5Mbps is great, 1Mbps is too little). Can they increase and reduce their bandwidth as they need to? If you see a cheap price, ask why. If there is no reasonable explanation it is probable that it is unsustainable and they will be getting into financial strife soon."


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Sam Varghese

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Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.



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