Re: Labor's NBN: headlines with zero substance
> Today: 1Gbps has been available wholesale since Dec 2014, but not one RSP will offer it as a retail plan. 79% on fibre connected at 25Mbp or slower and 16% connected at 100Mbps (down 3% in 12 months)
Retailers, not NBN Co, set pricing and select the default plan offered to customers.
That explains the initial high take-up of 100/40Mbps and the latest 3% contraction.
Thanks for making this point for me: its essential for understand the _Economics_ of Fibre vs Copper.
What's the difference in cost to NBN between supplying 12/1, 100/40 and 1000/400 services?
They may need to bring forward planned expenditure on the internal Transit network if demand for higher access rates runs ahead of their plans, but that's more than offset by the increase in profits being generated. [Upgrading links is changing out the GBIC for a faster one, or adding another WDM colour, possibly putting a spare fibre into service. Fast, simple and very low cost.]
Essentially, there's ZERO input cost difference for NBN for all services, any additional charges for differentiated services are pure PROFIT.
[I'll use 2013 pricing, I haven't bothered learned the new price sheet.]
NBN Co could've done what ISP's did with ADSL and offered everyone the maximum speed for the same price. It costs them NOTHING extra and might even get them a little more CVC traffic.
But there are two massive problems with that approach:
- as previous note, it places an intolerable backhaul cost on the RSP/ISP's, esp with 121 PoI's.
- it's Economically naive. The company can make _much_ higher profits with tiered pricing. [The 2012/3 Business Plan did make AVC pricing for 12/1 to 100/40 identical after 10 or so years.]
The concept is "Consumer Surplus", when the _same_ product (or nearly same) is sold by the Producer for multiple prices.
Customers with a willingness to pay more for the same service can select a higher price and get a 'premium' version of the product. Sellers make their money on the 'premium' sales.
The seller doesn't "leave money on the table".
[Google Fiber is only offering three services. 'Entry level', 1Gbps Internet and 1Gbps Net+Cable-TV. They're operating nearly on a cost-recovery basis, not trying to maximise profits or pay off expensive loans. If a low-cost player like this shows up in Australia, they will "disrupt the market" in a way that will surprise most.]
Do you recall the first ADSL-1 offerings from Telstra?
They did exactly this, 3-4 offerings up to 1.5Mbps.
Its Good Business, both offering steep discounts to those that prefer 'cheap' and extracting high profits from those that are willing to pay, for whom that 'top' service provides that much value.
Quigley et al priced (2013) 12/1Mbps at $23, 100/4-Mbps at $38 and 1000/400Mbps ~$150,
although they ALL cost NBN Co _exactly_ the same to deliver.
If they made $2 from the 12/1Mbps service, they were making $17 from each 100/40 Mbps service.
Profit wise, they increased Earnings very quickly (the thing that good businesses focus on), if more than 6% customers selected the 'top' plan. [again, NBN is the wholesaler, the retailers aren't forced to pass on savings to consumers.]
Something buried in the Ergas/Vertigan report is the Price Elasticity of Demand.
At 1Gbps, it "-60" (negative sixty). I can't recall Elasticity for 100/40, maybe -20.
The Elasticity is the changes in sales made or lost for every $1 _change_ in the price, either up or down. Normally sellers _raise_ prices, so highly elastic markets are very bad for them.
But high Elasticity also works to your advantage when you can, like in Tech & Telecoms, drop prices over time.
By dropping the price by $1, total Revenue is increased $60 (1000/400) or $20 (100/40).
That's a 59-times and 19-times increase in PROFIT.
When the input costs of the services are identical, this a way to dial-up profits on demand.
As in previous note, NBN Co is a wholesaler, not retailer.
While they can charge low prices to Retailers, they cannot affect what the Retailers charge.
If Telstra and Optus don't pass on the discounts, NBN Co won't realise the revenue.
This is another Economics effect that savvy Retailers, especially in the Tech Industry (think Apple) use to drive PROFITS into the stratosphere, and at the same time, be applauded and thanked by their customers. A win-win for everyone: cheaper prices _and_ higher profits for shareholders.
By passing on _part_ of the cost savings, from The (organisational) Learning Curve, Scale Efficiencies and Moore's Law, Tech companies can drop prices and stimulate demand over decades.
We've seen that for PC's and HDD's and international telephone calls.