MyNetFone calls for NBN to level the playing field for mid-size telcos

Outlines measures to drive NBN uptake amid concerns NBN business case is under threat 

MyNetFone, Australia’s largest provider of hosted voice and data communications services, today called for the NBN to level the playing field for mid-size telcos in Australia by reducing the 121 POIs required to reach directly, removing outdated CVC usage-based cost model and writing off the part of the government network build cost.

In remarks made at the 2016 Tech Leaders conference summit, MyNetFone CEO and co-founder Rene Sugo outlined why these measures were necessary to stimulate NBN uptake and deliver on the promise of a healthy competitive telecommunications industry.

According to Sugo, the NBN business case is under threat due to a combination of unfeasible NBN wholesale pricing structure and the risk posed by NBN ‘bypass’ options from the big telco providers.

“The NBN wholesale pricing model business case is currently usage-based and relies on reaching a certain percentage of service activations to generate sufficient revenue to repay the investment of building the network,” said Sugo. “In order to reach this activation target, NBN has to be the ‘number one choice’ for data services for consumers, and be available at a viable price point for service providers of all sizes to resell – and as it stands this is not going to be realistic”.

According to Sugo the NBN business case faces a serious two-fold challenge.

NBN Bypass Alternatives

The first challenge is that the four of the big telecommunications providers offer their own data access services that are essentially an NBN bypass. The various mixes of 4G, future 5G, and FTTB services provided by Telstra, Optus, Vodafone and TPG pose a threat to NBN because they can be delivered at better margin and more competitive pricing, while playing into the global ‘mobile-first’ usage trend.

“The current NBN model with its 121 POIs and CVC charges distinctly favours the top end of the telco industry, however the big telcos have more attractive bypass alternatives to sell to their consumers. This NBN bypass will eat away at the NBN market share, posing a major barrier to reaching activation and revenue targets,” said Sugo.

MyNetFone believe that the mid-size telcos will have to fight an uphill battle to offer competitively priced NBN services with Sugo asserting “The promised ‘level playing field’ is nothing more than a mirage. With the untenable 121 POIs, direct NBN interconnect is out of reach to most and they are already forced to resell NBN via the big providers, putting further squeeze on the slim margins. Meanwhile, CVC costs also favour large providers who have the scale to reach greater contention efficiency, while mid-size providers need a higher margin of CVC headroom to ensure reasonable contention, translating into higher cost per user.”

Noting the increased competition from NBN bypass services and NBN cost model challenges Sugo raised concerns that the mid-size telcos will be in danger of having too low margins and too few customers to be viable, concluding “Will anyone be left with a genuine interest in selling NBN services?”

Unfeasible Pricing Snowball

The second challenge is that NBN revenue is based on user activation and tied to reaching an unrealistic target of 80% of all Australian households by 2020, which is actually over 100% of the fixed broadband market. Any shortfalls in activation numbers and resulting revenue will need to be recouped via increased usage CVC and per port costs, leading to a squeeze in margins and an increase in retail prices as wholesale costs go up.   This will make the NBN unattractive for providers to sell, and for consumers to buy. Instead big telcos will focus on pushing NBN bypass services like 4/5G and FTTB - we may well see mobile broadband become cheaper than home connections!

Sugo commented “As retail prices rise, NBN will become less and less attractive to consumers, driving them more to bypass services, further decreasing NBN uptake, leading to further NBN cost increases in a vicious cycle. The end result - the NBN business case falls short of recovering its massive build cost.”

Balance the Scales to Save the Industry

To save the Australian telecommunications industry, MyNetFone believe the NBN model should be made more viable for the second-tier players in the telco industry who have a vested interest in seeing the NBN succeed. The reduction in POIs and the removal of CVC usage based costs that no longer reflect consumer usage patterns would allow healthy and effective market competition. Additionally, the government needs to consider writing off part of the NBN network build cost, to ensure NBN retail pricing does not snowball out of control and, instead, remains competitive against NBN bypass alternatives and allows NBN activations to gain critical mass.

“A fair model would allow middle players to step up and effectively compete in the market, driving NBN uptake and balancing out the challenge of the NBN bypass services. Australia needs its promised level playing field, and a healthy, competitive telecommunications industry, for this ambitious network build to succeed.” Sugo concluded.

About MyNetFone

MyNetFone is Australia’s largest provider of hosted voice and data communications services for business, enterprise and residential users.

MyNetFone is part of the MNF Group, which owns and operates Australia’s largest VoIP network and a global Tier 1 voice carrier network. The Group also includes retail brands Connexus, CallStream, PennyTel and The Buzz; and wholesale brands iBoss, Symbio Networks, TNZI and TollShield.

MNF Group was founded in 2004 and listed on the ASX in mid 2006. It has a reputation for quality, value and innovation, having won numerous awards including the Forbes Asia’s 200 Best Under a Billion (2014, 2015), Deloitte Technology Fast 50 (2008, 2009, 2010, 2012, 2013, 2015), PC User Product of the Year (2005), Money Magazine Product of the Year (2007) and many others.

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