NBN five-year price freeze could stunt competition among telco retailers

The National Broadband Network has pledged to freeze prices on basic services for the first five years of its operation, although experts warn this means retailers will have less scope to compete on charges.

The revelation comes as part of the NBN‘s new access undertaking, a document provided to the competition regulator that sets out all the rules and access conditions it will set for telco retailers.

And it also claims these new freezing rules – and associated limits on price increases after 2017 – may actually lead to price falls.

This is the second time the undertaking has been submitted – the first version wasn’t up to scratch, according to ACCC chairman Rod Sims.

But Chris Coughlan, Telsyte head of consulting research, told SmartCompany this morning the price freeze over the next five years will make it harder for retailers to compete on price.

“This means all the retailers have the same cost, and it’s not like there will be any volume discounts in the NBN agreements, either,” he says.

Pricing has been one of the key issues in the NBN debate so far, with critics concerned prices will be either the same, or not much cheaper than current plans, even when the new network provides a much faster speed.

With telco prices having dropped significant over the past few years, consumers have come to expect the same decline.

“It certainly makes it more difficult for the retailers, and as they get scale with the NBN there will be some benefit. But certainly it means the competition won’t be as easy.”

However, other provisions in the new access undertaking include rules that prices will be limited to just 1.5 percentage points lower than inflation after 2017, and that the ACCC will gain regulatory oversight on any changes to prices.

Given inflation is currently at 1.2%, the rules would actually result in a decline in real terms, the NBN said yesterday.

The undertaking also includes a provision that “allows NBN Co to recover only its prudently incurred costs inclusive of an appropriate return on capital, and no more”.

“This includes a regulatory rate of return on its assets of 350 basis points above government bond rates for the first 10 years”.