NBN Co. tipped to lure consumers with cheaper, slower internet services

The National Broadband Network Company is aware consumers do not want the 100 megabits-per-second speeds the network is designed to provide, and will instead offer slower and cheaper services when the network is up and running, reports suggest.

The news comes as banking giant Goldman Sachs has reportedly won an advisory role with the Government-owned National Broadband Network Company in order to help negotiate financial challenges.

Reports in The Australian say early adopters won’t see much difference between current internet packages and those products offered on the network, but that speeds are set to increase over time along with demand for faster services.

But David Kennedy, analyst with telecommunications research firm Ovum, says this is a regular practice within the telecommunications industry.

“As technology develops and time has gone on the technology used to deliver higher speeds has dropped in price, so what we see is a natural tendency to offer lower speeds first and then offer higher speeds.”

It has been suggested the Government has advertised the 100mgps speed in order to emphasise what one unnamed source has called the “wow factor”.

Customers will first join the network by adopting plans similar to their own, while the NBN Co. will begin to attract more business by slowly increasing prices in exchange for faster speeds.

“As in today’s market, it is expected that service providers using the NBN will offer a range of plans and price points to meet the needs of home and business customers,” a spokesperson for communications minister Stephen Conroy has said.

But Kennedy says the difference in this situation is price, which is still “up in the air” as the NBN Co. or ACCC has given no guidance on what pricing structure will be used.

Kennedy says the wholesale price structure will dictate the rates at which access is sold to private companies. As a result, it is unknown whether products offered on the NBN will be cheaper than current plans offered on private networks.

“Because the fibre network is going to be a monopoly, it comes down to what the wholesale prices will be, and that’s up in the air. A great deal now revolves on what that price structure will be, and we’ve had no guidance.”

“I think it’s all about price points. As technology develops gradually in these overseas markets such as Korea, Japan and Singapore which have 100mbps networks, higher prices for higher speeds slowly fall. Of course we have a different situation here, because we’re installing our infrastructure quite quickly. No one really knows the price points.”

Meanwhile, the decision to appoint Goldman Sachs was made by NBN Co. chairman Mike Quigley along with chief financial advisor Jean-Pascal Beaufret after considering a number of different investment banks over the past few weeks, including Credit Suisse.

Sources have told The Australian the appointment is not full-time, specifically during the current early stages of the network’s development, and is not likely to provide a high amount of funds for the investment bank.

Goldman joins a number of private firms including McKinsey & Co. and KPMG in advising the National Broadband Network, with an implementation study currently underway regarding the actual cost of the $43 billion project.

Is it not yet known if Goldman Sachs will have any involvement in the process of researching the implementation study. But the company is expected to be provided with several challenges of its own, including convincing several private investors of the project’s viability in order to purchase vital infrastructure.

Working with the company to convince Telstra to sell its copper network is expected to be among the first of the company’s duties. The Government has threatened to separate Telstra’s business through reform legislation if the telco giant doesn’t sell its network to the NBN Co.

But as the reform bill has been delayed until February, due to the current debate regarding the Government’s emissions trading scheme, there is still time for the two companies to strike a deal.

An acquisition of the copper network would be a big win for the NBN Co., potentially saving it millions by taking advantage of existing infrastructure.

Goldman Sachs could also be involved in negotiations with a number of other companies including Optus, which is reportedly considering selling its $1.5 billion cable network in exchange for equity.