Why are we buying entry level broadband packages from NBN?

Do we need net neutrality in Australia?

Continuing with my broadband theme, Mitch Fifield, Communications Minister, wrote a comment piece in the Age last Thursday, 18th January “Affordable broadband is the go“. It made little sense to me. The thrust of the article was two fold. First, we must be set prices that allow the NBN to operate as a commercial business. That is a questionable statement in itself, when the Government rather that the customer mandated its creation. And second, that most NBN customers were electing the entry level broadband 25Mbps packages. This is the downstream speed. The upstream speed for this service is 5Mbps. But this does not tell the whole story. The ‘Evening Speed”, at peak times when most domestic customers want to use it, is likely to be well below this, particularly on the cheaper packages. And I have seen entry level packages with 10Gb data limits, enough only for two or three HD movies a month.

The point he was trying to make was, I think, that most customers don’t have the domestic setup (2 4k TVs and a gaggle of teenagers watching Netflix on their phones) that makes it worth their while paying for the higher speed and data limits. That may be so now, but misses the point. We, as consumers, don’t simply buy broadband services up to the limit of what we currently need. We also buy new devices (high bandwidth TVs, higher bandwidth Netflix and Prime subscriptions, data backup to the cloud rather than clunky local storage, live two-way cloud so we can dispense with unreliable local hard disks, multi-way Skype for home based business or to talk to the kids in Europe, upstream services that match our downstream services, and who knows what else) if we know that the broadband services to make these work will not break the bank. So the better question for the Minister to ask (or at least, a further question he should ask) is what would happen if the better NBN packages were more affordable. We know that high speed broadband is an innovation enabler. It follows that if it is unaffordable, innovation will be suffer.

And why on earth should prices be uniform. It is cheaper to supply high bandwidth in dense urban areas than in rural areas or the urban fringe. We know this. Rural areas pay more for corn flakes because it costs more to get them there. Minister Fifield has not proposed that we raise the prices of corn flakes in Melbourne to correct this egregious harm. It makes no sense, none at all, to subsidise high cost areas from low cost areas when the underlying service is price elastic (as NBN services clearly are). Daft. If there are compelling reasons for low prices for high bandwidth in remote areas, and I can think of many, pay for it from taxes as a universal service obligation. Or if you must, charge every NBN customer a uniform fixed fee for connection, and charge only the additional marginal costs (which are small) for bandwidth and data limits above the floor. Then see what customers will buy.