[LINK] NBN pricing may dull broadband benefits: economist

[Paul Brooks]

He is correct - it doesn't actually cost NBN Co any more, primarily because NBN Co only goes as far as the POI. It costs the backhaul provider more, but that is outside the NBN Co bit.
However, it does set up a scale of increasing price for increasing functionality, which sets up a yield curve that can be optimised . If they charged a single price, it would be higher than the current lowest-tier price, which would cause price-sensitive customers to not purchase.  A sliding scale allows them to collect the maximum number of customers, each for as much as they are comfortable to bear.

The same theory applies to airlines. It really doesn't cost the airline more to carry the people at the pointy-end than the people at the tail end - but there are vast choices on seat prices so they can collect as much for each seat as the customer can afford.

..and yield optimisation *is* an economic principle, which I would be surprised if John deRidder wasn't fully across - so it feels to me he's taking a position for the sake of argument, not completely defensible.
Paul.




-------- Original Message --------
From: Richard <rchirgwin at ozemail.com.au>
Sent: Sat Mar 09 16:12:31 AEDT 2013
To: link at mailman.anu.edu.au
Subject: Re: [LINK] NBN pricing may dull broadband benefits: economist

Jan -

Having worked with John De Ridder, the Telstra angle isn't much to worry 
about. He's been out of there for a long time; and it wasn't possible to 
train up in telecoms in the 1980s without passing through Telstra.

I don't entirely agree with him on this one - because it seems to me 
that, counter-intuitively, more people are taking up higher speeds than 
expected. But I'm not economist enough to challenge his analysis.

Cheers,
Richard

On 9/03/13 2:32 PM, Jan Whitaker wrote:
> At 02:16 PM 9/03/2013, Kim Holburn wrote:
>>> NBN Co is offering five different speeds at different prices,
>> which telecommunications consultant and former Telstra chief
>> economist John de Ridder says is artificial because, once the
>> network is built, it does not cost more to deliver 100 mbps over
>> the NBN than it does the slower speeds.
>>> "They could offer the same speed, unlimited speed basically, to
>> everybody but they choose to ration it out, charging more for
>> higher speeds," he said.
> I heard this story on the radio and my ears perked up in 'danger Will
> Robinson' mode as soon as I heard this: "former Telstra chief economist".
>
> The argument he is posing is exactly what Telstra could do as well
> (take off the top and charge the same), and I guess some might argue
> that the do on their HFC cable service is you can get that, assuming
> you aren't sharing it with everyone else in the neighbourhood. I
> haven't look at their data quotas, if any, though. *Surely* he isn't
> criticising the NBN for presenting a business model decision that
> might recoup some costs of the investment? Surely he wouldn't say that.
>
> I would gladly pay $50/month for the fastest speed because that is
> equivalent to the cost for my current 'can only get' 8Mbps speed on
> ADSL (not 2+ mind you because TELSTRA won't upgrade the local switch
> from shared RIM service so I have a choice). I wonder if de Ridder
> advised Telstra on that little decision......
>
> Jan
>
>
>
> Melbourne, Victoria, Australia
> jwhit at janwhitaker.com
> blog: http://janwhitaker.com/jansblog/
> business: http://www.janwhitaker.com
>
> Our truest response to the irrationality of the world is to paint or
> sing or write, for only in such response do we find truth.
> ~Madeline L'Engle, writer
>
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