Time to get rid of wholesale connection charges

Those who have known us for a while will know that one of the unique benefits of our service is our daily billing method and the ability to “pause” our service at any time. This allows people who don’t need our internet connection all the time, such as for a holiday house or because they only have very sporadic internet needs (e.g. kids at weekends) to turn our service on for a day at a time. We do this by actually disconnecting the service while it is paused, but saving all the details so that it can be reconnected as it was before when required.

This is really only possible financially if there is no connection charge – a charge levied by the wholesalers every time a connection is established (or the retail service provider is changed). The practice dates back to the old copper days where to establish a connection Telstra would have to send a technician out to physically hook up the wire. In those days it did actually cost the wholesaler to do this. However nowadays with computerised provisioning (which takes just a few minutes), it costs the wholesaler nothing to do this. 

When NBN came onto the scene they decided from the beginning not to charge a connection charge, and based on this lack of charge we were able to develop our current pay as you daily internet product.

However Launtel are now providing services on other wholesale networks such as Opticomm and LBNCo. We were horrified to find that Opticomm were charging $69+GST and LBNCo were charging $99+GST. Since the merger of Opticomm and LBNCo, they are aligning the price at the higher of the two $99+GST in April 2021. The net result is that every time a service is “unpaused” we are charged $99+GST. This clearly makes pausing and unpausing completely unviable financially on their networks. Just to re-iterate this is a charge for an action that costs them virtually nothing due to their automated provisioning (which is very good, particularly on Opticomm, most services are provisioned in minutes).

However not only does this mean that we cannot offer our service pausing for the minority of customers on their networks, but it also has significant implications for competition as a whole. Every time a customer changes retail provider this fee also must be paid to the wholesaler (some retailers pass it on others do not). One wholesaler actually promoted this to us retailers as a way to reduce this “churn” – the retailers are more likely to get “sticky” customers, i.e. reduce competition. This feels very much like the old idea of a 12 or 24 month contract. We think this is a bad idea: customers should feel free to try multiple providers until they find one they like. Interestingly even in the old Telstra copper days the connection charge did not apply when changing retail providers.

We offer a no obligation free trial to our customers, while a good percentage go onto take the paid service, adding this connection charge further increases the outlay that we have to make to get a new customer.

There is also a perverse incentive around this connection charge: the wholesaler has an incentive to provide a poor service. Typically if a wholesaler’s network gets congested for an extended period of time due to overcommitted backhaul, customers tend to switch retail provider in the hope of avoiding the issue (which they can’t – all retailers use the same wholesale network). The wholesaler collects a connection charge each time the customer does this. In other words they profit from the overcommited backhaul.

We are surprised that the ACCC allows this charge at all – their stated position is that a wholesaler may not charge any more than an equivalent NBN service without special permission. Did they really not take into account these connection charges?

With the increasing use of 5G mobile broadband plans, wholesalers are coming under increased competition from the mobile network. The mobile network suits many people who move around a lot, which is particularly common in the apartment dwellings that wholesalers often specialise in, because they just pick up their router and take it with them. Our quick provisioning and daily pricing often also works in this market – people connecting up only when they need it. One wholesaler boasted to us that they had 80% of a block connected. What about the other 20% we asked, they probably have internet, just not your internet.

It is worth pointing out that these wholesalers are pretty much always monopolies. While the idea of infrastructure competition (multiple wholesale networks offered to an address) sounds good in theory, it very rarely actually happens. You end up with a bunch of monopolies instead. No new provider is going to roll out infrastructure to a building that already has existing infrastructure just to go into competition with incumbent – they are more likely to pick a building without any competition (or only a competitor using a poor technology such as FTTB). So while the developer may have a choice of provider, the end user, probably just a tenant of the building, has no choice and must go with whatever the developer chose.

While I said earlier that NBN do not charge a connection charge, they are proposing to introduce a small one of about $5. This is probably small enough that while we may have to pass it through, will not stop people pausing their service. However, we believe it is a move in the wrong direction.

We believe that connection (and churn) charges are a hangover from the past and now are just being used as a way to raise more revenue by the monopoly wholesale providers while avoiding raising their monthly wholesale prices. It is produces an anti competitive environment where even changing retail providers is harder than it should be.

Damian Ivereigh
Launtel
11/01/21