Submission to ACCC DTCS 2018 consultation
Damian Ivereigh, CTO, Launtel Pty Ltd
12th April 2018

[NB:
DTCS – Domestic Transmission Capacity Service – “Backhaul”
LTIE – Long Term Interest of End users – “Consumers”]

I own and operate Launtel, a relatively small NBN service provider in Tasmania. Almost our entire market is in Tasmania so we are heavily affected by the pricing of both intra-state and across Bass Strait bandwidth.

I have two points I would like to make:-

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1Gb limit now too low given current traffic
The current maximum of 1Gb, we believe, is now too low a limit for the DTCS to not apply. We are currently purchasing 2.5Gb and there is no way we could be considered a large provider able to negotiate good rates from the cable operators. In the NBN space it is not unreasonable to allocate 2Mb per connection – this puts 1Gb at just 500 customers.

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“Wet section” uplift to Tasmania does not promote competition
We believe that currently the large uplift of pricing for the “wet section” across Bass Strait (while intended to promote competition in the cable operator market) has had the opposite effect in the retail internet market. We strongly believe the 2016 DTCS determination has failed the LTIE test for Tasmania.

No new players have entered or show any significant signs of entering the cable market

The cost of laying new cables across Bass Strait is extremely high, yet the bandwidth market in Tasmania is not large (approx 600Gb) – most of which is not supplied under the DTCS anyway (I.e in blocks larger than 1Gb). For a new entrant to lay a new cable to Tasmania, they would have to be confident that the market will grow to accommodate them and they would not just be taking business from the existing operators. Without a growth in overall bandwidth it would simply lead to higher overall costs (capital etc) being paid for by the same amount of bandwidth sold.

We believe this is such a massive barrier to entry that we are unlikely to see a new operator enter the market. In other words the “wet section” uplift does not, in practice, actually create more competition in the cable operator space.

National pricing leads to poor outcomes in the retail space for Tasmania

Most (if not all) national RSPs have standardised retail pricing across Australia. Generally the differences in backhaul costs to different places is considered minimal enough that they can just be spread across the RSPs entire business and the same retail price is charged. However, this backhaul cost is not true with Tasmania; where the costs are often many times higher. In this situation the RSP must either have a lower quality network in Tasmania (more congested or less redundancy), decide not to offer services to Tasmania, or deliberately run at a loss (i.e. Tasmanian internet connections are subsidised by mainland ones).

As a small RSP in Tasmania we are faced with this same choice, except that the last option of running at a loss is not available to us given that we have no mainland portion to provide for that cross subsidy. We are therefore left attempting to compete against companies that are either making a loss or at least running with much smaller margins. We have had to restrict our services to those willing to pay more or support a local business.

High prices leads to reduced bandwidth purchases

One of the biggest barriers to the overall reduction in price in bandwidth to Tasmania is the relatively low amount of bandwidth purchased. Given that much of the cable operators costs (or required returns) are fixed regardless of bandwidth sold (in other words the incremental costs per Mb are very low), anything that can be done to increase bandwidth purchased overall will improve the competitive situation. This has occurred repeatedly on the Mainland. Having a high DTCS price for Tasmania does the opposite.

Current DTCS pricing leads to poor LTIE outcomes in Tasmania

We contend that this extra cost of bandwidth across Bass Strait negatively impacts the LTIE either directly or indirectly. Directly by being sold a poorer quality network or inability to access some providers; and indirectly by having to pay more for their internet.

The soon to be implemented NBN 50 bundle is setting the benchmark for the standard residential grade NBN connection. It includes 2Mb of CVC and is being sold by NBN for $45/month. Let us assume that IP Transit or peering costs $10/Mb on average.

We note that the 2016 DTCS price for 500Mb from Hobart to Melbourne is $12,202/month ($24.40/Mb). The same sized “tail-end regional” connection is $2,762/month ($5.50/Mb).

The direct cost price of providing the NBN50 bundle to a regional area is: 45 + 2*(5.50+10) = $76/month

The direct cost price of providing the same bundle in Tasmania is: 45 + 2*(24.40+10) = $113.80/month

That is an increase of $37.80 – almost 50% – in the direct costs that someone (RSP or end user) has to pay per connection per month.

It should also be noted that we have been finding that, to offer an “unlimited” (no data cap) connection, becoming the standard on the mainland, requires in excess of 3Mb per customer – this widens the gap in the above calculation even further.

As bandwidth demand increases, Tasmania is in danger of becoming stranded as a high priced and/or poor quality internet region of Australia. This is particularly ironic given that is has the highest penetration of NBN FTTP and thus should have some of the best internet!

Evidence for our submission

Launtel opened residential services in October 2017, priced similar to the market. After rapid growth, by January it was clear the growth was not sustainable at the current prices. We had to reprice the 50/20 (the entry level internet) at $105/month for a 750GB download service – well above the market.

Aussie Broadband initially opened up services in Tasmania in September 2017, by April 2018 the whole of Tasmania is on “stop-sell” awaiting a bandwidth upgrade. This has been slated (according to their website) for 31st July – a significantly longer period than normal. Phil Britt (CEO) has written on Whirlpool that Telstra charge “drug money” for the link – https://forums.whirlpool.net.au/archive/2716701#r56143304 and they are expecting to negotiate for better pricing.
Phil Britt has stated that they have no plans to upgrade to do the same 10Gb links or provide redundant links that they are doing on the mainland due to their cost – i.e. they are providing a lower quality network.

Damian Ivereigh
CTO Launtel

What’s the change?

 

As of today, April 5, the current pricing starting at $2.50 will no longer be available to new account holders and the starting price will be $3.50 for a premium 50/20 connection. The highest speed tiers have dropped in price with the 500/200 tier going down by $1/day and the 1000/400 going down by $5/day. Existing account holders will be known as Legacy customers and will stay on their existing pricing.

As of Monday, April 9, all connections will have a daily 25GB data allocation that will carry over in to a ‘DataBank’ that can build up a chest of data up to 750GB. This allows customers to have big and small days without hitting caps. If you do need more data they can buy more at $1 per 5GB block (great value considering mobile data is $10/GB).

We will also be removing any promotion of Fixed Wireless and will no longer offer this service for new users. It simply doesn’t allow us to deliver a ‘premium’ service. Any existing Fixed Wireless users will not be affected at all.

 

Why the change?

 

1. We never expected Resi to be as popular as it was and priced it too low for the costs required to scale up and maintain a premium service.
2. We underestimated the bandwidth required by residential users and particularly the Netflix effect.
3. Further redundancies and equipment upgrades require considerable investment.
4. Our original ‘connection only’ type of offering soon became relaxed and our culture of wanting to help just couldn’t stay so distant. This level of support service has a hard cost and we needed to factor this in.
5. Tasmanian internet connections cost a lot more to deliver than in other states due to Bass Strait and the high cost of backhaul which is approximately 5x-10x higher than any other link on the mainland.

We had the choice to either change the pricing structure or close off Resi services to new customers. We’ve chosen to create a network that is better than what else is in the market and price it as fairly as possible to allow it to grow ahead of customer need.

 

What criteria did we consider for ‘Resi 2.0’?

 

1. It must support a premium network that is uncongested.
2. It must be simple to use and understand.
3. It would maintain daily pricing and the flexibility that customers have enjoyed previously.
4. We would reduce the amount of cross subsidisation between high end users and low end users.
5. We will build in ways to be grateful for customers who stay with us.
6. It should be scaleable so that it earns enough to allow the network to grow ahead of need and to generate further redundancies.

 

The advantages of our ‘premium network’

 

• No slowdown at peak times
• Free Data Midnight – 6am
• Local Tasmanian support
• Daily price includes Tassie transit tax (an understanding that backhaul costs a lot more over the water – it’s not an actual tax)
• 25GB daily allocation with unused portion rolling over to a ‘DataBank’
• Monitoring and tech explanations via Launtel Users Group
• No contracts, connection fees or fees for bills
• The ability to connect and disconnect services with no fees
• Rewards and Bonuses (more to be announced as implemented)
• Managed Services Section in the User Portal
  • Real World Static IP as an option at 25c/day
  • Choose to have Download only metered at 25c/day
  • Disconnect or Reconnect (Standby coming soon)
  • Set your maximum daily price if you’d like to allow automatic adding of data packs
  • Casually add a data pack if your DataBank runs out
  • Set up automatic payments

 

 

How this affects existing customers

 

1. Sales of Legacy (old) pricing have been stopped today (April 5).
2. All current user accounts will be grandfathered until AT LEAST August 31, 2018. If an existing account user still needs a Static IP this can be added for 25c. Your accounts will automatically be allocated with a 750GB DataBank and whilst you will keep your existing pricing, you will fall into line with new plans that allocate 25GB of new data per day (meaning you will have 1.5TB of data allocated over the next 30 days). This DataBank acts just like a bank account in that data goes in each day and you’ll use some each day, so the 750GB start will see even heavy users sorted for quite a while. You will only be able to claim your legacy pricing on one connection per location ID.
3. As extra data packs are not available on Legacy pricing, should your DataBank run out, you will need to transition to new pricing. Please keep in mind we’ve given you a head start and anyone using over 25GB on average is a high user of our network. This affects around 9% of our users. You might be able to stay on legacy pricing even if you use more than 25GB per day by taking advantage of the free data between Midnight to 6am.
   

 

New Customers

 

1. New pricing is live now.
2. The trial period is still 7 days but is now a 100/40 connection not the 250/100.
3. The 25GB daily data allocation will be installed by Monday April 9 for all new users.
4. Fixed wireless will no longer be available as of today.

 

FAQ’s

 

Why has Unlimited gone?

We used to have a fair use policy of 50GB per day or 1.5TB a month but it was never policed. Quite simply, we need to put on a daily allocation that you can accrue. With about 8% of our users using 30% of our network, we would have had to put the price up higher for everyone if we didn’t separate out the highest users. The highest users, should they not want to be shaped, will contribute by paying $1 for each extra 5GB they want in their DataBank. A majority of our users never hit near the 25GB per day on average, and because you can carry unused portions in to your DataBank, even if you used 40GB in one day, it would transfer from what’s accrued in your DataBank. PLUS there’s free data between midnight and 6am.

Why has the pricing gone up?

We had a hard decision to make. Either stop selling residential services, or adjust the pricing structure so that we could afford to offer it and scale it up ahead of consumer needs. It’s important to note that Aussie Broadband have closed off new orders.

Will my accrued DataBank expire?

No. It will keep accruing up to 750GB and stay on your account as long as you keep your account open or use it. We call it a DataBank because you don’t need to use all your data at once. You can use it up or you can save some ’til later. It’s just like a bank account but for data.

What happened to netload?

It’s simply too hard, it’s too different and complicated, brought up some weird consequences with surprises and spiking and we decided it was either good network or not. We didn’t want to have people on lower speed tiers that didn’t understand if our network was premium or not.

Will netload ever come back?

Maybe but not for the moment. We figured it was easier to go to metered data (uploaded and downloaded) but we haven’t lost interest in the innovation.

But then how do we address peak load?

We’ve done this by introducing free data between midnight and 6am and we’ve added more of a buffer between the average load and our maximum bandwidth.

So why data transferred as the measure?

Whilst Netload sought to temper heaviest users at peak times, it was delayed in how long it took to respond to the high usage. Data transferred is much more definite as an instant measure and ‘shaping’ can happen immediately once the DataBank runs out.

How can other companies offer it cheaper in Tasmania?

There are two things: most major carriers set their pricing on a national scale so keep pricing uniform even though Tasmania is much more expensive to transfer data. To offset that extra cost they just put more people on to the same shared network which inevitably means a more congested, slower service. Each day they add more people, you’re getting less than what you’re paying for.

How can other companies offer unlimited data in Tasmania?

The mainstream carriers, whilst offering things like ‘Liimitless’ connections are actually a limited connection. Sure there’s no hard data limit, but the network is so congested you’d be hard pressed to really use lots of data when you really want to. It’s a bit like saying we’re removing speed limits on the highway, only to find yourself in a traffic jam where you can’t speed anyway! We’re offering a large allocation of data that isn’t exceeded by 90% of our users and customers can accrue data in their ‘DataBank’ for rainy days of Netlfix!

Why we say “allocated” 25GB not “limited to” 25GB…

A limit would infer that you lose what you don’t use. Instead 25GB is allocated each day and accrued in your DataBank (visible in the portal) up to a limit of 750GB. So you have that 25GB plus whatever you’ve already accrued from days before, PLUS FREE data Midnight – 6am.

What happens if a Legacy user needs more than 25GB a day?

5GB Data packs are not available on legacy pricing. They will need to move to new pricing model once they exhaust their 750GB DataBank allocation (keep in mind they’ll still be allocated another 25GB every day). But if they decide they need to move, they will need to contact us directly so their account can be moved to new pricing. Eventually there will be a button for our 900 users to shift to new/current pricing.

I’m a heavy user, what happens if I need more data on legacy pricing?

Whilst your DataBank will start off full with a 750GB allowance, and you get a new allowance of 25GB each day, we understand a very small number of customers may not wish to schedule their downloads for off peak free data period or be interested in using other data reduction methods. In that case you will need to advise us that you’d like to switch to the new pricing method so your portal has the data packs. We do understand that some people may choose to go to a telco with congestion but with unlimited data. If that’s the case, we understand that we can’t be everything to everyone. We can’t be uncongested and unlimited for a price anywhere near what we’re offering.

Why are we not offering Fixed Wireless?

Frankly Fixed Wireless causes a lot of disappointment and a lot of support issues. There really is no point in offering a premium network if it is only going to be connected to a poor quality NBN network. Our premium service is also about fixing issues. However the biggest issue with Fixed Wireless, congestion, we cannot fix. However we still spend a lot of time lodging tickets to no avail. So being blunt we really only want to accept clients that understand that it is a poor service and are willing to accept this.

Still have questions? Feel free to go to Launtel Users Group and we’ll add it on here for others to read too.

Why is this change needed?

We’re stuck between a rock and a hard place.

The rock is the costs of delivering a great network such as the CVC charge from NBN, the backhaul including those cables across Bass Strait are all costs we need to pay that don’t vary. The hard place is that consumers are using more and more streaming services which requires us to expand the network to cope, but often no one wants to pay more for that privilege.

Additionally, the internet is the most complained about industry in Australia. People hate that they don’t get a great product (with other carriers), but often don’t recognise that the crappy networks are a product of carriers congesting their networks to keep prices low. So in short, we need to find a fairer way to pay.

We’re committed to delivering a ‘NO CONGESTION’ network, and to do this we need to ensure we expand ahead of needs – that means buying more bandwidth than we need on average (so we can handle the peaks). This has to happen across the network and to upgrading our hardware too. If you thought of our network like a series of highways, we need to ensure we have enough lanes, even at peak time, so that those with cars with great top speeds can actually use that speed without getting caught in a jam.

Whilst the usage of internet has been traditionally measured by amount of download, it’s actually streaming services that ‘hog’ the most network and they usually come at peak times. This ‘Netflix effect’ is causing congestion problems for all carriers but no one is creating a sustainable solution.

Now this isn’t an exclusive problem to us, but instead of fixing it, other carriers are letting their networks get congested which makes for a crappy experience – that’s why NBN is the most complained about service in Australia through the ombudsman (even though it’s often not their fault).

Here’s a video that explains congestion (it’s a great watch):

What is Netload?

Since the beginning of the internet, ISPs have always needed to provision more bandwidth in their networks to ensure that there is enough capacity to satisfy the demand from their users. Here’s a typical usage graph for our bandwidth each day based on each hour. But now, most carriers go from good most of the time down to crappy at peak times. We want to have a perfect network that at worse drops you back to good.

We have to provision enough bandwidth for those peaks. If we don’t, then we see congestion and the resultant “network crash”, where all the connections slow right down during those peak periods.

Connections have previously been priced using Download or Speed (or a bit of both), but there are problems with those models…

1. Download
When people are downloading files or doing general web surfing this is a start stop action where the network can be easily shared without really noticing. It’s the driving equivalent of being able to weave between lanes of traffic. So even though people may be using lots of download, it could be in off peak times (when there’s plenty of bandwidth available), or even in peak times the user experience isn’t impacted as much by a slower file download than if you’re watching Netflix and it buffers. So it isn’t really fair to charge people top dollar for big downloads when many of them do it when there’s plenty of network available. Plus when people go over their amount of downloads, they then end up shaped to speeds too useless to use.

2. Speed
Another method which has been used in the past is to price on connection speed. You make the assumption that people who ask for a higher connection speed will use more bandwidth and you charge more for those higher speeds. NBN do charge a little more for speed differences anyway so why not just add to that? The key advantage to this is that there are no download limits to bother with – its a simple product to sell. The biggest issue with this method is clients feel they’re paying for a particular speed and if they don’t get it (during peak times for example), they rightly feel they’ve been cheated. Also, speed and download don’t actually correlate. There are plenty of users who don’t use very fast speeds, but actually consume a lot of bandwidth.

An alternate model – netload
Given the failure of the above models to fairly distribute the costs of running a network, we looked at other models and found burstable billing. This captures the load that streaming was putting on our network, by giving an average peak load measure. This would allow us to more accurately measure the load clients where putting on the network. We have adapted it to work in the daily environment and created a measure called netload.

How is it measured?

This is about getting a fairer system for charging that’s flexible for you to design the type of connection you most value.

1. We take bandwidth samples every minute throughout the day, which might look like this:

2. We then take all those samples and reorder them according to value, so that we have this:

3. We then take a point 120 samples from the left  – 2 hours worth and see what that sample reads – that is the netload value. As you can see the biggest 2 hours worth of samples – the peaking activity – are ignored, but anything that creates a constant load over significant time, like streaming, shows up in a higher netload value.

The benefits of this model

• Moving from what is now a low congestion network to a No congestion network.
• You get to choose the power of your own connection.
• Everyone starts the day on a no congestion network and will only move to some congestion if they exceed their chosen netload.
• 50GB Daily Data limit removed.
• The faster speeds become cheaper for lower netload users.
• It’s a fairer system that means that light users are not subsidising the heavier users (currently 6% of our customers use 40% of our network and pay the same price)
• The system is scalable so the network can continue to grow ahead of your needs so we can stay an honestly uncongested network.
• No bill shock as you can set your daily connection price, with an optional buffer limit if you go over your daily netload allowance.

You can still:

• Connect in as little as 20 minutes
• Disconnect if you like.
• Change speeds as you like.
• Do a 7 day free trial which is a great way to see your netload usage.

 

How will it be charged?

Step 1. Choose your connection speed (the prices have either stayed the same or lowered considerably on old pricing).
Step 2. Choose your pre-determined Netload. Each connection includes 1 netload per day, but you can add more if you like at 80c per netload. You can also see your average netload in the user portal so you can manage your costs and usage. This pre-determined amount will ensure you are on a ‘no congestion’ network until your netload (average peak speed across the day) hits the limit.

At this point you will either fall back to a ‘some congestion’ network, or you can set a buffer as below…

Step 3. Set a buffer for extra netload should you exceed your daily precommitted allowance. The extra buffer netloads are charged at $1.10 per netload.

FAQ’s

What will happen if I run out of netload?
During peak times, if you have hit your netload limit, then you’ll shift from being on the ‘No congestion’ network to a some congestion network.

Can I add more netload?
Absolutely. If you pre-commit each Netload allowance is 80c per netload (can set in 40c increements). If you’ve set a higher ‘buffer’ for when you go over, these netloads are charged at $1.10.

Do I have to use the buffer?
No. You can set your daily fee at $3.80 (this would be a 100/40 with 2 netload) and set your maximum daily also at $3.80 which means you’ll be shaped to 2Mbps at 2 netload. Or you could go a 50/20 connection at $2.50 plus 2 extra netload (total 3 netload) as a total maximum cost of $4.10 per day.

Do I have to use the pre-commit?
No. Every connection includes a netload of 1, however you can decide not to purchase any more ahead of time and set your buffer limit instead. Then the system purely charges you on usage, with a pre-set limit. It is more expensive to do it this way, but could work out cheaper if you have a highly varied daily netload.

How do I know how much netload I usually use?
Your last 28 days of netload usage will be shown on the user portal, so you’ll always be aware. We will also be showing you minute by minute daily usage so that you can see what activities use the most netload.

What do the price changes look like?
Here are some examples of pricing with different netloads. You can pre-commit and set your buffer in 0.5 increments.

NBN Speed	Old Price	Base With 1 netload	With 2.5 netload	With 4 netload
50/20	$2.50	$2.50	$3.70	$4.90
100/40	$3.50	$3.00	$4.20	$5.40
250/100	$5.50	$4.00	$5.20	$6.40
500/200	$8.50	$5.00	$6.20	$7.40
1000/400	$14.50	$7.00	$8.20	$9.40

When will this be rolled out?

All new customers will go on to new netload pricing at the end of this week. Existing customers can stay on the old pricing until April 1. We’ll be offering some sweeteners to move earlier.

Want to know more?

You can ask questions in our Launtel Users Group. If you’re not yet part of the Facebook group, request access here.

Thanks again for being part of this journey. Our dedication always remains to delivering Australia’s best nbn connections.

*New Residential Customers on Hold*

As we’ve advised previously, our residential service has been popular beyond our expectations. People love to have the flexibility of our unique user portal, but also they appreciate actually getting the speeds they pay for with a no or low congestion network.

We’ve also found that when people have great internet, they use it MUCH more than industry benchmarks would indicate.

We’ve previously advised that we would need to launch a world first pricing model to ensure:
> we avoid the pitfalls of other congested telcos
> we deliver a fairer way of charging so that heavier users weren’t being subsidised by the light users,
> that our network would stay uncongested for everyone even as future needs expand.

Our new pricing model is in the final stages of coding now so it will give you the ultimate power to build the connection that best suits your preferences and your budget.

The new netload pricing is fairer, the faster speeds become cheaper, and we will return to being a No congestion network.

However…

A few nights ago, our network hit some light congestion. It’s still not to the congested levels of our competitors, but we were watching the charts and saw a slowdown in peak times.

That’s not what we’re about.

It’s not the type of network that makes us proud.

Whilst the new netload pricing model will be launched tomorrow, we’ve decided to PAUSE all new Resi customer activations until the new pricing model is launched.

We’ve also ordered more bandwidth and are upgrading hardware so that when we reopen network access to new users, everyone can be assured that it will still perform like a dream in peak times.

THOSE WITH EXISTING ACCOUNTS: You can still create new connections.

NEW CUSTOMERS: You can still create an account and register for your free 7 day trial, however it won’t activate until next week (the 26th Feb).

BUSINESS CUSTOMERS: Are not affected by this at all.

We always put the quality of our network before driving revenue which is why we’ve taken this unusual step.

For anyone wishing to shift to launtel, we apologise if this is an inconvenience, but please note that once you’re a customer too, we will always ensure the quality of your service stays high.

Thank you,

Damian and the Launtel team.

Too many people (not our customers) complain that the NBN is too slow.

Well it’s not the NBN. The FTTN (fibre to the node) network, whilst crappy can still be good. The FTTP (pure fibre to the premise) network that most of Tasmania has is a beautiful network that’s reasonably reliable and flexible to fulfil data needs for decades to come.

So then why are some connections slow? The crew at CNet explain (sorry about the 15 second ad at the start).

Launtel Business network is a Zero Congestion network. Our Residential network is currently low congestion (much lower than our competitors), but will become a no congestion network in coming months.

If your speeds aren’t what you’re paying for, tell your current provider you want out of the agreement or just give our free 7 day trial a go! We can show you how the NBN was meant to be.

December 2017 – A message about balance and fairness.
After opening up our network to residential users for the last two months I can now report back on how it’s going. In a nutshell most people have been amazed at the quality of our network and our ability to fix problems (particularly on FTTN). This has also been demonstrated by the rate at which we’ve grown – we’re at almost 400 customers in just two months.

However we have seen a rather different usage pattern than we expected. Some of you may remember back in August that we gave away a quarter gig trial. This was intended to measure the network load that we should expect on the network. It turns out the data from that trial was not as useful as we expected!

When we went live we originally intended to only offer speeds from 100/40 upwards. However at the last minute we decided to offer a 25/5 mainly to have a cheap tier that people could scale back to when they weren’t using it.

What took us by complete surprise was that more than half of our customers went on to the 25/5 speed tier. Now that’s not a problem, except…the amount of network load created by the people on the 25/5 speed tier is out of proportion to those on the higher tiers. In the business world of internet there’s a rough correlation between the speed a business wants and the amount of network load they create. In short, the higher the speed the higher the load. So you can use one as a proxy for the other. This is important because on the NBN the network load (CVC) is a good 70% of the cost of a connection.

BUT …that correlation doesn’t happen in residential it seems…

The reason is streaming services, such as Netflix. The outcome is that we’ve ended up using more of the available CVC bandwidth than we expected for the amount of revenue we receive (because the 25/5 speed is $2.00 a day whereas the 100/40 is $3.50 a day). We’ve got away with this so far because we had spare capacity on our network since we turned on the Gigabit for business. The problem will come when we continue to expand the network and bring more residential users taking up a lot of network load.

The other thing we have been surprised about is the amount of staff needed to manage support, particularly for FTTN customers (who at first we weren’t going to accept but realised that was unfair). Given that we’re looking to grow in this area – since there appears to be massive demand for a company that can actually fix people’s issues – it’s clear we’re going to need more staff. We want to employ Tasmanians for these roles both in our office and as roving technicians. Of course people don’t work for free!

So we have three choices:
1. We don’t expand our network and just take on more clients until we get enough revenue. This will lead to increasing congestion on our network.
2. We stop new people joining our network.
3. We raise our prices.

Option 1 is out of the question, we only got here by having a good network, people have chosen us because we have a good network and we are not going to change that, ever!

Option 2 is possible but it seems a shame to turn people away that clearly are looking for a better product than they are getting from the other carriers.

So we’re left with option 3…

Raising prices in the telco industry is always fraught with danger, because people are used to prices falling and we know, sadly we may lose customers. However the NBN has created a “step change” in the cost structure such that the basic $65/month internet connection is no longer viable if you want to have a decent experience. Given all the issues that the big telcos have got into recently with false advertising, even they realise that you can’t deliver a great network and keep prices low. In fact we may well see some price rises from them. Right now they’re just being forced to admit how congested their networks are. Even NBN are pushing retailers to start delivering better networks.

So what’s going to change?

As of midnight on the 29th/30th Dec 2017 for new people who come onto our network the minimum NBN speed tier will be 50/20 and that will be $2.50/day. We’re also standardising the pricing for each technology (FTTN, FW and FTTP will all be the same). This will mean the price of the 100/40 NBN speed tier on FTTN will move to $3.50 a day to match the speed tier on FTTP.

For our customers on Fixed Wireless, we understand you don’t have many speed options and we’ll maintain the 25/5 availability for you at the current $2/day price point.

If you’re already on our network (including signed up for a trial) by that date, then you’ll stay on the current pricing until the beginning of February. We hope that you appreciate the quality of our network and will stick with us.

Secondly, we don’t yet have a date set for this, but we’ll be moving the heaviest users of the network (around the top 5%) to a new system called “Network Load Pricing”. Essentially those who use the network more heavily the system will need to pay a bit more for their ‘exclusive’ load on the network. It just isn’t fair that 95% of the users subsidise the heaviest needs of the top 5% as much as they do.

What’s Network Load Pricing you ask?

Currently we price our connections on speed (higher speed, higher price) and then essentially allow you to use as much network capacity as you like. However as we noted above, this is clearly untenable in the long term. We need to put a price on the service that more accurately reflects usage patterns so we can afford to keep the network functioning at the level you’ve come to expect.

Traditionally Internet Service Providers (ISPs) have used downloaded data (Gigabytes per month) as a method for measuring usage. However streaming services like Netflix have arguably ruined this method because as an ISP we’re concerned with “peak load” – between 6pm and 10pm. Netflix creates a constant load on the network for several hours at a time – it uses CVC bandwidth that cannot be shared with anyone else.

Now, if we don’t want congestion on the network, we have to consider the maximum needed not just the average. Indeed I believe that this “Netflix effect” is one of the reasons that the big telcos have got into so much trouble with the performance of their networks.

So we’ve decided to innovate in this area and use the same measure that’s used for billing that many carriers use when selling to each other. It’s called burstable billing. There’s quite a decent article on wikipedia about it: https://en.wikipedia.org/wiki/Burstable_billing

We’ve been calculating this for you for the last few weeks – if you look in the portal under usage, you’ll see your daily “network load” along with a 7 day moving average (i.e the average of that day and the previous 6 days). We’ve put a 7 day moving average in there because this is likely what we will use for charging – it smooths out many of the daily variations and avoids “bill shock” because you know what tomorrow’s charge will be.

Our intention is to reduce the price of the fixed connection speed (to around $1 per day) and add in a “netload charge” that is between $0.50 and $1.50 per day per “netload” in Mbps. We don’t know the exact price yet (hence the range), because we aren’t exactly sure where the limits of our current network are. This will mean that the lighter users will get a lower price and the heavier users get a higher price to take into account the extra network we have to buy for them. Our intention is not to penalise the heavy users, just to reduce or eliminate the cross-subsidy that typically occurs between the light and heavy users.

So what contributes to network load? The biggest thing has to be high bandwidth streaming – Netflix in HD! Additionally some people don’t even connect a TV antenna anymore, they just stream SBS on Demand, iView, Stan, Foxtel, 7Plus, YouTube Red…the list goes on. The constant bandwidth of HD streaming usage of about 5-8Mbps will put your netload up to that value so watching Netflix in SD will be better. Downloading files doesn’t really increase it that much. If you look at your usage graphs you can see the amount downloaded and compare it against your netload.

There is one really cool thing about using netload pricing: when you go on holiday your costs naturally comes down as your usage tails off, you may not need to bother to disconnect.

I would very much appreciate any feedback you have about this, there is no question we have to raise more revenue to pay for further expansion of the network. Our focus is on doing this in the fairest and most sustainable way possible.

Unfortunately it is as simple and stark as that. We shouldn’t be so surprised though. It always costs more for higher quality, we realise that by taking this route we are asking people to make a choice between price and quality. We won’t criticise anyone for their particular choice, however we can only cater for one of them.

Damian

 

In Short

• Free Upgrade for all 25/5 connections to 50/20 connections until January 31, 2018.
• After this, and for all new signs ups, the price will be $2.50/day for a 50/20 connections.
• Heaviest users on the network (those over a 4Mbps network load) will be introduced to ‘Network Load Pricing’ in the next month with all users given the option soon after.
• Our commitment remains to stay agile enough with evolving internet usage trends to maintain Australia’s fastest nbn connections.