When Telstra slashed the monthly cost of its cheapest retail broadband plan earlier this year, it was predicted in this column that $29.95 was low enough to drive seriously accelerated uptake in what had been an under-achieving market to date. A host of ISPs immediately rose to the challenge and cut their prices in order to stay competitive with their giant wholesale partner. Surely, this was the start of the Australian broadband revolution we had all been waiting for.
But it didn’t take very long for industry leaders to scratch beneath the surface and find that all was not as it first appeared. The big problem with the new broadband price war, apart from the fact that Telstra failed to immediately redress its partner pricing, was the fairly conservative 200MB and 300MB download limits being imposed by the majority of competitors on entry-level plans. It took less than a week for one pundit to tell ARN that some consumers would be stung by bills of more than $100 on a monthly plan that was supposed to be costing less than $30.
Well, here we are four months down the track as the boys and girls of the local broadband market come back from school with their first report cards from high school tucked in their blazer pockets and duffle bags: “Shows signs of improvement but must do better. Has a tendency to follow the crowd and needs to show some initiative,” is the message for all.
A report released last week by a research organisation, Telsyte, warned consumers looking to sign up for the cheapest plans available to carefully monitor usage levels if they wanted to avoid paying a lot more than they had bargained for. While the price of signing up for a monthly plan had certainly dropped significantly, the report concluded that the average total cost of an entry-level residential ADSL service had dropped by less than one per cent. A punter signing up for a $19.95 plan, for example, would be whacked with a bill for $73.30 for downloading 500MB during the month and a whopping $108.27 for reaching 1GB — more than five times as expensive as the initial plan. This is not a successful pricing model in any business that comes easily to mind. The news was, however, a little more encouraging for SME customers. In the three months from February to April, pricing in this segment dropped by more than 17 per cent.
The findings have been bluntly dismissed by BigPond chief, Justin Milne, who suggested the report was “based on supposition, interpretation and intelligent guesses”. But while it is certainly too early to condemn the current market model to failure, the Telsyte report should be welcomed as another excuse to revisit the broadband debate.
A couple of months ago, I predicted that price levels would eventually bottom out and ISPs would start raising download limits as a way of differentiating their offers. This, it was suggested, would eventually lead to an ideal world were a $29.95 plan was just that. That is how the market operates in the UK — does anybody have a good reason why it can’t be done here?
Brian Corrigan is Editor of ARN. Reach him at email@example.com