Bill Morrow, CEO of the company behind the rollout of Australia’s National Broadband Network (NBN), has flagged the need for more of the network’s end customers to take up its higher-speed products if it is to meet its 2020 revenue target.
During nbn’s half-yearly financial results presentation in Sydney on 9 February, Morrow indicated that the company was seeing more growth in its 25Mbps tier and lower-speed product segments than its higher-speed offerings.
Morrow suggested that nbn would need to a greater uptake of higher-speed products to reach the $5 billion annual revenue target it has set itself for 2020.
While he cited a limited need among consumers for nbn’s higher-seed products and a low awareness of them among end customers, Morrow also pointed out that there was some take-up among end users for higher speed offerings.
“Already we are seeing more end users purchasing plans from retailers, based on the 100Mbps wholesale speed tier. nbn experienced the greatest incremental growth in this speed tier in the December quarter," Morrow said in a statement.
In its half-yearly report, the company flagged its average revenue per user (ARPU) rate as a risk factor to its revenue forecasts. The drivers of ARPU consist of both active end-user activity – determined by consumption volume – and price, which is pegged to speed rate.
According to the report, nbn has implemented a mitigation strategy to reduce the risks associated with its ongoing ARPU rate. Among these strategies is the close monitoring of market data and research, along with targeted business segment product development and value proposition delivery.
Additionally, nbn is conducting an ongoing review of pricing architecture, and has moved to dimension-based pricing for the connectivity virtual circuit (CVC) rates paid by retail service providers (RSPs).
“ARPU remained constant during the period, despite the reduction of CVC rates introduced in June 2016 and December 2016, reflecting a new dimension based discount (DBD) pricing model,” nbn said in its half-yearly report.
“This model, which reduced CVC rates from $17.50/month per Mbps to $15.25/month per Mbps, responds to the expected rapid increase in data consumption by Australian consumers.
“It also rewards RSPs with a discount (determined at an industry level) for delivering a greater allocation of capacity to end users,” it said.
During the period, nbn introduced a marketing program with RSPs to educate and inform end users of the different speed tiers available on the network in a bid to assist end users in the selection of the right product to suit their needs.
Broadly, connectivity revenue increased by $71 million (139 per cent), compared with HY2016, to $122 million in HY2017.
According to nbn, this increase in connectivity revenue is driven by the demand for CVC capacity by RSPs as active end users continue to grow and consume more data.