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Closing the Trans-Tasman Broadband Value Gap

Closing the Trans-Tasman Broadband Value Gap

Posted by Shara Evans in Market Clarity Newsletter 17 Oct 2011

Comparing Prices in Australia and New Zealand

17 Oct 2011

 

When Australians complain, as we often do, at having to live with data caps on our broadband service, we forget how much worse off New Zealand broadband customers are compared to us.

Market Clarity completed a study, Closing the Trans-Tasman Broadband Value Gap – Comparing Prices in Australia and New Zealand, which we have published for free, that compares the value of Australian broadband services to New Zealand services. While Kiwi ISPs have closed the gap between 2010 and 2011, Australian customers can still count themselves relatively fortunate.

For this study, we measured value on the basis of data allowance and price — in other words, how many GBs per month are offered by ISPs in the two countries at various plan prices.

The differences are quite startling, particularly at the middle and low ends of the respective markets, which still forms the bulk of broadband end users. Even at the entry level, Australia’s 20 GB download allowances look generous compared to the 1 GB entry-level offerings that still exist in New Zealand. The story is similar at the median of close to 200 plans we analysed: Australian customers are offered 200 GB allowances compared to the New Zealand median of just 20 GB in 2011.

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It’s only at the premium end of the market that Kiwis enjoy similar download allowances to Australians, with New Zealand finally seeing the launch of its first Terabyte plans in 2011. However, as in Australia, premium allowances are only on offer to customers prepared to pay premium prices.

Value-for-money likewise shows startling differences: an Australian mid-market broadband customer is paying around $AU$0.37 per GB (down from $AU1.12 per GB in 2010), while a New Zealand mid-market customer can expect to pay $AU2.17 per GB (down from $AU4.60 in 2010).

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The following Figure shows the distribution of broadband plans in Australia and New Zealand by price and plan data allowance in 2011, where the bubble size correlates to the plan’s data allowance.

image-106-bubble-2011-small

Our key findings are as follows:

  • In 2011, Australian providers reduced the number of available plans, while New Zealand consumers enjoyed an increasing number of plan options.
  • New Zealand broadband plans have become more distributed in terms of price range than in 2010, with several low priced plans with large data allowances dominating the Figure.
  • Australian broadband plans cluster at the mid range of the plan price spectrum. And, with several notable exceptions, Australian plans tend to have larger plan allowances than in New Zealand, resulting in a lower price per GB. (Note: Due to the overlap in plan pricing between Australia and New Zealand, some of the lower end Australian plans are obscured by the lower priced New Zealand plans with large data allowances.)

The research suggests the beginnings of a catch-up on the eastern side of the Tasman Sea. With any luck, the introduction of high-allowance plans in New Zealand will mirror Australia’s experience over the last few years. If the New Zealand experience is the same as we have seen in Australia, ISPs there will find that plan upgrades are a valuable and relatively low-cost churn reduction strategy, and as a result, bigger allowances will start to filter their way down to lower-cost plans.

However, this also raises another question for Australian consumers: how sustainable is the business we see in this country?

Whether Australians get to keep their relatively large allowances is going to depend, in the long term, on how well our usage behaviours map to the service prices offered on the National Broadband Network.

Market Clarity has spent a lot of effort on this question as well, producing a comprehensive bandwidth and price scenario model of the National Broadband Network. This model, available for purchase here, takes into account the NBN variables an ISP needs to consider — the cost of NBN access circuits, the cost of the NNI and CVC connections the ISP needs to buy (as well as the provisioning rules under which they’re bought), the likely backhaul cost based on our knowledge of Dark Fibre and Wholesale Ethernet service benchmark prices, and so on, on a POI-by-POI basis.

What has become clear to us, and to users of the cost model, is that ISPs need to pay close attention to how they intend to provision the services they buy from NBN Co. The complex interaction between different components of NBN Co tariffs, and the expectations and requirements of the retail ISP’s customers, all have to be taken into account in provisioning a retailer’s purchases from NBN Co.

If any of these components are out-of-whack — or if NBN Co cannot produce a wholesale price book that matches end users’ needs — then data allowances are one of the components ISPs are going to examine to keep their own costs under control.

It’s vital at this stage, while NBN Co is still in a position to respond to industry input, that retailers understand how its tariffs work, how they might impact retailers’ businesses, and how they might be improved.

 

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