Tuesday 6 August 2013

NBN: The $110 ARPU Fallacy and Coalition "Double-Speak"

Both the Turnbull Node Plan and Simon Hackett have criticised the NBN Co Corporate Plan because the estimated ARPU (Average Revenue Per User) for 2040 is expected to triple, to $110.

This is A Good Thing and if either of them actually think it isn't so, they can't claim to understand business. The ARPU is an indicator of Sales Volume for the Retailer, not an escalating charge.

The "$110" isn't a fee to retail customers, nor is it the most common fee charged. In fact, for over 70% of Customers, Retailers will pay one half to one-quarter that. The ARPU is (Total Revenue ÷ Number of Services), it allows a comparison within the business, of year-on-year performance. It's a standard metric used through the Telecomms Industry.

NBN Co is a wholesaler, the business model is that Retailers buy services from it, then resell them at a mark-up, to their Customers.


For "tripling the ARPU" to be A Bad Thing means the Retailers are forbidden to raise prices or they cannot keep making a 20%-25% Gross Margin on the Wholesale Price. Neither these scenarios, or any reasoning at all, is advanced by with Simon Hackett or Turnbull. The proposition is presented as "obvious".

Think about other businesses we all deal with on a daily basis where a good deal of their business is buying from a Wholesaler and selling at Retail:

  • Servo's selling Petrol,
  • Bakers, Milkmen, Newsagents, Grocery Stores, ...
  • Bottle Shops
  • Fast Food shops
In all of these businesses, a increase, if per-unit prices are stable, in what they pay their wholesaler is A Good Thing. It means they've increased Sales Volume, which means they've increased Revenues as well. If they've been able to maintain their mark-up, and neither Simon Hackett or Turnbull say Resellers won't, then their Revenue will increase.

Not only that, with economies of scale, improved Staff utilisation & specialisation and the Accounting "Learning Curve", they will decrease the per-unit Cost of Goods Sold, increase their Margin and increase Profits. That's not just A Good Thing, but a Great Thing!

Just ask any McDonald's Franchisee if they'd like to be paying McDonalds for three times the amount of food. Yes!!! They've just increased their Sales, and hence Revenues, by three times. That'd be worthy of a great party.

But on top of that, none of their overhead costs has increased and their staff are much busier.
They do more with less and Profits will increase faster than the cost of inputs, in a properly run business. They don't just triple Profits, they will go up at least 5-fold, more likely 10 fold. 

The "tripling of the ARPU" is a bonanza for ISP's and other NBN Retailers - it means their Revenues will increase by at least that and their Profits will increase more again. Implying the reverse, especially without any supporting argument, is absurd and incredible.

Just more Coalition "Double-speak": what's Bad is Good and what's Good is Bad.

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