Jul 17 2019
As part of its wholesale pricing review, NBN Co has floated the idea of altering how online video streaming traffic is treated on its network. This change could take the form of a premium wholesale price for online video streaming being charged to retail service providers (RSPs), such as Telstra, Optus and TPG. Such a new premium wholesale service would likely provide additional bandwidth and speed for online video traffic, with the premium covering the additional cost of providing a consistent high-speed connection.
“If implemented, consumer internet plans without this premium option would have online video traffic throttled, slowing down web traffic from Netflix, Stan, Amazon Prime and other video-on-demand providers,” said IBISWorld Senior Industry Analyst, Liam Harrison.
Such a change could shake up multiple industries, including:
- Internet Service Providers
- Internet Publishing and Broadcasting and
- Wireless Telecommunications Carriers
Although NBN Co has denied any specific plans to introduce such a pricing mechanism, it has also not ruled out the possibility of such a mechanism being created. If a premium wholesale price for streaming were to be introduced, it would likely lead to RSPs charging higher prices for internet streaming-friendly plans.
“This price mechanism would consequently create a two-tiered system for video streaming, with users wanting a reliable streaming experience having to pay extra for the premium service. As a result, many consumers would essentially have to pay a ‘Netflix tax’ to continue enjoying their current streaming services at the same quality they enjoy today,” said Mr Harrison.
Mobile plans already offer a similar concept, albeit with limitations. For example, Optus offers a service in which customers can pay a premium on their current mobile subscription for unlimited data usage for Netflix and other select streaming apps. However, speeds for this unlimited data usage option are limited to 1.5 Mbps, which restricts streams to a standard definition resolution.
IBISWorld expects that introducing a price mechanism to account for video streaming usage would be both complicated and problematic. For NBN Co to create such a price mechanism, they would have to be able to differentiate video streaming traffic from other types of web traffic. Differentiating web traffic would either have vulnerabilities, such as being able to be easily bypassed, or raise privacy concerns, as NBN Co would need to scan data being sent through its network.
“These possible changes could also have unintended consequences, such as treating traffic like video conferencing, which is not normally considered video streaming, under the same broad umbrella. Treating traffic in this way would likely affect apps such as FaceTime and Skype,” said Mr Harrison.
The concept of treating streaming traffic differently has also upset some consumers, as treating different types of internet traffic with separate rules infringes on the concept of net neutrality. The rolling back of net neutrality protections in the United States has made the issue into a hot topic, with global media coverage likely to influence the debate in Australia. Although Australia does not currently have any explicit provisions protecting net neutrality, consumer law enforced by the ACCC has so far largely given internet traffic implicit protections that net neutrality would cover.
“The introduction of a premium service could also accelerate mobile substitution, which is already considered a threat to the NBN model. Although current 5G fixed-wireless offerings are in their infancy, they are already both price and speed competitive with wired internet services from the NBN,” said Mr Harrison.
With NBN Co struggling to develop a revenue base that will allow it to pay back its $19.5 billion government loan, it will need some creative ideas to generate new revenue streams. However, a ‘Netflix tax’ would make 5G services more price competitive, threatening NBN Co’s profitability and future.
“For the moment, the NBN has some breathing room, as the ACCC’s rejection of the TPG-Vodafone merger has meant that only two major competitors will be in the 5G market in the short-term. Vodafone has appeared to take a slow and steady approach to 5G, most likely due to the uncertainty surrounding the outcome of the merger appeal,” said Mr Harrison.
As streaming continues to grow in popularity, and newer services, such as 4K and 8K streaming, become more common, NBN Co will need to continue investing in the network and developing new means of providing consistent services to the end user. However, the current multi-technology mix model will likely struggle to keep up with the exponential growth in data consumption by Australian consumers.
IBISWorld reports used in this release:
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