ACCC leaves CVC decision to NBN and retailers

The ACCC has said it will not add FttN, FttB, and HFC services to the special access undertaking until NBN finishes consulting with retail service providers and decides whether to amend its CVC pricing structure.
Written by Corinne Reichert, Contributor

The Australian Competition and Consumer Commission (ACCC) has announced that it will let the discussion between the National Broadband Network (NBN) company and its retailers on wholesale pricing run its course, saying an industry-led solution will achieve better outcomes for consumers.

The decision came during consideration over accepting a variation to NBN's Special Access Undertaking (SAU), with the ACCC saying that since consultation with retail service providers (RSPs) on the connectivity virtual circuit (CVC) pricing may change NBN's pricing model, it has delayed its decision [PDF].

"There has been a lot of discussion about NBN Co's pricing, particularly around capacity issues and whether it is impacting consumers' experiences on the NBN," ACCC Chairman Rod Sims said.

"We think an industry outcome on NBN pricing is the best solution and preferable to a regulatory outcome. We welcome NBN Co's initiative here, and will let the process run its course."

The variation was submitted in May 2016 for the purposes of incorporating NBN's multi-technology mix (MTM) networks of fibre to the node (FttN), fibre to the building (FttB), and hybrid fibre-coaxial (HFC) into the SAU, and extending the existing price terms to these.

Since then, fibre to the curb (FttC) has been added to NBN's stable of networks.

"We do not think it is appropriate to make a decision on the SAU variation until the pricing consultation is further progressed," Sims said on Monday, after the ACCC in June said it would prefer NBN and retailers to reach a CVC resolution themselves upon rejecting NBN's proposed SAU variations in March and receiving a revised variation in August.

The ACCC said it would review the progress of the pricing consultation in December, with yet another revised SAU variation required should NBN decide to change its pricing model.

"If no change to the pricing model is necessary, the ACCC will then decide whether to accept or reject the SAU variation that has been submitted," the regulator said.

"The ACCC will not seek to exercise any regulatory interventions while NBN Co's pricing consultation remains ongoing. This includes the ACCC's ability under the SAU to initiate a price review for services covered by the SAU and any other powers under Part XIC to make regulatory determinations on NBN Co's prices."

The decision followed Optus arguing in its submission [PDF] to the revised variation that NBN's access virtual circuit (AVC) and CVC components could be rebalanced by either the ACCC not accepting the SAU variation and conducting a determination inquiry under Part XIC; or accepting the variation and then initiating a price review under the SAU terms.

"The SAU was originally approved assuming that the AVC-CVC price construct would promote the interests of end users, including efficient use of NBN services. Optus does not believe that this outcome has necessarily been achieved," Optus said.

"The key point is that there is an opportunity for NBN pricing to be reviewed."

The Competitive Carriers Coalition (CCC), made up of Australia's non-dominant telcos, similarly argued [PDF] that since industry has recognised the CVC pricing as being unreasonable and unsustainable, the ACCC "cannot rationally conclude that it is reasonable and in the LTIE [long-term interests of end users] to extend these prices to the MTM services".

Accepting the revised variation prior to price negotiations would both reduce NBN's incentive to negotiate and weaken RSPs' position, the CCC had said.

"The current pricing model under the SAU is stifling innovation and severely restricting the ability of RSPs to differentiate their product offerings on the basis of speed and capacity. This is because current pricing structures make any CVC offering other than the bare minimum uneconomic," the CCC argued.

"NBN has responded to greater than anticipated demand for, and revenue from, CVC by keeping prices higher and selling fewer units than is optimal."

Telstra's submission [PDF] stated that the ACCC's power over NBN pricing extends only to the rebalancing mechanism.

"Telstra does not object to the application of price terms to MTM services, but considers that the SAU should be updated to include pricing changes that have occurred since 2013," Telstra said.

"If input costs continue to rise, it will become increasingly uneconomic for RSPs to deliver high-speed broadband services to end users at an acceptable price point or service levels.

"The formal ability of the ACCC to address concerns associated with NBN pricing is limited to the price controls and rebalancing mechanism contained within the SAU, both of which are unlikely to have any long-term significant impact."

NBN's submission [PDF] on the revised SAU variation had argued that it was beyond the scope of the ACCC's assessment to investigate pricing aspects not covered by the SAU.

"Intervention through the SAU variation process on NBN's broader pricing construct is out of scope of the ACCC's assessment powers," NBN said, arguing that it already has "strong incentives" to ensure its pricing is efficient without direct regulation, as evidenced by its falling CVC prices.

"It is critical for the ACCC to let this process run its course without intervention or interference. This is necessary to ensure that NBN can work constructively with access seekers to develop an optimal pricing construct for NBN services."

Optus, however, stated that NBN's CVC discount -- which the CCC labelled "belated" and "reluctant"-- can be removed at any time with three months' notice, as it is applied as a rebate measure, meaning it does not promote long-term certainty.

NBN downplayed CVC uncertainty concerns last month, labelling them as being "overstated" during its response to the ACCC Communications Sector Market Study.

"Whilst the CVC charge may be a new input cost, it is not an unquantifiable or unmanageable cost for retail providers," NBN had said.

"Even if it contributes to relatively lower margins ... this would only be the temporary result of the 'land grab' phenomenon that is currently occurring in the downstream market as access seekers fight for market share during NBN's rapid expansion phase.

"The effect of access seekers' arguments to lower CVC prices even further is to require NBN to fund the 'race to the bottom' pricing that has occurred in the downstream market whilst access seekers embark on aggressive marketing campaigns to retain and attain market share."

NBN reiterated this in its response to the revised SAU variation in September, saying that falling margins and trade-offs between price and quality of broadband services are not only caused by the CVC charge, but by competition.

"This includes the current 'land grab' as access seekers seek to maintain or capture market share in the transition to the NBN, and the failure of access seekers to take steps that could potentially increase ARPU," NBN said.

"It is vital that these developments, which are independent of the SAU, to be given greater attention by the ACCC as part of its market study. These should not delay acceptance of the revised SAU variation."

RSPs including Vocus, Vodafone, MyRepublic, and Macquarie Telecom have previously argued that the only reason retailers are not offering 1Gbps speeds is NBN's CVC pricing structure; however, NBN CEO Bill Morrow recently criticised retailers for cutting corners by focusing on pricing rather than speeds or quality of service after he revealed that the average bit rate per user is around 1Mbps.

"Under our pricing model, that could be doubled to 2Mbps for each end user for around an extra AU$5 per month," he said.

Morrow also told ZDNet that retailers should not be entering the market if they are unhappy with the well-established costs.

NBN has said its CVC discount is already driving usage in the right direction, with an increase in CVC being purchased by industry and an increase in small operators purchasing directly from NBN.

The SAU was originally submitted to the ACCC in 2013 to govern the pricing and regulatory terms facing the NBN until 2040, with the original document only taking into account only fibre-to-the-premises (FttP), satellite, and fixed-wireless services.

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