CVC pricing has nothing to do with NBN user experience: Morrow

While the CVC being purchased by RSPs may be one factor affecting end-user experience, the CVC pricing itself is not, according to NBN CEO Bill Morrow.
Written by Corinne Reichert, Contributor

While there are many factors contributing to an end user's experience on the National Broadband Network (NBN), the company's connectivity virtual circuit (CVC) pricing is not one of them, according to CEO Bill Morrow.

Speaking to media during the company's third-quarter financial results call, Morrow said NBN is putting "major emphasis" on end-user experience, saying it could be affected by multiple things including installation, product use, outages, and repair timeframes.

While the CVC purchased by retail service providers (RSP) might be one of these factors, it is not the oft-criticised CVC pricing itself, he said.

"We work very closely with the retailers, because it could be a variety of things -- it could be the CPE equipment in the home, it would be Wi-Fi interference in a multi-dwelling unit, it could be the NBN network, it could be the CVC being purchased by the RSP, it could be the network that the RSP has built to attach to the points of interconnect, and of course it could be the servers that the end user is drawing data from," Morrow said.

"I don't believe that the price of the CVC has anything to do with that experience the end user is having. We have a lot of evidence against this ... that's not really what is driving any kind of experience issues for them."

Acknowledging that RSPs want cheaper CVC pricing, Morrow added that NBN also wants a cheaper price on the managed services that it purchases from telcos.

"Naturally, they want a lower price. We are sensitive to make sure that we drive a market demand that is a triple win situation -- something that's good for the end user, something that's good for the retailers, and something that's good for the taxpayer investors of NBN as well -- and we are modelling new pricing structures all the time," he said.

"That's why we changed from that flat rate to a dimension-based structure on an industry-wide basis, we recently announced the move into a retailer average based discounting pricing structure to be able to give those point of differentiation to be able to incent [sic] the retailer to push higher speeds, push more data for the network, to where they can make a better margin against it and again pass the value off to the end user."

Morrow's comments followed Vodafone and Macquarie Telecom last month arguing in their submissions to the NBN Joint Standing Committee that there needs to be a "serious examination" of the way the CVC pricing structure is inhibiting user uptake and experience.

"The industry is not currently incentivised to deliver the full potential benefits of the NBN," Vodafone argued, saying "urgent changes" need to be made to both the CVC and the access virtual circuit (AVC) charge.

"This CVC pricing penalises RSPs for provisioning higher guaranteed capacity, and therefore more consistent guaranteed performance for their customers. The fixed AVC monthly charge increases steeply for higher-speed plans. This, combined with higher CVCs to guarantee the higher throughput customers would expect on higher-speed plans, means that the pricing model discourages RSPs from offering higher-speed data plans."

Vodafone also labelled the recent CVC discount "relatively modest" and "unlikely to provide a substantial incentive to migrate customers to the higher-speed plans", pointing out that as a result, telcos are moving customers from 20-100Mbps legacy services down to 12-25Mbps NBN services.

NBN made AU$199 million in CVC revenue during the first nine months of the current financial year.

Morrow's comments on customer experience also come the same day the Telecommunications Industry Ombudsman (TIO) revealed complaints about the NBN increased by 117.5 percent year on year to a total of 7,512 during the first six months of FY17.

The TIO last week also said that while complaints about NBN connection delays had dropped, fault issues have risen.

During its third-quarter results announcement, NBN also made note of signing up Vodafone as its first wholesale Cell Site Access Service (CSAS) customer during the three-month period, wherein Vodafone shares one fixed-line tower with NBN to reduce the costs of expanding its mobile network.

According to NBN chief customer officer John Simon, NBN has also seen interest from more than one additional telcos wanting to make use of the CSAS product.

"We're engaged in dialogue with others, but those dialogues are commercially confident, so there's nothing I can publicly disclose at this point," Simon told ZDNet.

"We've absolutely [seen interest from other telcos]; one of the reasons we built the product was on the back of the interest from telcos and wireless providers and Wi-Fi providers, so it was built specifically to address a need, and that need's there, and we're in discussions with those providers."

Vodafone, however, has suggested that the CSAS product pricing is too high, saying in its submission that the fact that only one of these has been switched on so far "raises questions as to whether the pricing is competitive enough, and whether the NBN has an incentive to drive the deployment of this service".

NBN's third-quarter financial results showed total revenue of AU$262 million, up 136 percent year on year, on earnings before interest, tax, depreciation, and amortisation (EBITDA) of negative AU$664 million -- significantly up from the negative AU$383 million reported in the same quarter last year.

NBN also upped its premises able to order a service by 130 percent year on year to 62 million, and activated premises by 123 percent to a total of 2,010,210, with a life-to-date capex of AU$17.9 billion.

Average revenue per user (ARPU) has stayed stagnant for several years now, at AU$43 per month, although CTO Stephen Rue said this will grow once businesses come online and order higher-tier and faster-speed services during the rollout across several major cities in 2017, including Sydney, Brisbane, Hobart, Fremantle, Campbelltown, Hills District, Warringah, Randwick, Gold Coast, and Sunshine Coast.

NBN's fibre-to-the-premises (FttP) network made revenue of AU$269 million during the first nine months of the financial year, with 1.03 million active users and 1.48 million premises ready for service (RFS) as of March 31. Capital expenditure during the nine-month period in constructing the FttP network cost AU$365 million, with a cost per premises (CPP) of AU$4,404 for FttP brownfields and AU$2,422 for FttP greenfields.

The fibre-to-the-node (FttN) network has made AU$98 million in revenue so far this financial year, with 676,233 active users and 1.88 million premises RFS as of the end of the third quarter. Capex on FttN was AU$1.61 billion, with a CPP of AU$2,170.

NBN's hybrid fibre-coaxial (HFC) now has 63,195 active users, 351,030 premises RFS, made AU$3 million in revenue during the first nine months, and cost AU$1.1 billion in capex, with a CPP of AU$2,241.

The fixed-wireless network, which will begin offering a 100Mbps service next year, made AU$35 million in revenue during the nine months to March 31, with 170,482 active users and 490,670 premises RFS. Capex on fixed-wireless cost AU$256 million, with a CPP of AU$3,531.

Lastly, NBN's satellite network now has 68,735 active users and 413,601 premises RFS after switching off the interim satellite service during the reporting period. Its satellite division made revenue of AU$13 million during the nine months, with a capex of AU$183 million.

A majority of NBN users are still on the two slowest speeds available, with 52 percent of fixed-line users on the 25/5Mbps speed tier; 78 percent of fixed-wireless users on 25/5Mbps; and 66 percent of satellite users on 25/5Mbps.

NBN is now adding 6,500 users per day to the network, Morrow said, with NBN not currently worried about losing customers to the higher-speed mobile networks or the fact that TPG will be building out a new mobile network over the same time period as NBN.

"The current mobile situation we're not concerned about, but we always have a little bit of a concern about how infrastructure competition could enter into the fray in the coming years," Morrow added.

NBN in February reported a first-half total EBITDA of negative AU$1.004 billion on revenue of AU$403 million.

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