FttN CVC revenue shortfall could keep FttP prices high: NBN Co

Limitations on the products available over a fibre-to-the-node NBN could reduce CVC revenues so much that the government would be forced to keep prices for fibre to the premises high to compensate, a confidential NBN Co report has warned.
Written by David Braue, Contributor

Lower overall data usage could prevent users of fibre-to-the-premise (FttP) National Broadband Network (NBN) services from getting lower prices over time as the Coalition's NBN policy leans on high-revenue customers to make up shortfalls in connectivity virtual circuit (CVC) revenues, a confidential NBN Co report has warned.

Under the NBN's wholesale model, NBN Co sells CVC services linking customer premises to the core network backbone via one of 121 points of interconnect (PoIs) around the country.

Fibre NBN users could end up paying the price for FttN's limited product set: NBN Co.
Image: CC BY-SA 3.0, Timwether

Retail service providers (RSPs) pay NBN Co a flat rate per aggregate Mbps of CVC connectivity, deciding on how much to purchase based on their customers' combined data usage in that area. RSPs balance CVC expenses with the contention between customers' usage to ensure that they are cost-effectively meeting customers' performance expectations.

NBN Co's corporate plan and financial projections have been built around expected revenues from the CVC structure created by NBN Co under an all-fibre model.

However, much of this revenue is predicated on wholesale revenues to support high-end business services, multicast services to support future IP television operations, and other value-added capabilities.

Many of those services would be unavailable under a fibre-to-the-node (FttN) model like the one espoused by the Coalition government.

"Lack of product enhancements designed for the business market will curtail the revenue in this segment," NBN Co warned incoming Communications Minister Malcolm Turnbull in a report — prepared during the caretaker period for the Department of Communications' incoming government brief — that found in an FttN model that the "lack of faster speed may inhibit the growth in usage by customers, and, consequentially, assumed CVC revenues".

Such a decline would hit the government's long-term financial forecasts — potentially forcing the government to slow down the rollout to focus on maximising NBN activations — and keep prices for higher-revenue FttP customers high in order to compensate.

"The lack of ubiquitous fibre speeds may impede the launch of high-bandwidth applications, and so lower CVC revenues across the network (including in FttP areas)," the report warns.

"The lack of upward migration by customers to faster services may impede NBN Co's ability to bring down the prices of higher-speed FttP tiers over time."

"The lack of upward migration by customers to faster services may impede NBN Co's ability to bring down the prices of higher-speed FttP tiers over time."

The limited availability of high-speed FttP services could also "inhibit application development across the Australian market", the report warns — preventing the introduction of new and potentially more profitable services that could bolster NBN Co revenues.

"FttN end-users will likely have lower usage... It is likely that the Transit Network will need to be reconfigured based on the demand profile of the FttN network."

CVC costs have long been a point of contention for NBN Co, with the industry claiming the long-mooted cost of $20 per Mbps is too high. NBN Co restructured its CVC pricing in August 2011 to help RSPs ramp up their customer bases without facing exorbitant startup fees.

Turnbull has previously dismissed the report as "totally political" and out of date — despite subsequent evidence to the contrary — and has promised that details of his network's cost and technological models will be revealed soon.

Turnbull recently received the findings of the strategic review, but has delayed its release and defied calls by the Senate to make the document public. Turnbull's office has advised that the government "expects that the report will be released by the end of the year".

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