NBN announces CVC discount pricing trial

NBN is offering discounts of between AU$0.50 and AU$6 on its CVC charge, with the company now pricing it on the basis of usage per end user and rewarding high usage.
Written by Corinne Reichert, Contributor

The company rolling out Australia's National Broadband Network (NBN) has announced a two-year trial of discounted connectivity virtual circuit (CVC) wholesale pricing, rewarding telcos offering customers high-usage plans across high-speed services with a lower levy.

The CVC charge, which reserves a consumer's bandwidth from the point of interconnect (POI), will now be calculated on the average dimensioning of CVC per end user, rather than being the volume of purchase of CVC.

"The discount model facilitates a range of retail plans that reward greater dimensioning of CVC on average per end user," the company said.

"There is also consideration built into the model for voice-only end users, or homes on the network who only want a telephone line."

The dimension-based discount (DBD) tiers provide pricing of AU$17 -- a discount of 50 cents -- per 1Mbps per month for end users with speeds between 0Kbps and 400Kbps; AU$16.50 per 1Mbps for those using speeds of 401Kbps to 500Kbps; AU$16.25 for speeds between 501Kbps and 600Kbps; AU$15.75 for those with 601Kbps to 800Kbps; AU$15.25 for 801Kbps to 1,000Kbps speeds; AU$14 for 1,001Kbps to 1,150Kbps; AU$12.75 for 1,151Kbps to 1350Kbps; AU$12 for 1,351Kbps to 1,500Kbps; and AU$11.50 -- a discount of AU$6 -- for those using speeds above 1,500Kbps.

Sarah Palmer, executive general manager for Product and Pricing at NBN, explained that usage on the NBN has grown from 30GB per month to over 100GB per month over the last four years, with the company's new pricing aiming to reflect and support this.

"What we've done is built out a discounting scheme that the retail service provider [RSP] ... if you want to offer plans that encourage large usage or utility of the internet, you actually get a discount from the NBN in order to be able to do that, and that's how we help to facilitate this sort of growing difference between very low and bigger and bigger average usage," Palmer said.

"So basically, it's out to support a bigger range of plans than a straight flat fee can do. And in that way, it makes it very much non-discriminatory, so you could have very few end users, and on average be quite generous with how much capacity you use, so that's part of your value proposition -- or you could have lots and lots of end users and be not so generous in your capacity ... it doesn't really matter how big you are; it's what value proposition you're putting in the market, and how generous you want to be with your capacity to those end users."

RSPs have to be on NBN's Product Development Forum to gain access to discounted CVC pricing model and the consultation paper on the two-year trial, with Palmer saying the goal is to encourage customer migration onto the NBN.

"We are genuinely looking for feedback on how this actually works ... we actually want to fit in with our customers' value chain as effectively as we can, so we can facilitate them having more and better plans out in the market and therefore stimulate take-up of the NBN," she said.

"We're being very careful to make sure this is non-discriminatory, so it covers a wide range of different service providers out there, and the whole aim here is to give our customers while usage is growing quite rapidly some cost certainty and some confidence around what our prices are over the next 24 months."

NBN's wholesale pricing incorporates a two-part model, with the CVC charge paid in addition to the access charge levied across all speed tiers.

In November last year, NBN bowed to industry pressure and committed to dropping its CVC charge for RSPs from AU$20 per 1Mbps to AU$17.50 per 1Mbps, beginning in February this year.

NBN had informed its RSPs in a letter [PDF] that it would lower its recurring CVC charge under the wholesale broadband agreement price list by 12.5 percent, having first flagged an amendment in July.

RSPs had argued prior to this that the CVC charge would make it difficult to offer competitive market prices, with iiNet claiming in August 2013 that it could not provide unlimited broadband plans through subsidiary Jiva with a CVC charge of AU$20 per 1Mbps, while Internode founder and now NBN non-executive director Simon Hackett has fought with the company over its CVC pricing since 2011.

Hackett had stated that the charge, combined with the competition regulator's decision to expand the NBN to 121 POIs, would result in many smaller carriers being priced out of the market.

NBN then consulted with customers on the CVC charge reduction, settling on its proposed 12.5 percent figure.

Earlier this week, NBN faced criticism over a leaked draft document revealing that Optus' hybrid fibre-coaxial (HFC) network is "not fully fit for purpose", with 470,000 premises in the footprint needing to be overbuilt by either Telstra HFC or fibre services.

The leaked document states that the necessary work of overbuilding Optus' HFC network with FttN, FttB, or fibre to the distribution point (FttDP) will lead to a peak funding increase of between AU$150 million and AU$375 million, with NBN to miss its FY17 ready-for-service target by 300,000 premises, and its FY18 target by 333,000.

In response, NBN said it is currently conducting a 4,500-premises HFC trial in Redcliffe, Queensland, and has not found any "unexpected" technical issues with the Optus network.

The company said the leaked document was developed as part of ongoing risk mitigation, and that the company regularly prepares for multiple scenarios in network deployment.

"Our corporate plan has accounted for the ebbs and flows expected in a project of this scale," NBN said.

"Scenario planning is part of good governance and has been accounted for in the corporate plan released in August."

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