NBN changes CVC pricing model from industry average to RSP average

NBN has finally implemented a wholesale CVC pricing discount model based on individual RSP averages rather than industry-wide tiers to charge less for using more data.
Written by Corinne Reichert, Contributor

The National Broadband Network (NBN) company has again amended its connectivity virtual circuit (CVC) wholesale pricing model based on individual retailer averages rather than the previous model of using an industry average.

CVC pricing will automatically decrease in price as the average amount of CVC per end user increases.

"This change is intended to deliver a number of benefits, including greater forward price certainty to retail service providers (RSPs), allowing them to better manage their cost base, and supporting growth in usage on the NBN," NBN chief customer officer John Simon said.

Simon added that the new CVC pricing structure will allow RSPs to differentiate their offerings, which will then increase competition.

The new model -- adopted after consultation with industry, which NBN said was "broadly supportive" of the new approach -- will come into effect on June 1, with the discount applied on a monthly basis across all network technologies excluding satellite.

NBN had announced a dimension-based discounted (DBD) CVC pricing model last April, which involved a series of industry-wide tiers amid continuing widespread industry criticism of the pricing.

NBN's wholesale pricing incorporates a two-part model, with the CVC charge paid in addition to the access virtual circuit (AVC) charge levied across all speed tiers. The CVC charge reserves a consumer's bandwidth from the point of interconnect (POI), and sees a DBD pricing structure to encourage more dimensioning of CVC capacity -- or greater usage of data.

According to NBN Product and Pricing executive general manager Sarah Palmer, NBN has now refined those discounts after industry consultation.

"We've taken on feedback from our customers that the discounts could be more forward-looking and so go lower ... as more usage happens, so that's what we've looked to do," Palmer told media on Friday.

"So they're slightly deeper discounts and there's more of them so we get down to a AU$8 per megabit price point."

NBN had in October predicted its CVC charge to eventually be pushed down to AU$10 thanks to increased usage of data across the network.

"Our CVC pricing has come down more than 20 percent over the past 20 months, from AU$20 in February 2015 to AU$15.75 now," NBN CEO Bill Morrow said during Senate Estimates last year.

"If all goes well, we hope to implement this change early in 2017. As data usage continues to increase over the network, we expect CVC pricing to drop further; in fact, with our forecasted usage, we see the CVC price approaching AU$10 a unit."

NBN's CVC was last week accused of preventing RSPs from offering 1Gbps speeds across the network by making it too expensive for both providers and consumers.

"The CVC pricing that the NBN are charging, it's not economical," MyRepublic Australia managing director Nicholas Demos told ZDNet.

"Yes, they do offer retailers such as us a product with CVC pricing -- a one-gig product -- but it's just priced out of the market and no consumer will buy it at that price in Australia."

The Australian Competition and Consumer Commission (ACCC) is looking into whether the CVC charges are affecting downstream market competition.

NBN trialled discounted CVC pricing in November 2015, rewarding telcos offering customers high-usage plans across high-speed services with a lower levy, and first committed to dropping its CVC charge for RSPs from AU$20 per 1Mbps to AU$17.50 per 1Mbps in November 2014, bowing to industry pressure.

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