NBN Co plans cut on controversial capacity charge

NBN Co has flagged it is planning to cut its controversial connectivity virtual circuit charge by 12.5 percent in October, amongst other proposals to change the company's pricing model.

NBN Co has told retail service providers that it proposes to reduce the connectivity virtual circuit charge by 12.5 percent as part of a response to industry feedback over the controversial capacity charge.

On top of the basic NBN access charge for wholesale services on the NBN across all speed tiers, retail service providers (RSPs) also have to pay a  connectivity virtual circuit charge , which secures bandwidth to a consumer from the point of interconnect (POI). This is charged at AU$20 per 1Mbps per month.

Then-iiNet CEO Michael Malone told ZDNet last year that the CVC charge made it uneconomical for iiNet's subsidiary company Jiva to offer unlimited download plans on the NBN.

Then-Shadow Communications Minister Malcolm Turnbull also claimed in 2013 that a user wanting a guaranteed 1Gbps service on the NBN would cost the retail service provider AU$20,000 per month.

For three years former Internode founder and now NBN Co board member Simon Hackett has fought with NBN Co on this issue, stating that the CVC charge, in conjunction with the competition regulator's decision to expand the NBN to 121 PoIs, would price many carriers out of the market.

In 2011, NBN Co responded to the criticism and announced that it would rebate this charge for the first 150Mbps at each point of interconnect until that POI covered 30,000 premises.

The company has now moved one step further, and in its Pricing Construct and Billing Simplification consultation paper released to its product development forum, and seen by ZDNet, the company proposes cutting down the cost of the CVC charge from AU$20 per Mbps per month to AU$17.50 per Mbps per month.

NBN Co said in the paper, first reported by Communications Day, that it would be an immediate reduction for two years while undertaking discussions with the industry around how CVC should be priced in the future.

The company said it examined a number of pricing options, including removing the CVC charge and having only one access charge, having a tiered AVC charge only, keeping the current model, switching to "dimensioning-based" CVC pricing and removing the AVC charge and only charging on the CVC pricing.

In dimensioning-based pricing, rather than having a set charge per Mbps per month, there would be tiers of CVC charges based on expected usage lining up with a retailer's needs. For example, a large national provider would likely go for a tier lining up with the national average, while a more specialised retailer with high-use customers may opt for a higher capacity tier.

NBN Co needs to weigh each pricing model against being revenue neutral, to ensure that any changes to the way the company charges retailers to access services ultimately doesn't impact on the company's revenue return to pay off the roll out of the National Broadband Network and provide a return to the taxpayer.

NBN Co said that it would retain the current pricing construct, albeit with a reduced CVC charge, and look to adopt the dimensioning-based pricing based on a national average of use by service providers as the long term CVC pricing.

NBN Co said this would allow retailers to offer different types of plans, and would see pricing fixed for a minimum of three to five years, while prices come down as customers use more data over time.

The CVC charge is set to be finalised for reduction in October, 2014, and product development forum users have until September 8 to comment on the paper.