NBN launches discounted individual CVC pricing

NBN's new CVC pricing model has now gone live, with RSPs to be charged on their individual averages rather than an industry average.
Written by Corinne Reichert, Contributor

The National Broadband Network (NBN) company has officially launched its discounted connectivity virtual circuit (CVC) wholesale pricing model, with the company saying it is aimed at improving consumer experience by encouraging greater usage of data.

The new pricing, launched on Thursday, is based on individual retailer averages rather than the previous model of using an industry average.

"The new discount model is good news for both retailers and consumers. It is encouraging to see retailers embrace the new model and work with NBN to improve the consumer experience," NBN executive general manager for Product and Pricing Sarah Palmer said.

"It will encourage the supply of more bandwidth for consumers at home and at work, leading to a better internet experience overall.

"It will also deliver greater forward price certainty to retailers, allowing them to better manage their cost base, and support usage growth on the NBN network."

NBN added that it will continue reviewing its pricing structure in line with data usage increases.

Since the announcement of the new pricing model in February, NBN said there has been an average 11 percent per end user increase in CVC being purchased by telcos.

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.

Under the new model, NBN said CVC pricing will automatically decrease in price as the average amount of CVC per end user increases, allowing RSPs to differentiate their offerings, which will then increase competition. The discount is applied on a monthly basis across all network technologies excluding satellite.

The model -- adopted after consultation with industry, which NBN said was "broadly supportive" of the new approach -- followed NBN announcing a dimension-based discounted (DBD) CVC pricing model in April 2016, which involved a series of industry-wide tiers amid continuing widespread industry criticism of the pricing.

Vodafone and Macquarie Telecom recently argued 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 AVC.

"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 new 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.

Other RSPs have argued that NBN's CVC pricing prevents them from being able to offer 1Gbps services to their customers.

Last month, however, NBN CEO Bill Morrow said that while the CVC purchased by RSPs might impact user experience, it is not the pricing itself.

"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."

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

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

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