NBN sets up 50Mbps as flagship speed under new wholesale pricing

NBN will be offering bundled AVC and CVC pricing to retailers as of Q2 next year, with discounts across the 50Mbps and 100Mbps tiers designed to drive uptake of higher-speed plans.
Written by Corinne Reichert, Contributor
(Image: NBN)

The National Broadband Network (NBN) company has unveiled its wholesale pricing changes following debate with industry, with the decision to provide discounts for retailers offering services on its 100Mbps and 50Mbps speed tiers.

Under the changes, NBN's access and bandwidth charges will also be bundled together across connectivity virtual circuit (CVC) and access virtual circuit (AVC) for the two top-tier plans.

The 50Mbps wholesale bundle will cost retail service providers AU$45 per month -- a 27 percent discount -- and include 2Mbps of bandwidth, while the 100Mbps wholesale bundle will be reduced by 10 percent to cost AU$65 for 2.5Mbps of included capacity.

According to NBN, the bandwidth being included amounts to "nearly double" the capacity that is currently being purchased by RSPs, with additional capacity available for AU$8 per megabit per second per month -- a 40 percent reduction on its previous pricing.

NBN CEO Bill Morrow had previously criticised retailers for cutting corners by focusing on pricing rather than speeds or quality of service after he revealed that the average bit rate per user is around 1Mbps.

According to NBN CFO Stephen Rue, RSPs will have the incentive to sell higher speeds to customers thanks to the new bundled pricing.

"Combining access and bandwidth charges into one simple price point will not only promote the take-up of plans based on higher wholesale speed tiers and position the NBN 50 bundle as our flagship service, but it will also trigger the triple benefit of improved end user experiences, provide more affordable pricing options for retailers, and support NBN Co's revenues in the longer term," Morrow added on Thursday.

Wholesale Product Residential Customer Segment executive GM Thomas Roets said the purpose of including bandwidth with access charges is to ensure peak times will become uncongested.

"Previously, the static access charge and the fluid capacity charge made up a two-part pricing model that had seen some retailers under-provision bandwidth, which was impacting end-user speeds during peak download times," NBN said.

The broadband company said its "dramatic discounts" will come into effect during the second quarter of 2018. The AVC/CVC bundling will be offered in parallel with the existing pricing structure for RSPs to choose between.

Ahead of these changes -- which are still subject to one more round of industry consultation -- going live next year, NBN is immediately offering a transitional package wherein it will charge the same amount for its 50Mbps product as it does for its 25Mbps product, and includes 50 percent additional bandwidth.

NBN has also made efforts to reduce the pricing on voice-only and basic broadband products for wholesalers, with a AU$22 per month bundle on the 12Mbps speed tier amounting to an 8 percent discount and including 50kbps of data.

Morrow had revealed back in October during Senate Estimates that NBN was considering eliminating the CVC fee and only keeping the AVC fee.

"We have evaluated eliminating the CVC, and only having one AVC fee that has a near-unlimited usage behind that," he had said.

"We looked at other alternatives of changing the pricing structure altogether.

"Should we bundle things together, should we include a degree of CVC along with an AVC price, should we change the price overall?"

At the time, the chief executive said that any decision made on pricing could face a two-year delay before being passed on to consumers due to RSPs needing that timeframe to switch over.

The Australian Competition and Consumer Commission (ACCC) had in October declined to step into the CVC discussions, saying an industry-led solution would achieve better outcomes for consumers.

However, the ACCC's Communications Sector Market Study draft report last month then added that it would "consider exercising our regulatory powers where this would support these market outcomes being realised sooner".

NBN has previously argued against regulatory intervention by saying it already has "strong incentives" to ensure its pricing is efficient without direct regulation, as evidenced by its falling CVC prices.

RSPs including Vocus, Vodafone, MyRepublic, and Macquarie Telecom have previously argued that the only reason retailers are not offering gigabit speeds to consumers is NBN's CVC pricing structure.

NBN, however, argued that falling margins and trade-offs between price and quality of broadband services are not only caused by the CVC charge, but mainly by competition.

"Even if it contributes to relatively lower margins ... this would only be the temporary result of the 'land grab' phenomenon that is currently occurring in the downstream market as access seekers fight for market share during NBN's rapid expansion phase," NBN said.

"The effect of access seekers' arguments to lower CVC prices even further is to require NBN to fund the 'race to the bottom' pricing that has occurred in the downstream market whilst access seekers embark on aggressive marketing campaigns to retain and attain market share."

Shadow Minister for Communications Michelle Rowland said the changes were a modest step in solving the problems faced by users of the NBN.

"These pricing changes suggest NBN Co can no longer maintain its business model, which would be tantamount to declaring a taxpayer write-down on the value of the network," Rowland said. "The reality is we have a second-rate NBN that costs more and does less -- something had to give."

"Malcolm Turnbull and Scott Morrison now need to front up to taxpayers and tell them what the impact on the Budget will be."

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