NBN solidifies CVC discount pricing

The company rolling out Australia's National Broadband Network (NBN) has announced that its discounted connectivity virtual circuit (CVC) wholesale pricing will remain, but will involve a series of industry-wide tiers rather than being calculated separately for each retail service provider (RSP).

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. The CVC charge reserves a consumer's bandwidth from the point of interconnect (POI), and will now see a dimension-based discount (DBD) pricing structure to encourage more dimensioning of CVC capacity -- or greater usage of data.

The new pricing structure, to be implemented for two years starting on June 1, will be calculated as an average of CVC dimensioning per end user across all customers on the NBN; therefore, it will be available for all RSPs, regardless of how small they are.

"The broadband market is changing, and consumption continues to boom. We have seen average usage on the NBN network increase from 75 gigabytes in February 2015 to 125 gigabytes today," NBN CEO Bill Morrow will say at the CommsDay Summit in Sydney later today.

"We know increased usage has presented challenges to our retailers, and we have consulted with them on a new CVC pricing model that creates greater flexibility and opportunity for the industry -- acknowledging that broadband use is expanding."

In November last year, NBN announced a trial of discounted CVC pricing, rewarding telcos offering customers high-usage plans across high-speed services with a lower levy.

Having concluded industry consultation after trialling it for six weeks, NBN decided to change its discounted model from calculating it individually for each RSP to instead going for an industry-wide model.

"We're going to start this actually at the industry level. So in the paper, we talked about applying this on an RSP-by-RSP basis [but] we've decided to implement it quickly and effectively for the benefit to be realised by the industry, so we will have the discount basically underpinned by what the industry is using and then the industry drivers," Sarah Palmer, executive general manager of NBN Product and Pricing, explained.

"So there's still a rate table or a tier table, and we'll let the industry drive where the discount level needs to be over the period of time ... it would be about AU$1.75 drop day one, if not a bit more, because, as we're seeing every month, the capacity goes up.

"We do plan to evolve this over time. So we're starting at the industry level; it's an effective discount 1 June; the industry will drive where it needs to go; there's complete transparency of where it will go at what usage, rather than me giving a price decrease each year; and, over time, we will try to move it to an RSP-led and level discount."

When asked why NBN didn't proceed with levelling charges on an RSP-by-RSP basis, Palmer said the model was "not workable" as yet.

"We're just not that sophisticated right now," she admitted.

"Instead of spending time trying to finesse that, we wanted to implement the discount as [an] initial step, and then we'll be working with the industry to get a more optimal model."

In relation to whether such a discount will drive down its revenues, Palmer said it would actually do the reverse, thanks to encouraging increasing numbers of customers.

"A discount is based to drive certain behaviours, so we're trying to get more customers on the NBN, we're trying to get them to use it more, and we're trying to encourage a better experience," she said.

"So, over the long term, we think this will actually help our revenue position, because it will get more customers on earlier and using more [data] earlier."

By the numbers, the new DBD tiers provide pricing across the board of AU$17.50 per 1Mbps per month for end users with speeds between 0Kbps and 399Kbps; AU$16.75 per 1Mbps for those using speeds of 400Kbps to 549Kbps; AU$16.25 for speeds between 550Kbps and 699Kbps; AU$15.75 for those with 700Kbps to 849Kbps; AU$15.25 for 850Kbps to 999Kbps speeds; AU$14.50 for 1,000Kbps to 1,149Kbps; AU$13.75 for 1,150Kbps to 1,299Kbps; AU$13 for 1,300Kbps to 1,449Kbps; and AU$11.50 -- a discount of AU$6 -- for those using speeds above 1,600Kbps.

Some of these figures are actually a slight increase over the trial's RSP-by-RSP DBD pricing, but will be evolved and lowered continually over time, NBN said.

They also provide for a higher top speed than the trial's figures, which were AU$17 for 0Kbps to 400Kbps; AU$16.50 for 401Kbps to 500Kbps; AU$16.25 for 501Kbps to 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 for those using speeds above 1,500Kbps.

NBN 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.

RSPs had argued 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 present-NBN non-executive director Simon Hackett fought with the company over its CVC pricing since 2011.

Hackett previously 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 is now reducing its CVC pricing in response to such feedback from RSPs, Palmer said.

"It's a reaction to working with our customers since we started the NBN. So in 2010, we announced the pricing structure, and that we had this capacity, or CVC, charge. We said we were going to reduce it over time, because we knew the input costs of ISPs would increase as usage on the network increases," Palmer said.

"We've seen the usage on the network ... and this is a discount to basically adjust to that."