Vodafone not asking for a price reduction: NBN CEO

NBN CEO Bill Morrow's comments on retailers complaining about the CVC pricing model after entering the market were not directed at Vodafone Australia, he has said.
Written by Corinne Reichert, Contributor

National Broadband Network (NBN) CEO Bill Morrow has said that comments made about retailers asking for wholesale price reductions were not in reference to Vodafone's recent calls for a change to the connectivity virtual circuit (CVC) pricing model.

"Vodafone, they understand this. Vodafone are not asking for a price reduction. Vodafone have their ideas around maybe a higher AVC [access virtual circuit] and a lower CVC, and we've asked their opinion for that -- that's no problem," Morrow told ZDNet.

"There's a lot of retailers that are reselling NBN products ... and some of them have come in knowing what the prices are but are now asking for the prices to be reduced. It's not Vodafone that's doing that; I'm referring to others.

"My point is that NBN has an economic model, and we have researched ourselves as to what we think consumers will be willing to pay -- and if a retailer knows what the prices are, they come into it willingly knowing that with their eyes wide open."

In an NBN YouTube video posted on Monday, Morrow had said that retailers should not be entering the market if they are unhappy with the well-established cost of reselling an NBN service.

"One of the key callouts of this financial model that was put together was that it would create this vibrant retail market where there's a low barrier to entry to come in and where anybody can come in and resell broadband services and capture a number of homes out there [in regional areas] ... we see new ones coming in all the time, with big household brand names like Foxtel and Vodafone coming in," Morrow had said in the video.

"But what's really important is that these companies, they have known for some time what our prices are ... so when they start talking before they even get here about reducing our prices, I don't have any sympathy with that.

"If any one of these new entry brands are coming in, be aware of the prices, and if you don't think that you can make money on it, they should not come, because it will be more destructive than beneficial to the industry."

Vodafone Australia, which will enter the market as an NBN retail service provider later this year, had previously argued that CVC pricing is inhibiting user uptake and experience, while other retailers including MyRepublic have been vocal in asking for a price reduction, claiming it makes it too costly to offer higher speeds to consumers.

According to NBN's FY17 financial results, announced on Tuesday, a majority of NBN users are still on the two slowest speeds available, with 53 percent of fixed-line users on the 25/5Mbps speed tier; 78 percent of fixed-wireless users on 25/5Mbps; and 66 percent of satellite users on 25/5Mbps.

Last month, Morrow 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.

"Under our pricing model, that could be doubled to 2Mbps for each end user for around an extra AU$5 per month," he said.

"If an RSP doesn't price their product high enough to recover their costs, they may be forced to cut corners that could affect the quality of the services being offered."

Morrow also reiterated that NBN's CVC pricing is not connected with customer experience.

"The customer service and CVC are not directly correlated," he told ZDNet.

"We don't associate something about the customer service with the pricing model. That's an RSP-related issue as to how they want to dimension their network. Now again, whether they feel that there's a different structure that would help them push people up the speed ranks, that's stuff that we're having discussions with."

NBN made AU$299 million in CVC/network-network interface (NNI) revenue during the financial year, up from AU$131 million revenue a year earlier, with CVC growth outstripping premises added for the first time during the most recent quarter.

The Australian Competition and Consumer Commission (ACCC) is looking into whether NBN needs to provide more information related to the amount of CVC purchased by retailers, and the utilisation of the capacity purchased, although it has said it would prefer RSPs and NBN to come to an agreement on CVC pricing.

In addition to lowering CVC pricing, higher speeds could also be offered by NBN upgrading its network using DOCSIS 3.1 on HFC; G.fast on fibre to the distribution point/curb (FttDP/C); and NG-PON on fibre to the premises (FttP) -- but Morrow could not say when any of these will be deployed in market, as NBN sees higher-speed broadband as only being necessary around five years into the future.

"Right now, the fibre to the curb is really going to be the technology we're going to use with G.fast technology, and [FttC] is really not going to start going online with services being turned on until the first half of next year, so then we'll look at some initial deployments of the VDSL, and then the subsequent deployments will be with G.fast," he explained.

"But that has little to do with today's needs. I don't think there's anyone screaming on a mass-market basis ... 'Hey, I can only get 25[Mbps] on my fibre to the node and I want more.'

"The G.fast is an issue that is banking on what people are going to need three to five years down the road and not necessarily today."

Similarly, he said modems for DOCSIS 3.1 are being provided now ahead of a "gradual rollout", while for NG-PON on FttP "there aren't any definitive deployments set".

In terms of improving the oft-criticised satellite service, Morrow again pointed to the option of deploying a third satellite as well as building out additional fixed-wireless towers.

"We're looking at anything and everything that might be an option to expand the capacity and the speeds for the people served by the satellite technology," Morrow told ZDNet.

"We are looking at new satellites to go up, we are looking at the use of third-party satellites, we are looking at some micro-deployments of fixed-wireless towers that might be able to offer some relief, we're looking at layer three-type services that help use of that spectrum more efficiently for video applications as an example, so everything is on the table for consideration".

A decision on this is a year away, Morrow said.

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