NBN Co proposes CVC removal in wholesale pricing overhaul

NBN Co proposes CVC removal in wholesale pricing overhaul

Looks at AVC-only wholesale pricing on some or all fixed-line and fixed wireless speed tiers.

Credit: Supplied

NBN Co has outlined three potential future pricing structures for retail service providers (RSPs), two of which would involve the removal of the connectivity virtual circuit (CVC) charge, which has been the target of recurrent industry criticism since its inception.  

Detailed in its Special Access Undertaking Variation 2021 Discussion Paper, released on 7 June, the National Broadband Network (NBN) builder has proposed three long-term Traffic Class 4 (TC-4) pricing options for consideration by resellers. 

Two of the options involve Access Virtual Circuit (AVC)-only wholesale pricing on some or all fixed-line and fixed wireless speed tiers. One of these options involves flat rate AVC-only pricing on all speed tiers, while the other proposes the removal of the CVC charges for wholesale speed tiers of 100 Mbps and above.   

The third option, meanwhile, involves a 25 per cent reduction in the CVC overage rate from $8 to $6 per Mbps.

Each of these options involves an element of rebalancing the total charges faced by internet retailers from variable charges to fixed charges, NBN Co said.  

“All three options substantially address many of the concerns that have been expressed by retailers and provide a pathway forward to delivering a sustainable long-term pricing framework that supports the industry and meets the future digital needs of Australians,” the network builder said in a statement. 

NBN Co said while it was aware of some retailers’ preference for a flat AVC-only construct, it believes that careful consideration needed to be given to the impact on affordability of the broadband network for low usage customers, equitable cost recovery between consumer segments, take-up of NBN services, retail competition and consumer choice.  

Research commissioned by NBN Co and carried out by consulting firm Accenture suggested that approximately 1.4 million customers on low data usage plans would likely face a significant retail price rise of approximately $120 a year, on average, as retailers transition consumers onto uncapped data plans.   

“We believe the pricing options presented for discussion represent a balanced approach to meeting the objectives set out in this paper,” NBN Co commercial executive general manager Ken Walliss said.  

“The various pricing options include ones designed to reduce retailers’ commercial risk of exposure to higher than expected usage growth; support the continuation of cheaper data capped retail plans and promote a competitive environment that enables retailers to differentiate their respective offerings from their peers.  

“In evaluating a final pricing option, key considerations for NBN Co will be promoting strong outcomes for customers throughout Australia, creating the environment for robust retail competition and opportunities to support all customer groups as much as possible, and maintaining the company’s ability to earn a reasonable return on its investment to enable continued efficient investment in the network,” he added. 

NBN Co’s Special Access Undertaking (SAU) plays a central role in the regulatory framework that governs the terms on which the company supplies services to the industry. 

In conjunction with the long-term pricing proposals, the latest SAU discussion paper – which includes key proposed amendments to the SAU for consideration by industry – proposes approaches to the SAU price controls, acknowledging that pricing options outlined in the paper restrict or remove NBN Co’s ability to recover the increasing costs of higher bandwidth usage, and hence network investment, through usage-based charges.   

However, the proposed new long-term SAU price controls would continue to provide pricing predictability for the industry, while still enabling sustainable investment in the network, as usage and customer needs increase, the network builder said.  

Following the pricing consultation, NBN Co plans to include the result of the consultation as a regulated offer under the SAU, potentially replacing the existing ‘Basic’ AVC/CVC product components for TC-4, which would address concerns about NBN Co’s use of long-term bundles discounts to establish the charges for its TC-4 services. 

The proposed changes in the discussion paper also include updating the SAU to expand its scope to cover the network technologies that had not yet been launched when the SAU was initially accepted in 2013. 

Specifically, this element of the consultation revolves around the inclusion of multi-technology mix (MTM) technologies not included in the 2013 SAU, including Fibre-to-the-Curb (FttC), Fibre-to-the-Node (FttN), Fibre-to-the-Building (FttB) and Hybrid Fibre Coaxial (HFC). 

“Today marks an important first step in the SAU variation process, with NBN Co interested in working constructively with the telecommunications industry and the ACCC [Australian Competition and Consumer Commission] to deliver positive changes to the regulatory and pricing framework for the future,” said NBN Co chief legal and regulatory officer Jane van Beelen. 

“We are approaching this discussion with an open mind and look forward to working collaboratively with the industry and regulator to create a framework that addresses the needs of the industry, NBN Co and, importantly, delivers great customer outcomes.  

“Through this SAU process, we also hope to progress long-term pricing reform more quickly,” she added. 

In April, NBN Co proposed a soft cap on variable data capacity charges for RSPs in a recent pricing review consultation paper. 

The NBN builder’s Pricing Review 2021 Consultation Paper 2 was the latest in a series of industry consultations aimed at hashing out wholesale pricing and terms with RSPs. 

Responding to feedback, NBN Co said it was proposing to improve industry certainty around data usage by introducing the soft cap on variable charges for eligible retailers, subject to a fair use policy.  

The offer was intended to increase retailers’ cost certainty in the potential event that data usage increases significantly, the company said at the time. 

NBN Co said it was proposing to run the offer from December 2021 to December 2022. 

Along with the soft cap, the consultation paper also proposed more generous data inclusions and noted that it would progress long-term pricing reform through an SAU variation consultation with industry and the ACCC.

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