This article is by Internode managing director Simon Hackett and was originally published on his company blog. It is re-published here with his permission.
opinion The National Broadband Network (NBN) is the subject of promises from the government that consumers will pay comparable prices to current day ADSL2+ and phone service bundles in order to access entry level NBN based services, and that NBN based retail pricing will be nationally uniform.
Unfortunately, a number of pressure points in the wholesale pricing model exist which will make these promises (from the government) untenable in practice, unless serious issues with the underlying pricing model are addressed by NBN Co and the ACCC. This post elaborates on some of the relevant issues that serve to place upward pressure on NBN based retail pricing in general and even more pressure upon retail pricing in regional areas in particular.
The Story In Detail
There are multiple cost challenges in the currently provided wholesale pricing model for the NBN that will be noted in turn. It is important to appreciate that these issues are additive – and hence that their cumulative effect is a greater issue than each component issue may suggest. These are merely the highlights of a more complicated story. Everything about NBN pricing and access, at some level, is … complicated.
NBN Co’s CVC pricing model
The ‘CVC’ (Concentrating Virtual Circuit) is an arbitrary $20 per megabit per month fee in the NBN Co wholesale model, charged at the point where retail service providers (RSPs) physically connect to the NBN in a Point of Interconnect (POI). This financial construct is a ‘collar’ that constrains the size of each aggregated access connection into the NBN based on the monthly sum of money an RSP pays for that access.
It is not a charge based on real costs; Rather, the quantum of this charge has simply been chosen to fill in an otherwise huge hole in the Federal Government policy requirement that the network return funds to the Commonwealth at a commercial rate and in a short timeframe (relative to the expected lifetime of the network). The most serious problem with this charge is one of the effective ‘bootstrap’ or ‘overhead’ charges that will punitively impact the expenses of RSPs over the ten year build and growth period of the network.
Here’s how it works …
Each CVC connects to a geographic area in Australia (one of the 121 that the network has now been split into by the ACCC). To ensure that services can be delivered to customers at an acceptable quality, each of these CVC connections has to be purchased with at least 200 megabits of initial capacity.
Why 200 megabits? Simply, so that more than one customer at once is capable of achieving the advertised 100 megabit download speeds the fibre can provide.
This results in a need to have 100 megabits to allow any 100 megabit service to work, plus another 100 megabits of ‘burst’ capacity (for a total of 200 megabits) to allow for the transient needs of more than one customer using the network at once!
This is not merely a theoretical issue. Internode discovered the necessity of this in practice during its pioneering work in the Tasmanian NBN initial deployment. We operated with a 100 megabit CVC size at first, and rapidly ran into unacceptable performance issues with our 100 megabit connected school customers. These problems were instantly and permanently solved by upgrading our CVC in Tasmania to 200 megabits per second, a level at which it has since remained through the subsequent growth in customer base that we serve on the NBN in Tasmania.
Once deployed, 200 megabits on a CVC can actually support quite a lot of customers, based on whatever contention ratio an RSP chooses, until the RSP ultimately upgrades beyond 200 megabits in accordance with its individual policy in terms of customer POI access point contention ratio.
Each 200 megabit CVC will cost 200 x $20 = $4000 per month (at wholesale, plus GST) to connect (for an effective rate of almost half a million dollars per month for an RSP connected to all 121 points of interconnect) – before a single paying customer is connected. There turn out to be multiple ways in which this overhead generates quite irrational effective wholesale costs ‘per customer’; When I first detailed this issue in March 2011, I concentrated on the issue in terms of looking at how large a national provider had to be, before these overheads stopped being insane.
(That answer is: more than 250,000 customers need to be connected nationally before these overheads are no longer a barrier to entry for an RSP to using the NBN directly, meaning that smaller RSPs will be the permanent downstream customers of aggregators, and hence operating with worse operating costs than the larger players)
But it turns out that this is actually not the worst problem with these overheads! Courtesy of the ACCC’s 121 POI decision, another issue about ‘being too small’ has emerged – for NBN Co itself!
This new overhead problem is created not by the size of each ISP so much as by the fact that in each of these 121 sub-networks, the absolute size of the NBN itself will be very small indeed for a number of years; So small in fact that the overhead of these 200 megabit CVC’s (necessary for adequate initial customer performance) will be irrationally high for many years.
For instance, the first greenfields areas are close to being switched on by NBN Co, and each of these is in a different ACCC-determined geographic area (a different POI) and hence each will require a separate 200 megabit CVC to connect to it.
A year from now, we expect (generously) to have only a few hundred houses capable of being connected, in total, for all RSPs, in each of these greenfields areas. The issue is then that even if a retail provider managed to capture, say, 10 percent of the entire market in these areas, that means 10% of (say) only around 200 homes at best, implying that the CVC will be serving only about 20 customers.
(Of course, if one ISP managed to become 100 percent dominant, it’d do far better in effective terms – and this fact illustrates the falsehood of government and NBN Co assurances that the pricing model doesn’t have volume discounts in it. It very much does have them – embedded in the capacity of a larger or dominant player to work through these overheads faster than a smaller player).
Anyway, at $4000 per month minimum, that makes this arbitrary CVC wholesale cost equate to $200 per customer per month (plus port costs!).
Unless NBN Co addresses this, they will have a massive financial windfall in theory, or the abandonment of participation by RSPs in practice, until there are thousands (not hundreds) of addressable premises connected downstream of each of these CVC’s (which is the point at which the 200 megabit initial CVC allocation starts to be at least a little more rational in terms of average cost per customer).
Also, the previously observed benefit for larger RSPs (a lower effective per customer cost because they can absorb the overheads sooner) also needs to be addressed in order to generate equity of participation via a genuinely level playing field on per user costs.
We have proposed various solutions to this dilemma to NBN Co and they are currently considering our propositions. Here are our two key propositions:
1. Provide the first 200 megabits per CVC at no additional cost
The most obvious approach to allow RSPs to participate in the network without insane and unintentional overhead costs is simply to remove this unintended overhead structure from the cost model.
Thats extremely simple to do – NBN Co merely needs to provide the first 200 megabits of CVC capacity free of charge, and to impose the $20 per megabit CVC charge only for all CVC expansion above that initial 200 megabit size. NBN Co has a stated intention of reducing the CVC ‘per megabit’ rate in later years of the network lifetime, and delivering 200 megabits per CVC without initial charge would simply mean that the point at which CVC per-megabit rates reduced would be delayed to a reciprocal extent.
2. Provide technical burst capacity in each CVC and use 95th percentile charging for actual utilisation
This alternative approach is to charge for CVC usage based on something called ‘95th percentile‘ charging – in effect, to charge on the average real world usage in the CVC by customers, and to provide as much CVC size as each RSP technically requires above that average for adequate performance (which winds up being … 200 megabits minimum and then at least 100 megabits of burst above the observed usage peak assessed).
There are other approaches too, but by far the simplest is the provision of the first 200 megabits per CVC free of charge (on an ongoing basis) by NBN Co. This eliminates the punitive overhead (per CVC and per POI) imposed on RSPs by the current model. This then delivers a genuine level playing field in terms of effective per-user wholesale access cost for RSPs by removing the punitive long-term cost overhead that will otherwise exist.
And it does this without making things more complicated for anyone concerned – its the same cost structure, but with a specific change to make it financially rational during the initial decade of the NBN build. It would remove a windfall cost component that has a plethora of negative impacts on RSP participation and that will place substantial uppward pressure on retail prices from providers.
… and its got to be fixed, if we are to expect rational retail service provider participation in new development areas (greenfields) as well as in the major areas of existing housing (brownfields) that the NBN will spend the coming ten years overbuilding with fibre.
The ACCC ‘121 Points Of Interconnect’ Decision
This decision, to force NBN Co away from operating 14 (7 pairs) of redundant major points of interconnect, and instead to have to break the national network up into 121 regionally distributed sub-networks, has deep implications that just seem to get worse the longer we look at them. Here are just some of the highlights of this decision and its impact:
Backhaul costs from 121 points of interconnect back to the metro core of each RSP will cost a lot of money: This money will necessarily be added on to retail service costs once NBN Co starts to force its RSP’s to move away from the current ‘temporary’ points of interconnect (in metro capital cities) and makes them re-connect at the geographically distributed POI locations the ACCC have determined.
The pricing initially released by Internode for NBN commercial services does not take these additional backhaul costs into account: Thats because we simply don’t know what they will cost, other than being quite certain that the costs will be non-trivial. Hence once those costs are clear, we expect them to drive increases in our subsequent retail pricing.
The costs to reach POI’s that are more distant will be higher than the costs to reach POI’s distributed within a major capital city area: That means that it’ll cost more to service a regional customer. That in turn is what will break the federal government promise of uniform national retail pricing.
Because the underlying source pricing will not be uniform across all geographic areas (as it would have been in the original 14 POI model), the higher regional costs will naturally flow through to regionally specific higher retail pricing for consumers and/or to the abandonment of servicing those higher cost regional areas at all.
In a competitive industry, and since there will be no fixed line alternative to the NBN to use instead, pressures on retail pricing in metro areas will make it unreasonable to expect retail service providers to drive their metro pricing yet higher in order to cross subsidise the bush. This cross subsidy was inherent in, and automatic by design, in the 14 POI model. Moving away from that model moves the NBN away from national uniform retail pricing.
Unless the government decides to take the initiative here and restores the 14 POI access model, regional consumers are likely to pay more for their Internet access than they otherwise could.
The overheads created per CVC that have been previously noted are made substantially worse by this decision: CVC’s will be far less likely to be efficiently ‘filled’ by RSPs because the 121 POI decision slices up the country geographically in a manner that mitigates against efficiently utilising high capacities in each CVC. By splitting up the customer base in this manner, it makes it more likely that ‘part-filled’ CVC’s will remain ‘part filled’ and hence will cost more to operate.
As one other technical side effect of this model, the network will also be less reliable. Thats because the 121 POI’s are separate, and if the single attachment point to one POI fails (e.g. due to a natural disaster), there is no way for services to be transparently failed-over via another POI. Back in the 14 POI model, there was the capability to have one of the two metro core POI’s fail, and to have all customer services transparently switched to the backup POI. This all disappears in the name of ‘progress’ in the 121 POI model.
Its important to note (and we’ll elaborate on this in a future blog post) that Telstra gain a huge economic advantage on a permanent basis from the 121 POI model. Thats simply because they own fibre to every POI already, and almost every POI is likely to be inside, or right beside, a Telstra owned exchange building.
Executive Summary
A focus on the end-state (ten years from now) in terms of wholesale pricing means that NBN Co have, in my view, failed to properly consider the full lifetime costs of participation and in particular the massive and unreasonable effective per-customer costs imposed via the “CVC” construct during the ten year growth phase of the NBN. A simple change to the pricing model (first 200 megabits of CVC included at no added cost) would solve this almost entirely.
Solving it is essential to the participation rate by residential service providers (RSPs) in the NBN, and to ensuring consumer pricing is not driven far higher than it would otherwise be driven during the first several years of the NBN’s build phase.
Second, the ACCC’s ‘121 Points of Interconnect’ decision is fundamentally at odds with stated government policy in terms of consumer retail pricing outcomes; it will drive the continued market dominance of Telstra (as the only party not exposed to the resulting additional costs), and it will cause all consumers to pay more for their Internet access as a result. Hence this decision is clearly not in the long term interests of end users.
Image credit: Dominik Gwarek, royalty free
so, …. uh…. if you don’t get the changes you want, what are the ballpark magnitudes of adjustment required for the “initial Internode NBN retail pricing” released today?
Good question! It’s great that he’s highlighting these issues, but what the impact. Most of the people reading this are going to be consumers, and the best way for them to know is some examples of what these pressure points can cause in terms of increased costs.
the new NBN platform has two key differentiating characteristics relative to the status quo:
1/ everyone will face the same wholesale cost structure
now, does NBNco:
i/ scenario A – push Telstra (with 50% of the retail broadband market) down to the industry median (which reflects a cheaper mixture of TW and non-TW infrastructure); or
ii/ scenario B – push everyone else up to Telstra’s cost structure (Bigpond/TW pricing)?
2/ the NBN has a much higher capital base than Telstra’s fixed-line network
i/ how soon does NBNco plan to recover the costs?;
ii/ also, you have to make guesses about how consumers will react under the different scenarios:
if you push everyone up to Telstra’s cost structure, will they just spend more to access the same plan quotas? if so, wholesale revenues will be higher. if everyone just spends the same for lower plan quotas, then wholesale revenues will be unchanged;
if you push Telstra down to the industry median, will consumers spend the same for more plan quotas, or spend less for the same plan quotas?
iii/ hence, depending on how consumers react, by initially pushing Telstra down to the industry median cost structure, you’re potentially further delaying the timing of capital recovery relative to other outcomes;
iii/ that’s why i’m guessing the AVC/CVC charges reflect 100% TW pricing, in which case Internode’s “initial NBN pricing” is not sustainable in the absence of major changes to NBN wholesale pricing.
He’s being saying this for a while. I don’t understand how his points seem to be hard to understand. Although he’s added a few things that were neglected in previous reporting.
maybe you’re smarter than most, but the pricing/technical issues he’s publicly debating are highly complex for most laymen.
Laymen which include Stephen Conroy by the looks of it. :)
definitely includes me.
There is only one real layman test, is it more expensive than what I can get BB for now?
let’s just say, if the $50bln NBN gets built, the taxpayer will well and truly get “laid” ;)
in case you didn’t get the pun… “laid” = “lay-ed” ;)
Poor taxpayer, and they are still footing the bill for the insulation farce, which was not laid correctly.
Please, no more puns, I will spill my coffee. :)
Stupid generalisation imo…
It’s about value, not just cheapest, you compare apples with apples. Seriously, do you always drive the cheapest car, buy the cheapest food, contract the cheapest Tradesman… well do you?
Currently, I’m on Telstra ADSL2+/20M/100G and let’s say hypothetically the “theoretically” closest NBN plan is actually $5-$10pm more.
But with my ADSL, I am currently only receiving 5700kbps not 20Mbps…
So I’d be willing to pay $5-$10 for improved/certain speed…But for those who aren’t, go for the next plan down which may be $5-$10 pm cheaper…
Seriously it’s not rocket science and surely even you FUDsters wouldn’t argue over a few dollars per month either way… scrub that, of course you would…!
“FUDsters wouldn’t argue over a few dollars per month either way… scrub that, of course you would…!”
This is true. I think most of them are filthy poors, one of them even admitted in other thread that he would get the 12/1mbps plan and stay on it until 2028! They have no ambition or goals just like the politicians they voted for.
If I had to choose one of Internode plans I’d probably opt for the 1tb 50/20mbps plan. It only costs a few dollars more than what I am paying now and the big benefit is I’ll get the speed I pay for. Still I’m sure other ISPs and in particular iiNet will beat these plans.
Because the people in positions of power are all middle aged law/arts graduates.
“Backhaul costs from 121 points of interconnect back to the metro core of each RSP will cost a lot of money”
^^^ This statement implies that RSP’s have to connect to all 121 POI’s.. It’s not true.
If you intend to be a full national provider, you need to be able to provide to everyone. You will therefore find during the growth stage that the new people who sign up to the services will be distributed in a random fashion. Everytime you get a new customer from a POI you haven’t serviced before you have the problem of meeting their backhaul and CVC costs.
You can limit your pool of POIs to say minimise this risk, but you will still have it. Every new customer is effectively a $4000 month risk in CVC and associated back-haul charges.
You won’t have to connect to every POI from day one, yes, but it still something you have to budget for in case you get a set of customers sparsely populated over POIs.
Your right james, ISP don’t have to service every POI. but think about it, if you as an ISP are going to “skip” a few POI’s then your going to look at each location and see where the most customers are who can afford/are willing to buy your more expensive offerings.
Thats probably NOT going to be regional areas.
now if others make the same market determination, thats pretty much going to leave the big 2 or 3 ISP to come in and not really have to compete much in terms of pricing in regional areas.
This is NOT a win for the consumer.
TL;DR.
So, am I going to have to pay more after NBN goes past my house in 2378? I pay 60 clams a month for unlimited downloads. I don’t need more speed than my 3800kbps, albeit it would be nice. I certainly wouldn’t pay more than what I am now.
I don’t quite like the idea of 200Mbps being given for ‘free’ to providers, this will mean some business will just sidestep RSP’s completely, the 95th percentile proposal however I can agree with 100% – this will be great to alleviate congestion.
I do feel Internode is wanting to be able to bite off more than it can chew, going from, let’s be honest, a small DSLAM footprint – to 100% of the country in very little time, seems like something that should not be possible to Joe Average Internet Services LLC.
Would it be possible for some of the big ISPs to team up and provision redundant connections to all 121 points and provide 14 interconnect points to other smaller players?
Of course that is something NBNCo should provide, but is there some ACCC/NBNco restriction to stop someone else from providing the service?
Both Optus and Nextgen have already announced that they will offer wholesale connections to all of the POI so smaller ISPs that don’t have their own backhaul can still offer nationwide sevice. Telstra will probably do the same.
It’s at least one CVC per CSA no matter how many POIs there are. Even with the 14 POI proposal there were ~195 CSAs. The problem with CVC charging has nothing to do with the number of POIs.
200 CSAs + 121 POIs = at least 200 CVCs
200 CSAs + 14 POIs = at least 200 CVCs
The CVC charging has the potential to cause the problems Simon describes though, especially when you consider the ACCC proposal to ensure ISPs deliver advertised speeds at peak times. It would be interesting to know what Simon thinks that will do to retail prices.
unless I’ve recalled incorrectly….. the CSAs were just for companies that wanted to cater to a regional base
However connecting at the POI would give you access to the whole state.
kind of makes the CSAs (in the 14 POI proposal) redundant (unless it was a local council or something)
Have a look at Figure 2.2 on page 8 here …
http://www.nbnco.com.au/assets/documents/product-overview-fibre_1_03_final.pdf
The CSAs are still there, with one or more per POI.
In section 2.1.3 on page 10 it says …
“Each Access Seeker requires at least one CVC for each Fibre Connectivity Serving Area (FCSA) in which End-users are connected.”
I don’t see NBNco and the ACCC leaving things the way they are. This will ultimately be adjusted out in my opinion.
So if the NBN Co Budget is based on current pricing which is based on revenue from ISP’s at that pricing, and if that pricing is adjusted downward where does that leave the NBN Budget in terms of meeting its projected revenue targets?
It will take a little longer to repay itself… gee what a revelation.
Which just proves that this ISN’T all about $$$$, it’s about what’s best for Australia and ensuring Australians have affordable, modern technology… but the bonus, unlike most other government spending which has no ROI, this will repay itself…!
You DO want Aussies to have decent affordable comms don’t you? So what’s the problem?
Unfortunately its not that simple, the money that is being borrowed is on interest, the longer it takes to pay back the even more it will cost
The NBN is a project that should be actually payed off asap, due to the massive interest.
As basic high school maths shows, there is even a point where you can never pay off interest if your repayments are too low
Yeah yeah… thank you for that typical speech on behalf of the Lib party…
Once again for all the minions, this is needed infrastructure… which unlike most, if not all other government infrastructure, will actually attract ROI…
So…
Ooh and BTW boy… if you can’t handle the heat of debate, don’t go begging Renai to ban me, just skulk off beaten and distraught, but at least with some dignity…
Fancy after YOU being smacked in a debate, YOU begging the mediator to ban your victor…LOL!!!!!!!
essentially, the problem Internode faces under the NBN is the requirement to purchase “burst capacity” on the tail circuit. there is no equivalent cost element on the copper network. the unit cost of provisioning “burst capacity” scales lower as your subscriber base gets larger. so, even though every player, in theory, on the NBN faces the same set of AVC and CVC charges, not everyone has the same “unit cost structure”.
Internode has proposed two methods of neutralising this cost disadvantage for smaller ISPs:
1/ “free 200Mbit burst capacity” – under the first proposal, Internode is basically suggesting that NBNco should make a “free gift” of 200Mbit of (burst) CVC capacity to every ISP.*
imagine if Disneyland sold entrance tickets (good for the day) in batches of 5000 to tour operators. a small tour operator bringing in 10 guests a day purchasing a batch of 5000 tickets would face a massive unit cost disadvantage relative to a larger operator bringing in 4000 guests a day. if Disneyland were to give away a batch of 10 tickets to every tour operator:
i/ small tour groups would effectively pay nothing for entrance – presumably, 200Mbit of CVC per CSA (free) roughly reflects the amount of “burst capacity” required to service a relatively small subscriber base of 250K dispersed over those CSAs;
ii/ on the other hand, for the larger tour operators, the 10 free tickets would only make a tiny dent to their requirement to provision entrance for 4000 or 5000 guests a day – similarly, for a large ISP such as Telstra with 2mln subscribers, 200Mbit of free “burst capacity” would be the equivalent of getting a free “Nodepony”.
i’d imagine Telstra would argue that giving 200Mbit of free “burst capacity” to every ISP would be discriminatory and unfair as the impact of the “free gift” varies sharply across all the ISPs depending on the size of the respective subscriber bases. some would benefit greatly (especially ISPs smaller than Internode) while others would hardly benefit.
2/ “95th percentile charging” – under the second proposal, every ISP will get a “free ride” in terms of not having to outlay for “burst capacity” at all.
the key difference between this proposal (which is more transparent in terms of its actual intent of not charging for “burst capacity”) and the first proposal is that it neutralises the cost disadvantage of servicing smaller subscriber bases by eliminating the “cost disadvantage” altogether. not having to pay for an overhead means nobody has an overhead to “work through” by growing volume. by comparison, the first proposal effectively leaves the CVC overhead intact but provides a “CVC subsidy” for smaller ISPs.
both proposals will have a revenue impact on NBNco:
1/ the cost of the “CVC subsidy” under the first proposal is roughly 200Mbit x 200 CSAs x $20/Mbit ~ $10mln (on an annual basis) per ISP operating on the NBN. now, the provision of this subsidy on acquiring “burst capacity” essentially enables the smaller ISPs to survive. if you were to multiply out the $10mln across the existing number of ISPs (which number in the hundreds), you arrive at a princely sum which explains the suggestion that NBNco will reap a “financial windfall” from CVC revenue.
however, NBNco is clearly planning for further industry consolidation with their implementation of a 121 POI model and their facilitation of wholesale aggregators on the NBN. in turn, NBNco’s relatively modest expectations for CVC revenue (during the early years of the fibre roll-out) are predicated on:
i/ average downloads similar to present (~20GB/mth);
ii/ minimal take-up of the faster ports – with a median speed of 12Mbit;
iii/ tightly-contended networks (on the tail circuit);
iv/ highly-consolidated industry structure – with only a few major ISPs directly accessing the NBN wholesale platform.
hence, NBNco’s clear intent is for the small ISPs to receive their “CVC subsidy” by accessing the NBN via a wholesale aggregator.**
2/ the cost of not charging for “burst capacity” at all, under the second proposal, will be entirely prohibitive for NBNco (especially over the long run as the median port rises above 12Mbit). basically, the cost of provisioning average monthly downloads of even twice the current levels, at constant average rates, is minimal. instead, NBNco’s business model (or profitability) is driven by the need to provision for peak (or burst) capacity. if you remove this revenue driver (or cost driver for ISPs) from NBNco’s operating model, you’re essentially stripping away any chance of the NBN ever making a profit.
* say, you require 400Mbit of total CVC capacity (comprised of 200Mbit of “average” and 200Mbit of “burst”) – it makes no difference whether you purchase the first 200Mbit and get the second 200Mbit “free”, or if you’re given the first 200Mbit “free” and cough up cash for the second 200Mbit.
** conversely, allocating 200Mbit of free CVC capacity to each ISP within a “highly-disaggregated” industry structure would force participants to consolidate up to a point (of fully utilising the 200Mbit “burst capacity”) and strip NBNco of any meaningful CVC revenue.
The whole issue would be void if there wasnt a ludicrous number of Customer Service Areas.
This is what makes the least sense in the NBN Co plans. The POI number could be slashed back to 14 and the CSA number would still make it prohibitively expensive to become a NBN based ISP
The number of POI’s wouldn’t have had an overall effect on the pricing, NBNCo needs that revenue regardless of how many POI’s there are
basically, RSPs have to provision 1/ “mean” capacity and 2/ “burst” capacity. if you’re not purchasing “mean” capacity at one POI, you’re purchasing it another more aggregated POI. the real savings is in the “burst” capacity. however, if the end result is that everyone is purchasing less “burst” capacity because they have a more aggregated customer base, then NBNco will be forced to jack up the CVC charge to make “mean” capacity more expensive to maintain constant revenue.
@deteego
there are actually two “separate” elements to this “CVC charge” controversy that people are confusing…
1/ the $20/Mbit data tariff forces the “premium” providers to adopt a pricing structure similar to Bigpond.
(of course, congested network providers currently on TW, like Dodo, will still be able to offer their cheaper plans with fat quotas.)
2/ the problem that Internode faces is something totally different. basically, because:
i/ they don’t have enough scale at certain POIs/CSAs
AND IF
i// they refuse to access those POIs/CSAs through a wholesale aggregator
they’re basically forced to withdraw from those markets and shrink their business. also, it’s impossible to grow their business from scratch around POIs/CSAs where they have no subscribers to start with (again, without resorting to wholesale aggregators).
this problem and others basically stem from “structural separation” and preventing NBNco from offering differentiated deals to different wholesale and/or retail customers.
basically, Telstra used to both own the network and offer differentiated deals through TW to different-sized ISPs allowing them to “compete” with small customer bases.
the problem now is that they have transferred the monopoly ownership to NBNco but they’ve put the company in a straightjacket by forcing them to implementing a simplistic access pricing model like “same AVC plus CVC for everyone” and not allowing them to offer more refined products packaged with different fixed contention ratios with lower unit costs for different access-seekers.
so, NBNco is forced to leave the role of “wholesale aggregation” to entities like Telstra Wholesale and Optus Wholesale instead and players like Internode have to deal with them at certain POIs/CSAs where they don’t have enough scale if they still want to maintain a market presence (instead of dealing directly with the monopoly owner, NBNco).
another example of a problem that “structural separation” creates: NBNco is unable to extend “volume discounts” to the business sector, hence, the suggestions that NBNco won’t be attractive to the large enterprise market which shift a lot of data and require cheaper data rates than $20/Mbit.
because residential and business customers are serviced from common aggregation points, NBNco can’t prevent RSPs from using any pricing concessions given to one specific sector to benefit other sectors. whereas, if NBNco were allowed to directly offer retail services, it would be able to price discriminate and use more complex cost allocation strategies for different segments of the market.
basically, this whole NBN project is a complete farce, full of contradictions and inefficiencies.
Oh look, dumb and dumber are comparing schlongs…LOL!
@deteego
basically, if you imagine there were three parties within Telstra Corp:
1/ Telstra (network owner)
2/ Bigpond (wholesale aggregator for 2mln+ retail subscribers)
3/ Telstra Wholesale (wholesale aggregator for rest of the market)
the AVC/CVC charges are akin to what Telstra, the network owner, “charges’ Bigpond and TW.
basically, small ISPs looking to access the NBN should be talking to the NBN wholesale aggregators for access pricing – the AVC/CVC charges are for the “big boys”. (this is probably why NBNco was in no haste to release the pricing schedules – they’re not for “general consumption”.)
this is the problem Internode faces.
if you divide their 250K subscribers uniformly across 200 CSAs, you end up with a measly 1,250 customers per CSA. by comparison, Bigpond has 12,500 (assuming uniform distribution). Internode themselves say you need a minimum of 200Mbit per aggregation point. 200Mbit at current average utilisation rates could potentially service many thousands of subscribers.
even if they were given “free 200Mbit CVC”, Internode would struggle to “fill-up” those CVCs at many POIs/CSAs (depending on how their existing subscriber base is distributed).
this issue is quite separate from the “high cost” of the CVC which is probably no different from AVGC. i can’t imagine NBNco would be stupid enough to price the Dodo’s and Exetel’s out of their market niche of “congested TW”. of course, the mid-tier premium providers leveraging off cheap non-TW DSLAMs get crunched in their own special niche of “affordable premium”.
the biggest irony in this whole exercise is that Internode used to complain about Telstra Wholesale’s “smoke and mirrors” access pricing (where they give different pricing to different-sized players, etc)……
so, NBNco implements an extremely-simplified “AVC plus CVC” pricing structure…..
now, Internode is crying for “special” or “tailored” deals ($1/Mbit CVC, free 200Mbit CVC, $0/Mbit burst CVC) to make their small subscriber numbers work….
LOL
Who cares about Internode as a stand alone..?
This is about Australia’s comms…!
Sure Telstra had an easy ride and as a consequence to try to appear as though there was competition, other ISP’s also got an easy ride, at Telstra’s expense…imo!
But now, the party is over, all round.. and the consumer will benefit, so the problem…?
Oh that’s right, YOUR PRECIOUS LIBERAL party didn’t introduce it..d’oh!
Comments are closed.