news The NBN company has finally overhauled its controversial ‘Connectivity Virtual Circuit’ (CVC) pricing model in an urgent attempt to avoid pricing on its infrastructure becoming impossible for retail ISPs and end user broadband customers to pay, as broadband usage grows.
The NBN company currently levies two separate charges to retail ISPs such as Telstra, Optus and TPG. These are a flat rate per customer that each ISP connects to the known (known as the ‘Access Virtual Circuit’ (AVC), as well as the ‘Connectivity Virtual Circuit’, a scalable charge for the actual bandwidth used by customers en-masse.
However, the ISP industry has long criticised the CVC model, seeing it as unsustainable, too expensive and an artificial barrier both to getting more customers onto the NBN infrastructure, as well as to facilitating the entry of new, smaller ISPs into the NBN market.
Additionally, the risk of the CVC model is high for retail ISPs, because as customers use more download quota — as they are doing on the NBN — the cost of the CVC model would drastically increase. NBN blogger Kenneth Tsang has calculated that the cost of a 12Mbps NBN plan could eventually rise to over $150 per month if the model was not changed.
Today the NBN company issued a statement noting that it had radically changed this model in response to a six week consultation period on the issue.
The NBN company said the new model, planned to be introduced in June was known as a “dimension-based discount” (DBD), and could see CVC pricing as low as $11.50 (currently the price is as high as $17.50 per Mbps of traffic).
“The new discount-based model is calculated on the average CVC bandwidth assigned by all retailers to all end users on the NBN network at an industry level — the more CVC bandwidth provisioned per end user, the bigger the CVC pricing discount available to the industry,” the NBN company said.
“The level of discount applied to the standard CVC unit price will be calculated on a quarterly basis and will be available equally to all NBN wholesale customers, regardless of size, and aims to encourage retail providers to deliver a higher quality service. The calculation and application of the discount will exclude satellite.”
NBN CEO Bill Morrow said: “We know more bandwidth can mean a better broadband experience for homes and businesses, so we are excited to evolve our CVC pricing model for our retailers.”
“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.”
“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.”
Morrow said the new model aims to encourage retail ISPs to to better dimension their network, as well as helping retailers provide a better broadband experience for homes and businesses.
“We do not plan to stop here,” said Morrow. “We see the DBD model evolving further and ideally being applied directly to each retailer rather than an industry level. We will continue to evolve it in close consultation with our customers.”
The NBN company said the feedback received during the consultation period was supportive of the NBN company’s new ‘tiered discount approach’. The discount model is intended to remain in place up to two years, but will be reviewed on an ongoing basis in conjunction with retail ISPs.
The NBN company already changed the CVC model somewhat shortly after its launch. In August 2011 the company bowed somewhat to industry figures such as Internode founder Simon Hackett (now on the NBN board) and confirmed it would offer a rebate on pricing for the CVC model.
Image credit: NBN company