NBN finally overhauls damaged CVC pricing model

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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

43 COMMENTS

  1. Just formalising what was planned from the start, gradual reduction of CVC prices and usage increases. What isn’t good is until they do it per RSP, some of the usual suspects will be getting discounts based on better provisioning RSPs efforts while also holding back the discounts for everyone by bringing down the average CVC per user. noT PointinG at anyOne Provider That Under proviSions.

  2. So how how many GB would each user of an RSP need to use each month to obtain the $11.50 pricing?

  3. “confirmed it would doffer a rebate on pricing for the CVC model.”

    Doffer?
    Some fancy Delimiter-offer maybe? :D

  4. A few years ago Malcolm was talking about prices of $20,000 a month for a gigabit connection. That uncontested gigabit is already down to $11,500. By the end of the nbn rollout, it will likely have halved another few times, and gigabit speeds with low contention ratios will be a realistic ($100 a month) product.

      • Prediction : Regardless of who is in government, by 2022 Gigabit home broadband plans will be common in Australia – where it is feasible (i.e. where there is fiber).
        They can only resist the rest of the world for so long

        • You missed Jason’s point only 22% of the network currently as it stands to be built will be technically capable of GBps (the fibre bit aka the non MTM part).

    • ” By the end of the nbn rollout, it will likely have halved another few times”

      What proof do you have to say that?

      • Probably basing it on the above article, where by as more CVC is purchased, the discount will increase.

        Thus, as future demand for bandwidth increases, so will the amount of bandwidth purchased by RSPs, thus increasing the discounts on the CVC costs, thus allowing RSPs to purchase more bandwidth for the same price, and so on and so on.

        It helps if you read and comprehend the article.

        • So you think 1 Gbps will drop to $100 a month retail (David’s assertion) when AVC is $150 a month?

          • I have no “proof” for future pricing.
            But bandwidth costs have been falling rapidly for years and I see no reason to believe that trend will suddenly stop. There is plenty of dark fiber in the ground in Australia which can be lit up at low cost. Furthermore, gigabit speeds are already available in other markets around the world, in some cases at price points under $100 a month (e.g. Singapore).
            Canada has similar population density to Australia and take a look at bell canada :
            http://www.bell.ca/Bell_Internet/Internet_access
            $150 a month for unlimited gigabit internet. Today.

          • Considering what you quoted was referring to the CVC halving another few times, and nothing about the cost of a retail service being $100…… You expect me to read your mind and actually know you were trying to get proof regarding his claim about $100 retail prices for 1Gbps?

            If you want to have conversations on the internet in text form, you should probably learn to accurate quote what you want to discuss from someone elses post.

          • Ronin,

            It should have been obvious that David was talking about retail pricing drops (even though he began by talking about CVC).

            Regardless, with respect to CVC, some people would say that $11.50/Mbit is still too high. So even David’s assertion that CVC will be “halved another few times” is debatable.

          • There’s been limited movement on the retail price front as well though. Seems everything is in a holding pattern for the most part.

    • Interestingly if you read the NBNCo Corporate Plan, Labor planned for CVC to fall only as far as $8, and that price point was only reached when average downloads reached 500GB.

      With CVC revenue being reduced significantly, it will be interesting to see the effect on AVC pricing. I suspect the Liberals have been clever as higher AVC pricing will drive down the demand for faster speeds boxing Labor into a corner.

      I wonder if the free 150Mbps of CVC per POI is being removed as part of this repricing.

      • “I wonder if the free 150Mbps of CVC per POI is being removed as part of this repricing.”

        I wondered that myself too. We will have to wait and see what they do with it I guess.

  5. What’s the use of bandwidth if your MTM service can’t handle offering fast speeds?
    Seems like an oxymoron to me!

  6. I suggest this is a clever move by the Liberals. To compensate for the reduced CVC revenue, AVC pricing will need to either rise or not fall (as planned by Labor). This means that faster plans will be more expensive driving down demand for faster speeds providing further justification for MTM.

    • So Mathew the MTM won’t hit it target of 30% on 100Mbps by 2020. But then They did say we only need 15Mbps

      Why should the AVC drop Turnbull claimed before the election his avc price would start at $16

      • I’d suggest it is the Liberal’s giving a vocal minority what they have requested despite the fact that the minority don’t understand what they have requested or the impact of that request on the availability of higher speeds.

        • “I’d suggest it is the Liberal’s giving a vocal minority what they have requested despite the fact that the minority don’t understand what they have requested or the impact of that request on the availability of higher speeds.”

          Incompetence, in other words?

    • So let me get this straight Mathew…

      You believe it’s very clever by the “Liberals (not NBN™ *sigh*) the Liberals” – got it… to, if the demand for speeds are their, quash them and quash them now… to show shitty MTM is best?

      Seriously WTF… did you just support that?

      Oh you weren’t supporting it just sayin’? I see…

      Ok well in that case, tell us about the 4 year hold ups and almost tripling in price (to $70B according to the former Treasurer) of the “Liberals (see what I did there)” complete fuck up MTM plan, instead of harping on and on about one or two WGAF estimations from “Labor” (and see what I did there too) in 2010 then.

      Ata boy.

      • Rizz, there’s no point arguing with Matthew as he’s an even dumber libtard than Alain and even more contradictory!

        • Thanks Derek…

          I do truly appreciate your genuine words of wisdom (well considering you are me or I am you, apparently *sigh*).

          But I’m not arguing with my dear, dear friend contestant B here, per se`.

          I’m simply highlighting his idiocy and inaccuracies (like him arguing for 5 years over one fucking estimation of 50% opting for 12mbps, well into the future, cherry picked from a complete, comprehensive doc from some 6 years ago FFS. An estimation we all said to Mathew, c’mon dude be realistic rather than an argumentative dick, that’s obviously simply, a conservative estimation.

          But no… he copy/pasted the same 50/12 spiel, based around nothing more than a one liner estimation… at every fucking article, blog etc and sometimes at multiple articles each day… for years!!!!!

          So fast forward to now, where he himself now delivers the very stats to show, err, it was indeed actually conservative, as 50/12 is already being surpassed, thus he is delivering his own proof, to prove himself wrong … GOLD

          Just as I do with his equally unstable mate, contestant A and his equally warped inconsistent contradictions – like he objected to being “forced onto the FttP monopoly”, but he now has no objection at all to being “forced onto the FRAUDBAND monopoly”, WTF?

          Not to mention his claims of completely FAILED HFC – he now refers to as lucrative HFC, seriously FFS. Whoops I did just mention it… for shits and giggles… never mind.

          Like we know exactly why you do what you do ladies, but FFS at least be a little consistent, honest, ethical, realistic, rational and human, even minimally…

          But no.

          And what do you know?

          When I also highlight contestant B’s inconsistencies/his own disproving of his own 5 year crusade etc, just like his invertebrate mate™ (i’m gonna ™ that too…) contestant A. he fucking hot foots it and has no reply either… PRICELESS

          They are both welcome…

          • To true mate, I’ve been banned from wp for highlighting his constant speed stupidity in non-flattering terms more than once.

            Apparently the mods over there are all libtard sympathisers or something!

          • > An estimation we all said to Mathew, c’mon dude be realistic rather than an argumentative dick, that’s obviously simply, a conservative estimation.

            Conservative estimate? If you look at what Labor predicted for speed tiers take-up between 2010-2013, only one tier is higher than their estimates: 25/5Mbps. Telstra not offering a 12/1Mbps plan is a reasonable explanation for the 10% difference.

            > 50/12 is already being surpassed

            WRONG! 50/12 is under Labor’s estimated take-up, just like 100Mbps & 250Mbps.

            > Like we know exactly why you do what you do ladies, but FFS at least be a little consistent, honest, ethical, realistic, rational and human, even minimally…

            How about looking at the evidence instead of just making wild outlandish claims.

          • Oh God Percy is back, you and Baldrick make quite the pair! I can almost imagine the conversations between the two of you around the IPA water cooler, all that grunting and clicking, must be hard work!

  7. Not exactly surprising, I’m surprised they hadn’t been more conscious of this right from the start. It was pretty short sighted to allow companies like Optus(who have a reputation for lower than necessary CVC) to tar their name.

    This is the sort of management practice I expected them to get right, being that they are apparently so much better businessmen…. Pah

    • > This is the sort of management practice I expected them to get right, being that they are apparently so much better businessmen

      Considering that this was Labor’s pricing model, any criticism of the high CVC pricing should be aimed at Labor. The Liberals already reduced the price of CVC from $20 to $17.50 ahead of schedule. Labor’s NBNCo Corporate Plan was very clear that RSPs would seek to differentiate based on contention levels, so it was a deliberate decision.

      Labor’s CVC pricing did have one positive point. It is universally acknowledged that data consumption will continue to grow so CVC revenue provides a growing source of revenue. Increase in AVC revenue requires customers to actively switch to a faster plan and the current figures (100Mbps down from 19% to 16% in past twelve months) shows that people are not switching to faster plans.

      • Can the current government ever do any wrong according to you Mathew?

        Psst: open both eyes and look at MTM…

        I look forward to your impartial findings… of “it was the last mobs fault.”

        You’re welcome

        • > Can the current government ever do any wrong according to you Mathew?

          Plenty of other people are pointing out the faults of the current government. I’m merely making sure that the root cause of the issues is well understood.

          I would prefer the government was involved to the minimal amount possible. I suggested back in 2010 that giving $20 billion to Google to build their fibre model in Australia would have been a wiser investment than Labor’s clueless thoughts.

          *Off-topic*
          I would like to thank the Labor government for their school buildings program. My kid’s private school was able to completely 8 classrooms and the admin area with a state of the art complex. Friends at other private schools have commented they were able to complete their 10 year building plan in 12 months with zero fundraising. Prime example of Labor policy: bright idea but implementation is lacking.

          • Percy as usual your logic is lacking, like most lib trolls you utterly fail to grasp that the school halls program helped keep our economy going during the GFC, it’s object was to quickly pump money into the construction sector to prevent mass layoffs with the added benefit that our schools all got their pet building protects funded.

            Classic Keynesian economics in action and worked a treat, doesn’t matter that there was any waste in the slightest, it was quick, targeted and successful. End of story!

          • What is the root cause that the private sector was never going to upgrade there gifted gravy train while bearly keeping the bagdad network running. What was a national average 4Mbps

            No wonder they didn’t want to upgrade costing up to $56B and only valued at $27B

Comments are closed.