Truth: CVC pricing is the key NBN sleeper issue in this election

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money with Fiber optics


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55 COMMENTS

  1. The problem with CVC pricing is that it’s based very much on a commercial model. If people use more, then they should pay more. It’s not a wholesale network providers fault if their RSP’s are going to go as cheap as possible to make as much money off their end users as they can.

    But having said that, how do you incentivise them (RSP’s) upwards? What’s to stop the RSP’s taking advantage of lower wholesale prices and then on charging the same retail plan amount to end users, therefore pocketing the difference?

    If the structure has to change … how do you change it and fulfill the following conditions without radically changing costs for someone:

    1. Influencing the RSP’s to take CVC-like (Or whatever you’d like to call a new regime) that promote higher bandwidth speeds to end users (therefore gaining the benefits of the NBN to the public)

    2. Prevent the above situation amongst RSP’s from pocketing the difference instead of on flow incentivising users to higher RSP plans.

    3. Keeping the cost of the NBN reasonable and able to recoup costs organically without RSP bill shock by moving to a flatter charging regime (once again, to promote bandwidth usage growth upwards).

    • NBN’s underlying costs don’t change based on how much bandwidth the end user uses.

      100% utilisation on FttP would mean the end users suffer contention and are restricted to a mere 84Mbps! 1/32 split of 2.54 Gbps(GPON) … assumes 100% usage and no reserved fibres in the split … all very unlikely assumptions.

      The cost to NBN would be essentially the same if they all used 1Mbps!

      (I’m ignoring MTM because of the cluster that it is)NBN’s wholesale

      • “NBN’s underlying costs don’t change based on how much bandwidth the end user uses.”

        They do if more infrastructure is needed like more physical fibres, or higher end equipment to handle the throughput thanks to increased bandwidth costs.

        “100% utilisation on FttP would mean the end users suffer contention”

        Less than 100% utilisation would mean contention, absolutely. But how does NBNCo anticipate demand here? How do they recoup costs, while allowing organic network upgrades as needed, if not through increased charges through increased usage? They could apply a flat charge across the infrastructure, but that would mean an overall increase in cost and/or a lessening of scalability for the network to grow.

        “The cost to NBN would be essentially the same if they all used 1Mbps!”

        Only if the network has already been built to handle the upper limit of all connections, whether that be 1 Gbps, or 100 Mbps. In order to keeps costs down, you organically grow this via capacity planning, allowing for head room for growth. Have they already done this? And if so, if they eat into their scalability, how do they recover the cost of keeping the infrastructure’s ability to scale upward?

        It’s all well and fine to say there’s no cost … but eventually, unless you’ve sufficiently capacity planned, you are going to have to upgrade … and where’s that money going to come from?

        • “They do if more infrastructure is needed like more physical fibres, or higher end equipment to handle the throughput thanks to increased bandwidth costs.”

          How much light they shine down doesn’t change their cost as long as they cap it at the electronics’ limits (so GPON 2.54Gbps 1/32 ~100Mbps) etc.

          Sure if they need new electronics to upgrade to higher speeds it will increase their costs. I’m not suggesting they run @ cost/loss just that once upgraded low speed or high speed still costs them the same. (profit % gets set such that the time of return is acceptable etc)

          It will vastly affect the costs associated at the RSP level for sure (so a 100Mbps vs 1Gbps plan will cost end user differently etc) but that shouldn’t impact the charging model decided upon by NBN.

        • “The problem with CVC pricing is that it’s based very much on a commercial model. If people use more, then they should pay more.”

          I’ll try again maybe :)

          Beauty of fibre is that you set a limit (based typically on the electronics capabilities). What % of this limit gets used doesn’t affect cost of providing the service (at the wholesale level). It’ll be 1 max figure for the network as a whole (if it isn’t someone ought to be fired etc).

          Any speed below that isn’t based on cost of providing the service and doesn’t make that service ‘cheaper’ to provide.

          Upgrades are (have to be) covered by profits (I’m not trying to suggest it ought to be loss leading enterprise).

          • “Beauty of fibre is that you set a limit (based typically on the electronics capabilities). What % of this limit gets used doesn’t affect cost of providing the service (at the wholesale level)”

            It’s all good Simon, I get what you’re saying. But your point is referencing only a specific point in time. What I’m saying is addressing what happens over time as the network evolves. The costs there have to be recouped.

            That “max figure” that you set for the network isn’t a static entity either. For capacity planning, what the network was capable of this year, isn’t what the network needs to be capable of in 5 years. If there’s no money coming in to allow for that organic capacity growth, then where’s it coming from?

            That’s what I’m saying … the network can grow … but the money has to come from somewhere. With the existing cost structure, it’s most likely coming from the heaviest users.

            But if that structure is replaced by a flat cost (keeping just AVC, which would need to increase to preserve revenue streams, or CVC is kept but cost flattened/equalised, to allow RSP’s to promote higher usage plans … then other than raising wholesale prices universally (which would be passed on to the end users no doubt), then how else can NBNCo get the money to grow the network over time?

            I don’t have an answer to this … but with the removal/reduction of CVC or a change in cost regime there’s a dilemma there that nobody is addressing.

          • To pinch one of Reality’s favorite lines, what makes Australia so magical that it’s undoable/unaffordable here?

            Singtel offers 1000/1000Mbps for $59.90 a month.

            Verizon offers 150/150Mbps for $69.99 a month.

            Google Fiber offers Fiber 1000: $70/month.

            Virgin UK offers 200/200Mbps for £45.25 a month.

            All these plans are “unlimited download”.

            I could keep adding a lot more countries/companies, but I’m sure you guys get the idea.

            The only thing stopping us from having a world class system is the LPA, almost all other parties in Australia support a world class system.

            We need to move beyond “what” the NBN is running with and actually move our politicians onto “how” it is run (regardless of who wins or if they stay with the inferior FttN).

  2. A customer buying a 100Mbps FTTN service, for example, may only be able to achieve 80Mbps in reality, while a fixed wireless customer on 50Mbps in theory may only get 40Mbps most days. FTTP is really the only technology which offers theoretical speed tiers which match reality.

    I agree the CVC/AVC issue needs fixing (it was however designed in the pre-NetFlix era which doesnt help it), when you buy capacity on backhaul or transit links etc you pay for bandwidth and not data. Residential and all business internet services should also be charged 100% on bandwidth too with data being unlimited.

    We also need net neutrality legislation to prevent ISP’s and Telco’s “managing” what we use out connections for – the only exception should be for VoIP traffic which NBN currently provide to FTTP customers via TC-1 to the UNI-V ports. It should be illegal for ISP’s to throttle any other traffic classes.

    • Connections without quota advantage a small minority who consume significantly higher than average amounts of data. This advantage increases as speeds increase:
      – On 12Mbps in a month the maximum you can download is ~3.7TB
      – On 1Gbps in a month the maximum is ~324TB
      If you have a quota then like turning off a tap or the light, you turn off the netflix stream when finished.

      WIthout quotas there is a significant disincentive for RSPs to sell faster plans.
      With quotas there is an incentive to run a congestion free network, because revenue growth is from selling higher quota plans.

      Many RSPs provide off-peak quotas to encourage users to move their traffic to less busy time (just like public transport, toll roads & electricity suppliers).

      Think about the NBN you want and develop the pricing model accordingly.

      • Quotas are merely an artificial construct designed to allow ISP’s to massively over subscribe their bandwidth while maximising profits.

        Like I’ve already pointed out, ISP’s pay for bandwidth, not data so why should we?

        Ps internet differs from power in that with power they sell you the electrons they generate so user pays makes sense. The Intenet is different because everyone generates electrons and photons and it’s not generating them that costs the money, it’s transmitting them.

      • Give the ACCC the power to intervene if you aren’t getting what you paid for (which should be happening even now). That’s what they are actually there for after all.

    • Brilliant selfish idea that will be the end of the NBN.

      Raising AVC prices means:
      – fewer people will connect (Labor predicted 30% wouldn’t connect)
      – people will choose slower speeds (why bother with fibre when 84% are on 25Mbps or slower)

      NBNCo increasing revenue from CVC means
      – users who put load on network are charged
      – revenue to improve the network exists
      CVC pricing today is actually discounted compared to Labor’s NBN plan which was to see over time price/Mbps to drop by 60% as data usage increases by 1800%

      • There’s absolutely nothing to stop NBN Co from subsidising the 12 & 25 Mbps plans via the 100 Mbps+ Plans so they continue to be affordable for those on limited budgets.

        • You mean: As long as I can be in the 10% with fast internet today, I don’t care that 84% aren’t receiving a benefit from fibre.

          If you gut the usage charge from NBN then you gut the future potential of the NBN.
          When someone uses their quota they will grumble and upgrade when performance is poor because of speed tiers they just grumble.

        • There’s absolutely nothing to stop NBN Co from subsidising the 12 & 25 Mbps plans via the 100 Mbps+ Plans so they continue to be affordable for those on limited budgets.

          That’s much like how Google do it (and they even give the lowest speed to the poor for free!).

          • Exactly right mate, NBN is public infrastructure, it should cross subsidise plans for the under privileged or pensioners via the the premium plans.

          • Didn’t Labor talk about using one of the FttP ports for people to use to access government resources even if they didn’t take a commercial plan before the last election?

          • The original design reserved Iirc 7 or so ports on each splitter for “non addressable” locations, e.g. Cc tv, traffic systems, mobile towers etc etc.

            I’m not sure if it was ever implemented.

      • “why bother with fibre when 84% are on 25Mbps or slower)”
        To hell with the 16% trying to advance Australias economy! We don’t need no stinking economy.

        “CVC pricing today is actually discounted compared to Labor’s NBN plan ”
        Then why are plans universally $10-$20/month more now than previously?

      • why bother with fibre when 84% are on 25Mbps or slower

        Why bother with upgrading from ADSL2+ even? Aussies only need 25Mbps or less, right Mat?

  3. As much as I agree that this is a massive issue, it is relatively easy to fix at *any* point. What isn’t easy to fix is the physical infrastructure – FTTP is critical because once it’s in it won’t need replacing unless it is damaged. If tens of billions are spent on other infrastructure, both the political will and sufficient financing must be assembled in order to build fibre at some point. And who will own it? What’s the point in the public paying for infrastructure we give to a private company who get to charge us for the privilege of accessing infrastructure *we paid for in the first place*? Surely that’s just theft? If the public pay for it, the public should retain ownership, and no politician or party should be allowed to give away public assets or privatise them for a fraction of their value to the public.

    So yes, CVC is an issue, and a massive one, not the least because it’s not being discussed. But prioritising delivery of fibre is a much more pressing and critical one.

    • As much as I agree that this is a massive issue, it is relatively easy to fix at *any* point. What isn’t easy to fix is the physical infrastructure – FTTP is critical because once it’s in it won’t need replacing unless it is damaged.

      Exactly.

  4. CVC made sense in the 14 POI model, it was effectively the backhaul cost. But now with RSPs having to get their own backhaul from 121 POIs, CVC is double-dipping (and overpriced).

  5. I’m a little confused what this means if this means they will hike wholesale price that is rubbish.

    The whole point of the exercise was universal affordable fibre internet.

    Instead the ACCC is allowing both revamped ADSL and HFC being sold like for like as if it was a fibre connection. People are being conned , cheated and scammed.

    They don’t compare, you pay for 100 you will only get 30 or less if you are lucky so exactly like an ADSL plan, and then all the downtime involved.

    • With the congestion issues which I correctly predicted would make purchasing higher speed plans meaningless.

      > They don’t compare, you pay for 100 you will only get 30 or less if you are lucky so exactly like an ADSL plan, and then all the downtime involved.

      Perfect example of why removing speed tiers on FTTN would make it faster than the average FTTP connection.

      As for the reliability issue, it will be interesting to see if it is quicker to repair the damage from a contractor cutting through copper or fibre.

      • @ Mathew…

        And how’s the 50/12 prediction, the one you championed every day, at many discussions, for around 5 years going for you?

        “Perfect example of why removing speed tiers on FTTN would make it faster than the average FTTP connection.”

        That is one of your most blinkered, cherry-picked comments yet…(and you have some doozies)

        Q. The reason we have FTTN and not FTTP is?

        A. Because the Coalition came to power and changed this.

        Q. The reason we still have speed tiers is?

        A. Hint: check the first answer and drop a d and add the words did not … see how you go.

        You’re welcome

        • I’d like to see his take on why the LPA changed so much of the rest of the NBN, but decided to keep that specific part as is.

          I guess even the LPA thought that bit is fine?

          • You just gave it away Tm… ;)

            But then our dear friend does like to pick little sections (think 50/12) and ignore the rest, so he probably needs further hints…

            Cheers.

        • Q. The reason we still have speed tiers is?

          A. Because the Coalition did not came to power and change this?

          Or did I put did not in the wrong place? I was kinda hoping they didnt come into power myself and the last ~3 years was a dream.

  6. Pricing on “speed levels” is the issue at the retail level, there should be only one speed for all, the maximum possible. Charging should be based on the amounts of data trafficked.

  7. “This is not an issue which the general public will ever engage with; it’s too technical and too difficult to understand. It has little relevance to most people’s daily lives.”

    It has direct relevant to people’s lives because it will affect the cost of living.

    I agree that the subject is technical. That’s why the public needs a lot of time to understand the implications before an election. So why write this article on the eve of an election and not earlier?

    • Your question already answered in your quoted text. If you believe otherwise, why didn’t YOU publish an article earlier?

    • “So why write this article on the eve of an election and not earlier?”

      I try and write articles on topics when those topics gain enough momentum that they are close to breaching the surface consciousness of quite a lot of people in Australia’s tech sector.

      The CVC issue has often been an esoteric one. But it’s starting to underlay a great deal of the political commentary about the NBN. It felt like the right time to ‘burst the bubble’ and bring the debate to a greater stage.

      This is my approach to journalism. I try and be the tipping point that exposes an issue when it becomes important enough.

      You’ll see I did that with the NBN Royal Commission call as well — that was another one that had been bubbling along. Turnbull’s decision to side with Switkowski over the Caretaker Conventions created enough outrage that I felt the time had come to boost the issue up.

      I’ve learnt from bitter experience that if I write about an issue too soon, all the tension will die and it will be forgotten about. But if you write about it at the right time, you can become the ‘inflexion point’ which can help it to become magnified significantly.

      So you see, I do think about these things a great deal :)

      • I think you got the timing pretty well right too Renai, Tbh I felt that I was really on the fringe when myself and a small number of others started calling for a royal commission into the destruction of the NBN.

        Your article and others following suit was a really nice confirmation that I wasn’t nuts…. Well more than normal for the ICT industry. 😆

      • Sheesh, you’re only one of the most read tech journos in Australia because you fight the good fight with your editor and publisher (who are both political shills!!!!11).

        Jokes aside, just keep calling it the way you see it and you’ll do fine. And please…I know you need to make a living (which is why I ponied up with a sub), but please promise us that you’ll never become a “cash for comment” site and I’ll stick with you through thick and thin…

        • This!

          I realised just how much we needed delimiter when you were off on your little side quest Renai. It’s Bloody good to have you back and doing what you do best!

          • +10

            Heck, I don’t even mind Richard and Alain here, at least they challenge your position on things (and I’m not so arrogant that I think my position doesn’t ever need a challenge, though it does wear a bit thin with Mathew not “sharpening” his argument after so many years).

            Delimiter for me is about ideas, not opinions.

  8. This is not an issue which the general public will ever engage with; it’s too technical and too difficult to understand.

    It has little relevance to most people’s daily lives.

    The key issue here was not a technical one. It was all about price.

    While most Australians would agree the CVC/AVC system is technical and they don’t really get it, I think you hit the nail on the head on what actually does make it relevant to their daily lives, “price”. All Australians know when they are getting ripped off (look at the outrage most of us have on the “Australia Tax”).

    No matter who win’s, they need to take a relook at the CVC charging issue, the rest of the world moved on from it, and we should too…

  9. The issues we are experiencing now are a direct of the ACCC attempting to regulate something they didn’t understand and completely failing in their job of acting in the interest of consumers. This should have prompted a rethink on the NBN revenue model as it push small players out of the market which would have allow premium services to exist(like the Internode of old).

    One Idea I have is for NBN to sell contention instead of CVC bandwidth, this would effectively spread the cost of CVC charges over all ISP connected to a PoI reducing some of the advantage large ISP have. NBN co sell a speed tier and a contention tier. This issue with this it can reduce some of the product differentiation available but we are not seeing much of that anyway.

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