Home Telecoms & NBN Big telcos favoured by new NBN CVC pricing

Big telcos favoured by new NBN CVC pricing

The largest players who are providers of the NBN broadband service look to be the main beneficiaries of the new wholesale pricing model announced by NBN Co today.

The company is moving to a a new discount model for its Connectivity Virtual Circuit (CVC) charge – the fee it imposes on RSPs per unit of bandwidth they buy on the national broadband network.

The new model will take effect from 1 June; it calculates the discount based on individual retailer averages, as opposed to an industry average.

And, it automatically reduces the price of CVC as the average amount of CVC per end user increases.

There  has been widespread industry concern over advantages on pricing that Telstra is seen to have as the biggest buyer of NBN services with 51% of the market, and now, concerns whether the dominant telco will get bigger discounts than smaller retailers when the new pricing model takes effect.

The new discount model is based on the network capacity that an individual retail provider buys from NBN to provide to consumers, meaning if higher bandwidth is required, it will push up the CVC price.

NBN Co introduced the industry average discount model for CVC last year, with the effective unit price per Mbps dropping from $17.50 to $15.75 in June 2015, followed by a further reduction to $15.25 in December.

"This is not a volume discount. We don’t give volume discounts for that reason," NBN Co’s executive general manager of pricing, Sarah Palmer, said about today's announcement.

"What this is, is your capacity divided by number of end users. As a result, big guys get some capacity and scale efficiencies; maybe a small guy after a particular market segment could get a higher dimensioning capacity."

Palmer claimed that as usage of the NBN grew, there would be a bigger range of plans and more "cost certainty" and flexibibilty for retailers.

"We would like consumers to see a bigger and greater range of plans," she said.

NBN Co chief customer officer John Simon said changes to the pricing model were intended to deliver a number of benefits, “including greater forward price certainty to retail service providers (RSPs), allowing them to better manage their cost base, and support growth in usage on the NBN network”.

“It will also provide further scope for retailers to differentiate their offerings, which, in turn, will promote competition and assist consumers in accessing a wider choice of broadband plans."

He said the new model was the next step in the evolution of the dimension based discount (DBD) pricing mechanism, which was introduced last June on an industry-average basis. "It follows an extensive consultation period with NBN’s customers, the retailer service providers".

“Our aim is to achieve better outcomes for end users, RSPs and NBN Co by providing a more direct link between an individual retailer’s dimensioning and unit price.”

And, according to Simon, feedback received during the consultation period with industry was “broadly supportive of the new approach”.

“We have worked closely with industry in order to make sure we are delivering a range of competitive broadband services for all Australians. Today’s announcement is another step in helping us create value and competition in the market.

“We will continue to review our pricing structure to ensure it supports uptake and usage of the NBN network.”

The new model applies the discount on a monthly basis across all technologies, except satellite.

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).