NBN Co cuts over to new CVC discounts

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NBN Co cuts over to new CVC discounts

Could reduce congestion on network for some users.

NBN Co will today switch to a new model for the virtual bandwidth charge it levies on retail service providers, which - in theory - encourages them to buy more by offering greater discounts.

The connectivity virtual circuit (CVC) is a fee for offloading traffic from the NBN to the service provider’s network, and is levied on top of backhaul and international transit costs.

CVC has long been panned by the industry as unsustainable, and is the leading cause of congestion on the NBN because the high price discourages RSPs from buying it in large volumes.

It began life fixed at $20 per Mbps per month, before being cut to $17.50 in November 2014.

In April last year, NBN Co began offering discounts based on the aggregate amount of CVC bought across the industry; that saw the price fall to $15.75 and then $15.25.

From today, a further change has been made that will tailor discounts based on how much CVC per end user the individual RSP buys.

This revamp was announced back in February and the network builder said at the time the fee could go as low as $8 per Mbps per month.

Just knowing it has been coming has had some impact on collective CVC purchase, according to NBN Co.

“Since we announced the new discounting model in February there has been an 11 percent increase in CVC purchased per end user on average on the NBN network,” a spokesperson said in a statement.

“The new model enables retailers to differentiate their offerings to consumers, which will help promote competition and a wider choice of broadband plans.

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

NBN Co’s chief customer officer John Simon told senate estimates last week that the company had visibility of congestion levels down to the individual RSP across the rollout.

He said RSPs would typically upgrade CVC once a certain threshold was reached.

“We can see if the CVC purchased at our point of interface has reached capacity, but I can say that does not happen regularly, although there was a period where there were certain CVCs that hit that,” Simon said.

“Generally speaking, I would say that most RSPs, if not all, are running what we would refer to as around about a five to 10 percent head room, so as they get to 90 percent they upgrade their capacity.”

Simon noted, however, that it was just one factor in determining the speed the end user experienced on the NBN; backhaul and in-home cabling and equipment also had an impact.

He also suggested RSPs had a case to answer on the “different design ratios” at which they operate their networks.

“In a market where you see a $60 plan or a $40 plan advertised for similar data allowances you have to ask yourself why,” Simon said.

“Why is someone selling that for $40 versus why someone else is selling it for $60?

“Often it is the [CVC] dimensioning ratios and what we refer to as the design ratios, ie, the contention that they will allow and that will impact the speed and experience of the user.”

Large RSPs will soon have the performance of a sample of their NBN fixed-line services monitored by the Australian Competition and Consumer Commission (ACCC), exposing the types of service speeds that prospective users might expect if they sign on.

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