NBN Co is unlikely to scrap bandwidth charges levied on internet providers that connect into its network, though it is confident it could radically change its price construct if it wanted to.
Chief customer officer for residential Brad Whitcomb told iTnews on an FY19 results call that it is more likely that NBN Co will keep the connectivity virtual circuit (CVC) construct rather than ditch it as has been called for by almost all retail service providers.
NBN services consist of two components - an aggregated virtual circuit (AVC) and connectivity virtual circuit (CVC).
Though newer plans come bundled with a minimum amount of CVC, it is still a variable charge for many RSPs who are forced to buy more to keep pace with consumer demand for data (and to avoid the onset of congestion).
Some have complained to the NBN Co’s wholesale pricing review that they are incurring significant “overage” charges - and have called for CVC inclusions on plans to be doubled through 2023, in the event that the entire CVC construct is not scrapped before then.
Whitcomb said that CVC would not be kept purely because it was too hard to remove from implementations of the current price construct.
“The CVC construct does stretch back a number of years and therefore our IT systems and our retailers’ IT systems are designed around this AVC/CVC [price construct],” Whitcomb said.
“It would be somewhat complex to go do an AVC-only model.
“Having said that, I think we’ve proven in the past that we’re quite nimble and good at solving problems, so if we chose to go that way we could mechanically figure out a way to do it.”
However, Whitcomb indicated there was still a belief inside NBN Co that the CVC construct sent the right kind of price signals to the industry, while helping NBN Co to balance its ongoing economics.
“I think it’s that balance of the economics where as customers consume more resources, that does drive cost back to the NBN and therefore we believe that something like the CVC model that reflects that extra cost and the fact that we need to invest capex to support that is good for the industry,” Whitcomb said.
“We do recognise though that the retailers looking for more certainty in pricing and therefore our general approach is more likely to be increasing the inclusions in the bundles such as what we’ve announced on our NBN100 bundle, increasing it by 500Kbps which is a significant increase at no added cost.
“That’s probably the direction we’ll be taking going forward.”
Whitcomb’s description of a 500Kbps boost to CVC on NBN100 plans - taking them from 2.5Mbps to 3Mbps of included CVC - as “significant” is likely to raise a red flag for retailers, some of whom are angling for much larger additions.
Aussie Broadband has produced modelling, based on current traffic growth rates, indicating that it would need up to 8Mbps of CVC for each 100Mbps AVC by 2023.
Telstra CEO Andy Penn warned that the CVC overage charges it incurs already would cause retail prices to rise within three years.