NBN price inquiry 'encouraged' to give 'in-depth consideration' to keeping CVC

A regulatory inquiry examining the feasibility of flat-rate NBN pricing has been asked to give “in-depth consideration” to a heavily tweaked version of NBN Co’s current model pricing model that would retain bandwidth charges but introduce volume discounts.

The Australian Competition and Consumer Commission (ACCC) revealed last week [pdf] that a pair of papers were presented to the working group that appear to push some elements of NBN Co’s agenda.

The first paper proposed maintaining the connectivity virtual circuit (CVC) instead of scrapping it as the five retail service providers (RSPs) representing over 96 percent of fixed-line connections want.

A second “confidential” paper tackles the “long-run cost of adding network capacity” to the NBN.

It remains unclear who authored the paper on maintaining the CVC construct into the future. iTnews was unable to establish the identity of the author(s) at the time of publication.

NBN Co said it could not comment on what occurred in the working group due to confidentiality reasons.

Confidentiality agreements for access to NBN information [pdf] mean that most of the process for deciding the future of NBN pricing is being conducted out of public view, bar mostly anonymised meeting summaries.

“NBN Co continues to participate in the ACCC’s special access undertaking working groups and listens carefully to the industry feedback on all the options put forward,” a spokesperson said.

“Since the working groups are confidential, we can’t comment further.”

NBN Co has previously commissioned Accenture to produce reports defending the CVC construct. 

New CVC proposal aired

The most recent meeting of the products and pricing working group shows that discussion has turned back to a potential future pricing model that would keep CVC rather than kill it off. The flat-rate models also remain under consideration.

A paper of undisclosed authorship proposed “a CVC price that falls with the amount of CVC that is dimensioned by the RSP for its services, i.e., the amount of CVC provisioned per service,” the ACCC said in its summary.

“This is similar to the dimension-based pricing model that NBN Co previously offered, except it would provide additional flexibility for RSPs to choose the level at which they dimension their services.

“Unlike the current bundles based pricing, effective CVC charges would operate on [a] continuous price path and not be dependent on periodic adjustments by NBN Co.”

NBN Co did not address questions from iTnews on the mechanics of how this proposal would differ from the model currently in-market.

NBN Co had proposed a model that would keep CVC charges back in June which it called ‘Construct 1’, but this still had a flat rate for excess CVC consumption, whereas the model presented to the working group appears to push for a volume discounting arrangement, where CVC prices would drop based on the amount being bought.

It also appears to go further in the sense that it suggests the current wholesale “bundles” of an internet service with a certain amount of CVC could be scrapped in favour of a model where the RSP alone determines how much CVC to buy for each active service.

The consideration of a pricing model that makes use of the CVC construct is somewhat of a surprise, considering earlier meetings had essentially decided to focus initially only on producing a model that had some element of flat-rate pricing.

The ACCC said that discussion of the CVC-oriented pricing model at the meeting on October 7 “centred around the potential for this pricing model to provide for additional retail product diversity and assist smaller RSPs to compete given they don’t have the option of moving lower bandwidth customers to their own mobile networks should low cost NBN access offers be withdrawn under a non-volumetric pricing model.”

The idea that flat-rate pricing favours the larger RSPs asking for it, and could disadvantage smaller providers, is a pre-stated position of NBN Co’s.

However, it’s not clear to what extent - if any - NBN Co supports a sliding scale price model for CVC.

The ACCC notes there were concerns raised about unbundling NBN services and effectively letting RSPs choose the amount of CVC per service they provisioned.

The commission rounded out by “encouraging other participants to give the volumetric charge model [maintaining the CVC construct] in-depth consideration prior to the next meeting”, which will occur in early November.

A second “confidential presentation” was made on October 7 that “provided an overall estimate of the long run cost of adding network capacity in response to localised capacity constraints” on the NBN “as a $/Mbps/month figure.”

“Participants asked that further details of the cost estimates be made available to the working group,” the ACCC noted, adding that the “presentation authors” had committed to further develop their paper.