NBN Co's fixed CVC pricing comes under criticism, again

The bandwidth pricing that the NBN Co charges retail service providers (RSPs) has again come under fire with suggestions that some RSPs may need to substantially increase the prices on some faster speed plans — particularly in regional areas — due to the economic impacts of fixed connectivity virtual circuit (CVC) pricing.

Speaking at the Communications and Policy Research Forum 2011, Market Clarity’s Shara Evans suggested the fixed $20 per megabit per second CVC fee should be reviewed – particularly as it had an impact on whether it was economical for RPS to service regional Australia.

“What we see is that there is no rhyme or reason in terms of whether it is worth servicing regional Australia or not – where it makes sense,” she said.

“Yes there will be some areas in metro Australia where you have a high enough take-up and it is worth servicing, but one needs to look very carefully at contention ratios and cost allocation methodology [RSPs] will use [to service regional areas].

“One possible conclusion [as a result of fixed CVC pricing] is there is no such thing as uniform national access pricing [for RSPs] due to the way the tariffs actually work when you put them into practice. The question is, what happens on [retail] prices?”

Evans said there were a number of possible ‘quick fixes’ to the issue of CVC pricing, including the introduction of bulk discount pricing, moving to usage-based pricing and moving to speed-based pricing.

“There are a whole range of things that could be done to fix this, but… I would surmise that there would be implications on the [NBN Co] business case if the CVC pricing changes dramatically,” she said. “There is no evidence I have been made aware of that the CVC pricing is slated to change.”

The comments echo those made by Internode’s general manager regulatory and corporate affairs, John Lindsay, before a joint committee hearing in October that regional service providers – particularly those that operated their own networks – were under threat due to the fixed $20 per megabit fee NBN Co charges.

“Largely our backhaul costs in capitals cities are fixed costs so as our traffic on those networks rises, our costs remain largely static,” said at the hearing. “So, our cost per megabit to use those networks actually falls as the costs remain the same as the traffic rises.

“The challenge for existing regional service providers is that they have all the traditional overheads of connecting to the NBN, all the overheads of running their existing network and they are already operating on very squeezed margins…

“It means that in the build-up to the NBN, those regional service providers face significant increased costs and a dual network operating overhead which is really likely to spell the end of them.”

Follow Tim Lohman on Twitter: @Tlohman