Vodafone has called for significant changes to NBN’s wholesale pricing model, with the telco’s chief strategy officer, Dan Lloyd, arguing that the key variable cost associated with National Broadband Network connections — the Connectivity Virtual Circuit (CVC) charge — should be halved.
NBN levies two major charges on retailer service providers (RSPs) that sell services on its network: CVC, which is a capacity-based monthly charge sold in blocks of 100 megabits per second (Mbps), and Access Virtual Circuit (AVC), which is another monthly charge based on the theoretical maximum bit rate for an individual service.
Under-provisioning of CVC can be responsible for poor end user speeds on the National Broadband Network during peak usage times.
Lloyd, appearing this morning at a Sydney hearing of parliament’s Joint Standing Committee on the National Broadband Network, said that in Vodafone’s view it can be “genuinely very risky” for retailers to purchase more CVC to deliver better performance during periods of network congestion.
“The cost of doing that is very, very significant and we believe the variable costs in NBN are the highest variable costs that we see in any of the wholesale networks that operate in globally.”
Vodafone retails services on Chorus’ Ultra-Fast Broadband fibre network in New Zealand, the Qatar National Broadband Network, and the UK Openreach network. In Australia, Vodafone is preparing to launch its NBN services.
Vodafone “fully understand” NBN’s need to deliver a positive return on the government’s investment, Lloyd said. Successive Australian governments have sought to keep the NBN ‘off budget’ by treating it as an investment that will eventually deliver a profit to the Commonwealth.
NBN’s current corporate plan forecasts average revenue per user reaching $52 in FY20. NBN’s latest results reveal that as of the end of March, ARPU was $43. (An updated NBN corporate plan is expected to be released shortly.)
“We put forward in NBN’s current consultation on the CVC what we think is a very practical way forward which is to substantially reduce the CVC – we’ve proposed halving the CVC rates – but to balance that with an increase in the AVC so that NBN still gets the wholesale revenue that it needs,” Lloyd said.
“We believe that can be achieved by a model that has a higher fixed access charge and a lower variable component so RSPs aren’t facing such a massive risk in buying more capacity at the most congested times of the network.”
NBN’s CEO Bill Morrow yesterday said that a “land grab” by RSPs trying to grab or maintain market share was a key factor in poor end user experience on the National Broadband Network.
RSPs’ “primary marketing strategy” has been “focused on price with little mention of data speed or quality during the peak of the day,” the CEO argued.
“The grab for market share means there is more competition on price, rather than quality, as the primary selling point,” Morrow wrote in a position paper. That emphasis means that some RSPs are under-purchasing CVC.
“We think it is very difficult to differentiate at the moment on anything other than price,” Lloyd said today.
He said that when an RSP is trying to sell a service “with a theoretical maximum of 12, 25, 50 or 100 megabits per second”, it can be difficult to then explain to consumers that it is differentiating itself by ensuring minimum throughput of 2Mbps per customer at the most congested periods on the network instead of 1Mbps per customer.
“There’s too greater difference between that theoretical maximum and the CVC that we just don’t think it’s possible to communicate to customers,” the Vodafone executive said. “And that means unless there’s a significant change in the charging model, [retailers] have to compete on price; they have relatively little choice but to compete on price.”