NBN narrows in on pricing changes

Expects to make announcement before Christmas

NBN has assessed a range of options for changes to its pricing, some of which represent a significant departure from its current model. The company’s CEO, Bill Morrow, has said he expects to make an announcement about a product incorporating a new pricing structure before the end of the year.

NBN currently levies two key charges on retail service providers (RSPs): Access Virtual Circuit (AVC) and Connectivity Virtual Circuit (CVC).

The AVC is a monthly charge per end user connection with the price depending on the connection’s theoretical maximum speed (NBN currently offers five speed tiers — 12/1 megabits per second, 25/5Mbps, 25/10Mbps, 50/20Mbps and 100/40Mbps).

CVC is a monthly capacity-based charge: It is sold as blocks of 100Mbps, which is then shared between an RSP’s customers.

NBN has said that some of the end user complaints about the performance of National Broadband Network services can be traced to under provisioning of CVC by RSPs. (The company has also stressed that other factors such as backhaul used by an RSP can also impact end user experience.)

Morrow has previously defended the CVC pricing structure as allowing the company to offer lower prices in the early days of the rollout but ramp up revenue as network usage grows.

NBN has already cut CVC pricing multiple times and introduced discount schemes to encourage RSPs to provision more capacity per end user.

However, Morrow argued earlier this year that RSPs are “between a rock and a hard place” because of a “land grab” for early market share on the new network, which has led to competition focused on price rather than data speed during peak usage periods (which is a product of the amount of CVC purchased per end user).

NBN’s CEO wrote in a position paper that the company’s pricing structure needs to “evolve” even further “in a way that allows for a triple win solution for NBN, RSPs, and end-users”.

NBN has been conducting a review of its pricing.

Morrow told a Senate Estimates hearing yesterday evening that the company intends to announce the outcomes of that review before Christmas.

The CEO said that the company was seeking a pricing structure that would still allow it to achieve the $52 average monthly revenue per user (ARPU) that NBN is aiming for in order to deliver a return on the Commonwealth’s investment in the network.

Morrow said that NBN has been consulting with RSPs and evaluating a range of options, including scrapping the CVC in favour of a single AVC charge, 95th percentile billing and other radical shakeups of pricing.

“We have evaluated eliminating the CVC and only having one AVC fee that has a near unlimited usage behind it,” Morrow said.

“We have evaluated what’s commonly referred to as a ‘95th percentile billing’ — this is where you don’t get to block the customer; whatever your customer uses, we’ll give you a bill at the end of that month, but we’ll only charge you up to [the] 95th percentile of what was used. Therefore we’ve given you that last fifth percentile.”

“We looked at other alternatives of just kind of changing the pricing structure altogether,” he added.

Oher options that have been considered are to “bundle things together” — “should we include a degree of CVC along with the AVC price?” the CEO said — or even more aggressive CVC discounts.

NBN has engaged in a second round of consultations with RSPs and is working on the details of pricing changes, Morrow said.

The CEO said that the company was looking at how it could encourage more end users to choose 50/20Mbps plans over the currently more popular 25/5Mbps and 12/Mbps speed tiers.

A change in pricing structure is not straightforward, Morrow cautioned. Changes to existing products require NBN to give two years’ notice to RSPs. As a result, NBN is considering introducing pricing changes through a new product and then potentially removing older products from the market over time.

Morrow said: “My best estimate at this point is an announcement will come out that will explain our intent by the end of the year, that we hope to have something in the first half of next year that will be part of the new product that we hope to bring benefits to the RSPs, to the end users, in a way that is still positive for NBN.

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