NBN Co is changing up its connectivity virtual circuit (CVC) pricing model so internet service providers (ISPs) will be charged a lower CVC price as their customer base grows. What does this mean for consumers? Let's find out.
One of the biggest gripes for ISPs when they offer National Broadband Network (NBN) services is the CVC price; that is, the money NBN Co charges for the amount of bandwidth used by the ISPs' customers. They've been extremely vocal about it for years since the way it's calculated disincentivises them from offering higher speed plans.
Last year, NBN Co changed to a dimension-based pricing model that calculated CVC charges based the average bandwidth ISPs make available to all end-users as whole. The CVC drop from $17.50 to $15.75 per Mbps by December 2016.
However, ISPs continued to be dissatisfied with the price and smaller ISPs were still baulking at the costs because it was getting dragged up by bigger competitors. Don't forget that on top of CVC charges, ISPs still have to fork out money for the access virtual circuit cost for every connection they have on the NBN.
Now NBN Co has announced it will be moving to a new discount model that calculates the CVC price based on average bandwidth individual ISPs divide up with its customers.
According to NBN Co, this change automatically scale to reduce the CVC price for ISPs when their user numbers increase.
NBN Co chief customer officer John Simon said the changes will mean greater price certainty for ISPs: "It will also provide further scope for [ISPs] to differentiate their offerings, which will in turn promote competition and assist consumers in accessing a wider choice of broadband plans."
This hints at NBN CEO Bill Morrow's claim that Australians currently have no need for 1Gbps NBN services, pointing to the fact that the majority of customers are opting for lower speed plans. A number of ISPs have said CVC pricing was a major hurdle in allowing them to make higher speed plans available in the first place.
While NBN Co claims the new discount model will help give ISPs more flexibility in offering different speed plans, Internet Australia said it could have a negative effect on smaller operators.
“The idea was that we’d see a wide range of small to medium sized retailers, mostly existing ISP’s, able to better compete with the larger operators. This new pricing scheme could have the exact opposite effect” Internet Australia executive chair Anne Hurley said. "The concern we have is that we will see the bigger operators on better rates than their smaller competitors.
"In the end this could just reinforce the market dominance of the existing large players"
NBN Co has shot down this claim. An NBN Co spokesperson pointed out that the new CVC model is not a volume-based discount:
The price is calculated by dividing capacity by the number of customers a particular retailer has. That means the same discounts apply whether you’re a small or a large retailer.
Ultimately, the new model enables greater flexibility for retailers to differentiate themselves and their proposition in the market.
Whether or not this will result in cheaper NBN plans overall remains to be seen.
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