New charging models could mean that congestion on the National Broadband Network (NBN) will be reduced – but only if the biggest internet service providers (ISPs) get on board.
Last week, NBN officially rolled out a change to the pricing model which it uses. A quick reminder: NBN itself acts as a wholesaler and doesn’t deal directly with individual customers who need internet access. Instead, it sells capacity on the network to ISPs, who then create packages to sell to consumers.
That capacity isn’t purchased as individual connections, but as a big lump of connectivity which has to be shared between all the customers that ISP has. The biggest element of that “connectivity lump” is known as Connectivity Virtual Circuit, or CVC.
CVC represents the total amount of connectivity an ISP can offer to all its customers. An ISP will aim to purchase as little CVC as it can get away with, since that maximises its profitability. But it needs to ensure that it acquires enough CVC so that its customers don’t feel like they’re paying for an inferior service which constantly times out.
ISPs know that not every single customer will try and get online at once, and that people viewing static web pages don’t actually need to be continuously connected. Where the approach becomes messy is when streaming video from services such as Netflix or YouTube, which do largely rely on a continuing data stream. Insufficient CVC can lead to lagging on those services.
Despite that, ISPs are assuming most of us aren’t using our connection most of the time. Analysis of NBN whole data by finder.com.au shows that the contention ratio for NBN services is around 31 to 1. In other words, ISPs are assuming that the majority of consumers won’t be using their services at any given moment. (Globally, contention ratios typically range between 20:1 and 50:1, depending on the country and provider, so Australia is not in any way unusual here.)
The only way to improve that experience is for the ISP to purchase more CVC. Under the previous model, every ISP paid the same per “unit” of CVC: a fixed price of $15.25, which was based on an industry average cost. Now they will receive a discount on CVC based on the amount they purchase. In other words: the more they buy, the cheaper it gets.
That should be an incentive for ISPs to purchase more CVC and give their customers a better experience. “It will encourage the supply of more bandwidth for consumers at home and at work, leading to a better internet experience overall,” nbn executive general manager for product and pricing Sarah Palmer predicted in a statement. According to NBN, there has been an 11 per cent increase in CVC purchases since the change was first announced in February.
In reality, whether we’ll see a big long-term pick-up in the amount of CVC purchased by ISPs is in the hands of just three providers: Telstra, Optus and TPG. Collectively, they accounted for 91 per cent of all active wired NBN connections as of March 2017, according to tracking data supplied to the Australian Competition and Consumer Commission (ACCC).
As the biggest purchasers, those companies will qualify for the biggest discounts. However, as the largest providers, they already have the lion’s share of the market. There isn’t necessarily a competitive incentive to pay for more capacity.
What might make a difference here is the ACCC’s plans to begin publishing speed ratings for NBN services later this year. If an ISP is skimping on CVC purchases, the speeds it offers are likely to be lower than the average for an area, which is a powerful incentive for customers to jump ship to someone offering a better service.
Angus Kidman is a technology expert and the editor-in-chief for comparison site finder.com.au.