It's Official: An NBN Pricing Shakeup Is Coming

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NBN Co has revealed it is working on new "confidential" pricing models with internet and phone providers in an attempt to improve the network's bang-for-buck. By the end of the year, a new wholesale access model is expected to be announced that has the potential to end the "tax on megabits". Here's what you need to know.

As I use a friend's $US50 per month Google Fiber connection in Salt Lake City, Utah which delivers speeds of up to 100 megabits per second — enough to download three standard definition movies in 60 seconds — I mourn for Australia's national broadband network (NBN).

The NBN became a political football over a decade ago, ever since it was unveiled by the then prime minister Kevin Rudd in 2007, but as North America has discovered, the market can't fix every problem when it comes to broadband.

It can't, for instance, reach into every nook and cranny without charging through the roof for the "luxury" of having super-fast broadband.

And as Google found out, it is not always profitable. In fact, it ceased rolling out fibre to US cities after it determined it was not something they wanted to pursue everywhere.

It is now 10 years since the NBN first came into being, with the much-repeated story being that then prime minister Rudd and communications minister Stephen Conroy dreamed it up on the back of an envelope mid-flight. Rudd, of course, contends that it was the recommendation of a committee of senior treasury officials. Either way, the eventual dream was super-fast broadband to something like 93 per cent of the population using fibre-to-the-premises technology.

The rest would get fixed-wireless or satellite broadband. The reality? Super-slow, congested, costly internet in a lot of cases.

Why? Because of poor political decisions made by governments of both the red and blue flavours, as well as by ISPs, such as TPG and Dodo, who are crunching the amount of bandwidth they purchase per customer from NBN in order to pump up profit margins.

In reality, the "tax on usage" retail service providers complain about being charged by NBN Co, which varies between $8 and $17.50 per megabit, turns out to be about the same as what they were paying pre-NBN to Telstra and other wholesale providers once you factor in things like hauling international bandwidth to Australia and domestic interconnect fees.

So what changed?

The answer, it appears, is that providers such as TPG and Dodo are in an internet price war which is seeing them cut operating costs in order to win against one another.

And where are they cutting costs? By reducing the amount of "usage tax" they pay to NBN for what's called the CVC, or Connectivity Virtual Circuit. They claim it's too high and is a disincentive to take up faster speeds.

On average, industry sources tell me that premium ISPs, such as Telstra, are provisioning for 3 megabits of CVC per user per month. Meanwhile, cheapskate providers are provisioning between 0.5 Megabits and 1.5 Megabits per user per month on average.

It's becoming so difficult for consumers to determine under the current NBN environment which provider to choose, especially given ISPs don't disclose these details. In an ideal world, they would. They would also disclose what their peak-hour usage was like so that consumers could make informed decisions about whether or not they will get a good internet experience when they get home from work to watch Netflix or Stan (which is owned by Fairfax Media).

For instance, if an ISP only provisions for 2 Megabits per second and in reality each customer requires 3 Megabits per second, then internet speeds will suffer.

It's time consumers voted with their feet when it comes to poor service.

This isn't necessarily an NBN problem or a Turnbull government problem.

However, NBN could do its bit to incentivise ISPs to sell higher-speed NBN plans by dropping the CVC charge and increasing the monthly line service fee, known as Access Virtual Circuit, or AVC. Sources tell me this exactly what is under review, and a leaked NBN "price evolution" document confirms this.

"We are currently in a confidential consultation period with internet and phone providers on a new pricing model," an NBN Co spokesperson told Fairfax Media on Wednesday. "We will inform the market and retailers when we have been through this process, and are in a position to make an announcement which will be before the end of the year."

A spokesperson for federal Communications Minister Mitch Fifield gave a similar response.

"NBN has adjusted its wholesale pricing on a number of occasions and is currently in discussions with retailers", the spokesperson said.

But David Forman, senior manager of industry and policy at Macquarie Telecom, told Fairfax Media that there were 10 different wholesale access models being contemplated by NBN Co in the pricing review.

"One is to get rid of CVC," he said. "Others are to rebalance it and others are to shift the cost."

One is to have a monthly AVC that is $12 more than the current $22.

"That's the model we have told them we prefer alongside a product for voice only customers," he said.

The voice-only product would be about $19, according to Forman.

"We are saying we want an AVC-only broadband product but in order to protect the grannies who only want a phone at home there should also be a cut down voice only service. I think they are estimating.. that would be around $19."

John Lindsay, the former chief technology officer of ISP Internode, backs the move.

"At end of the day I completely stand by my assertion that the CVC is effectively a tax on megabits. It therefore drives megabit consumption downwards, in the same way that putting a price on carbon drives CO2 emissions down," he said.

Another source rubbished NBN Co's claims of confidentially when it is required to offer services on the same terms and conditions to all customers.

"So if they are floating new ideas of pricing; that can't be confidential. They should just put it out on public website saying, 'We are thinking of doing this, what do people think about it? '," he said.

"At present they engage in these secret squirrel meetings between partners when they are a wholesale access government-owned network. Why are we doing this little dance? It's absurd."

But even with no CVC, we could end up in the same situation we are in today, where ISPs hide behind how much bandwidth they provision for each of their customers, and partake in price wars that drive down not only internet costs but internet speeds.

There are two things you can do.

If your ISP is at fault for slow speeds, walk away from them. If they don't let you, contact the Telecommunications Industry Ombudsman, or TIO, and get their help to move to another provider. Then, before choosing your next provider, ask neighbours what their experience is like.


This article originally appeared in Digital Life, The Sydney Morning Herald's home for everything technology. Follow Digital Life on Facebook and Twitter.
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Comments

    I wonder how those numbers in the graph are achieved, and if they're only for fibre type connections? Because I'm still on ADSL 7Mbps and 15Mbps for a at least another 6 months, and everyone else in my areas are too, so if that's an average, there must be some very happy customers out there somewhere with very high speed connections, because my area - Sydney's inner west with it's high population density must really be dragging the average down!

    I'd be happy to get the 32 shown in the chart above. Hell, I'd be happy to get a consistent 20Mbps via ADSL - for now.

      I wonder if it even refers to speed, as there's no reference to the image on my device, so I can't be sure it's to display speeds. Seems a little high for the speed of Australian internet. The fact is that for 15 years now, people have been on ADSL in Australia. For at least 2/3 of that time, adsl 2+ has been the dominant technology and to get 20mbps you need to live within sight of your exchange.
      And telcos have been happy with that, which is why fibre connections were only offered for businesses (and rather wealthy individuals) until the government cage up with the NBN and fibre to the curb. Turns out with all their political bullshit, it still would have been cheaper and quicker.

      I'm one of those lucky ones with high speeds bringing the average back up. On Telstra cable I see 100+ Mbps down and ~2.5Mbps up. That said, my area's now switching to nbn and I have to move over to hybrid fibre coaxial, so we'll see how much longer these speeds last...

    1gbps Google fibre pulling 100mbps?
    Did you mean 125mb/s

    On average, industry sources tell me that premium ISPs, such as Telstra, are provisioning for 3 megabits of CVC per user per month.

    This is either very very wrong; or a paid advertisement; or something only VERY recent.

    Both Optus and Telstra have been slammed in recent times for their abysmal NBN performance. At one point, one of them wasn't even rated as HD compatible according to Google's YouTube rankings.

    Overall though, we have a problem with most mainstream ISP's saying "up to xxx Mbps" and even giving a range of 12-100Mbps for the top plan, for example. All contracts show "we can't guarantee anything", yet they sign you up for 2yrs.

    Stick to monthly contracts until you get an ISP that's proven themselves. Keep logs of your speeds so that you have proof of service degradation.

    I received the NBN modem in the mail with a note from Telstra that if I didn't want to switch then just return it. If I wanted the service all I had to do was plug it in and they would honour my current contract until expiration. I plugged it in and within a week I was on the NBN without any dramas, on top of that I was getting 25MBS as compared to 6MBS on ADSL2. I rang them and migrated to the fastest speed plan for an extra $20.00 per month and they told me that if I didn't receive the speed I expected they would drop me to a lower plan and refund any extra money paid. I achieved 52MBS down and 20MBS up which I was happy with, they have since contacted me and informed me that I will settle on the 50 plan and adjust the bill accordingly. All in all I am rapt in the service and speed ............well done Telstra!!

    Shock Horror. TPG and DODO under-provision their services to sell the lowest cost product to the mass market. Did you know their customer support is horrible also? If not, you must've been living under a rock for the last 10 years, because that's THEIR BUSINESS MODEL.

    Nobody buys TPG or Dodo because they want good customer support or a good quality connection. They buy because it's cheap.

    NBN Co's answer screams of "Fine, we'll reduce the cost difference between our 12m/1m plans and our 100m/40m plans by increasing the price of the cheap ones to offset the price of the expensive ones". It'll be a reshuffling of the deck chairs to make sure their total revenue/profit position remains unchanged, or ideally, it forces consumers to pay more on average for a better service so NBN Co makes more money.

    Really the only thing the government could do to fix this is force the big providers to show who they really are on all their marketing, so people know how little diversity there is in this industry and the average person can know that just like banking, Telco has a big-four group of sub-par providers:
    Telstra/Bigpond
    Optus
    Dodo (aka. vocus, commander, engin, and iPrimus)
    TGP (aka. Pipe, Chariot, Soul, iiNet, Internode, Westnet, Ruralnet, Origin Internet, TransACT, Netspace, AAPT and Adam Internet)

      Problem is if they up the price of the low end plans they will get undercut in cost by wireless providers.

      If they made the faster speeds were better value for us they will get a higher uptake and hence more income.

    3 standard def movies in 60 seconds on 100Mbps.....what are u smoking. I get 94 down/37 up on my NBN connection and the fastest I've ever seen a download is from Apple at around 13MB/s...so x 60 seconds = 780MB. That's maybe 1 compressed to the buggary (poor quality for non Aussie readers) movie in my books.

      They must mean watching movies at 480p which is the maximum you can hope for on ADSL. A 780MB 720p movie already has a very low bitrate. Also thank you for being one of the few who actually use b and B properly, seems like a mistake for CS in using the same letter to denote an 8x difference, most consumers don't know this at all.

    On average, industry sources tell me that premium ISPs, such as Telstra, are provisioning for 3 megabits of CVC per user per month.

    Way off, not even in the same ball park. Poor research Ben, get yourself some new "industry sources". A calculator should have let you know how wrong that figure is. Say you have 1500 customers on a CVC, then at 3mbps each the CVC is 4.5G... TC4 pricing is around $15 per meg currently so the ISP is paying $67.5k per month for that CVC!!!! then add costs for AVC, NNI and their own costs to support their own network and you reckon there's anything left for a profit from the ~$100 per month they charge their customers???

    Can someone point me to the BEST NBN provider? I.e. one which is NOT over subscribing and offers decent customer service when things go wrong? Like iiNet was before it got sold to TPG.
    Thus far it seems to me like only options are Telstra or Aussie Broadband.

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