No joy for telcos as NBN Co stands firm on high bandwidth price

NBN Co has steered clear of giving telco service providers any substantial relief on wholesale prices, pushing back a review of its controversial pricing structure by another two years.

While NBN Co, the company building and operating the National Broadband Network (NBN), hasn’t taken the option of scrapping the contentious charge for bandwidth – Connectivity Virtual Circuit (CVC) – off the table, the telcos say they have been left to deal with wholesale prices that continue to trend upwards.

The CVC charge, which covers the amount of bandwidth telcos can make available to customers, has been criticised by the telco industry since the inception of the NBN. The greater the peak usage of customers, the more bandwidth telcos have to acquire, which means a higher CVC charge.

However, CVC is crucial to NBN Co’s effort to increase its residential average revenue per user (ARPU) from $45 to $49 by the end of financial year 2023. Rather than remove the charge NBN Co on Monday proposed a two-year extension of discounts on certain packages and promised to explore alternative pricing structures in due course.

NBN Co wants to talk about a long-term wholesale pricing model, a move that will be welcomed by the telco providers.
NBN Co wants to talk about a long-term wholesale pricing model, a move that will be welcomed by the telco providers.Credit: Supplied

“We’re not ruling anything out at this point,” NBN Co chief customer officer Brad Whitcomb told The Sydney Morning Herald and The Age. “We’re very open to what these alternative models might look like so we’re hopeful that we get some great ideas around that.”

Mr Whitcomb said NBN Co’s first priority was providing certainty on the discount structure for the next two years.

One offer proposed in the latest pricing review paper, released on Monday, is freezing Access Virtual Circuit (AVC) prices at May 2021 levels with a small amount of increased capacity at no extra cost. The AVC charge is the monthly amount telcos pay NBN Co for each customer connected to the NBN. A second option on the table is for telcos to agree to a $2 a month AVC price increase, which would be offset on their end by the inclusion of more CVC.

“We believe both options deliver the industry real choice in managing future data demand,” Mr Whitcomb said.

Major spikes in data usage linked to spending more time at home because of the coronavirus pandemic led to NBN Co giving away increased capacity free of charge for several months. NBN Co said in December it would offer retailers discounts and rebates on higher speed plans.

However, the telcos have warned that discounts won’t be enough to stop them from passing on their wholesale costs to consumers.

Optus’ vice president of regulatory and public affairs Andrew Sheridan said NBN Co’s latest consultation process skirts around the core problems.

“This had been positioned as a major review that would seek to tackle many of industry’s concerns with wholesale pricing,” Mr Sheridan said. “It does not address current elevated consumption levels nor the over-reliance on variable charging and break fees. NBN continues to drive uncertainty and price increases into the market.”

Telstra chief executive Andrew Penn has warned that NBN Co’s high  wholesale prices are putting too much pressure on the industry.
Telstra chief executive Andrew Penn has warned that NBN Co’s high wholesale prices are putting too much pressure on the industry. Credit:Ryan Stuart

Meanwhile, a Telstra spokesman said the consultation paper did not offer “any real change” and “pushed hard decisions down the road”.

“It’s a simple equation – NBN revenue per residential user will continue to increase substantially over time, so without change consumers will end up paying more for home broadband and/or the level of service they get will drop,” the spokesman said.

“If NBN wholesale prices continue to rise in the second half of the decade, which is what will happen under the current structure, wholesale prices will be higher than current retail prices. That’s obviously not sustainable and something has to give.”

Telstra and Optus’ views were supported by TPG Telecom’s group executive of legal and external affairs Trent Czinner, who said NBN Co should remove the CVC charge and implement a flat wholesale rate.

“Australians had a fantastic NBN experience in 2020 because the CVC speed handbrake was released,
but now NBN Co is proposing to send them back to the slow lane,” Mr Czinner said.

“While we welcome NBN Co’s openness to changing its pricing model, this needs to happen sooner
rather than later.”

But Mr Whitcomb has rejected the notion NBN prices are going up for telcos.

“It is true that a higher speed plan with much more data has a higher wholesale price than a lower speed plan with lower data,” he said. “But we’re not raising prices – on the contrary we’re adding more and more value over time and that’s been consistent for a number of years now.”

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