Making the best out of the NBN CVC predicament

Yesterday I posted about NBN Co’s conflict between promoting higher quality broadband (ie. higher speeds and higher downloads) to help it achieve its revenue targets and its political mandate to say Australians don’t really need the higher speeds possible under a FTTP network.

This underlying conflict is making it hard to solve the CVC pricing problem that is now threatening to force NBN Co to write off a large part of its investment in the network.

NBN Co needs to start fully promoting the speed of its network rather than shy away from this issue.

The first step would be to release the database it apparently has on the “theoretical” maximum speeds available to all consumers.

Currently, customers have to rely on their RSPs to obtain information about the maximum speed available. Obviously most people don’t trust this information, especially when it comes from someone who is trying to sell them something. The ACCC has been lax in following up behaviour in this area for years but is now trying to claw this back. It is probably too late and NBN Co needs to get on the front foot.

NBN Co could inform customers of their “theoretical” maximum speeds with the address search tool on its website. NBN Co ┬áis also able to prevent RSPs ordering speeds higher than this “theoretical” maximum speed.

Being more transparent on speeds and making sure customers are not oversold is a no brainer first step for NBN Co to win back some trust from the customer. It would stop more embarrassing situations arising such as Telstra’s forced downgrading of speeds to 8000 customers after they were oversold.

The next step would be for NBN Co to publicly release information about the amount of CVC bandwidth RSPs are purchasing. A relatively straight forward “contention” or “quality” index could be used to benchmark RSPs in different areas.

This could also be made available on NBN Co’s website with the address tool so that a customer can see which RSPs are serious about quality broadband and which are just looking to sell the cheapest low quality plan.

NBN Co must re-orient itself towards consumer protection when it comes to information that is shared with the consumer. The ACCC should support this and any issues around confidentiality and commercial issues should be debunked as soon as possible. NBN Co needs to be more aggressive in standing up for customers and ensure transparency in network dimensioning. Relying on the ACCC’s broadband speed benchmarking exercise will not be enough as this will inevitably be a national result rather than a local outcome related to the customer’s service area.

Thirdly, NBN Co should publicise its plan to reduce the CVC price in line with the increase in average monthly downloads across the network. NBN Co should not be seen to be “gouging”customers because of increased usage due to media streaming consumption or other applications.

Usage increases have minimal impact on NBN Co’s FTTP and FTTN cost structures (but do impact HFC, Fixed Wireless and Satellite networks), so increasing consumption should be broadly revenue neutral.

The whole point of the CVC is not to make more money as usage grows, rather it is the way that RSPs can offer cheaper plans to lower usage customers compared to higher usage customers.

We should remember that customers have no effective choice for their fixed broadband network. If NBN Co has a flat price regardless of usage then low usage customers will move to the only other alternative – mobile broadband. Mobile operators will see this as an extra revenue opportunity and seek out lower usage customers to bring to their networks.

This is not in NBN Co’s interest and will result in mobile networks being congested as they chase the low usage fixed customers.

If NBN Co cannot make the CVC revenue neutral over time and achieve its ARPU projections it should write-off the necessary part of its investment to make this happen. Relying on more revenue as usage increases is a fallacy. The revenue won’t come and the users will find alternatives. The whole point of the NBN hinges on this fundamental issue.

NBN Co’s CEO Bill Morrow has announced ($$$) a review of its pricing structure as part of its image problem fix. But changes to pricing are difficult and will require involvement of the ACCC if drastic changes are contemplated.

The above steps can be done without the ACCC’s sign-off. In fact the ACCC should actually encourage NBN Co to do all of the above to help with its role of protecting consumers.

It will be interesting to see whether NBN Co grasps this opportunity to lead with speed, quality and transparency rather than fight old political battles.

 

 

 

 

 

  • Delroy McQueen

    The only thing holding back speeds is the artificial bottleneck created by CVC that is too expensive for RSPs to purchase the amount they want/need. The way to fix the problem is to dump CVC pricing down to a level that enables RSPs to purchase enough…probably around $2-3/Mbps per month (maybe even less). RSPs only have set amount they can spend on CVC per month and they will spend this amount regardless of whether the CVC price is $15/Mbps per month or $2/Mbps per month…if this happens then the punters win because they get a better quality of service (i.e. faster, especially during peak times) and nbn makes the same amount of money. Makes sense to me….

    • I am not so sure all RSPs will buy more CVC if the price is lowered. Some will surely drop their retail prices rather than buy more bandwidth. They are motivated by market share and are happy to compete on price rather than quality broadband. If NBN Co cannot get users to understand and value quality broadband and start shopping around for it then price will be the only way in which consumers compare offers.

      Dropping CVC prices may lower prices for consumers (an good thing!) but it is unlikely to improve the quality. For NBN Co this is disaster as the only way they can hit their financial targets is more customers are prepared to pay for quality.

      Eliminating the CVC altogether may improve the quality as NBN Co will set all contention ratios but this will mean AVC prices need to rise significantly forcing more low usage customers to move to mobile broadband rather than the NBN. Not good for NBN Co and will just slow down mobile networks for all users.

      • Delroy McQueen

        If the ACCC has its way quality and speed will be delivered and the only way for that to happen is for CVC prices to drop dramatically. Have a look at how TPG are now advertising the speed of its plans….the NBN appears to be a $60 billion network providing ADSL quality services.

        The problem is that the price of CVC was set to allow RSPs to deliver contention ratios for ADSL quality services in an a pre-netflix world. We are now in a world where the majority of users want to stream lots of video and those contention ratios just don’t cut it anymore (and yes, mobile networks will be much worse off if these customers move to those networks because the NBN is seen as rubbish).

        I agree that some RSPs would take the profits of lower CVC but, the three largest RSPs do care about quality and they have ~90% of the nbn fixed line market share. There is obviously a price point where even the good RSPs would stop purchasing more CVC but that price point is much closer to $2 than it is to $15 (the apparent current price, which reflects RSPs purchasing around 1Mbps of CVC per customer).

        While everyone hates on CVC, it does allow nbn to continue increasing revenue into the future….customers will reach the point where additional speed has no additional value to them much sooner than they will reach the point were additional data usage has no additional value.

        • The CVC should be revenue neutral. As usage increases it should automatically decrease in price. The original price of $20 per Mbps was set in 2011. Over this time the average download usage over fixed broadband has increased approximately 7 times at a national level. On this basis the price should be somewhere closer to $3 which is not far off your $2.

          The three largest RSPs are interested first and foremost in market share. Quality is only important if it is a factor that helps them get that market share. At the moment the NBN is plagued by issues of speeds and quality so no RSP will promote quality for higher price. Increasing revenue for NBN Co should come from higher speed tiers not the CVC. The CVC should not be a barrier to higher overall average downloads (ie automatic decreases as above). If it is users won’t download more and hence no one will go for the higher speeds tiers (assuming they are available to you in the first place because your not on a long FTTN copper line). NBN Co needs to get on the front foot and force quality to be a factor – if not they will be the victim of an RSP lead price war that will keep speeds low with dramatic financial consequences.

  • CVC was invented in the days of the video stores renting out movies on CD. It no longer fits in the years of Netflixification, on-demand content, 4K smart television sets and Game of Thrones releases. The bandwidth explosion caused by the demise of linear TV and the enormous public embrace with on-demand streaming TV has made CVC a nasty stumbling block. The obvious fix is to kill it off altogether and add some fees to the ‘per subscriber’ charges.

    • The problem is that the CVC charge does not automatically decrease as average downloads increase. As I say in my blog the CVC should be revenue neutral and not a way for NBN Co to square its financial problems. This would cater for the growth of video streaming. If the AVC price is raised and CVC is discontinued to cater for video streamers then all non-video streamers may as well move to mobile broadband. It will probably be cheaper for them. Not a good outcome for NBN Co and will just create congestion on mobile networks.