Bill Morrow - CEO, nbn
The company behind the National Broadband Network (NBN) rollout, nbn, has launched its new discount model for the Connectivity Virtual Circuit (CVC) charge network retail service providers (RSPs) pay for service bandwidth.
The CVC is the amount of network capacity shared across an RSP’s end-user premises. It is purchased based on the bandwidth required to service all of an RSP’s end-user premises, aggregated by that CVC.
The new model, launched on 1 June, calculates the level of CVC discount based on an individual RSP’s average capacity purchased per end-user each month. The discount was previously based on an industry average.
The new discounting model is designed to encourage higher quality services by decreasing the CVC cost per unit for retailers as usage increases.
It remains to be seen whether the new model will affect resellers' buying habits, but nbn hopes that it will encourage RSPs to buy more bandwidth than they have under the pre-existing arrangement.
“The new discount model is good news for both retailers and consumers,” nbn executive general manager for product and pricing, Sarah Palmer, said. “It is encouraging to see retailers embrace the new model and work with nbn to improve the consumer experience.
“It will encourage the supply of more bandwidth for consumers at home and at work, leading to a better internet experience overall.
“It will also deliver greater forward price certainty to retailers, allowing them to better manage their cost base, and support usage growth on the nbn network,” she said.
Under the industry average model retailers had been paying $15.25/Mbps per CVC unit. Under the new model they will be able to achieve discounts based on how much CVC they purchase per end-user.
Since announcing in February that that it would introduce new discounting model this month, nbn claims to have seen an 11 per cent increase in CVC purchased per end-user on average on the NBN.
From nbn’s perspective, the new model is expected to enable RSPs to differentiate their offerings to consumers, which is hoped to help promote competition and a wider choice of broadband plans.
Meanwhile, nbn said it will continue to review its pricing structure to support uptake and usage of the network.
Earlier this year, nbn chief, Bill Morrow, flagged that the company was conducting an ongoing review of pricing architecture, moving to dimension-based pricing for the CVC charge.
nbn introduced the industry average discount model for CVC last year. That move saw the effective unit price per Mbps drop from $17.50 to $15.75 in June 2016. This was followed by a further reduction to $15.25 in December 2016.
Morrow said in February that the company needed more of its end customers to take up its higher-speed products if it is to meet its 2020 revenue target.
During nbn’s half-yearly financial results presentation in Sydney on 9 February, Morrow indicated that the company was seeing more growth in its 25Mbps tier and lower-speed product segments than its higher-speed offerings.
Morrow suggested at the time that nbn would need to a greater uptake of higher-speed products to reach the $5 billion annual revenue target it has set itself for 2020.
“ARPU [average revenue per user] remained constant during the period, despite the reduction of CVC rates introduced in June 2016 and December 2016, reflecting a new dimension based discount (DBD) pricing model,” nbn said in its half-yearly report in February.
