NBN model needs a shake-up, says Vodafone

Vodafone says NBN Co’s current pricing model is making telcos opt against selling faster broadband plans to consumers.

Vodafone Hutchison Australia has called for a big makeover of wholesale prices charged by NBN Co, warning that the current model is making telcos opt against selling faster broadband plans to consumers.

According to Vodafone, the ongoing increase in wholesale prices is unsustainable and will inevitably push telcos to offer broadband over 4G and 5G technologies.

The telco’s head of broadband services, Matthew Lobb, told The Australian the costs of providing NBN services had risen by up to 60 per cent since 2010, with the connectivity virtual circuit (CVC) charged by NBN Co at the heart of the problem.

The CVC is the price telcos pay to move data from the NBN to their networks. The amount of CVC a telco buys affects the internet speed, particularly at peak usage times from 7pm to 11pm.

According to Mr Lobb, NBN Co has become too reliant on CVC to fill its coffers.

“It’s a usage charge and a fee rolled into one and forces retail service providers to dimension their plans in a way that ends up affecting the service received by homes,” he said.

“It sounds technical but CVC is completely a commercial construct created by NBN Co and as wholesale costs keep rising broadband services will have to be provided using 4G/5G technology,” he said.

As the network rollout enters its final phase, NBN Co is in discussion with the telcos on pricing and has said it is open to lowering its wholesale prices and offering plans with lower upload speeds.

Wholesale prices are critical to NBN Co’s stated target of delivering an internal rate of return of 3.2 per cent and lifting its average revenue per user from $45 to $51 by 2022.

Mr Lobb said that tinkering around the edges was unlikely to deliver a solution palatable to the sector. “What we need is more simplification rather than a whole raft of ideas.”

Under the current pricing model, telcos are managing the CVC cost by either selling slower NBN plans or allowing services to slow down during busy times.

According to Vodafone, the high cost has led to telcos shying away from selling higher speed NBN plans.

“This in large part is due to the industry concern that higher speeds result in more data usage and therefore uneconomic costs for service providers,” the telco said in its submission.

“We understand that NBN Co needs to make a return on its investment, but the industry cannot continue to operate under a pricing regime that results in rising costs and a disincentive to sell faster broadband to consumers.”

In 2010, the CVC cost for an entry level 12/1 NBN service was $1 a month for 200 kilobits per second (kbps) of capacity per customer, with and average customer consuming about 6 GB of data per month. Nine years on, the average customer on entry level NBN plans uses 153GB of data per month with telcos having to buy at least 1.2 megabits per second (Mbps) of CVC per customer at a cost of about $15. Apart from the elimination of the CVC cost, Vodafone has also proposed that the entry level 12 Mbps plan is replaced by a 25Mbps service and for NBN Co to guarantee minimum speed performance on each NBN speed tier.

A NBN Co spokesman said that the consultation process has been started to help deliver the best possible industry outcomes.

“We’re proud of the fact that the last consultation process we ran with industry in 2017 generated a number of significant and important customer improvements, including wholesale pricing bundle discounts.”

“As a direct result, 80 per cent of new nbn customers are selecting wholesale speed tiers of 50 Mbps and above as they see the benefit that fast broadband can bring,” the spokesman said.