NBN mulls scrapping CVC but price hikes to follow

NBN Co has flagged the potential end of controversial CVC pricing but a flat-rate pricing model is likely to lead to price hikes.

NBN chief executive Stephen Rue. The CVC component of NBN Co’s pricing structure is unique to Australia and determines broadband capacity for retailers, who have consistently called for it to be scrapped. Picture: Aaron Francis

NBN Co has flagged the potential end of controversial CVC pricing, with telcos including Telstra, TPG and Optus cautiously welcoming a new discussion paper that suggests scrapping the long-maligned charge in favour of a flat-rate pricing model, but one that would likely lead to price rises.

The government-run company on Monday proposed three new pricing options ahead of an industry roundtable with the ACCC and retailers next week. One option would do away with the highly-criticised connectivity virtual circuit (CVC) capacity charge altogether, but hike base access prices as a result, potentially by as much as $20 per month.

Another option is to remove CVC charges for wholesale speed tiers of 100 Mbps or above, while a third option reduces the CVC rate by 25 per cent, from $8 to $6 per Mbps.

The CVC component of NBN Co’s pricing structure is unique to Australia and determines broadband capacity for retailers, who have consistently called for it to be scrapped. The charges came under particular scrutiny last year during the Covid pandemic, when they were paused amid heavy broadband usage Australia-wide. This lead to a much smoother user experience with the NBN for many users.

“All three options substantially address many of the concerns that have been expressed by retailers and provide a pathway forward to delivering a sustainable long-term pricing framework that supports the industry and meets the future digital needs of Australians,” NBN Co said in a statement.

“While we are aware of some retailers‘ preference for a flat AVC-only construct, NBN Co believes careful consideration needs to be given to the potential impact on affordability of the broadband network for low usage customers, equitable cost recovery between consumer segments, take up of NBN services, retail competition, and consumer choice.”

The CVC charge has come under pressure since the NBN’s inception, with retailers increasingly frustrated at what they see as a convoluted system in which they pay variable excess charges based on user consumption.

Retailers would prefer to pay a flat price for every NBN service sold, regardless of usage.

NBN Co cited research from Accenture however showing a flat-price option would lift prices for Australians on low data plans by $120 a year.

“Retailers have said they want greater simplicity, so we’ve put out one option that effectively removes CVC pricing, and simplifies what they need to do,” NBN Co’s chief legal and regulatory officer Jane van Beelen said in an interview. ”They’ve also asked for greater cost certainty and long term pricing, and for us to get on with it as quickly as we can.

“The next step is really for retailers to digest what we‘ve put out today and we’ll see what happens.”

Telcos cautiously welcomed the paper‘s release, with some reservations.

“NBN finally initiating a discussion around fixed wholesale pricing is a huge step in the right direction,” Optus’ vice president for regulatory and public affairs Andrew Sheridan said.

“Optus looks forward to pursuing better customer outcomes by working with NBN and industry as part of the ACCC’s review.”

A Telstra spokesman described the proposal as an important step in reviewing NBN‘s pricing, but said it was not yet clear if it will fully deal with the significant challenges retailers and customers are facing.

“We are concerned that if NBN Co does away with CVC, it will merely make this cost up by increasing costs to retail service providers in other areas,” the Telstra spokesman said.

“We need to look at pricing comprehensively and ensure that there is a framework which addresses NBN Co’s market power going forward. We’ll continue to work with the ACCC and NBN Co to ensure that Australia gets a long-term solution to wholesale pricing and service delivery that provides good outcomes for customers and retailers, as well as the monopoly wholesaler.”

“We have been advocating for a simpler pricing model that would provide certainty for resellers and customers and we are pleased to see NBN finally putting forward a flat rate charging model for discussion,” TPG Telecom group executive for legal and external affairs Trent Czinner said. “We are considering the detail of NBN’s proposal.”

The pricing proposals will be debated at an ACCC roundtable next week.

“The ACCC is aware that NBN Co is seeking feedback on how to improve its current pricing practices and associated regulatory controls,” an ACCC spokesman said.

“NBN Co will explain its ideas at the ACCC roundtable on June 18. NBN Co’s access seekers and consumer advocates will also have an opportunity to present their proposals.

“We look forward to a constructive discussion at the roundtable and ongoing engagement with stakeholders on this very important topic.”