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NBN the CVC pricing model and its impact

NBN published this memo about the CVC pricing model. It gives an indication of their intent, but no info about the actual pricing to RSPs.

http://www.nbnco.com.au/corporate-information/media-centre/media-releases/New-CVC-pricing-model-to-drive-enhanced-broadband-service.html

What impact has it actually had on competitive pricing; but more importantly on the actual service. I wonder if it is creating increasing congestion, and customer service issues, ie, RSPs only buying limited bandwidth until they have a large customer base in each area.

Does this model help or hinder RSP when new areas become NBN ready?

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It does state the pricing as at Dec 2016 at $15.25 per Mbps. They have reduced the CVC cost about 3 times since the initial price of $20. It went from $17.50 to $15.75 to it’s current level.

As noted in a previous post of mine about CVC the average CVC purchased by RSPs is about 800 Kbps per customer. [quote=“grahroll, post:23, topic:13069”]
Most plans will be similar as they all package a similar product (NBN sets the specifications). The difference is not the package they sell but what CVC (Connectivity Virtual Circuit) the provider has paid for. The provider is charged by the NBN for the amount of traffic in Mbps (Mega bits per second) across their user base so if for instance if they wanted 12 Mbps for every connection they would need to pay (current cost I think not including the discounts available) $17.50 X 12 per household. A smaller provider to offer this would have a huge bill to pass on to their consumers/customers. By the way the average CVC that providers pay for per user is close to 800 Kbps.
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Hopefully these new changes will encourage the RSPs to buy more CVC as their customer base increases and as users choose higher bandwidth packages. I would rather this than RSPs cramming more users onto their current allocation further reducing the average.

For some further commentary about these changes see the following articles which do look at some of the pros and cons of this new pricing model:

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Thank you for the links to some interesting reading.

The pricing your mention is actually about the historical pricing that the CVC model change I wrote about, is intending to improve. This came into being in June 2017, where discount rates will occur per customer per RSP. Targetting bring the price down to $8/Mbps/mth, ie, half the price you mention.

From your links I have learnt that there are other costs:- AVC, Backhaul and international transit. Not that any of these terms/acronums mean anything.

It is all very confusing.

There are essentially 3 speeds available in theory, 12, 25 or 100Mbps. At the fundamental level, why do these exist? Is the actual hardware different? So if I change from 12 to 25 or 100, will any link in the hardware supply chain change, or is it just a price change because they can?

I ask because I assume RSPs will be buying CVC based on these 3 speed points.

What questions should users be asking RSPs and NBN? Is the CVC value at the 3 speed points the primary differentiator of the service provided? Is a high vs low CVC value better or worse?

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The hardware at your end is no different for 12, 25 or 100 Mbps as you surmise, it is capable of carrying all of those speeds and probably more. Where hardware matters is once you start aggregating connections for many users. The more people there are and the more service they each use increases the cost of the hardware. It costs more to have a fatter pipe to take the load than a thinner one.

The risk is that providers will keep growing their customer base (increasing income) without a corresponding increase in the “pipes” used to service them (thus saving money). If they do that then at peak times congestion reduces throughput for everybody as they all try to use a pipe that is too thin for the traffic. The same would happen if a large number of customers upgrade from 12 to 100.

I doubt that having a technical conversation with the call center your provider uses will get anywhere, the operators will be all well schooled in NOT telling you anything about it even if they know - which they may not. Knowing why your ISP provides poor service will not improve your position if they will not act. The move afoot to make providers more accountable by measuring and publishing the service they actually provide rather than what they hope to provide will do much more.

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Correction: There are actually 4 speed tiers on the NBN but one of them is rarely offered by the RSPs. This Tier is 50/20 Mbps. You won’t see it often on many plans as it is almost as expensive as the 100/40 ones. Difference in pricing to a customer is about $5 per month but if the RSP can’t give you a satisfactory 100/40 experience they may offer you this one so they don’t get hit by the ACCC for failing to provide truth in speed.

Well the NBN has already advised they want to get down to about $10 per 1 Mbps CVC eventually. This is because the NBN has been made to make a profit, so they will not drop to a decent cost level, rather than provide a service (a fundamental flaw some would say).

AVC (Access Virtual Circuit) is the way each subscriber has their traffic identified in the network. Access Seekers (normally your RSP) generally buy 1 AVC per subscriber they have. This is the first part of the NBN Wholesale pricing. Built into this is a “free” 50 kbps per AVC and there is a monthly fee for this AVC and this is based on the speed tier for each AVC eg 12/1 or 25/5 or 100/40 each have a different monthly fee.

Backhaul typically refers to the side of the network that communicates with the global Internet and normally refers to your RSPs connection from the POI (Point of Interconnect) to their network presence and the wider internet. But the NBN also has Backhaul as per this from NBN Co “The infrastructure required to connect new developments to the wider telecommunications network – typically an optical fibre link – is called ‘backhaul’. nbn backhaul typically involves a connection from the new development to an nbnTM network access point that has capacity to service the new development.” All these have costs involved, some one off, others ongoing.

From Tektel training some explanations to help you understand POI, CSA, and CVC:

“The NBN comprises multiple “Connectivity Serving Areas”, each with a “Point of Interconnect” or POI to which Access Seekers connect their respective backhaul infrastructure. Access Seekers purchase a “Connectivity Virtual Circuit” (CVC) for each Connectivity Serving Area they wish to cover. The CVC is essentially a bandwidth pipe, the size determined by the cost. The larger the CVC, the better the service to subscribers within the Connectivity Serving Area.”

CVC is the second component of the NBN pricing and this has a monthly cost based on the Mbps the RSP wants (eg 25,000 customers X $15.25 Mth/Mbps X 1 Mbps/customer = $381,250 per mth). Then there is a monthly cost for each POI connection and this is the third component. Each CSA until 30,000 premises have been connected in it gets a “free” 150 Mbps CVC.

Finally there is a one off POI connection fee that is paid when the initial POI connection is made. POI monthly charges are based on distance of the connected length ie 10 km or 40 km and speed of the link ie 1 Gbps or 10 Gbps. Highest price is for the 10 Gbps/40km option which is about $1000 per month. The one off POI cost for this package is also the highest at about $35,000.

International Transit refers to the “pipelines” we have to overseas (mostly undersea Fibre Optic cabling).

Yes, there are currently 4 speed tiers (correction to reflect 4 tiers made at start of post) in place. These are limits that are artificially in place to provide a known service outcome for a given price. That is, you should get 100/40 Mbps if you buy that tier of service or 25/5 if you buy that. However some do not quite achieve the speeds they pay for by a small margin and some are very much below what they pay for. Also depending on how much CVC an RSP has paid for, you may get slow downs during peak or other periods.

Most RSPs buy around 1 Mbps CVC based on a service of 25/5 Mbps. There are different costs based on the speed tiers the RSP buys so they generally buy the one based on 25/5. Again I refer to my previous post about how CVC is costed and how if a RSP was to provide the CVC for a subscriber at the tier the subscriber was on the cost would/could be huge. What most RSPs do is buy enough to almost meet 1 Mbps at 25/5 across all their customers regardless of what tiers they are on. They then share this CVC across their customer base and as not all people are on all the time most get reasonable service during some time of the day. When lots get on the amount to share is reduced and so people notice slow downs.

Hardware, No there is no difference hardware wise between 12/1, 25/5, 50/20 and 100/40. There are hardware differences in the way the NBN is provided to you. Some consumers get FTTP, some FTTN, some FTTC/FTTK (Fibre to the Curb/Kerb), some FTTB (Fibre to the Basement which is similar to FTTN/FTTC/FTTK), some Wifi, some HFC (Cable) or some Satellite. Almost all of these have limitations based on the technology that lies behind them but most should reach some semblance of 100/40. Future advances in certain technologies can see some of these achieve 1 Gbps or higher speeds. FTTP can already achieve well over this.

As to your last question I think the previous sections make it clear that when it comes to CVC the more the RSP has per customer the better the service the customer gets. I don’t think when you ask them that they will give you a “real” or “truthful” answer to their CVC allowance/provision (they probably would even consider it to be Commercial in Confidence).

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It appears NBNCo can do no wrong if one is to believe them.

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For completeness for any new members perusing,

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Everyone but this government seems to understand the underlying price problem.

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The NBN issues are not just for the very high end, high speed user.

I was a very early taker of ADSL. Over time, a decade+, my use of internet gradually rose in volume, but my ADSL service was constrained by the distance from the source, so was never a particularly good service, but still heaps better than the pre ADSL days.

Within the next year or so I will be forced to switch to NBN, like the rest of my street.

But even the slowest service offered is magnitudes faster than the poor ADSL service. I’m not suddenly going to change my style of use, that will occur gradually. I won’t need the speed or volume for ages. But, the charge for even the slowest service (Not even marketted as existing by most retailers) is going to be much larger than my current ADSL service. But, we now know that the pricing and marketing is done not on the service received, but on the maximum it might achieve, whether needed or used! Of course, I will have to face other changeover costs, eg, router, possible re-siting of my connection, monitored security.

Even then as my suburb, although largely suburban, has commercial and some very light industrial users, is likely to be poor during office hours. So, I could end up with not much better than my ADSL service for much of the day anyway.

The road analogy has been used, eg, if you use a 110kph road, not everyone drives at 110, when it is congested you can’t, how often do you use the 110 road, as opposed to using the 60kph roads for most of the time when living in the metro. What wold your average speed and use be throughout say a week, seems more pertinent. rather than having to pay for 110 service that you use very infrequently!

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If you get FTTN that might not be the case. It could be deuce or worse, or as you hope better. What they offer and what they deliver often has no resemblance.

Brought to us by Malcom Turnbull and his party.

That is often a misconception since businesses only use internet services for commerce and remote work, neither of which are bandwidth hogs, unless a business is a major content provider (eg like the BOM). The heavy traffic are gamers and movie watchers during evening hours in most places.

One can pull apart individual aspects of my position, but, my main point is about the little guys aren’t getting airtime and hence any consideration. Continuing the road analogy, the local road I had, that was much cheaper, didn’t require resurfacing, new equipment, different connections, etc, but it is force-ably replaced at greater installation and running cost to all local users, by a dual carriageway, it isn’t going to impact me, eg, getting to local shops. The trucks that now use the route may benefit, but when they are busy my road access and use is of lower priority, the traffic lights that control road crossings are if anything a negative to locals That may be a benefit in the future.

But what is known now, is that the claims about its performance and its pricing are based only on marketing hype, not actual service delivery. We the low volume and low speed users, need to be heard as well as the very small number of high end users.

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I was not trying to pull it apart, just reinforcing that in spite of all the valid points you made you could still be over-optimistic.

Exactly!

Excellent point that the cost of entry is high and there is no service targeting your profile.

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The NBN pricing model took a turn for the better for a few months, but looks like its time is up. Expect the 50mbps plans to go up $10 a month, and what will the RSP’s do with their NBNCo relationships? Could be interesting on the down-side; I doubt it will be a non-event, unlikely it will be interesting on the up-side.

NBN customers have been warned to brace for price hikes and worse internet congestion when NBN Co’s discount on 50 megabit-per-second plans ends later this month.

One NBN expert told The New Daily consumers could be paying up to $10 more every month – or up to $120 a year – and face more regular buffering and dropouts in the evening when most people are online.

NBN Co introduced a temporary promotion in December that halved the wholesale price of its 50Mbps plan – thereby encouraging retailers to drop the retail price of the faster plan.

https://thenewdaily.com.au/money/consumer/2018/10/04/nbn-price-congestion-discount-50mbps/

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The company said in a blog post that the decision would result in a “price increase for 7528 or nine percent of our customers”.

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There is a bigger game being played, not too invisibly by the NBN Co to push everyone to more expensive higher speed plans.

While the Telcos, (RSPs) have recently been very public about the negative effects of the NBN wholesale pricing strategy on their business outcomes. The NBN has been reviewing it’s pricing model.

One observation is that currently consumers on low speed and data plans are paying too much relative to the services delivered.

The other view point that is that for consumers paying for higher speed plans the RSPs are short buying CVC to try and break even.

The RSPs are looking for cheaper NBN wholesale costs.

In contrast the NBN Co needs greater revenue and profits to meet its minimum ROI targets and prop up the future sale price.


Telstra has a position,

A slightly different view point from Optus,

And a worrying observation.

It is suggested that the current NBN CVC based pricing scheme also favours the larger RSPs, EG Telstra, Optus etc.

As a consequence the smaller RSPs are unable to compete as they need to over provision their CVC relative to the larger RSPs. Otherwise they are unable to deliver the same level of service (speeds at peak times) as their larger competitors.

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In fact most online games are quite parsimonious with traffic. They will generally have a client installed on the user’s device, which handles all of the graphics, sound, and heavy duty load. The traffic between the client and the game servers is minimal, simply a list of the commands being issued by the client and the response by the server - as well as instructions from the server regarding which models the client should load.

Looking at my last 24 hours of Internet use, my web browser used over three times the incoming traffic of my game client, and more than thirty times the outgoing traffic!

It’s all the fault of online video!

As the OP stated:

Well yes - and we might view the consolidation of ISPs/RSPs as a result of this problem.

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It’s only going to get worse!

The other half of the story is it is not going to get any cheaper?

Rod Simms, Chair of the ACCC has said so, and it is an issue summarised early this year 8th April.

Mr Sims discusses how the cost of NBN plans is becoming a growing affordability issue for people on lower incomes, with the plans now more expensive than what most consumers pay for equivalent ADSL plans.

https://www.accc.gov.au/speech/nbn-affordability-a-growing-issue

No surprise either that Simms said,
Let’s not forget the very purpose of building the NBN was to make broadband faster, and more accessible and affordable for all.

We were never meant to get to a situation where some consumers, in switching to the NBN, will be left worse off by paying more, or getting less.

Which is all nice to know, and obvious to many already. However the ACCC has limited ability to control the NBN pricing. Only the number one share holder can do that!

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I’m looking forward to the new speed tiers - on satellite and fixed wireless (not to mention FttN). :roll_eyes:

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I don’t understand the figures in the CRN Australia report. They don’t seem to correspond to the figures for an existing NBN Plans. For example take AussieBroadband’s 4 Plans:

Starter/Everyday/Family/Power
100GB/Unlimited/UnLimied/Unlimited
NBN 25/NBN25/NBN50/NBN100
22Mbps/22Mbps/43Mbps/86Mbps

How would these plans be impacted? All the plans will see a price reduction, but the lower plans will also see a performance reduction?

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The NBN figures are for wholesale provision - RSPs such as Aussie Broadband on-sell that wholesale Internet access after adding their slice.

Ignore the bits in the article that quote Mbps. They are for wholesalers when they are figuring out appropriate provisioning requirements. (If a wholesaler doesn’t buy enough access, its customers will experience a lot of congestion.)

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