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Tuesday, 09 August 2011 15:25

NBN Co bows to industry pressure on CVC pricing

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NBN Co has bowed to a litany of complaints from the industry over the pricing of its Connectivity Virtual Circuits (CVC) - the capacity retail service providers must buy to get traffic from individual fibre serving nodes to the NBN's 121 points of interconnect.

NBN Co has declared that the normal charge of $20 per Mbps of bandwidth per month for each CVC will be waived on the first 150Mbps of capacity until there are 30,000 premises passed in the area served by that CVC capacity.

Service providers will still pay the same access charges - which start at $24 per month per end user customer - for a wholesale broadband service designed to achieve 12/1Mbps.

NBN Co head of product development and sales, Jim Hassell, said: "This move is aimed at lowering the barriers to entry for RSPs and we expect it to promote retail competition and service innovation, leading to flow-on benefits for consumers. The rebate will give service providers a lower-cost opportunity to enter a geographic area, and build their customer base in the early days."

He added: "In making this announcement we have listened to our customers - the service providers - and taken on board what they have said in order to improve our wholesale service offer, and further facilitate their transition to the National Broadband Network. It is designed to promote the early entry of service providers to any given area by lowering the initial cost of providing services over the NBN."

NBN Co's announcement quoted Internode managing director, Simon Hackett - one of the most vocal critics of the CVC pricing regime - saying: "This is a positive outcome that has resulted from constructive interaction between NBN Co and industry around the NBN Co access pricing model'¦This change encourages participation from RSPs by making it viable to offer sustainable services at appropriate performance levels until the addressable market in each service area is large enough for fully self-supporting service delivery."

NBN Co's decision, however does not appear to entirely solve the problem, as detailed by Hackett in a blog post last month.

CONTINUED

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Each retail ISP must buy a CVC to reach customers on each of the 121 PoIs and according to Hackett a minimum of 200Mbps to each PoI is required "To allow any 100Mbps service to work, plus another 100Mbps of 'burst' capacity to allow for the transient needs of more than one customer using the network at once."

He claimed "This is not merely a theoretical issue [in Tasmania] we operated with a 100Mbps CVC size at first, and rapidly ran into unacceptable performance issues with our 100Mbps connected school customers. These problems were instantly and permanently solved by upgrading our CVC in Tasmania to 200Mbps, a level at which it has since remained through the subsequent growth in customer base that we serve on the NBN in Tasmania."

The end result is that an ISP wanting to provide a nationwide service must commit, prior to the introduction of the current waiver, to $20 x 200 x 121, or almost $0.5m per month before it has connected a single customer. Under the new system this price of $4000 per month for each PoI area will only apply after the network has rolled out past 30,000 premises in that area.

But, if Hackett's claims are correct, this could still see an ISP paying $4000 per month in multiple areas that have passed this 30,000 premise threshold where it has very few customers over which to spread this cost, if even only one customer in each area takes the highest speed 100Mbps downstream service.

NBN Co also quoted iiNet CTO, Greg Bader saying: "One of the cost challenges in migrating to the NBN is utilisation efficiencies during the rollout phase of the network. The transitional CVC pricing is a good idea and will help retail service providers in the period between launch and the time it takes to reach scale in the network."

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