NBN CEO flags new pricing model to curb speed complaints

25 July 2017

NBN CEO flags new pricing model to curb speed complaints

NBN is considering an overhaul of its wholesale pricing model to address the company's image problems, according to CEO Bill Morrow. Speaking to the Australian Financial Review, Morrow admitted that NBN's current pricing structure has resulted in a "land grab" where retail service providers are misleading customers about the speeds they're paying for in an attempt to get market share.

"I am sympathetic with the many smaller retailers, in particular, who say I am stuck in this price war and I can't step up and raise my price to the end users," said Morrow.

"We are thinking can we restructure the CVC (Connectivity Virtual Circuit charge) and the AVC (monthly access charge) to have a minimum assurance of a certain quality of product."

NBN has yet to confirm when any changes to its pricing model will happen, with Morrow saying the company is currently having initial discussions with providers.

What's CVC?

CVC is the amount of network capacity shared between an ISP's customers. ISPs previously paid $15.25 per Mbps per month, which under new volume based discounts, could go as low as $8 per Mbps per month. CVC is typically blamed as the leading cause of congestion on National Broadband Network, given that it is impossible for ISPs to buy enough to guarantee every single customer the speeds they're paying for at peak times.

If you look at Telstra, which will often charge over $100 for a 100Mbps NBN connection, the company would need to spend a minimum of $800 per month to facilitate those speeds under NBN's new pricing structure, not counting other costs associated with providing access to the National Broadband Network.

Obviously, Telstra isn't spending $800 per customer, and as such, if too many Telstra subscribers are online simultaneously, none of them get the speeds they are paying for.

To make a service affordable, telcos have to find the right balance between how much they charge and the amount of CVC they buy. Purchase too little, and your customers will have a terrible experience during peak times. Purchase too much, and you won't make money selling your plan or keep it priced competitively.

Hundreds of thousands of complaints

Morrow said that 15% of National Broadband Network customers have complained about their connections, with slower-than-expected connection speeds being one of the key issues raised. In June, NBN said that it had 2.2 million households connected to the network, which means the 15% figure is equivalent to over 300,000 complaints.

National Broadband Network performance has become such an issue that the Australian Competition and Consumer Commission (ACCC) is launching a program to monitor Australian broadband performance.

The program will allow the ACCC to determine if congestion is being caused by the network, if a provider is not buying sufficient capacity. This data will be published starting later this year, in order to help new subscribers get an understanding of what speeds they can expect before they sign a contract.

ACCC chairman Rod Sims has also threatened potential legal action against Telstra, Optus, TPG and Vocus by the end of the year if they are found to have misled consumers about NBN speeds. Sims says that telcos have now been instructed to refer to typical speeds, rather than "up to" speeds, when advertising their NBN products. TPG now, for example, state that their "superfast" connection tier will give customers between 12Mbps and 100Mbps.

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