NBN's new pricing model could reduce network congestion

01 June 2017

A new change in the way NBN bills internet service providers for access to its network could reduce congestion and in turn increase speeds and reliability for subscribers.

Taking effect from today, service providers will be given volume based discounts on CVC (connectivity virtual circuit) - the amount of network capacity shared between an ISP's customers. The more CVC an ISP purchases, the larger the discount they'll get. ISPs were previously paying $15.25 per Mbps per month. Under the new pricing, this fee could go as low as $8 per Mbps per month.

What's CVC?

CVC is typically blamed as the leading cause of congestion on National Broadband Network congestions, 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 to $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.

Will the discount actually reduce congestion?

While the drop from $15.25 per Mbps per month to as low as $8 won't eliminate congestion, it should hopefully encourage providers to buy more capacity. NBN says it has already seen an 11% increase in the average bandwidth purchased by ISPs since the new pricing model was announced three months ago.

"The new pricing model announced today is good news for both retailers and customers as it aims to improve the experience Australians have when they connect to an NBN service," said NBN Executive General Manager for Product and Pricing, Sarah Palmer. 

"We know homes which are connected to the NBN network are currently downloading more than 20% the national fixed-line average, which is why we are continuing to work with retail service providers to constantly change and adapt to best meet the growing needs of consumers."

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.

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