NBN capacity purchase increase leads to 1.53Mbps per user

Retail service providers have again increased their connectivity virtual circuit (CVC) capacity, the Australian Competition and Consumer Commission (ACCC) has announced, with a rise of 38 percent in the quarter to December.

According to ACCC chair Rod Sims, the average National Broadband Network (NBN) CVC bought by retailers per user increased from 1.11Mbps to 1.53Mbps, with NBN contracted to supply 5,385Gbps of CVC capacity by the end of December, an increase from 3,452Gbps at the end of September.

This followed NBN providing RSPs with a temporary credit for acquiring 50 percent more CVC, and pricing 50Mbps access virtual circuit (AVC) the same as 25Mbps.

"We are pleased to see such a large jump in the CVC acquired by retailers from NBN Co this quarter. With this level of CVC, consumers will have faster broadband speeds and hopefully less congestion during peak evening periods," Sims said.

"NBN Co's response to retailers' concerns about CVC pricing seems to have had an impact on the amount of CVC being acquired, which we believe will benefit consumers through better quality broadband."

Sims added that as of the end of 2017, five RSPs -- Telstra, Optus, TPG, Vocus, and Aussie Broadband -- had reached all 121 points of interconnect. Telstra retains its NBN dominance, holding 49.3 percent of all wholesale services supplied over the NBN.

Of all NBN users, 54.3 percent were on the 25Mbps speed tier as of December 31.

The increase in CVC capacity purchasing follows NBN in December unveiling its wholesale pricing changes following debate with industry, with the decision to provide discounts for retailers offering services on its 100Mbps and 50Mbps speed tiers.

Under the changes, NBN's access and bandwidth charges will also be bundled together across CVC and AVC for the two top-tier plans.

The 50Mbps wholesale bundle will cost retail service providers AU$45 per month -- a 27 percent discount -- and include 2Mbps of bandwidth, while the 100Mbps wholesale bundle will be reduced by 10 percent to cost AU$65 for 2.5Mbps of included capacity.

According to NBN, the bandwidth being included amounts to "nearly double" the capacity that is currently being purchased by RSPs, with additional capacity available for AU$8 per megabit per second per month -- a 40 percent reduction on its previous pricing.

NBN CEO Bill Morrow had previously criticised retailers for cutting corners by focusing on pricing rather than speeds or quality of service after he revealed that the average bit rate per user was around 1Mbps.

The broadband company said its "dramatic discounts" will come into effect during the second quarter of 2018. The AVC/CVC bundling will be offered in parallel with the existing pricing structure for RSPs to choose between.

Morrow had revealed back in October during Senate Estimates that NBN was considering eliminating the CVC fee and only keeping the AVC fee. At the time, the chief executive said that any decision made on pricing could face a two-year delay before being passed on to consumers due to RSPs needing that timeframe to switch over.

The ACCC had in October declined to step into the CVC discussions, saying an industry-led solution would achieve better outcomes for consumers. However, its Communications Sector Market Study draft report at the end of last year then added that it would "consider exercising our regulatory powers where this would support these market outcomes being realised sooner".

NBN has previously argued against regulatory intervention by saying it already has "strong incentives" to ensure its pricing is efficient without direct regulation, as evidenced by its falling CVC prices.

RSPs including Vocus, Vodafone, MyRepublic, and Macquarie Telecom have previously argued that the only reason retailers are not offering gigabit speeds to consumers is NBN's CVC pricing structure.

NBN, however, argued that falling margins and trade-offs between price and quality of broadband services are not only caused by the CVC charge, but mainly by competition.

"Even if it contributes to relatively lower margins ... this would only be the temporary result of the 'land grab' phenomenon that is currently occurring in the downstream market as access seekers fight for market share during NBN's rapid expansion phase," NBN said.

"The effect of access seekers' arguments to lower CVC prices even further is to require NBN to fund the 'race to the bottom' pricing that has occurred in the downstream market whilst access seekers embark on aggressive marketing campaigns to retain and attain market share."

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