NBN listens to Hackett, cuts prices for now

After months of fierce criticism from Internode founder Simon Hackett, the National Broadband Network Company (NBN Co) has rejigged its connectivity virtual circuit (CVC) charge, waiving the charge for usage under 150 megabits per second in areas where fewer than 30,000 premises have been passed.

On top of the basic NBN access charge per user starting at $24 per month, retail service providers (RSPs) also have to pay a connectivity virtual circuit charge, which secures bandwidth to a consumer from the point of interconnect (PoI). This is charged at $20 per 1Mbps. For months, Hackett has fought with NBN Co on this issue, stating that the CVC charge, in conjunction with the competition regulator's decision to expand the NBN to 121 PoIs, would price many carriers out of the market.

Today, NBN Co announced that the company would rebate this charge while the network was rolling out for the first 150Mbps per month at each point of interconnect until that particular PoI had passed 30,000 premises. Each of the 121 PoIs will service between 50,000 and 162,000 premises.

NBN Co head of product development and sales Jim Hassell told journalists in Sydney today that the decision came about after lengthy discussions with Hackett and other RSPs.

"We wanted to make sure that actually we give everybody a chance, that we really encourage competition and we encourage everyone to go where we do. After a bit of time talking with Internode and a whole bunch of other RSPs ... we think the CVC charge is right in the long term, but we really need to address something in the short term as we roll out," he said.

The CVC charge is referenced in the NBN Co business case as a source of significant revenue for NBN Co, important to make a return on investment. Hassell said that the company would be working though what the CVC discount would mean, as part of the revised business case that the company is putting together following the Australian Competition and Consumer Commission's decision to extend the network from 14 to 121 points of interconnect. However, he didn't believe that the change would have much impact on revenue in the long term.

"We'll work through all of the numbers. The CVC makes up over time. In the early days, the money coming in is in the access," he said. "It's a bit of a balancing act, and I don't think it's going to have any material impact. You get to the 30,000 customers and the charge kicks in."

Hassell said that the 30,000 number was chosen as NBN Co believes that this number represents a big enough footprint for RSPs to get into an area and compete with one another, regardless of their size. Although Hackett had previously suggested that the first 200Mbps should be exempted, Hassell said that the company determined 150Mbps would be slightly above what would be required by most RSPs.

"That allows you to go and service a reasonably small amount of customers, it allows you to get a footprint, build on that footprint and once you get past that you've got enough to spread that cost," he said.

It has previously been suggested that smaller ISPs, without the financial means to build out to all PoIs, could potentially seek to get services from a wholesale provider such as Eftel, Telstra or Optus. Hassell said that the aggregators would not lose out with today's decision, as it was only in place as the NBN rolls out, and aggregators offer a number of services to ISPs, including OSS and BSS functions that the companies would otherwise have to implement themselves.

In a statement accompanying NBN Co's announcement, Hackett said that the decision resulted from construction discussion between NBN Co and industry about the pricing model.

"Our shared interest is in seeing engagement with NBN Co from as many RSPs as possible, to ensure the maximum competitive benefit from the network to consumers around Australia," he said.

"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."

iiNet chief technology officer Greg Bader said that by waiving the initial charge, NBN Co would address some of the issues faced by RSPs in migrating to the NBN as it rolls out.

"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," he said.