NBN Co stands by CVC charges amid wholesale pricing overhaul

NBN Co has proposed a series of wholesale discounts and higher capacity inclusions across its products as part of its latest industry consultation round, but refuses to bow to telco pressure to drop its controversial connectivity virtual circuit (CVC) charge. 

The company behind the country’s National Broadband Network (NBN) released the second paper of its wholesale pricing review consultation with industry on 17 September, following twelve weeks of consultation with more than 50 NBN retail service providers (RSPs) and industry groups.

Among the big changes proposed by the network builder are wholesale discounts and higher capacity inclusions across its high-speed tiers. These include a 100/20 bundle discount starting with 3.75Mbps of included capacity at an effective charge of A$58 per month, as flagged at the beginning of the consultation process in June.

Additionally, the changes would include a 250/25 bundle discount starting with 4.75 Mbps of included capacity at an effective charge of A$68 per month, and an up to 1000/50 bundle discount starting with 5.75Mbps of included capacity at an effective charge of A$80 per month.

It should be noted that the 100/20Mbps Access Virtual Circuit (AVC) Traffic Class 4 (TC-4) proposal is being considered across all fixed line footprints, with ranged peak information rates (PIRs) being provided for the fibre-to-the-basement (FttB), fibre-to-the-curb (FttC) and fibre-to-the-node (FttN) network services.

The 250/25Mbps and the 1Gbps/50Mbps proposals are being considered for NBN Co’s fibre-to-the-premises (FttP) and hybrid fibre coaxial (HFC) footprints, while the feasibility of offering these tiers in the (FTTC) footprint is still being investigated.

According to NBN Co, the new 100/20 bundle discount is around 11 percent cheaper than the A$65 effective charge for the 100/40 bundle discount and the increase in CVC inclusion improves the total value by 20 percent. At the same time, the new 250/25 bundle discount is 32 percent cheaper than the A$100 effective charge for the 250/100 bundle discount.

The new up to 1000/50 bundle discount, meanwhile, 55 per cent cheaper than the previous A$180 effective charge for the 1000/400 bundle discount. Additionally, an almost doubling of the CVC inclusion to 5.75Mbps improves the total value by almost 68 per cent. 

For Ken Wallis, NBN Co general manager, commercial, these new high-speed tier offerings represent the biggest changes in NBN Co’s latest wholesale pricing proposals.

“We brought down the price, created the new 100/20 to 250/25 and the new up to 1Gbps/50Mbps so that they are at a much lower cost for RSPs to upsell,” Wallis told Telecom Times. “I feel this is the really big change here, and really opens up some greater opportunities for customers, as well as RSPs, in terms of their business cases as well.”

At the other end of the spectrum, NBN Co is planning to introduce a modified 12/1 Entry Level Bundle (mELB) discount on 1 October 2019.

Although the starting effective wholesale charge of A$22.50 and inclusion of 150Kbps (0.15Mbps) remains unchanged for voice only customers and those who use limited data, the additional charge that is applied when the average monthly peak usage across relevant services exceeds the included 150Kbps will be reduced from A$22.50 to A$5.70. 

This additional charge is proposed to be further reduced to A$4.90 in May 2020 and to A$4.10 in October 2020. There will also be the option of an additional CVC charge of A$8/Mbps to accommodate higher data users.

NBN Co is also proposing changes to its mid-tier offering. In an effort to deliver a more economically attractive 25/5 bundle discount to RSPs, the company is proposing to reduce the wholesale effective charge from A$45 (including 2Mbps of CVC) that exists today to A$37 (including 1.25Mbps of CVC) in November 2019, and to increase this capacity allocation to 1.5Mbps in May 2021.

Given that, according to NBN Co, 65 percent of end customers are currently subscribed to the 50/20 wholesale speed tier, the company is proposing to help RSPs improve their service experience by adding extra CVC inclusion to the ($45) 50/20 wholesale bundle discount, increasing from a CVC inclusion of 2Mbps today to 2.25Mbps in May 2020, 2.5Mbps in May 2021.

While NBN Co’s Pricing Review 2019 Consultation Paper 2 appears to have allowed for a series of discounts and other changes to appease the country’s telcos, the company has reiterated its commitment to retain its CVC charge model, despite ongoing criticism by a number of RSPs, most notably Telstra, NBN Co’s biggest retailer.

image (1)“While we know that some RSPs have called for the removal of CVC charges, the reality is that there is a real cost in provisioning and dimensioning the network to accommodate rising data consumption.,” said NBN Co chief customer officer, residential Brad Whitcomb.

“We believe our bundled charges are the fairest way to implement a user-pays approach to wholesale pricing at this time.”

As such, according to Whitcomb, NBN Co believes the higher CVC inclusions proposed in the paper strike the right balance between helping RSPs to develop affordable offerings for end customers, giving service providers a platform where they can compete, while also allowing NBN Co to generate a “fair and reasonable return” to invest back into the network.

However, in an effort to provide RSPs with additional certainty around CVC, NBN Co’s proposals see an increase in CVC across most wholesale bundles discounts and, for the first time, the company will begin publishing a rolling two-year roadmap of future pricing with incremental annual increases in capacity inclusions on most bundle discounts to meet customers’ growing data demand.

“This roadmap is an important step in showing service providers that we are listening and taking decisive action to provide greater certainty to the industry,” Whitcomb said.

NBN Co has also taken the prospect of differential pricing for video streaming, dubbed a ‘Netflix tax’ by some pundits, off the table. According to the company, the majority of respondents in the first round of consultation highlighted streaming video as an important application driving the need for higher download speeds and more data inclusions.

While the company investigated the possibility of lowering the price of video traffic by differentiating video traffic flows during the initial consultation, only two RSPs supported the proposed initiative, leaving NBN Co to instead focus on ways to meet the challenge of growing video traffic by increasing CVC inclusions and making higher speeds more affordable. 

Going forward, the network builder expects to conduct annual, industry-based consultations to review and refine bundle discounts and inclusions. For now, the company is calling on further feedback from RSPs on the proposals in the consultation paper.

The final outcomes of the wholesale pricing consultation are expected to be announced in November 2019.

NBN Co stretches break-even point to 2023

NBN Co has revealed that it does not expect to find itself in a cash flow positive state until at least Financial Year 2023, a year later than the National Broadband Network (NBN) builder’s previous estimates released last year.

According to NBN Co’s latest annual corporate plan, which outlines the company’s long-range plans, projections and estimates from 2020 to 2023, the national network builder expects to see about A$700 million in positive cash flow in FY23.

At the same time, NBN Co’s latest estimates forecast negative cash flows of roughly A$200 million in FY22. This stands in stark contrast with the company’s Corporate Plan 2019-22, released in 2018, which forecast positive cash flows of around A$100 million in FY22.

One of the reasons for the new break-even point comes down to a reduction in activation figures in FY20, FY21 and FY22. Indeed, the latest report’s expected activation tally in FY23 stands at 8.6 million, which is 100,000 less than the expected 8.7 million in FY22 that was estimated in the 2019-22 corporate plan last year.

In FY20, the company now anticipates 500,000 fewer activations than it expected in the 2019-22 corporate plan, reducing its target from 7.5 million total activations to 7.0 million premises that year.

“Given the complexity of build expected through FY20, there has been a shift in phasing  for activations in FY20 and through FY21. The Company expects to connect 8.1 million customers by 30 June 2021,” the latest corporate plan stated.

NBN Co said in its report that this reduction is “purely a timing issue” around deployment and activations, with the Ready to Connect footprint coming later during FY20 than originally forecast in the previous year’s plan. The company added that there is no expected material change to the underlying performance of the business and revenue is forecast to recover to expected levels in subsequent years.

Another contributing factor for the delayed break-even point for the network builder is an increase in expected capital expenditure (capex) in FY20, FY21 and FY22, compared to the previous year’s figures. For example, NBN Co’s latest report puts expected capex in FY20 at A$4.3 billion. In last year’s report, the figure for FY20 was closer to A$3.6 billion.

These changes, of course, are reflected in the company’s all-important average revenue per user (ARPU) figures which, in the latest plan, indicate it expects to see residential ARPU rise from A$44 in FY19 to A$49 in FY23.

download (5)In last year’s plan, the company put its ARPU expectation at A$51 by FY22 – a figure that included business customers as well as residential customers. The decision to take the business contingent out of the ARPU equation in this year’s report was, according to NBN Co CEO Stephen Rue, to provide a more meaningful and transparent number.

The change in ARPU expectations is reflected in the company’s latest total revenue estimates, which are forecast to reach A$5.9 billion in FY23. While the total revenue figure for FY22 remains unchanged from last year’s estimates, the expected A$5.2 billion in FY21 and A$3.9 billion in FY20 have been downgraded in the latest plan to A$4.9 billion and A$3.7 billion, respectively.

Revenue is forecast to grow from A$2.8 billion in FY19 to A$3.7 billion in FY20 with the expected delay – or “rephasing” as NBN Co puts it – in network activations. Meanwhile, the plan continues to support a peak funding forecast of A$51 billion.

Despite tacking on an additional year until it expects to see positive cash flow and the reduction of anticipated activations in FY20, NBN Co remains upbeat about the rollout and ultimately meeting its stated goals.

In its report, NBN Co said that by the end of FY20, 11.5 million homes and businesses will be on track to be able to order a service on the network, fulfilling the commitment to complete the build in 2020. Currently, around 86 percent of premises throughout Australia are able to order an NBN service.

“To date, NBN Co and its delivery partners have rolled out more than 280,000 kilometres of fibre-optic cable, repurposed and upgraded existing HFC [Hybrid Fibre-Coaxial] and copper technologies, built a Fixed Wireless network comprising some 2,200 towers and approximately 13,000 cells, and launched two satellites,” said Rue.

“With completion of the network well in sight, now is the time to focus on how Australians in homes and businesses across the nation can get the most out of the NBN access network.

“Improving customer experience and satisfaction will remain the key driver in coming years as we complete the transition to become a full-scale service delivery organisation – and we will put customers at the centre of everything we do.” he said.

LABOR UPS NBN DISCORD, SLAMS ‘RIDICULOUS’ CLAIM

The political football that is the NBN took another pummelling this week with Labor shadow ministers Michelle Rowland and Jim Chalmers taking aim at the government over claims NBN was exceeding targets, labelling them ‘ridiculous’.

In a joint statement, Rowland who is Shadow Minister for Communications, and Chalmers – Shadow Minister for Finance – said the claim that NBN Co was exceeding targets was ‘ridiculous’ and ‘disrespects the intelligence of the Australian public’.

The pair also took potshots at Mitch Fifield and Mathias Cormann saying: “If Mitch Fifield and Mathias Cormann were not sufficiently deluded in backing Peter Dutton for PM, they today made the ridiculous claim that NBN Co was continuing to exceed its targets!”

The outburst follows comments from Fifield and Cormann, in their respective roles as Minister of Communications and Minister of Finance, that NBN was showing strong performance and growth in activations and revenue, with its half yearly results ‘confirm[ing]  the company is exceeding its connection and financial targets’.

Labor’s claims are based on targets set in NBN’s first corporate plan, back in 2017, rather than later plans, with Rowland and Chalmers saying ‘It appears the Abbott-Turnbull-Morrison Government is hoping no one notices their NBN ‘targets’ get changed every year because the previous targets have been missed.”

Rowland and Chalmers say NBN is failing to meet the 2017 targets across revenue, ARPU, activations, HFC activations and HFC ready for service.

FY19 revenue, the pair say, was due to reach $3.7 billion, with the company’s $1.3 billion half year result suggesting it may not meet that target.

NBN’s half year report shows 4.6 million premises with an active service over the NBN network and 8.1 million premises ready to connect – up 38 percent on the same time last year.

Rowland and Chalmers also delved back into 2013’s NBN Election policy, noting a coalition promise of a rollout cost of $29.5 billion, while the project’s current forecast is for $50.9 billion in rollout cost. The 2013 NBN Election policy also put completion at 2016, a date that has since been pushed out to 2020.

Meanwhile, Fifield and Cormann, in their joint statement following the release of NBN’s half yearly results, claimed the figures confirmed the company’s ‘solid performance across all metrics and provides further evidence of the benefits of the coalition’s faster, more affordable NBN rollout’

In the six months to 31 December, NBN’s revenue was up 46 percent year on year, to $1.3 billion, supported by an uplift in ARPU to $45.

NBN Co enables DOCSIS 3.1 broadband cable tech, readies for surge in HFC activations.

NBN Co, the company building and operating Australia’s broadband network, has introduced what it bills as the “cutting edge cable technology DOCSIS 3.1 on its HFC network” – ahead of the planned ramping  up ofe HFC activations in the coming months.

NBN said implementing DOCSIS 3.1 doubled the downstream capacity on the HFC network, which is slated to serve some three million premises across Australia 2020.

“Although DOCSIS 3.1 does enable higher speeds on HFC networks that is not our core focus at this present time,” said NBN Co CTO Ray Owen. “From an NBN Co point of view DOCSIS 3.1 will help us increase capacity on the HFC network far more efficiently than conducting new optical node splits which will, in turn, free up construction resources elsewhere to complete the network build by 2020.

“In addition, we also look forward to the benefits that DOCSIS 3.1 will help bring on the operational side of the network in delivering a more stable and resilient network for end-users,” said Owen.

“The technology improves the online experience for homes and businesses by helping to ensure there is sufficient capacity available to meet demand – especially at peak-usage times,” it added, noting that DOCSIS 3.1, already launched by several US cable operators such as Comcast and Cox Communications, significantly improves the spectral efficiency of the HFC network.

This, it added, will allow NBN Co to use new higher range spectrum – therefore doubling the capacity available. “This will prove a key benefit for NBN Co on our HFC network given that around 75% of new end-user premises coming onto the NBN network are now taking either 50Mbps or 100Mbps services with nearly 50% of our 4.1 million activated premises now on 50Mbps or above speeds.”

Prior to launching DOCSIS 3.1 the only way NBN Co could increase capacity on the HFC network was by installing new optical nodes; a process known as node-splitting, to reduce the number of premises served by the existing optical nodes on the network.

“Using technology from our HFC technology partner ARRIS, NBN Co is planning to deploy DOCSIS 3.1 technology across the vast majority of the NBN HFC broadband access network by 2020 in both the downstream and upstream directions,” it said.

NBN Co also said that as DOCSIS 3.1 is brought onto the network on an area-by-area basis ,most end-users should have immediate access to the technology as their existing NBN Co Network Termination Device (NTD) inside their home is already fitted with DOCSIS 3.1 capable technology.

The firm said using Orthogonal Frequency Division Multiplexing (OFDM) modulation technology and a more advanced Forward Error Correction (FEC) method as part of DOCSIS 3.1 would also help to provide a more reliable and stable connection for end-users on the network.