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NBN Co offers new entry level bundle

September 18, 2018September 18, 2018 Kenneth Tsang Leave a comment

With hefty penalty for exceeding included peak hour average

NBN Co, the company responsible for building and operating the National Broadband Network, will introduce a new $22.50 entry level bundle next month aimed at very low usage customers.

The new bundle discount will finally allow Retail Service Providers to include customers with 12/1 Mbps AVCs in the same pool of bundled CVC from other bundled offers. Each Entry Level Bundle will include a 12/1 Mbps AVC and 0.15 Mbps CVC, which contributes to a common pool shared with the High Bandwidth Bundle Discount which started in May 2018 and the Fixed Wireless Bundle Discount which started last month.

However, there is a catch. NBN Co will charge service providers who, on average, exceed 0.15 Mbps per AVC during peak hours an additional $22.50 per AVC. This prevents providers from taking full advantage of the included CVC from other included bundles.

NBN Co will use a new metric called “Daily Peak ELB Bandwidth Usage” to calculate the peak usage for billing purposes. It will use the highest 30 minute period of aggregated entry level bundle download usage to determine a daily peak usage. The peak usage is then averaged across the month to determine if the provider exceeded the threshold.

Providers who opt for the new entry level bundle will be excluded from the 50 Kbps CVC credit previously available for each AVC.

The bundle will be made available to providers from 2nd October.

Source: NBN Co

A smattering of thoughts on the new bundled CVC pricing

December 14, 2017 Kenneth Tsang Leave a comment

I’m a bit busy at the moment, but I thought I’d put together a few of my initial thoughts and questions on the new CVC pricing.

Thanks to a handy-dandy embargo, there are already a plethora of articles around detailing NBN Co’s new (proposed) pricing construct this morning… so, I won’t bore you with the exact details of the changes.

But if you’re not already up to speed, naturally I’d recommend a read of Angus Kidman’s article on the changes on finder.com.au… but this time, it’s also because it includes an analogy to pots and stovetops.

If that doesn’t float your saucepan, other articles are just a quick search away.

Back of napkin calculations

nbn™ 50

The new nbn™ 50 AVC with 2 Mbps of bundled CVC comes in at $45 ex GST vs $34 ex GST currently but with only 50 kbps CVC bundled¹.

So the cost difference of $11 ($45 – $34 = $11) is what an RSP would have spent on CVC under the current model. Assuming the industry average charge of $14.25 per Mbps², the $11 left over would allow them to purchase 0.77 Mbps ($11 / $14.25 per Mbps = 0.77 Mbps).

Since the new nbn™ 50 comes with 2 Mbps, this represents a 1.6x increase in CVC allocation per user for the same price. Not bad.

nbn™ 100

On the other hand, the new nbn™ 100 looks nowhere near as generous.

The new nbn™ 100 AVC with 2.5 Mbps of bundled CVC comes in at $65 ex GST vs $38 ex GST with the 50 kbps CVC credit bundled¹.

Doing the same calculations as before, this leaves $27 for CVC under the current model. This is equivalent to ~1.89 Mbps of CVC using the industry average rate¹, or a 0.3x increase in CVC allocation per user for the same price currently. That’s tiny.

Given this, I wouldn’t expect the take-up of the new nbn™ 100 product to be huge. The new construct effectively forces RSPs to buy at least 2.5 Mbps of CVC per user all year, all around… which could be a problem.

This constraint will likely deter providers (especially those in the low-cost market) from selling a 100/40 product since: a) CVC-equivalent cost per user is likely above the current annual CVC average cost per user on a 100/40 retail offering, and; b) it gives RSPs no flexibility to reduce CVC in the low-demand season.

Remember, bandwidth requirements can fluctuate seasonally — usually peaking during school holidays.

If NBN Co were to retire the current separated AVC/CVC product set completely (which, by the way, it has NOT said it would do), I’d be surprised to see any 100/40 Mbps plan priced under $110 retail.

A word on industry average CVC

Note that I am using the industry average¹ CVC pricing here as the benchmark.

Even if an RSP allocates more CVC per user on higher speed tiered AVC, the current dimension based CVC discount is calculated on the average CVC allocation per user across all CVCs — making the average a realistic comparison benchmark for most RSPs unless they skew significantly from average.

If they currently allocate more CVC per user than the industry average, the apparent savings under the new structure would be smaller because of the current Dimension-Based Discount.

Conversely, if they allocate less CVC per user than the industry average, the apparent savings under the new structure would be greater.

¹ Currently, each AVC comes with a 50 kbps CVC credit. Since it’s such a small amount, we might as well disregard for the purpose of this discussion.
² Industry average based on ACCC NBN Wholesale Market Report. Average CVC per user is 1.09 Mbps, falling within the 1000 to 1149 kbps bracket in NBN Co’s dimension based CVC discount. This is equivalent to $14.25 per Mbps of TC-4 CVC ex GST.

NBN to rebate for higher speeds

October 27, 2016October 27, 2016 Kenneth Tsang 5 Comments

Service providers may be eligible for a rebate to upgrade existing users to higher speed tiers

The company responsible for building the National Broadband Network, nbn, will introduce a three-month credit scheme designed to promote the uptake of higher speed tiers on its network. The “Step Up AVC Credit” will see service providers refunded up to $33 over 3 months for upgrading existing customers to a higher speed tier.

End users must stay on the new tier for a minimum of 90 days to be eligible for the credit.

Rebates range from $9 to $33 over 3 months:

12/1 Mbps to 25/5 Mbps: $9 over 3 months
12/1 Mbps to 50/20 Mbps: $21 over 3 months
12/1 Mbps to 100/40 Mbps: $33 over 3 months
25/5 Mbps to 50/20 Mbps: $21 over 3 months
25/5 Mbps to 100/40 Mbps: $33 over 3 months
50/20 Mbps to 100/40 Mbps: $21 over 3 months

In an effort to reduce congestion and lower CVC congestion, the credit has strict guidelines about the state of congestion within the network. Any connectivity virtual circuit connected to end users applying for the “Step Up AVC Credit” cannot exceed an average of 95% of network utilisation for 4 consecutive 15 minute intervals in any 24 hour period.

During this campaign, nbn will also co-fund marketing activities associated with the “Step Up AVC Credit” at $1.50 for each eligible AVC.

The scheme will start in November 2016 and finish at the end of March 2017.

[Source: NBN Co]

NBN Fibre to the Node Trial at Umina Beach

NBN to remediate business connections over copper

October 27, 2016October 27, 2016 Kenneth Tsang 3 Comments

But will lock you in for 12 months if the existing copper line isn’t up to scratch

The company responsible for building the National Broadband Network, nbn, will begin offering line remediation to business services unable to reach their committed speeds over the copper network.

Business level services delivered over Traffic Class 2 (TC-2) have a committed information rate (CIR) which effectively guarantees a connection’s transfer rate. Typical residential services are provisioned over Traffic Class 4, which has a peak information rate (PIR) describing the “up to” transfer rate achievable over the line.

The company is already offering TC-2 services over its FTTN and FTTB network with symmetrical transfer speeds of 5, 10 or 20 Mbps. However, according to the current Wholesale Broadband Agreement (WBA), the company is currently not committing to its Committed Information Rate — stating:

“the actual Information Rate experienced by Customer, Downstream Customer or the relevant End User, may each be significantly less than the downstream CIR and upstream CIR of the bandwidth profile ordered by Customer in respect of the relevant Ordered Product”

According to the revised WBA on its website, the company will enable customers to submit a trouble ticket to remediate the copper line. However, nbn will also require the end user to take up the service for at least 12 months or will have to pay an early disconnection or modification fee.

NBN will charge an early termination or modification fee if customers had their line remediated — NBN will charge an early termination or modification fee if customers had their business line remediated

Increased FTTN performance objectives

nbn is also increasing its network availability operational target on the FTTN Network from 99.70% to 99.80%. The agreement states that “operational targets are non-binding and aspirational”.

The new wholesale broadband agreement will become effective in early December 2016.

Revenue targets: why NBN should be doing more to promote higher speeds

November 4, 2015November 4, 2015 Kenneth Tsang 11 Comments

By actively discouraging users and downplaying the need for high speeds, nbn’s media strategy is killing its own business case

(opinion) The national broadband network is all about bringing ubiquitous, high-speed broadband to all of Australia — regardless of where you live.

However, with the shift to the multi-technology mix and in the introduction of the Fibre to the Node technology into the network — nbn is doing its best to downplay the importance or the need for speeds beyond 25 Mbps download in order to justify its technology-of-choice.

Yet, as the company reveals itself, it will rely heavily on these downplayed high-speed users 5 years time in order to meet the required revenue targets to make their Multi-Technology Mix work.

nbn’s own figures: 100/40 Mbps expected to be most common by FY2021

By the end of the rollout, nbn expects more customers will take up the 100/40 Mbps speed tier than any other speed tier on the national broadband network. (nbn has only provided FY2021 figures here, but end of rollout is expected to be the end of CY2020)

According to their own figures provided at Senate Estimates this year, 30% of all fixed-line customers are expected to take up the 100/40 Mbps tier followed closely by 29% taking up the lowest tier — 12/1 Mbps.

(N.B The following calculations assume a 100% take-up. While the latest corporate plan only assumes a 73% take-up, magnitude (and weighted %) should not be materially affected.)

(FY2021)	FTTN		FTTP		HFC		Aggregate
	% takeup	Approx. premises	% takeup	Approx. premises	% takeup	Approx. premises	Approx. premises	Weighted %
12/1 Mbps	31%	1,395,000	25%	600,000	28%	1,120,000	3,115,000	29%
25/5 Mbps	26%	1,170,000	27%	648,000	28%	1,120,000	2,938,000	27%
25/10 Mbps	10%	450,000	4%	96,000	2%	80,000	626,000	6%
50/20 Mbps	11%	495,000	7%	168,000	5%	200,000	863,000	8%
100/40 Mbps	22%	990,000	35%	840,000	35%	1,400,000	3,230,000	30%
250/100+ Mbps	0%	0	2%	48,000	2%	80,000	128,000	1%

Source: nbn AVC profile – Question on Notice 118 (Senate Budget Estimates, May 2015)

100/40 Mbps accounts for most revenue by FY2021

But if you look at revenue figures, in user access (AVC + UNI) revenue alone, the 100/40 Mbps users account for $1.47 billion dollars per year. At an average 1:80 contention ratio, it could amount to a total of $2.32 billion in revenue if current CVC costs of $17.50 per Mbps is retained.

The expected revenue in the 100/40 Mbps tier is expected to be double of the next highest tier in revenue terms — the 25/5 Mbps.

(FY2021)	Approx premises (millions)	AVC per month	AVC revenue (annual, bn)	CVC 1:80 revenue (annual, bn)	Annual revenue (AVC + CVC, bn)
12/1 Mbps	3.12	$24.00	$0.90	$0.10	$1.00
25/5 Mbps	2.94	$27.00	$0.95	$0.19	$1.14
25/10 Mbps	0.63	$30.00	$0.23	$0.04	$0.27
50/20 Mbps	0.86	$34.00	$0.35	$0.11	$0.47
100/40 Mbps	3.23	$38.00	$1.47	$0.85	$2.32
250/100+ Mbps	0.13	$70.00	$0.11	$0.08	$0.19

Source: AVC and CVC pricing based on nbn’s price list released on 2nd November 2015

While magnitude of pricing may be altered due to pricing changes and lower overall take-up, assuming take up profiles are met — the importance of promoting higher speed plans cannot be understated.

If nbn knows what’s good for them, they shouldn’t be focusing energy on discrediting the need for speeds beyond 25/5 Mbps. Those are simply short-term political defences which could eventually harm the revenue capabilities of the company in the long term.

It is more important than ever to promote the higher speed tiers to customers who can access the speeds, given the MTM rollout by nature will prevent some customers who want the higher speeds from getting it (I’m looking at you, FTTN).

Beyond 100/40 Mbps

Unlike the 2012 Corporate Plan which predicted ~10% of customers will take up a 250/100 Mbps service by 2020 — nbn is now predicting that by fiscal year 2021, the take up of services above 100/40 Mbps will only be at 2% for both FTTP and HFC (0% for FTTN) — or in real premises figure, around 128,000 homes or businesses. This amounts to roughly $190 million dollars in annual revenue.

This is a substantial downgrade in forecasts and it seems the only explanation that nbn is giving is that there is not current demand for speeds above 100/40 Mbps:

“… the services that we sell, 80 per cent is 25Mbps or less, yet we offer up to a gigabit per second … this is an indication, right, of what people actually are willing to pay for and what they really need.”

Bill Morrow, June 2015

Market is speaking in Aus. Of a >1m who can have Gbps speeds today, less than 30 have taken up @gpaddymanning #ABCRN #ActionsNotWords #nbn

— karina keisler (@karinakeisler) October 31, 2015

Yes, the company is using current take-up information to model demand in 2020. It seems nbn might be having some trouble understanding the broadband demand and the market in Australia.

Are executives aware that there are currently no service provider who provides speeds above 100 Mbps on a residential connection? (There are 100/100 Mbps symmetrical plans using the 250/100 tier)

There is a few reasons behind this, but firstly, nbn‘s own CVC pricing is the key inhibitor in enabling these services. Saying “market is speaking in Australia” but not recognising they are they key inhibitors in the market is a bit of a self-fulfilling prophecy — right?

You might as well jack up all nbn access costs to a million dollars per user and say: “The market is speaking! By 2020, no Australians will want any broadband from nbn!“. It will most undoubtedly be a true statement if the company decided to go with it.

We also need to understand the extreme costs of buying backhaul to the nbn Points of Interconnect ruled by incumbent monopolies. Plus, there’s the high cost of IP transit in Australia (that’s the cost of connecting to the actual Internet) compared with places like the US or UK because of the large bodies of water that separate us from the rest of the world.

However, market competition means that the latter of the two (backhaul and IP transit) will likely fall as demand increases. But CVC costs? That’s entirely controlled by the nbn as it’s not a competitive market.

So whether or not Australia will want gigabit speeds is almost entirely dependent on nbn, and judging by the tone used by this management, it seems they neither want to promote the speed nor get the revenue — which is a pretty stupid strategy in my opinion.

Concluding thoughts

So… dear nbn,

Stop dissing users who demand high speeds. As a taxpayer who’s tax dollars are being used to fund the project, I want it to succeed in the long term — not just politically in the short-term.

According to your own numbers, the take-up of higher speed services is paramount in ensuring the return of investment to the Government and in turn, the taxpayer.

Saying there is no demand for speeds beyond 100/40 Mbps is another one of those dangerous, broad statements that reflect the short-sightedness of the company.

When telcos worldwide are spruiking to their customers about the wonders of gigabit connections, we are special in Australia. We are somehow unworthy, and “unneedy” of these higher speeds.

Let’s play common sense, and promote things like any sane, commercial company would. After all, we all just want this investment to succeed.

NBN working on AVC trunking project to overcome 121 POIs

October 24, 2015November 12, 2015 Kenneth Tsang 2 Comments

For a small fee, nbn could allow small service providers tap into its transit network to drive up backhaul market competition

nbn, the company responsible for building the National Broadband Network, has reportedly been working with smaller service providers in developing a so-called “AVC trunking” service.

Currently, service providers are required to connect their network with nbn‘s 121 points of interconnect located around Australia in order to service all of Australia. This puts smaller service providers who do not have existing backhaul networks at a big disadvantage.

This AVC trunking project aims to allow smaller Tier 2 service providers to take advantage of nbn‘s inter-POI (point of interconnect) transit network by paying a small fee to terminate Access Virtual Circuits (AVCs) from smaller or more remote Points of Interconnect to larger depots located in capital cities.

ACCC seeks feedback from small providers

The Australian Competition and Consumer Commission (ACCC) has interviewed a number of small service providers to obtain feedback regarding nbn‘s AVC trunking project. It’s understood that feedback from small service providers has been overwhelmingly positive.

Paul Rees, Managing Director of the ISP SkyMesh, has noted on Whirlpool Broadband Forums that: “Unless the ACCC approves this scheme, or the larger providers start offering backhaul at realistic prices, we’ll never make it to Tasmania, the Northern Territory or far north Queensland. If the ACCC is serious about maintaining competition on the nbn™ network, they will approve [CVC Trunking].”

A consolidated backhaul market

When the NBN was first established, NBN Co had preferred a 7+7 Point of Interconnect model where service providers would connect to major interconnection points in capital cities to service an entire state. However, after lobbying from major backhaul monopoly providers from the likes of Telstra and Optus — the ACCC favoured a dispersed 121 Point of Interconnection model.

Since the ACCC decision, major acquisitions by TPG and M2 have resulted in significantly reduced competition in the backhaul market. Most notably, TPG’s acquisition of PIPE Networks and AAPT, plus the recent Vocus-M2 merger sees almost all major backhaul providers aligning with a company with a consumer retail front. This could allow the companies to increase wholesale backhaul costs to their competitors to lock out retail competition.

By opening up nbn‘s inter POI transit network to the AVC trunking project, it could drive backhaul competition especially to regions with less transit competition such as Tasmania and Northern Territory. The implementation of any such project would be subject to approval by the ACCC.

How the NBN could transform mobile transit

August 27, 2015August 27, 2015 Kenneth Tsang 1 Comment

4G/5G mobile growth will not undermine the NBN business case. It should actually help boost NBN revenue.

(opinion) Phone towers aren’t magical. They need to be connected back to a datacentre in order to process calls, send texts and most importantly — connect you to the Internet.

There’s no doubt that one of the greatest cost barriers for mobile phone companies to increase coverage is the cost of backhaul to mobile phone towers.

Telstra has always had a natural advantage in the mobile coverage race due to its extensive fibre network laid out between its telephone exchanges. Optus is not too far behind, but certainly lacks the robust network Telstra has especially in rural areas.

But let’s think for a moment about Vodafone, or potentially a theoretical fourth national mobile carrier which may or may not start with the letters TPG. The National Broadband Network can play an extraordinary role in helping these companies not only expand their network coverage size, but also create denser and higher bandwidth coverage to ease congestion.

Dark fibre vs managed services

Traditionally, a carrier may opt to roll out their own fibre to a tower — but that could come at a huge capital cost which may not be viable for carriers with comparatively lower subscribers.

Alternatively, they may rent dark fibre or purchase a managed transit service from the likes of Telstra or Optus and pay back a recurring fee for the amount of bandwidth they want delivered through the service. Unfortunately this means even if only a small number of customers are connected to a tower at a given time, the carrier would have to pay for the full bandwidth they’d purchased from their transit provider.

How the NBN could change the game

But the NBN could change all that, and this could mean enormous transit cost savings for leaner carriers who don’t own as much transit network infrastructure.

Early last year, the company revealed that it began conducting trials for “Cell Site Access” — giving mobile carriers like Vodafone access to the National Broadband Network to connect towers.

AVC+CVC works well for mobile transit

The two-part access and connectivity charge (AVC+CVC) that nbn currently uses means that the carrier can pay for a relatively low cost for a high bandwidth Access Virtual Circuit (say 100+ Mbps) at the tower but only pay for the bandwidth at a regional level (Connectivity Serving Area, CSA) at the point of interconnect (POI).

This means that no matter how many towers they put up, as long as the overall bandwidth that gets transferred across the mobile network doesn’t change, there will only be a minimal cost difference in terms of transit between towers.

Of course, the equipment costs will still exist — but carriers could increase their cell density in a metropolitan area or regional centres by installing small “towers”, but only have to pay some $40 in monthly cost for connecting the towers to the NBN Point of Interconnect.

Great for dealing with peak demand at venues

The flexibility of the two-tier AVC-CVC model for mobile carriers means that if “mobs” of people aggregate at a particular location say for a sporting event — the carrier could simply increase the low-cost AVC component to cope with the peak demand at that particular location. That, of course, assumes that overall data consumption doesn’t increase which is probably not true from experience. But it means that carriers will not have to pay massive premiums for high-bandwidth transit during the entire year, when it can cater for occasional high demand by paying a little more in the access component over an NBN transit solution.

I think there is massive potential for NBN to shake up the mobile transit market. Once the NBN is built, the infrastructure will be there to support high density microcells in built up areas and also for carriers to expand their coverage in more regional areas at relatively low cost.

I guess the point I’m trying to make is that growth in mobile doesn’t necessarily undermine the NBN. 4G and 5G networks will still need high bandwidth transit to carry all that data from the tower back to the carrier’s data centres… and it seems the NBN is an obvious candidate for some carriers.

I’m really quite excited to see what mobile carriers may do in the future with the NBN, and I’m sure nbn wouldn’t mind having some extra revenue given current circumstances with the MTM cost blowout.

CVC remains the single biggest threat to NBN

July 6, 2015July 6, 2015 Kenneth Tsang 2 Comments

Standard 12/1 mbps plan could rise to over $150 if pricing model doesn’t drastically change

Despite the debate about technology used, the cost of NBN’s CVC remains the single biggest threat to the NBN’s success.

While the availability of high-speed, unlimited broadband grows in developed nations around the world, the future of “unlimited broadband” in Australia is becoming increasingly bleak. The use of applications requiring greater amounts of bandwidth grow in households is partially to blame, but the country transitions to the NBN – the way nbn designs their pricing structure will also be increasingly important. Currently, the NBN pricing structure is far too cost prohibitive for the amount of traffic the network is designed to carry.

What is this CVC thing?

Connectivity Virtual Circuit (CVC) is a virtual charge imposed by NBN to service providers to offload your traffic from the NBN network into the service provider’s network. After a discount introduced at the start of the year, NBN charges $17.50 per Mbps of traffic shared across the ISP’s customer base. Initially, the cost was $20 per Mbps.

This is in addition to the cost of physical interconnect connection between the provider and NBN (called the Network-Network Interface, NNI) plus the cost that NBN charges for the link between your home and NBN’s point of interconnect (known as the Access Virtual Circuit and User-Network Interface, AVC/UNI).

The Netflix effect

It became pretty obvious after the launch of Netflix in Australia that the current pricing structure is unsustainable. With the high-bandwidth of the NBN, customers expect to stream movies and TV shows with plenty of remaining capacity to do additional work in the background.

To be able to deliver a HD stream, Netflix recommends 5Mbps of bandwidth. To be able to guarantee at least a single stream to every household, ISPs need to purchase 5Mbps of CVC per household:

$17.50 × 5 Mbps = $87.50

This neglects costs like the actual cost of connecting you to the Internet (Backhaul/IX costs) and link between your home and NBN’s point of interconnect – which start at $24 for 12/1 Mbps. Backhaul and IX costs depend on the ISP’s deals with backhaul providers and the volume they have – but consider $10 per mbps a reasonably conservative estimate. So, for a typical 12/1 connection that can consistently deliver at least 5 Mbps:

Cost element	Cost
CVC – 5 Mbps	$87.50
AVC/UNI – 12/1 Mbps	$24.00
Backhaul/IX Costs – 5 Mbps	$50.00
Total	$161.50

Since a typical 12/1 NBN plan costs far less than the $161.50, you can understand where the compromise lies – CVC, IX and backhaul.

While you wouldn’t necessarily expect that all users will simultaneously watch Netflix at the same time, the number of simultaneous streamers is growing exponentially. ISPs also need to prepare for “extraordinary” events like when Netflix released the entire season of Orange is the New Black – a far greater proportion of users will be watching Netflix at the same time for an extended period of time.

Future of small providers

With the high CVC costs, small providers will find it increasingly hard to compete with larger providers like Telstra, Optus, iiNet and TPG. These providers either have enough traffic volume (or own their own backhaul infrastructure) to lower costs in the backhaul or IX component to offset the high CVC.

Smaller providers still need to “rent” capacity from backhaul infrastructure providers such as Telstra, AAPT, PIPE and Nextgen Networks. With even large providers like iiNet feeling the pinch, it’s no wonder that smaller ISPs are beginning to struggle. Even with the scale of a large customer base, current consumer cost expectations are simply unsustainable.

What’s a solution?

nbn™ could continue dropping the CVC charge as demand increases, however, it faces the risk that service providers will continue to skimp out on CVC – thus lowering revenue.

The good news is the company has also begin conducting a second round of industry consultation to help overcome the problem.

For me, one solution I can see feasible, is to replace the CVC cost with a standard capacity charge (which guarantees a certain ratio of CVC to AVC) comparable to current industry contribution to CVC per user. Then, provide capacity boosts for users and applications that require a greater capacity. This guarantees “minimum” revenue for nbn™ and increases capacity to suitable levels for service providers.

Alternatively, I could see increasing the user-connect costs (AVC/UNI) and drastically cutting CVC costs as a possible solution. This would also guarantee revenue to a certain extent, while retaining the control of contention with service providers.

Whatever happens, the nbn™ pricing model needs to change drastically in order for Australia to remain competitive in the 21st century. Otherwise, we’ll continue to be slowed down by a “virtual” cost-prohibitive charge by our nationwide broadband network.

avc