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NBN price wars - who is to blame?

NBN price wars - who is to blame?

Bill Morrow defends nbn's pricing model

nbn chief, Bill Morrow, has responded to claims that the National Broadband Network (NBN) pricing model could be affecting how retail service providers (RSP) market the NBN.

According to Morrow, service providers racing to capture as much retail market share as possible "can create more downside than upside if not carefully managed".

"While we believe this phenomenon will only last while we are in the rapid expansion period, there’s no denying the effect it is having on the competitive dynamics of the broader telecommunications market – particularly for end users," Morrow said.

"The upside to these price wars has been lower retail prices for end users as the competitive tensions between retail rivals drives down the cost of goods and services."

The downside to this, according to Morrow, is that not enough time is spent with consumers to try and understand and match their needs.

"Worse yet, it can lead to cutting corners on quality to save on cost," he said.

The disparity in service and speed between what end users are expecting and what they are experiencing is a result of the "price war".

The nbn pricing model was developed as part of the original nbn business model, explained Morrow, which was based on an assumed price that end users would be willing to pay for their service, an estimated cost to build the network and an estimate of what it would cost to maintain it.

Two weeks ago, the Australian Competition and Consumer Commission (ACCC) chairman, Rod Sims, revealed plans to take legal action against telcos that are found to have misled consumers over broadband speed claims.

At the time, Sims voiced some concern over the pricing structure model for NBN services by nbn and how it affects the way retail service providers (RSPs) take the NBN offering to market.

In his presentation, Sims suggested that, during consultation with industry, the general view of both large and smaller RSPs was that, with current CVC (Connectivity Virtual Circuit) pricing, many were reluctant to sell higher speed NBN services.

nbn says it has responded to industry concerns over the cost of the CVC by reducing the charge on three separate occasions – from $20 per megabit per second per month to the current average across the industry of $14.40/Mbps per month and as low as $8/Mbps a month if they buy sufficient quantity.

"Indeed, the average CVC being purchased across the industry works out to about 1Mbps for each end user – under our pricing model that could be doubled to 2Mbps for each end user for around an extra $5 per month," Morrow continued.

"It’s entirely up to each of the nation’s phone and internet companies how much of that bandwidth they choose to allocate among their end users. We have reduced the price to increase competition and give the end user more and better choices."

nbn wholesale pricing plans

nbn's wholesale pricing plans include the the Access Virtual Circuit (AVC) and the CVC.

The AVC is a fixed monthly access fee payable by RSPs for each of their end users and depends on the maximum bit rate requested, it ranges from $24/month for peak wholesale speeds of 12/1Mbps to $38 for peak wholesale speeds of 100/40Mbps.

The CVC is a charge for the collective amount of bits that flow through the point where the nbn network interconnects with their own network.

"It’s the CVC charge that has become the fulcrum between cost and quality that we are seeing today," Morrow said.

"Purchase enough CVC and an end-user's traffic should be able to flow close to the speeds their plan is based on. But buy too little CVC and traffic flowing to the phone and internet company's network during peak time will be slower."

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