Making the best out of the NBN CVC predicament

Yesterday I posted about NBN Co’s conflict between promoting higher quality broadband (ie. higher speeds and higher downloads) to help it achieve its revenue targets and its political mandate to say Australians don’t really need the higher speeds possible under a FTTP network.

This underlying conflict is making it hard to solve the CVC pricing problem that is now threatening to force NBN Co to write off a large part of its investment in the network.

NBN Co needs to start fully promoting the speed of its network rather than shy away from this issue.

The first step would be to release the database it apparently has on the “theoretical” maximum speeds available to all consumers.

Currently, customers have to rely on their RSPs to obtain information about the maximum speed available. Obviously most people don’t trust this information, especially when it comes from someone who is trying to sell them something. The ACCC has been lax in following up behaviour in this area for years but is now trying to claw this back. It is probably too late and NBN Co needs to get on the front foot.

NBN Co could inform customers of their “theoretical” maximum speeds with the address search tool on its website. NBN Co ┬áis also able to prevent RSPs ordering speeds higher than this “theoretical” maximum speed.

Being more transparent on speeds and making sure customers are not oversold is a no brainer first step for NBN Co to win back some trust from the customer. It would stop more embarrassing situations arising such as Telstra’s forced downgrading of speeds to 8000 customers after they were oversold.

The next step would be for NBN Co to publicly release information about the amount of CVC bandwidth RSPs are purchasing. A relatively straight forward “contention” or “quality” index could be used to benchmark RSPs in different areas.

This could also be made available on NBN Co’s website with the address tool so that a customer can see which RSPs are serious about quality broadband and which are just looking to sell the cheapest low quality plan.

NBN Co must re-orient itself towards consumer protection when it comes to information that is shared with the consumer. The ACCC should support this and any issues around confidentiality and commercial issues should be debunked as soon as possible. NBN Co needs to be more aggressive in standing up for customers and ensure transparency in network dimensioning. Relying on the ACCC’s broadband speed benchmarking exercise will not be enough as this will inevitably be a national result rather than a local outcome related to the customer’s service area.

Thirdly, NBN Co should publicise its plan to reduce the CVC price in line with the increase in average monthly downloads across the network. NBN Co should not be seen to be “gouging”customers because of increased usage due to media streaming consumption or other applications.

Usage increases have minimal impact on NBN Co’s FTTP and FTTN cost structures (but do impact HFC, Fixed Wireless and Satellite networks), so increasing consumption should be broadly revenue neutral.

The whole point of the CVC is not to make more money as usage grows, rather it is the way that RSPs can offer cheaper plans to lower usage customers compared to higher usage customers.

We should remember that customers have no effective choice for their fixed broadband network. If NBN Co has a flat price regardless of usage then low usage customers will move to the only other alternative – mobile broadband. Mobile operators will see this as an extra revenue opportunity and seek out lower usage customers to bring to their networks.

This is not in NBN Co’s interest and will result in mobile networks being congested as they chase the low usage fixed customers.

If NBN Co cannot make the CVC revenue neutral over time and achieve its ARPU projections it should write-off the necessary part of its investment to make this happen. Relying on more revenue as usage increases is a fallacy. The revenue won’t come and the users will find alternatives. The whole point of the NBN hinges on this fundamental issue.

NBN Co’s CEO Bill Morrow has announced ($$$) a review of its pricing structure as part of its image problem fix. But changes to pricing are difficult and will require involvement of the ACCC if drastic changes are contemplated.

The above steps can be done without the ACCC’s sign-off. In fact the ACCC should actually encourage NBN Co to do all of the above to help with its role of protecting consumers.

It will be interesting to see whether NBN Co grasps this opportunity to lead with speed, quality and transparency rather than fight old political battles.