Wholesale relief isn't likely to bring lower NBN retail prices, writes Paul Budde.

THE COMPANY running the national broadband network, NBN Co, has made some changes to its wholesale structures. They are relatively small but they will give some relief to the service providers who have to buy their services from them.

As many customers are unable to get the broadband speeds as advertised by the service providers, the ACCC last year stepped in, threatening to penalise service providers that are advertising speeds that they can’t deliver. The reasons for this "false advertising" are two-fold. There are situations where the quality of the NBN is simply so poor that the infrastructure can’t support those speeds at all.

The other problem is that in order to be able to deliver those higher speeds, service providers must buy extra capacity from NBN Co through a very complex wholesale pricing system of connectivity virtual circuits (CVCs). A construct unique to Australia, which rapidly increases the wholesale costs to the service providers when customers need higher speeds.

Telcos fall behind while tech companies flourish https://t.co/f1oGsJe5Si @IndependentAus — Dave Donovan (@davrosz) October 30, 2019

CVCs are hampering Australia in providing true high-speed services as NBN o’s pricing system is such that the retail price becomes so high that many customers can’t afford to subscribe to a better-quality service. The CVC pricing dates to the original NBN project as it was introduced by the Labor Government.

While the current Government is eager to keep harking back, blaming previous Labor governments for all of its own ills, they here would have an opportunity to rectify what indeed is a poor policy decision from the Rudd Labor Government. But on this issue, the Government has been awfully quiet with no indication whatsoever that they are willing to address the high wholesale costs that are resulting from the CVC pricing issue, thereby depriving Australians of high-quality broadband.

It is interesting to compare the Australian situation with the one in New Zealand. Both countries started roughly at the same time – now nearly a decade ago – to overhaul their broadband policies. At that time the broadband situation in both countries was rather bad; slightly worse in New Zealand. Fast forward to 2019 in Australia the situation is such that over 60% of NBN subscribers are on a 25MB/s packages.

In New Zealand 95% of customers have subscription packages higher than 25Mb/s with close to a third on 100Mb/s. The single most important reason is this that the wholesale pricing structure on the other side of the Tasman doesn’t penalise customers who want to move to higher speeds.

Telstra and the second rate NBN: The gloves are off https://t.co/MRLIl5DnJM @IndependentAus @PaulBudde — Michelle Pini (@vmp9) August 5, 2019

Their pricing structure is based on so-called Access Virtual Circuits (AVCs) in contrast to CVCs – which has an ever-increasing pricing scale per connection – AVS has a fixed cost for the individual connections to the network.

Despite five reviews over the last decade into the pricing issues of the NBN, the regulator has so far failed to intervene in what most certainly is a major inhibitor of more Australians moving to true high-speed broadband services.

Over the years the wholesale structure has now become so complex that companies must employ special experts to understand all the different options and the various price element combinations that need to be analysed in order to provide good quality services at affordable prices.

These, by the way, are clear signs that the NBN is rapidly becoming another monopoly and unless the regulator rapidly steps in to avoid further damage, this new monopoly will only become more entrenched.

In the end, it is clear who are the losers, the Australian NBN users, who either don’t get what they pay for or can’t afford to buy the services that would allow them to enhance their lifestyle, increase their job opportunities, assist them in their household cost management and so on. This is at a time when more and more government organisations are forcing customers to go online in order to access their services.

Pity the NBN can not provide High-speed internet. Telstra 5G if you want SPEED. https://t.co/1y5s33Qz3M — Peter (@psg_au) November 29, 2019

Some changes are planned for the NBN. Rather than a true overhaul of the systems, the company has introduced another temporary concession offering discounted prices for its 100/20 Mb/s service from May 2020. However, it is unclear to whom the discount will apply, perhaps only for new customers.

The other change is more structural and that has to do with that dreaded CVC. Currently, service providers have to buy CVC (network capacity) for each of the 121 interconnections points in the network. As a consequence, they face the reality that they have bought more capacity than they needed. In other parts, they have to purchase more capacity.

The change is that they can now capacity on a national basis, which allows them to better use the capacity there were they need it. This is certainly something the service providers had asked for. However, it is still a far cry from a total overhaul of the wholesale structure.

The other change is that NBN will alter its AVC service. This is done in order to compensate for the loss of capacity that occurs in the overheads links to the service. This makes it slightly easier for the service providers to deliver on the actual speeds that customers are buying. I remain puzzled that it seems to be acceptable that customers buy products and then only get delivered 80% of the service. Who would accept a bottle of milk that has only 800ml in the bottle instead of the full litre you pay for?

While something is better than nothing, it is highly unlikely that these changes will lead to a better service or in a change of the retail price for the end users.

Bit confused. If Openreach is nationalised, and everyone gets max speed for free, how do all the individual B’band companies compete for business?https://t.co/dyMCjCOniD — James E. Bird - “I need to be wrong” 🇬🇧 & 🇪🇺 (@James_Bird01) November 21, 2019

Paul Budde is managing director of Paul Budde Consulting, an independent telecommunications research and consultancy organisation. You can follow Paul on Twitter @PaulBudde.