NBN Co calls truce in wholesale cost fight

By James Hutchinson on Aug 10, 2011 6:48 AM
Filed under Communications

Rebate on connectivity virtual circuit costs.

NBN Co has reached a compromise in its public war on network connection costs by agreeing to rebate the first 150 Mbps of connectivity virtual circuit charges in the early stages of the build.

Head of product development Jim Hassell said that service providers would still pay $20 a megabit a month for connectivity under the transitional arrangement but would now receive reimbursement.

Once an NBN Co point of interconnect reached "critical mass" of 30,000 premises or more, the rebate would be removed.

The size of the CVC bought by ISPs determined the internet speeds that end users were able to achieve.

The rebate would initially apply to the four interim points of interconnect established for trial sites in Tasmania and on the mainland. It would not apply to interim satellite services.

"We think the CVC charges are right for the long term but we really need to address something in the short term as we roll out," Hassell said.

"We wanted to make sure that we give everybody a chance, we encourage competition, we encourage people to go everywhere we do."

The truce came after a series of arguments led by Internode managing director Simon Hackett that warned of "huge" monthly overhead costs for retail service providers on the network.

Hackett had called for the first 200 Mbps of CVC capacity to be provided to internet service providers free of charge; however, in a statement he called the compromise with NBN Co a "positive development".

Internode, among other providers, had engaged in a number of "constructive" discussions with NBN Co about the pricing since Hackett voiced initial concerns in March.

"While I'd have preferred 200 Mbps, I do think that 150 Mbps will adequately address my core concerns with the 'bootstrap' phase of the NBN Co CVC pricing model," Hackett said by email.

"I expect this change will stimulate further direct and indirect participation in NBN Co by RSPs - which is surely a good thing for consumers."

Hackett said he didn't expect the change to affect initial retail end-user pricing from service providers but that it would avoid "additive costs" and the initial overhead he had campaigned against.

NBN Co's Hassell said the wholesaler had decided on the 150 Mbps benchmark by assuming an increase in average downloads by users over the network.

However, David Hooton, chief executive of sub-wholesaler Platform Networks, argued the long-term CVC charge remained out of step with NBN Co's aims to have providers service all 121 points of interconnect under the network.

"I believe that anyone who was to go to all 121 points of interconnect would have to be a sizeable retail service provider regardless," he said.

"It makes day one a little bit easier and it makes the significant operational expenses involved in operating at all points of interconnect slightly lower."

While service providers were free to determine how much CVC access they purchased, the ACCC has already issues warnings that providers would be held responsible if users could not hit the headline speeds of their plans.

Hassell denied the rebate would have a "material impact" on NBN Co's rate of return forecasts over the network build.

Ry Crozier contributed to this report.

 
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