We are currently evaluating whether we continue offer 250/100 (250Mbps down and 100Mbps up) services in Canberra. Unfortunately due to NBN’s CVC pricing construct it is extremely expensive to offer these services for a relatively small number of people and we are very disappointed to say that it looks like we will just have to stop offering it.
So what’s CVC and what’s the problem with it?
NBN charges providers, such as ourselves, in two parts. The first is the AVC charge and is a single price per connection based on the peak speed of that connection. Higher speeds are higher priced as you would expect.
The second part is the CVC charge, which is the total bandwidth requested by the RSP to be used across all services in an area (called a CSA, which is pretty much just a POI – point of interconnect). In Canberra there are two CSAs: Civic and Queanbeyan. If an RSP does not purchase enough CVC then the result is congestion at peak times as there isn’t enough bandwidth to go around. NBN and the RSPs assume that a certain amount of CVC, typically just a few Mbps, is used on average per connection.
So for example if 2.5Mbps of CVC is allocated per connection, then if you have 1000 services, then your CVC should be 2500Mbps.
The problem with that calculation is that it doesn’t scale down. You have to have a minimum amount of CVC just to allow a service to work at all. Clearly you have have at least 100Mbps of CVC just to allow a single connection to peak at 100Mbps. However when you have two you probably need 200Mbps so they can both operate at the same time. However when you get more, you can start going back to the old formula. The received wisdom is that need about 3 times the highest speed of your services as a minimum on your CVC.
NBN recognised this scaling issue and allows an RSP to get a minimum of 300Mbps of CVC effectively for free to get past this. This was clearly aimed at supporting 100Mbps services.
Great what about higher speed ones? Unfortunately NBN has done nothing to help. If RSPs want to sell 250Mbps and above, they need to buy more CVC, at $8/Mbps/month. The problem is that all that extra CVC is really just to support the higher speed services and it gets really expensive per service.
Let put some numbers on this. To support 250/100 services we really need to buy 750Mbps of CVC – that’s an extra 450Mbps, $3600 per month over what we need for the 100/40 services. We don’t actually buy that much, about 600Mbps and unfortunately we are seeing some occasional congestion when two people on 250Mbps service fire up at the same time, during peak times.
We don’t have many 250/100 services – around 15 – so that’s $240/month per connection – around $8/day. This is just the CVC! Add in the AVC charge and it’s about $11/day just for the NBN component. So yes we are making a big loss on 250/100 services!
The problem is that the higher the price, as you would expect, the less people will want to buy it, but the CVC cost is the same just spread over fewer people, making our cost per service higher. A vicious cycle.
To make matters worse our daily pricing works against us – people, quite reasonably, will just upgrade for the day just for some big downloads. The problem is we have to keep (i.e. buy) the bandwidth on hand regardless.
Why don’t we have this problem in Tasmania?
Because we are well past the scale issue – we have about 10 times the number of connections in Tasmania that we have in Canberra, plus we setup our gigabit network in Tasmania mainly for businesses, whose CVC capacity we can use at night!
So where to from here?
We recognise that the 250/100 service is one of our unique points of difference and we are loathed to turn this off. However we have been running for almost a year and it is clear this problem is not going to fix itself.
We also recognise that some people get the 250/100 because of the higher upload speed. We could keep this part of it, by offering a 100/100 service (which is just a 250/100 service with the downstream side speed limited to 100Mbps). This would be cheaper than the current 250/100, but still at least $1.25/day more than the 100/40. Would people want to buy this?
We have considered providing a sort of “best efforts” speed where people can use the high speed if no-one else is using the CVC, however this could get quite complicated to explain and I really don’t want people to buy something thinking it’s one thing and then being disappointed.
I would appreciate any comments you have on the above – feel free to message email@example.com where our staff will ensure that the emails are forwarded onto me.
17 Jun 2019