NBN Co Pricing Rationale

The key idea behind the NBNCo pricing is to separate the subscriber connection cost (the Access VC) from the bandwidth cost (the Connectivity VC). This allows Access Seekers to differentiate their respective retail broadband products, based on the size of (and amount paid for) the Connectivity VC.

In particular, the Connectivity VC size determines the “Contention Ratio”, a standard measure for broadband service quality. The idea behind contention ratio is simple. Suppose 100 subscribers each have a 1Mbps broadband service, with the combined traffic from all subscribers feeding into a 1 Mbps transmission link. A 100:1 contention ratio then results. If the transmission link was 2 Mbps, the contention ratio would be 50:1 and so on. A common feature of low cost broadband services is high contention ratios, leading to poor performance (e.g. slow downloads) during peak periods.

Hence pricing the Connectivity VC separately from the Access VC allows Access Seekers to determine their respective contention ratios and hence the quality (budget, premium) of their retail broadband offerings.

Actual NBN wholesale prices

Here we consider how Connectivity VC costs affect NBN Co wholesale prices.

An example on p24 in the December 2011 NBNCo Product and Pricing Overview shows the NBNCo wholesale cost for 2100 subscribers on a 12/1 broadband service with voice, assuming a 100:1 contention ratio. Here the per subscriber Contention VC cost is $1.90, relatively small compared to the $24 per month Access VC wholesale price.

Another example (p 31) considers a business grade service, where around half the traffic has a contention ratio of 20:1 the other half a contention ration of 4:1, for a 50/20 Mbps service. Here the monthly CVC cost is around $109 per subscriber, about three times the month $34/month wholesale NBN Co price for the 50/20 Mbps Access VC.

The NBN Co GPON infrastructure provides a nominal 2.5 Gbps for every 32 subscribers, or around 80 Mbps per subscriber at full load (all 32 subscribers active at once). However, as the NBN Co examples show, the Connectivity VC pricing will result in retail broadband services using only a fraction of this capacity.

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