Explainer

NBN overhauls ISP pricing: Here's why it matters for speeds

When it comes to the NBN, there are three little letters that can change your entire experience. So what is CVC? And why does it have such an impact on the speed of your broadband?

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All right team, I didn't want it to have to come to this, but it's time we had a chat about three little letters that have a massive effect on the price and speed of your broadband plan.

Not "NBN".

We're talking about CVC.

The Connectivity Virtual Circuit charge was put in place by NBN, the company currently building your national broadband network. CVC is part of the wholesale price charged by NBN to retail internet service providers (like Telstra or TPG).

Now, NBN is changing CVC pricing, which it says will offer more certainty and flexibility for ISPs and allow them to offer a broader range of plans for customers.

But why does it need changing? And how does CVC have such a big effect on your internet experience at home?

CVC is a virtual charge, so it's not actually based on metres of fibre-optic cable or pits full of copper wire. Instead, it's a cost levied against resellers for the maximum amount of total bandwidth they want available to customers accessing the NBN through their service. This capacity decision can have a massive impact on the speeds you get when you access the NBN.

Side note: The other part of the cost of an NBN connection is AVC, Access Virtual Circuit. AVC is the cost of your individual connection to the network, while CVC is part of your ISPs overall capacity cost.

Think of AVC as your little internet car and CVC as a highway on-ramp. The highway might have a high speed limit -- letting you and many others zoom up to 100 megabits per second once your internet cars (I'm sticking with this metaphor) hit the fast lane -- but if your ISP only buys access to one on-ramp with hundreds of customers, things might be fine for much of the day but you're going to hit a massive bottleneck in peak hour.

And with retailers essentially all buying the same wholesale broadband product from NBN, this "on-ramp" capacity is often what sets different ISPs apart.

This is where many Australians have had problems. If an ISP is being stingy with how much CVC it's paying for, its customers could find their "blazing fast NBN" blazingly inadequate when they're trying to stream "Point Break" after dinner.

So why does it matter? Until now, retailers have been pretty vocal in the way CVC and wholesale pricing affects what they can offer their customers. And last week, the CEO of NBN Bill Morrow weighed in, raising the ire of ISPs all over again.

"We have roughly a million and a half homes that can have the technology to give a gigabit-per-second service capability today. We have a product that we can offer the retailers should they want to sell it," Morrow said on a company results call. "But they have chosen not to offer that to the consumers... I will presume it's because there isn't that big of a demand out there."

The ISPs called "bullshit." Quite literally.

Newcomer to the Australian ISP scene MyRepublic issued the expletive against NBN, saying that while the wholesale product might be there to offer Australians crazy-fast gigabit speeds, it would be prohibitively expensive to buy off NBN.

"Based on NBN Co's current regulated wholesale pricing, we would have to price a 1 Gbps plan at between AU$300-$400 per month," MyRepublic Australia Managing Director Nicholas Demos told CNET. "There has been a lot of media hype recently about if there is a demand for 1 Gbps speeds. MyRepublic believes there is -- if 1 Gbps speeds are fairly priced for the Australian household."


But now, NBN is changing the way it charges ISPs to access its network.

NBN will provide discounts to specific ISPs based on how much capacity they buy, and how many customers they have.

It's a departure from the way NBN priced wholesale product in the very beginning, charging ISPs AU$20 a month per Mbps of capacity they bought. It's also a shift from NBN's most recent "dimension-based" pricing model, which saw the price progressively discounted based on how much capacity the industry was buying on average as a whole.

The idea now is that discounts will be doled out to ISPs individually, with resellers being rewarded with deeper discounts the more capacity they buy, opening up higher speed tiers and providing a better NBN experience for all. And because it's not purely about how many customers an ISP has, NBN has reiterated that the new structure won't just favour the big players.

The change comes in from June 1 this year, so it'll be worth shopping around to see how different ISPs structure their plans after the change (whether you're signing up for a new plan or considering switching providers).

Me, I'll be waiting a little longer. The NBN is only at the "planned" stage in my neighbourhood, so my internet car is waiting in the garage. Maybe one day I'll be able to speed down the information superhighway without ever having to worry about CVC. But for now, my ADSL jalopy will have to do just fine.

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