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Retailers would love an NBN backhaul tariff restructure

But it might be hard to persuade the government

When nbn™', the entity building and operating Australia's national broadband network, decided to revise its backhaul price book back in June and the the move was rightly welcomed. But the topic remains so controversial CEO Bill Morrow has flagged further possible changes.

Morrow dropped the hint in an interview given to the Australian Financial Review (here but probably paywalled).

The key element of backhaul price is the CVC – Connectivity Virtual Circuit – is the “per megabit per second, per month” charge a retail service provider pays nbn™ to pass traffic from customers over to retailers' networks.

Ever since CVC tariff structures were first released, industry has attacked them with the argument the charge taxes retailers for using the high speeds that are supposed to be the reason for a modern network.

It doesn't help that backhaul has to be bought from any location the retailer has a customer – since there are 121 points of presence where customer traffic is aggregated (as mandated by the Australian Competition and Consumer Commission), the practical floor for anyone with a national footprint is a connection to every single one of them.

To have Bill Morrow flag a restructured price book is therefore welcome to everyone in the industry – but it comes at great political risk to the government, which demands a commercial return for its investment in the network.

One third of the business model

The problem nbn™ faces is simple: CVC charges are nearly 30 per cent of the network-builder's revenue (in the nine months to March, AU$199 million of a total $665 million), and they're key to the returns the government expects.

We don't know what provisioning rules are common among NBN retailers, but if a user paying for a 100 Mbps download plan is routinely choked to 20 Mbps because of CVC contention, a 5:1 ratio (that is, the RSP buys 100 Mbps worth of capacity for every five 100 Mbps customers) looks reasonable.

If nbn™ wants to get retailers to improve that, the CVC has to be cheaper – not just a little cheaper, a lot cheaper – and either the government restructures its financial expectations, or some other part of the network has to become more expensive.

If technology develops in the way companies like Sckipio expect, there's worse to come.

At the moment, retailer contention is most noticeable to people connected with fibre-to-the-premises and HFC networks, because those are the users whose connections support genuinely fast connections.

The performance limits of fibre-to-the-node connections are shrinking (particularly where the node is moving closer to the end user), and off in the research labs, the objective is to give the lemon another good, hard squeeze.

We don't need to mainstream the most ambitious twisted-pair boffinry to light another wildfire of discontent among NBN users – we just need the majority of customers to hit gridlock every 6pm.

All of this is independent of the technology that connects you – but even that's going to become painful for the government in the medium term.

There is another lever the government could pull, but once again, it's a headache: it could legislate to make it clear that the NBN's interconnect network was a matter for the company to design, removing the Australian Competition and Consumer Commission's requirement that there be 121 points of presence nationwide.

That change wouldn't eliminate the CVC problem, but it would change retailer economics enough to buy some time.

And while the country tries to untangle the CVC mess, another disruption looms – the advent of 5G networks.

5G lurking in the distance

Last week, communications minister Mitch Fifield waxed lyrical about the bright 5G future, explaining to a conference that the government plans to reform spectrum management to ensure carriers can make the most of the technology.

So far, so good, but spectrum is only one half of the 5G equation. The other is fibre, because in spite of a persistent myth that high-speed wireless networks render fibre networks obsolete, the opposite is true – they need the fibre networks.

Last week, LightReading reported that Deutsche Telekom is looking for a regulatory holiday from Germany's fibre rollout rules, so as not to crimp 5G in that country.

Why? Because DT is subject to competition rules that could make it hard to deploy enough fibre to support 5G – and as the company said last week, 5G needs fibre “in nearly every street”.

For those who'd like to see better home services than FTTN offers, that probably looks like good news – fibre to every street surely at least makes wider adoption of solutions like G.Fast, right?

It depends: maybe that density of fibre won't be needed for Australia's lower population density (compared at least to Germany).

Even if Australia needs similar penetration of fibre to Germany for 5G, as the market now works in this country, that fibre will be part of the mobile carriers' infrastructure rather than nbns™'s – the kind of massive duplication of infrastructure, it was once argued, that was uneconomic in Australia.

Yes, such a situation could be avoided – if the NBN had a formal mandate to support mobile network rollout. And that would plunge the country into another round of argument about the government undermining the value of private infrastructure investment.

It seems unlikely that any government would risk that kind of argument with industry; nor, if it did try to turn 5G into an NBN opportunity, it would be able to carry it off. ®

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