The price of NBN services is set for a radical shakeup after NBN Co proposed to dramatically overhaul its wholesale pricing policies, giving in to years of industry pressure as it releases an updated corporate priorities document that will guide its direction through 2026.

The proposed elimination of connectivity virtual circuit (CVC) charges – which force internet service providers (ISPs) to pay NBN Co a sliding fee based on how much bandwidth their customers use – marks a significant concession for the wholesale network operator.

The longstanding charges were designed to let the fledgling network operate on a user-pays basis, but became problematic because increasing consumer usage raised the price that ISPs pay NBN Co – eating into their margins.

ISPs have long argued the CVC kept the price of NBN services too high and left them little room to add value for customers, pressuring NBN Co to instead to sell its wholesale services at a flat rate known as access virtual circuit (AVC) – where they only pay NBN Co for the line into the customer’s home or business.

The difficult cost model is part of the reason Australian NBN services have fallen behind comparable services in other countries that have already abandoned usage-based pricing.

After NBN Co earlier this year lodged a proposal that would retain usage-based CVC pricing – and increased broadband prices by 10 per cent annually – it was sent back to the drawing board after new Communications Minister Michelle Rowland knocked back the proposal as “not acceptable”.

As a result, NBN Co has now proposed to stop charging usage-based prices for 100Mbps and faster services by 1 July 2023 – allowing users to download as much as they want without penalising ISPs.

CVC charges would be completely eliminated for slower 12Mbps, 25Mbps, and 50Mbps services by 1 July 2026.

NBN Co also said it will offer “significant wholesale price reductions” to promote the take-up of 100Mbps and faster services, with 1Gbps expected to be available to 6 million homes by next year.

New objectives drive new pricing

NBN Co recently began consulting with its wholesale customers about the structure of new wholesale broadband agreements, which will dramatically reshape the market in coming years.

The changes come on the heels of the Albanese government’s declaration that it has no intention of selling NBN Co to private investors and will instead focus on improving the overall network.

It’s a significant departure from the policies of the previous Liberal government, which pressured NBN Co to maximise revenues and improve its debt position to lure potential buyers.

Shareholders should not expect any dividends before the end of 2026, NBN Co notes in its newly released Statement of Corporate Intent (SCI) 2023-2026 – which reflects the new government’s position and actively addresses issues raised in the previous Corporate Plan 2020-2023, in which the company warned that high attrition rates could compromise its financial model.

Recognising that NBN Co “has an important role to play in supporting the nation’s social wellbeing and economic productivity and prosperity,” the SCI says, the company will focus on connecting more seniors, low-income customers, and remote First Nations Peoples “in line with Government policy and strategic objectives.”

NBN Co also feted progress in environment, social, and governance (ESG) areas such as gender pay equity, representation, and diversity: some 32.4 per cent of management positions are currently held by women, the SCI noted, with a target of boosting this to 40 per cent by 2025.

And while its gender pay gap of 1.1 per cent is well below the industry average of 14.2 per cent, the company “continues to work to reduce this to zero”.

NBN Co is also “on track” towards its net-zero goals and, in anticipation of an updated Reconciliation Action Plan in 2023, highlighted “a notable increase in the number of connected communities” and its Gold certification under the Australian Workplace Equality Index measure of LGBTIQ inclusion.

“The policy landscape has changed since we lodged our original [proposal],” NBN Co CEO Stephen Rue recently said in noting that “we are planning to reduce our wholesale pricing to put higher speed broadband within easier reach of more customers.”

“We appreciate that retailers want price certainty,” he continued, “and we believe that it is in the entire industry’s best interests that we build shared capabilities around a strong, competitive and continuously improving NBN network.”

Facing competition from evolving fixed 5G services and low earth orbit (LEO) satellite services like StarLink, NBN Co has been moving to upgrade many legacy fibre to the node (FttN) services with the full fibre services initially proposed by Prime Minister Kevin Rudd when the network was announced in 2009.