Millions of Australians will see their internet speeds fall when they are moved on to the National Broadband Network, despite still being charged the same for access.
The cost structure of the superfast internet project — required in order to pay back the federal government $49 billion in construction costs — has meant telcos are being charged very high prices for downloads.
These high bandwidth charges — tiny under the nation’s existing Telstra and Optus broadband networks — has meant telcos are buying the minimum, resulting in NBN speeds plummeting during peak times, such as after 5pm on weekdays.
NBN Co has admitted its bandwidth pricing is a key factor behind speed issues, problems not seen in New Zealand where its broadband network does not levy such fees.
NBN Co has been forced to levy the high bandwidth or “CVC” charges in order to pay back the money it has borrowed from the federal government to build the massive project.
Under the NBN, every home will be connected to broadband internet, with many regional and rural users to get vastly improved internet services.
But the cost of providing those services to regional Australia is being borne by the millions of city residents on the existing Telstra and Optus networks who are being forced on to the NBN where peak time speeds can fall to as low as 1/40th of what they now get.
An NBN Co spokesman yesterday confirmed CVC pricing was a key factor behind the speed problems.
“Actual end-user speeds are impacted by a range of ... factors including how much capacity is being purchased by retailers for their end users on the NBN network,” the spokesman said.
Industry expert Ian Martin, a telecommunications analyst with New Street Research, said NBN Co was unable to remove the CVC charge as it represented one-third of the company’s revenue and funded half of its operating cash.
“You couldn’t remove that component without causing a major political issue around ‘is the NBN really worth it?’,” Mr Martin said.
“If the demand for that kind of broadband is really there to justify building the NBN then people would be prepared to pay more (for faster net packages), if not then the question is why was it built?”
Internet users have inundated the websites of NBN providers, including Optus and Telstra and industry sites such as Whirlpool, after finding their NBN connections are far slower than the speeds they achieved previously.
Paulo Felipe wrote on the Optus website that he was achieving speeds of just 1/100th of what he had paid for.
“As everyone else, I am getting 1 per cent (1 megabit per second or even less) of contracted speed (100Mbps) during peak times,” he said. “After searching around I could see this is really a common Optus problem all around the country.”
While telcos offer users packages spruiking download rates of up to 100Mbps, about 80 per cent of users are opting for the slower, and cheaper, speed package of 25Mbps.
To recoup the huge costs of building the network, NBN Co charges telcos between about $10 and $14 for each 1Mbps of bandwidth they buy, depending on the quantity they purchase. Because of this high cost, most telcos are buying just 1Mbps for each customer on a 25Mbps plan.
They are able to do this because not everyone uses the internet all the time — at very low usage times such as 4am a user can expect to achieve the 25Mbps rate. But at peak times speeds plummet to as low as 1Mbps.
There are about 1 million homes connected to the Optus and Telstra networks across the capital cities, except Darwin and Hobart.
Those networks did not suffer from high CVC charges or similar bandwidth issues because Telstra and Optus owned the networks which they completed in the mid-1990s and had paid off.
Those networks were also much cheaper than the NBN because they focused on only high-density capital cities.
NBN Co has previously reduced its CVC charges, which started out at $21 per 1Mbps.
Despite those cuts, the government business enterprise is forecasting it will become more dependent on CVC revenue, which it plans will represent between 35 per cent and 40 per cent of all future revenue, up from 33 per cent currently.
New Zealand’s national broadband network does not levy CVC charges and so super-fast 1gigabit per second packages — 10 times faster than the top speed package in Australia — sell for $NZ129.99 ($122) a month.
Nicholas Demos, managing director of MyRepublic Australia — which sells the 1Gbps packages in New Zealand — said the CVC charges meant the group would be forced to sell similar packages for between $300 and $400 a month in Australia.
Much of the public debate on NBN speeds has focused on the differences between costly faster fibre-to-the-premises (FTTP) connections and cheaper but slower fibre-to-the-node (FTTN) connections. But the CVC issue is a far bigger determinant on net speeds.
An NBN spokesman said consumers connected via FTTP, fibre-to-the-building or hybrid fibre coaxial users could achieve speeds of 100Mbps while users connected via FTTN could achieve speeds of 70Mbps.
Communications Minister Mitch Fifield yesterday said NBN Co had the “flexibility to change its pricing” and had done so in reducing CVC costs to $14 per 1Mbps.
Experts said NBN Co was in a difficult position because if it reduced CVC charges it would not be able to repay the government.
A TPG customer reported moving from the company’s 12Mbps package to its 25Mbps NBN package, but speeds became “slower and less reliable” with downloads from international sites taking six times longer.
One user wrote on the Optus website that the telcos’ failure to buy enough bandwidth was the key problem to slow speeds.
“Simply put, they don’t purchase enough bandwidth from the NBN,” he said. “They buy enough for 10 people but sell it to 100 people, so at peak times it’s useless.”