Terry was banned for four games and fined £220,000 today after being found guilty of racially abusing QPR's Anton Ferdinand.
The Chelsea skipper, 31, can still lodge an appeal and had already announced earlier this week that his Three Lions career is over.
AVB, who managed Terry at Chelsea, said: "It's a massive, massive loss for England.
"In the end they are his decisions, personal decisions.
"It's difficult for a player to take a position like this but on the perspective of England and qualification it leaves (England manager) Roy Hodgson in a difficult position bearing in mind the centre-backs he has at his disposal.
"I'm not putting into question the quality of the other players, but he is certainly missing one player of great, great talent."