The head of an Internet service provider in Tasmania has outlined a method whereby, he claims, the current crop of NBN users who are on copper can be upgraded to all-fibre connections without any upfront payment.

Damian Ivereigh, the chief executive of Launtel, told iTWire that at the moment, the NBN Co was effectively having three bites of the cherry when doing an upgrade, from, say fibre-to-the-node to fibre-to-the-premises.

"First, they charge the client an upgrade fee, typically anywhere from $5k to $15k, ostensibly to pay for the laying of the fibre all the way to the premises," he said.

"Secondly, assuming the client takes the faster speeds that the FttP connection is capable of (250/100Mbps and up), NBN Co will charge the retail service provider a higher AVC charge. Then, given that higher AVC speeds typically lead to higher overall bandwidth, NBN Co will charge more CVC too. Both these are ultimately passed onto the client.

"Thirdly when NBN Co gets sold, it will have a higher value due to the upgrade - in other words even though the client paid for the upgrade, NBN Co gets to absorb that upgraded connection into its network."

Ivereigh said that while this was an excellent outcome for the NBN Co even as the customer suffered, it did provide the means for arguing for a way to pay for such FttP upgrades.

A client on a 100/40Mbps FttN connection represented maximum revenue of $38 a month to NBN Co, he pointed out. However, a client on an FttP connection could take much higher speed plans, resulting in more revenue for the company: a 250/100Mbps meant $70 revenue, 500/200Mbps meant $100 and 1000/400 meant $150 a month.

"So if NBN Co could be persuaded to hand over any extra revenue it gets over and above the 100/40 AVC price, to a entity that paid for the upgrade, this could pay for the original upgrade," Ivereigh said.

He said this could be illustrated by using some rough numbers. "Take a 1000/400Mbps connection. That represents $112 a month in extra revenue compared to the 100/40 AVC price. If that was used to pay for a loan at say 8% interest, that represents a capital sum of 112 x 12/0.08 = $16,800.

"That sum would be enough to pay for most upgrades. Even for a 250/100Mbps connection, it would be $32 a month, which translates to a loan of $4800."

Ivereigh said the simplest way was for an RSP to pay for the upgrade in return for a monthly rebate on the AVC charge.

"At any time NBN Co could choose to repay the original cost and charge the full AVC charge. It could also be done as a bond, whereby NBN Co is forced to repay the capital after (say) 10 years. The RSP would then be responsible for contracting the end user to ensure they take a suitably high speed service for a suitable length of time. This is probably why this would make more sense for a business."

But he said there were other possibilities too. "For example, landlords can be the bond holder and tie it to the rent of a building. What would be ideal is if there was no contract involved and/or the client is free to move between providers who continue to get the discount."

Ivereigh said the only condition was that NBN Co would have to agree to hand over the extra AVC revenue. "This would not negatively affect their bottom line, though they will likely get extra revenue due to the CVC charge. There would need to be some strong paperwork tying the revenue to the LOC id. However this I leave for others to solve."

He said most clients who contemplated an upgrade to FttP were put off by the upfront costs. "If we can find a way for this upgrade to be paid for through the long-term extra revenue that NBN Co receives from that upgraded connection, then everyone wins – the client doesn't pay the capital sum for the upgrade, they get their 1Gb connection and NBN Co gets to make more money from the extra CVC that will almost certainly come with it.

"At any time, NBN Co can 'buy back' the upgrade from whatever finance company is used and then get the AVC revenue as well."

However, Ivereigh added, there was some contractual stuff to be sorted out. "For example, one needs to ensure that the client continues to stay on the higher speed connection. Indeed, because this is infrastructure that stays with the building, it may make more sense for the building owner to take on the risk – i.e. tie it to the tenancy of the building."

He said what was important was to begin a discussion about whether NBN Co would be willing to for go the increased AVC charge for a connection that had been upgraded from FttN.