Monday, September 10, 2012

FCC Re-adjust its Terminology: “Public Safety Service” will fuel the FirstNet Boards ability to pay for the Nations First Responder Broadband Network. Supporting the return on investment for “Public Safety Services” just improved a lot.

One of the overarching discussions surrounding the Nations First Responder Public Safety Broadband Network, or Public Safety Broadband Network (PSBN), is the necessity to find the cash to build it. We can have all the discussions we want about the technical viability and interoperability of the solution, but without a driving business case to push those technical characteristics into an operational model that depicts a return on investment; it’s useless jargon, or a great way to create chaos.

Just recently I completed a business case for an electric provider that demonstrates why having a Public Private Partnership (P3) to power the financial planning of the PSBN is such a great idea. I would highly recommend others follow suit....that is using me to build their business case. In short, this electric cooperative covers about 3 counties, small in relative terms, but they too require the LTE broadband technology to replace its already end-of-life 3G deployment that supports its SMART Grid. To do so would cost this co-op about $30 Million dollars to build their own solution…if they could actually get the spectrum to build it on. To lease the service from a carrier is too costly and doesn’t meet the hardening requirements for such a tepid location.

In analyzing the situation this electrical provider would actually save about $3 Million a year, or roughly $250K a month, by leasing the broadband service from the PSBN. In return they have offsetting costs of roughly $2.4 Million annually by leasing back their own tower, fiber and backhaul assets to the PSBN footprint covering their area; which actually saves the State a tremendous amount of time, energy and costs.  This co-op is willing to relinquish the necessity of their own capital program to build a private LTE solution by paying a fixed annual payment of roughly $5.2 Million annually with 20-30 year terms to the PSBN P3 entity for the State (we used a 10% target of total capital costs). With an estimated cost of $31 Million, and a depreciation schedule of 6 years on the LTE solution, they would amortize their cost to a fixed $5.2 Million annual payment.  At six years the technology is risky, so the savings could actually be higher, just depends on what the schedule is for LTE advancements. This fixed annual payment is based on a Service Level Agreement (SLA) between the Co-op and the State P3 entity, which addresses their hardening requirements, as well as advanced placement of services. By aligning itself, this electric co-op opens the door to expanded service offerings as well.

To explain; it should be a given that the PSBN will be broken into, at least, three levels of priority; Level 1 is for Police, Fire, EMS types; Level 2 is for SMART Grids, highway ITS, rail communications, etc..; Level 3 would be for Rural Broadband coverage. In an incident the commander of a response scenario would free up available spectrum by prioritizing the level of communications for the given incident within a given geographical space. This means that if there isn’t an emergency response happening (which will be a lot of the time) then all the traffic is isolated back to its original paths. This opens another great opportunity that the electric co-op could benefit from -- that being to utilize the Level 3 traffic to lend Internet access to its rural customers. By doing so this electric co-op could actually see an additional $500K a month it added services at $50 dollars a month access to charge with a penetration target of 75%. By outfitting its own business model this co-op would actually increase its costs savings, and the potential additional revenue, to almost $8.8 Million annually, or $733K monthly.  Not bad for not having to spend $31 Million to get it’s broadband.

This is just one small electric co-op business case; now imagine if a State has 36 such entities that all have “Public Safety Services” as part of their daily lives. I can easily make this same business case model for a major Class 1 Railway, High-speed Rail, Statewide Power Utility, or major Transportation Department running the highways and inter-modal port facilities. All of these entities have elements of “Public Safety Service” requirements that come into play when a major incident happens; and all have broadband technology demands to make the technical aspects of their business case successful. They also come with deep pockets and alternative funding sources that require them to build just such technological platforms into their own business model. This is the heart of “My Model” in executing a P3 that can, not only build, but also maintain the self-preservation for many years to come.

This co-op’s LTE needs, as I am discussing, would cost roughly $31 Million. Picture a power Utility that spends traditionally $1 Billion every three years for much more geographically disperse footprints…imagine what they would save. I can think of one major electrical provider who spent roughly $630 Million to build its SMART Metering infrastructure. Upon completion their major commercial broadband service provider informed them that the 3G services they just signed up for, to power their SMART Meters, would be moving to LTE. It may be just me, but deploying 3G cellular services to rollout a SMART Meter means that the SMART Meter itself has an internal 3G modem. Wouldn’t that modem have to be upgraded to LTE as well? Just a thought.

But imagine if that same Utility were to get their broadband service from a State P3 entity instead -- an entity that builds its network just for Public Safety Services to which this Utility is part of…and meets its hardening requirements. Imagine if they, like the smaller co-op, were able to eliminate costs, by let’s say -- $630 Million upgrade -- by instituting a fixed annual payment of $63 Million for the service with 20-30 year terms. How much money do you think they would save? Let alone, what if this same Utility were able to sell Internet service to its customers much like the small co-op?  

Just theoretical, but what if they had 2.2 Million customers and targeted a 30% penetration rate for Internet Access at $50 a connection…now this is just me and remember I have a PhD in Business not math, but that would mean $33 Million a month in additional revenue.  At $33 Million a month, I may be mistaken, but that would pay back the original $630 Million in roughly 19 months. It would also eliminate the need for this Utility to fight with the State Legislators in asking for an additional $2 or $3 dollars to everyone’s bill just to try and build its SMART Metering Network in the first place. Sounds like a match made in heaven for this Utility provider and the PSBN.

But don’t forget the P3 created by the State, they too would benefit. The PSBN P3 entity would also see a $63 Million dollar annual payment for broadband service with a fixed contract for 30 years. That sounds pretty good to me. Combine that with all the State entities who could access the PSBN and I think we may have a great way to pay for the PSBN all together….and maintain it for a long, long time.

Just some guy and a blog….

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