Wednesday, September 26, 2012

FirstNet and the Public Safety Broadband Network Requires Public Private Partnerships to be Successful

The key to a successful Public Private Partnership in the Public Safety Broadband Network is a balance between business objectives, needs, technology capabilities and its inherent ability to attract and create cash. These are all elements that the FirstNet Board must consider when rolling out the new network.

Physical Execution of a nationwide broadband network that is targeting 99% geographic landmass of the United States, and its outlying territories, will ride on the successful implementation of a sound Public Private Partnership strategy that starts at the top, yet flexible enough to attract and maintain core aspects of its solution.

The essential elements of a successful P3 for the Pubic Safety Broadband Network will be:

  • ·      Public Safety Service responsibilities
  • ·      Clients that require broadband services to sustain business operations
  • ·      Clients that typically would have to build it themselves
  • ·      Clients willing to pay an a fixed annual operation cost
  • ·      Investors willing to pay for the capital program and build-out
  • ·      Investors willing to create a standalone broadband company for the State
  • ·      Investors willing to take on risk of a Build, Own and Operate model
  • ·      A State willing to lease its spectrum allocations to a private holding P3
  • ·      A State willing to centralize internal entities as customers
  • ·      State and Federal Government support to insure success during tough times

What exactly is a client? As it pertains to the PSBN (Public Safety Broadband Network) those clients are the internal agencies and entities that have responsibilities during a crisis; such responsibilities must be focused on Public Safety or National Security.

How do you shape such “clients” into a paying client? It’s simple; these clients would require broadband service even if the PSBN did not exists (which it doesn’t today). Most State and Federal Agencies have characteristics of Public Safety Services that are inherent as part of their internal business plans, i.e. Fire has the business plan of fighting fires; Police has the business plan of protecting and serving the citizens; Utilities has the business plan of safely distributing power to the nation, etc.., all of them require broadband services to help fulfill their goals and thus create huge capital budgets to make it happen. If it were me and I had to commit to a 500 million dollar capital budget for the next three years to build out my own communication needs why wouldn't I prefer to pay a fraction of that and pass the risk onto a State P3 whose primarily goal is to insure I get the same services? 

What would it cost for a client if it had to design, build and pay for their own private broadband solution? The issue today is the lack of spectrum. Without spectrum you can’t build a private LTE network. If you don’t have spectrum you have to get it from somewhere else. You either get the service from a commercial enterprise, or a private entity, but you must also fit your needs with the service you require, i.e. if you require 24 hour power backup generation then that needs to be part of your service agreement from whomever you get the service -- with those requirements comes the costs. It’s a common estimate that 60-80% of all the costs associated with major telecommunication builds have to do with the services (not the technology) such things as the cost of construction cost of management cost of design and cost of execution. Less than 15% is usually related to materials (cost and materials contract) and of that 15% less than 7% actually has to do with the broadband technology include microwave for backhaul, eNodeB’s and even switches.

But why do we need LTE at all? The main reason we need to have LTE has really nothing to do with the technical requirements, but rather an alignment of business objectives and the wave of the commercialization of broadband services. In short, looking 10-15 years down the road a majority of all communication services will be wireless. That wireless will be LTE…but why? Why because that is where the large consumer market is establishing the dominant amount of research, development and market objectives. If you are to deploy a commercially available off the shelf technology, i.e. 4G broadband services, then you need to align your overall business plan with that of the market. If you don’t you risk a great deal.

As with any good Public Private Partnership is a strong “private” piece. In order to attract the “private” investors there has to be an attractive return on investment. It’s quite simple: if you are to invest some of your hard earned cash -- what will you get in return?

How do we create a return off a fixed Public Safety Broadband Network? There has been many within the Public Safety community that have searched for this answer from the best source they know…the commercial carriers. But, this is not a good source of the answers. It’s not just about the money that needs to attract the investors; you need to have a solid alignment of business objectives. Without a solid alignment of business objectives (business cases) you risk one of the parties becoming dominate over the other, which will create consternation and resentment ultimately leading to bad politics and eventually a declared failure in the overall project objectives. The solution is to look within and to create a new business objective with your own aligned partners who have similar requirements. The common variable in this instance is the “Public Safety Service” component. By aligning on this variable you will find your partners. With those partners you can objectively seek out a standard fixed set of requirements that will ultimately establish a payment mechanism for a fixed recurring revenue steam…as well as a design. The best tool for making this happen is the Public Private Partnership.

What other sources of stability can be found for the investors? One of the leading reasons we, in the United States, have never had a Public Private Partnership deliver a large telecommunication program is because telecommunication services generate a lot of cash. With the amount of cash that can be generated the private commercial side never saw the need to establish a Public-Private Partnership. They were willing to spend the cash to build it themselves as long as there was paying clients -- then why share in the profits. Technically there is no difference in the PSBN…. but the alignment of business objectives are quite different. The objective of a private PSBN is more about the fixed network solution that will render aid during emergency service situations -- the heart of its business case. A commercial service provider is all about subscribers that bring in revenue that creates profit that pleases its investors. If a commercial business cannot create a profit from the business it is in, then it won’t be in that business anymore.  The beauty of this relationship though is the longevity of the recurring service requirements from the Public Safety community.

The Public Safety community, in this case market, is not a typical subscriber, or service level contract. A police force or Mass transit Operator just can’t cut off its broadband service because it found a cheaper cell phone, more features or a lower payment. The clients require long-term investment, strategy and infrastructure assurance. Such requirements is music to the ears of the private investor…long-term recurring revenue with a fixed hardened client that won’t change his mind every time a new technology bump happens. Management of this solution also presents some great opportunities.

One of the “big” industry terms these days is “Managed Services”. In the past the commercial carriers basically wanted to off-load the costly maintenance and management of its own telecom infrastructure and assets. To do so they relied heavily on their primary OEM (Original Equipment Manufacturer) to come in, with a fixed price, to manage their own gear. The only difficulty with this, and I won’t go into it here, but you must consider the overheads of the OEM before you ask them to manage their own gear…. they don’t come cheap. But for the PSBN this becomes more manageable.

The PSBN Managed Services opportunities are long-term and sustained…. but not positioned well for OEMs. The technology curve is too rampant to consider it viable. Remember the OEM business model is about selling gear, and primarily to whoever will buy it, they are not in the business (because they tend to be too expensive) of managing their solution for the long haul. But such an opportunity is prime for a P3 created Special Purpose Vehicle.

You should note that those that rely heavily on the carriers to provide their broadband service, to include FirstNet, must realize they will only complicate the process and push the problems further down the line. Eventually it will come to fruition in that the needs of the Public Safety market do not align with what the needs of a commercial carrier.

Through a P3 the State could setup a private entity whose sole purpose is to run the State PSBN and nothing else, thus creating a low overhead and high margin service based off the long-term service level agreements. In essence the P3 would create a Build, Own and Operate model of execution paid by private investment and pulling in long-term recurring revenue from fixed clientele. Notice there is no mention of “subscriber based billing”. That model just won’t work here.

Just some guy and a blog….

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