Thursday, April 4, 2013

By not inviting private equity into the Public Safety Broadband initiative FirstNet is harming National Security

A topic of concern that touches everyone is the delay in building the Nations Public Safety Broadband Network. Without the proper business model any best-laid plans will be wasted. Every carrier broadband network in the world was funded through Private Equity, why should FirstNet be any different? Why do we need Private Equity to fund FirstNet? It’s all about the money and the balance of needs.

Through the oversight of FirstNet, and executed at the State level, we need to project the potential of recurring revenue so that Private Equity will invest. How do we do this? Through a Public Private Partnership targeting Private Equity.

Why can’t commercial carriers be the main partners for FirstNet? Because the real need is in the financing… not the technology or its requirement for interoperability. Everyone knows that interoperability is important, but the carriers aren’t willing to address the responsibility of who will ultimately pay for it. In their mind it’s a government network thus the taxpayers should pay for it.  If the carriers want to take on all the risk and act as the “Private Equity” partner, then by all means step up to the plate and present an offer to pay for the deployment and its long-term management. Otherwise they need to stand-down and let the advancement of the solution proceed for our Nations Security.  I'm confident that the carriers have some very smart business players and thus won’t step up as the primary financial backer because they themselves know that Private Equity funds their own initiatives. Plus we can't discount that maybe they have an alternative agenda….like trying to acquire and monetize the spectrum rights for their own needs? If I had Billions of installed broadband assets, and relied upon my subscribers for revenue, that is the only reason to let anyone physically close to my bottom-line, otherwise it’s just about protecting my turf and forming barriers to entry.

Motorola, an OEM, is the prime partner for BayWeb and BayRICS are they the private equity partner? They are indeed sitting in a portion of that role, but the context of how to build recurring revenue to pay for the investment is defunct as is its strategy to fund the build and long-term management. First-off their investment isn’t enough to fund the entire capital program as well as the long-term management of the network. The deal relies on the State to fund the majority of the network. Second, the subscriber based business model will not bring in enough money to repay the investment. Thirdly, they will always be classified as a vendor not an integrator (at least not in the same context as an actual integrator -- their overheads are too high), but it’s Motorola and the State of California’s money, so as long as FirstNet and federal taxpayers aren’t part of the plan it should stay under the radar. Nothing better than two or three guys putting together just enough money to get a loan on a Ferrari and then trying to pay-off the loan by begging for money outside of a train station.

In the end though, and on its current path, having an OEM lead your private investment for deploying Public Safety Broadband will be plagued with complications. It’s just a matter of time before it will be thrown into court as “anti-competitive”. The same thing happened on the LA-RICS contract, but in this case it was Raytheon (Integrator) who was the target and Motorola (vendor) was the complainer. What if Alcatel or NSN want a fair shake at the Government supported contract? What about Northrop Grumman, General Dynamics or Bechtel? What about Walmart? How will the legislature defend against favoritism? How do you defend against the image of an OEM buying their way into a program? Private Equity teaming of course.

Now don’t get me wrong I have nothing against Motorola. Motorola is a great company that produces some of the best products in the world and is basically the foundation of our Public Safety networks today. Where would we be without them? My only thing is that the business model for BayWeb and BayRICS could be played with a model that all parties get equal and lucrative footholds. The State could get a network totally bought and paid-for without using taxpayer money; Motorola could save the millions they used and revert to a solid margin play of services and products; the users of the network get a solid broadband service; and private investors get a share in the recurring revenue fueling future growth in the State…. its all in how we play the game.

By FirstNet not adopting the Public Private Partnership model that focuses on Private Equity investors -- they are in fact delaying the inevitable and thus our Nations Security.  There is a lot more at stake than just First Responders. By incorporating the priority 2 users, i.e. Utilities, Transportation, etc., we are in fact protecting vital infrastructure assets of the Nation as well as its citizens. Not to mention the vital assets of cyber security to control and secure the networks that will ride on this inevitable, and pervasive, broadband network. 

Just some guy and a blog…

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