Tuesday, January 28, 2014

FirstNet and the States need to decide -- the Rivada Spectrum Arbitrage, the Public Private Partnership, and the Motorola solution......which business model is better? You be the judge!

From what I understand the business models in the running for FirstNet come down to three (3) solutions: Spectrum Arbitrage product, by Rivada Networks; Motorola’s Solution (can’t quite figure that one out); and my Public Private Partnership. I think everyone is giving up on the carrier solution that FirstNet first tried to solicit interest in at the beginning.

The Spectrum Arbitrage solution is an unproven solution in any LTE environment, which makes it pretty bleeding-edge in its implementation. Why do we talk about splitting spectrum usage up when we haven’t even conquered the financial aspects of funding the solution in its entirety? Even though, Rivada boasts about how the business model is intrinsic to the usage patterns of spectrum allocation between carriers and FirstNet, the fact of the matter is we don’t have time to get buy-in on the technical adoption before we set the course for a self-funding business model. How can we get the time though? Well I have an answer for that, but first allow me to cover Motorola’s solution.

I believe the Motorola solution is a combination of Motorola self-funding the deployment of FirstNet using capital invested from their own coffers merged with Federal and State taxpayer money, much like what we saw in BayRICS, nothing wrong with the model except that it intrinsically puts a State at risk of being sued for anti-competitive practices. I don’t think we want to get this tied up in the courts forever. Although, if you can’t win on your proposal then you try to make it so nobody else can win either – this is the name of the game for many vendors. The fact of the matter is that the entire FirstNet solution is much bigger than a 7% stake of vendor financed equipment (more than 80% will go to construction activities). But, I have a solution for this one as well. Allow me to explain.

The Public Private Partnership (P3) model is not based on any technical product offering, whether it be a frequency mixer or a handheld radio, it’s simply based on the balance of business needs and the assurance of meeting requirements. Every entity that will be associated with the National Public Safety Broadband Network will have their own business needs, Police have their own needs, Fire has theirs, and Utilities have theirs. Even players like Rivada and Motorola can get their needs met.

By using the P3 all we are doing is centralizing the cost structure, investment, funding and the technology risk into one organization within the State – a new broadband company. We are then correlating their State needs into the national footprint of FirstNet – who they themselves have needs to be met.

In short, the State gets what it needs; the State’s entities get what they require; FirstNet gets what it demands; the vendors get what they want; the contractors get what they desire; and private equity market get their solid investment. Ultimately though, the State gets new jobs, private investment, economic boost, little risk and a truly hardened, robust and the complete coverage of broadband access for its First Responders.

For the State’s entities, such as Utilities, Transportation or some agency wide organization, they get the truly hardened broadband solution that will enable them to cut capital expenditures and focus more on operational costs (bottom line); maintain broadband connectivity for their business needs from a private solution; shed the technology risk curve by aligning with their own time line of technical needs; access to bandwidth and spectrum they require through a private-protected-network; and, ultimately, realigning their true business objectives back towards the industry they are in (essentially not becoming a telecom carrier themselves).

FirstNet gets to control the standards for technology to insure interoperability; they get to voice the framework for governance; get to build self-sustainment by sharing in the States P3; they get a National Public Safety Broadband Network without touching taxpayer money.  To top it off, FirstNet could use the $7 Billion, allocated by law, in administering it to the national footprint of datacenters, control centers and over all governance of FirstNet nationally.

By referring to vendors I’m talking about those that sell a product, i.e. switch, router, radio, software, etc., even the vendors have a place in the P3. In actuality, the vendors have a better play in the P3 than if they tried to justify the entire business case based on their knowledge and product alone, i.e. Rivada and Motorola. In the P3 all these vendors need to do is help formulate their own Private equity team that will bid on the State’s RFP. The competition will be at the Private Investment level, not the general contractor, integrator or vendor level, essentially this allows the vendors to work for a private equity team and not the government, which means they can expect to be paid on-time and without government red-tape for funding. The avoidance of working for the government to deploy LTE has the means alone for the vendors to fall into line.

For Rivada it is quite simple; a P3 is the framework for the business model and focuses on the needs of everyone involved. By delivering a statewide deployment under the P3 a State, or FirstNet, can trial the Spectrum Arbitrage product for future deployments (giving them time to prove their technology); in the meanwhile the network can be built as it has always been built – a tower at a time. We don’t need to base the deployment, and the business model, off a product offering, after all, this specific technology isn’t deployed anywhere, thus, doesn’t meet federal law requiring commercially available solutions. It doesn’t mean the technology isn’t viable, it just means that we can provide some time to administer it.

The Motorola solution is just a play for Motorola to control the business model itself. If the State goes with the P3 model, which may be unavoidable, then Motorola can act as a general contractor or integrator, but it will never be able to get out of the stereotype of being an equipment manufacturer. My experience tells me that it will be impossible for them to convince the market place that they are just doing this for the services component, it just won’t happen. As long as you carry the overheads of physical product offerings you will always strive towards making that business objective a success, else why are they in business? Their business is to sell gear, not give away services. But, Moto has a place in the P3 as well.

The issue for Motorola, as well as other typical vendors, will be in the competition for the general contractor (GC), as the GC will be the ones who will physically carry the risk of building the network, which is 80%, or more, of the capital costs. Moto would also face stiff competition in the integrator space as well, especially with the overheads they will have to carry. The initial service offerings will be EF&I type services, of which Moto typically outsources anyway. The physical construction and the integration of physical products into the baseline LTE network do not align with Motorola, so why do they insist on trying to fit a square peg into a round hole? Seems like they are wasting their time and energy on a business objective they will never be able to control anyway -- BayRICS was a perfect example of this.

As for products, the second phase of the FirstNet build-out, which will focus on the Public Safety radios, mobility and applications, this is really where Motorola needs to concentrate. Stop trying to be a construction company, or an LTE provider, and focus on the latter. This is where Motorola can capitalize on its foothold and its relationships with the Public Safety market place; yet simultaneously work for a privatized broadband company for the State instead of the State, or FirstNet, directly, thus being more attractive and better aligned with their overall business objectives.

In the end, there really is only one business model that FirstNet can be built with, that is the Public Private Partnership (P3) at the State level, yet governed in partnership between the State and FirstNet. There will never be enough money in selling spectrum, because such sales only address the capital costs and don’t even mention long-term “self-sustainment” – also part of the law. If the carriers operate at roughly $23 Billion a year, and only cover 40% of the geographic landmass of the United States, why would we think $7 Billion would meet the demand is beyond me? For the next 5 years alone AT&T has scoped out $33 Billion in upgrades and advancements of their existing 40% coverage of the US; FirstNet is struggling to meet $7 Billion, of which it really has only $2 Billion in grants and the rest has to come from the sale of spectrum that others are currently using. Have you ever tried to get a company out of one block of spectrum and into another? All new radios, some cases towers, new infrastructure of controls, etc. Now multiple that by a thousand and you will get my drift.

But, who am I other than…

Just some guy and a blog…

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