Thursday, March 13, 2014

FirstNet may be taking too much on themselves -- allow me to explain.

When you look at the carrier market over the last 40 years (commercial handheld market) you will find that it was established under a limited geographic penetration plan -- in short they started with what they could get. They didn’t start with an actual nationwide footprint with all encompassing spectrum. The carriers had inspirations to get to that point, but the return on their investment aligned naturally to target the population densities – they targeted the cash flow. FirstNet, this is a lesson to be learned!

Site acquisition became a big thing back then -- still is actually. The concept of tower ownership has grown stagnate due to the fact that most of the coverage needed to build the commercial markets has been achieved, driven by demand as the carriers modeled their return on investment strategies. Growth is always a possibility, but unless we start creating another major NFL city, I’m afraid that most of the commercial sector has been built out, horizontally, covering all the major population zones – 42% of the landmass or 98% of the population.  Effectively, the carriers have equilibrium that best meets their Return On Investment (ROI). In actuality, we are starting to see the carrier’s shrink when it comes to owning their own infrastructure, i.e. AT&T Crown Castle sale. The consolidation into all IP technologies has eliminated the need for the traditional switched based networks, and is instead, focused on wireless data driven platforms, i.e. broadband LTE.

Another aspect of that consolidation was the result of converging wireless protocols. All the major carriers in the United States, and the world, are now adopting the LTE roadmap. Being that those very same carriers drive all of the telecommunications market space, it is inherent that they also drive the production of communications gear and services, i.e. VOIP, VoLTE, handsets, thus the issues with getting VoLTE for Public Safety as well as the manufacture of hardened handsets. Without the demand for such services, Public Safety will never be able to go against the tide, but, we are seeing changes in the VoLTE space, especially with the exponential growth associated with VOIP services, the alternative to traditional landline and cell service.

The Vertical growth pattern in the commercial carrier market is another story. Stacking the tower with multiple carriers is what turns the big profit for the tower ownership models, where as they see more and more of the little start-up wireless voice service companies taking hold. Essentially, these small companies have a demand for their own tower infrastructure, but on a much smaller scale than a carrier, or they actually ride the carrier’s infrastructure (that the carriers are moving away from) using what’s known as a Managed Virtual Private Network service, i.e. they buy bandwidth from AT&T, or Verizon, and in return have them manage their network for them so that they can just sell voice services. Companies like Straighttalk, Vonage and others, fall in this category.

For FirstNet the tower model will not work, unless a State, or the Feds, want to plow a bunch of taxpayer money into companies like Crown Castle, or American Tower, where as those companies can hardened their towers to meet the requirements of FirstNet. This is especially present if FirstNet does not fully develop the concept of the Public Private Partnership (P3) with the States. On the other hand, if they do fully implement a sound Public Private Partnership approach to this deployment, then the economic advantage to FirstNet, the States and the taxpayers will be tremendous; not to mention the commercial lending and private equity markets. This renders the need for cost justification to be moot, in that the private investors actually pay for the build, as well as the long-term management. What I am saying is that the State, and FirstNet, avoid the need of having the taxpayers pay the bill – that’s a pretty good deal if you ask me, and, it should be unavoidable. The State of Texas has instituted, into law, that any Public Private Partnership has to be considered when it's to the benefit of the State, essentially making it a crime for anyone within the State Government that doesn't consider the solution and fails to implement the P3 if it actually is better for the taxpayers and the State (ref Texas Public Private Partnership Statute – S.B. 1048 [Currently codified in the Texas Government Code - Chapters 2267 & 2268])
By adopting the P3 concept, most importantly the Myers Model™, the baseline for a sound structure of a business model can take hold. As with any successful P3, and the corner stone of the Myers Model™, is a balance of user, owner and investor requirements with their individual needs, this is what drives the implementation. The amount of work that FirstNet may envision as being necessary to build this nationwide network, may actually be must simpler, and less complex, than they have come to believe.

Along with the balance of needs comes the inherent ability to balance workloads for delivery. For example, FirstNet mustn’t worry itself with trying to develop a sound design for the network when the process of analyzing inventories, hardening requirements, and potential revenue streams, will generate the specifications required by all entities; this becomes the baseline design requirements for a statewide RFP, i.e. hardening, bandwidth and coverage requirements (not to mention service level agreements and the like). The State must complete the analysis and data collection assessments. They fundamentally have better access to information, as well as persuasive control of internal State agencies and users. In short, as it pertains to design, all FirstNet really needs to convey is the conceptual design characteristics, that must be met by each State, and then insure that such requirements are stated within the States soon to be advertised RFP, i.e. FirstNet demands the use of approved vendors, minimum hardening characteristics, coverage, bandwidth and minimum service level agreement frameworks.  Why over complicate the process? Therefore, how the State executes its own business model will be drafted per the terms of FirstNet's relationship with the State's P3.

The fruit of the State data collection and analysis will generate the design that is needed, which it should. The States bid will also encompass the requirements of FirstNet requests, and then advertised as a commercial investment and delivered via the Fund -- Design, Build, Operate and Maintain (F-DBOM) bid method. Essentially, this generates the scope and specification requirements needed for a Private Equity investment team to consider in designing the State’s network. I can guarantee you that no private investment house will commit any cash to any opportunity without getting a very detailed design, to include the possibility of using existing assets as to cut costs in their investment, therefore, as you can probably ascertain yourself, FirstNet doesn’t need to create a detailed design.

All FirstNet needs to do is specify a high-level technical concept of requirements; outline available assets for potential use; and project a recurring revenue stream from the users of the network (Federal users, States will do their own). What would be nice, is to see a standard framework that all the States can expect to receive from FirstNet, so that they can collect, analyze, assess and convey the right amount of information for the RFP – it’s sole purpose is to attract investors to pay for the statewide build out using the P3 concept.  Why statewide, and why P3?

To me it is clear as day as to what the positive aspects of the P3 can do for the State, I will illustrated it in a simple statement:

The State will invite the Private Equity market in to invest in a new broadband company by granting access to designing, building, operating and maintaining this new broadband company for the State with the sole purpose of servicing broadband to Public Safety users and related service organizations – as well as access to priority 3 commercial traffic to the highest bidder.

What is the incentive for Private Equity to make the investment? This is quite simple as well -- the spectrum is worth a lot of money! The Public Safety market has solid users that exhibit stalwart, long-term demand for broadband service that meets their own needs -- that includes the need to respond to an emergency, i.e. SMART Grid, High Speed Rail, etc., such demand drives long-term based Service Level Agreements that generates a strong, and attractive, cash flow. Ultimately, this cash flow is what’s attractive to private equity investors, and can be compared to the carriers with their original, and standing, business model of selling handsets to all within their target population coverage in order to meet ROI. That’s about all that the two have in common. Private equity players are in it for the return on their investment.

When all parties have the same goal to build an all encompassing, hardened, broadband solution to meet their own needs, they will all share in the workload needed to execute. FirstNet just needs to insure that all the States stay on the same sheet of paper when doing so. As I have stated in the past, FirstNet doesn’t need to paint the pants on the ants for this one. This is the only way this national build out of Public Safety Broadband will be successful.

But then again I’m….

Just some guy and a blog….

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