Wednesday, May 14, 2014

FirstNet Business Model -- it intends to sell the D-Block spectrum to the carriers. If this is true FirstNet will not succeed.

Why would FirstNet try to sell parcels of the D-Block spectrum to the commercial carriers? What happens in 10-years when the carriers are facing a great deal of scrutiny to compete in the real content world? What will be the impact on the State, FirstNet, Public Safety, and the taxpayers when the carriers come back saying they have to shed assets to compete in the content business? What kind of fiasco will the carriers leave the taxpayers with? How vulnerable will Public Safety be? What impact will it have on National Security? Why do we need these problems?

The carriers don’t really understand their own business model. If a carrier believes it must own the D-Block spectrum in order to provide wireless services, then they are doomed already. Contrary to recent moves within the industry the Average Rate Per User (ARPU) keeps dropping and the overheads keep increasing. In order to adjust the carrier must shed the cost associated with the archaic infrastructure assets (towers, fiber, etc.) and move into a higher margin of services by selling content. In the end, if the carrier wants to survive, their only chance is by eliminating their desire of owning their own infrastructure assets, which includes spectrum. But, knowing that these organizations are driven by the mindset of money, I’m afraid their own mindset will be there doom, unless they can eliminate their senior executives that are driving the models of yesteryear.

The new models are: you sell access or you sell content. It’s obvious that owning the assets to deliver services combined with access is not working, thus the desire for players like AT&T to sell-off their towers. Players like Google, Netflix, Vudu, or any other streaming based content providers, will out price a carrier any day of the week. Why will they always beat them in price? It’s simple -- they don’t own the infrastructure. Why pay $180 a month for a Tier 2 program of TV on Uverse when I can get it for $9 a month from Netflix, or Aereo, through my $50 Internet Access? To counter that the carriers will charge more for carrying Netflix traffic, only means my $8 monthly bill to Netflix goes up to $9 – still way better than paying $180 a month. Better yet, if I were Google, I would just give away the access charge by rolling it into existing content services? How will a carrier compete with no charge on access to the Internet, i.e. Google Fiber? I mean if AT&T wants to compete in the business of selling access, then they will need to shed other, non-profitable services, such as voice services.  If they want to play in the content market, then they will need to shed infrastructure to match the competition. Or, maybe the carriers realize they are doomed already?

If you’re a carrier – what do you want to do? Will you make up your mind already? You sell off all your assets, i.e. towers, fiber, etc., because of overheads eating away at your margins, yet you try to own the D-Block spectrum? What does that give you? If you own the spectrum you need towers to work on it, but you just sold your assets that would enable you the ability to use the spectrum. (Example: AT&T sold all towers to Crown Castle) Fiber to the home seems to be undercutting your model as well, I for one don’t even use the traditional voice services anymore and have reverted to IP based calling – and nobody even knows the difference – and it doesn’t cost me a dime. As for cellular service, I use MVNO (Managed Virtual Network) and I only pay $45 a month on a month-to-month unlimited plan (talk, text and data). I bought my own phone and have no disconnect charges or anything, so I’m not stuck to any carrier contract. How about the TV service? I don’t even use the traditional TV service anymore; I use Netflix, Vudu, and others for my service. No more of the $200 a month service charge to get a bunch of channels I don’t watch anyway. Reminds me of the Dire Straight’s song – “57 Channels and Nothin On”. Do we see the writing on the wall here?

You can be assured, when players like Google and Netflix, really get going it will be hard for any carrier to compete in the content business. Does anyone realize that Google has a Market Cap of almost $700 Billion (Intraday + Enterprise values)? How about FaceBook, which has only been around for a few years and already has a Market Cap of $500 Billion. Netflix has been around for two years and already has a Market Cap of $40 Billion – and growing. Essentially, the carrier model is being squeezed into, either selling access, or competing with real content providers. What happens when all the stations, i.e. Fox News, or MSNBC, start selling direct access to streaming video services? The list goes on and on. Does anyone realize that GE owns 61% of the cable industry? Imagine how much content they have to throw around?

What does this mean to National Public Safety Broadband Network? With FirstNet trying to build a business model of selling slices of the D-Block spectrum to the national carriers, means that the FirstNet, the State, Public Safety and the taxpayer will now be subsidizing a carrier model that is on the downturn. In a few years Verizon, Sprint, T-Mobile will follow in AT&T’s steps by selling off their tower and fiber assets as well. This will be necessary to survive; else AT&T will start eating away at their markets by providing cheaper wireless broadband services. In turn Google will eat away at AT&T. Big fish eating little fish scenario.

FirstNet will be faced with the daunting task of going through a tremendous upheaval of user rights, access short-falls, and cost cutting by the carriers, who in the end, will end up selling back, or giving back, the rights to the spectrum anyway. We think that the state of the commercial infrastructure supporting Public Safety is bad today? Wait 5-10 years from now when FirstNet is in bed with the carriers. Talking about a threat on National Security, who betters to do more harm than our own lack of knowledge in executing a telecom business model? Once again, we will be our own worst enemy.

The spectrum does not belong to FirstNet -- it belongs to Public Safety. The majority of Public Safety resides within a State, which means it is under the control of the Governor. The Governor reports to its citizens and is held to the belief he/she will do what’s best for the State and its citizens. How does selling chunks of the D-Block broadband spectrum help the State? How will FirstNet pay for the build-out of the National Public Safety Broadband Network? How much money does FirstNet believe it will get by selling chunks of spectrum, which it isn’t entitled to? What about the “self-sustaining” piece of the legislation? Who will pay for the long-term operations and maintenance of the network after they have sold off the spectrum? What happens if FirstNet fails to achieve their goals, yet have already sold the spectrum to the carriers?  In the end Public Safety and the taxpayers will be the ones holding the bags on these decisions?

Selling slices of the D-Block to the Carriers still does not address who will build FirstNet. In fact, it only makes the deployment for the National Public Safety Broadband Network tougher by shrinking the amount of available spectrum that Public Safety was granted in the first place. Selling spectrum to the carriers does not address the most important aspect of the NPSBN solution -- covering the rural areas.

There is a solution.



But who am I other than…



Just some guy and a blog…





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Moto

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