Tuesday, March 22, 2016

FirstNet: Opt-Out –vs- Opt-In: oh the struggles we put upon ourselves. Who does FirstNet work for?

It’s now starting to become clear that the Opt-Out scenario is the best choice. A State that creates its own Public Private Partnership to DBOM (Design, Build, Operate and Maintain) its own Public Safety Broadband Network is starting to make sense to many within the industry. Forget about the lack of trust in FirstNet’s ability to build anything from the top-down; or the exorbitant costs associated with a managed service offering; the fact remains a State is better suited to contend with its own money and future goals within Public Safety.

A lot has been spoken about in regards to the “potential revenue” from the PSBN solution. Ask yourself this – why do you think the carriers want the spectrum so bad? It’s not because they just want more coverage, in fact, its all about the revenue potential of providing more services on their already established business. So why are we having all this talk about a State not being able to generate enough revenue to sustain itself? The law states that through a Public Private Partnership a State can collect revenue (ref HR3630 Sec 6302.2.g.1). I think the mix up here is the definition of a “true” Public Private Partnership or P3.

The P3 I am referring to is made up of Private Equity contributors who invest cash into a new broadband entity for the State. The State is a part owner based on what it brings to the table in the way of assets (land, right-of-ways and spectrum). Ownership in this P3 entity is broken up into shares distributed, based on percentage, on what each party brings to the table whether cash or assets. Ownership share is transferred to revenue percentage for the invested party. In short, what you contribute gives you a percentage of the profit. For the State shares, any revenue made for their ownership should be reinvested back into the Pubic Safety. I underlined “should” because the law actually states that the “First Responder Network Authority”, or FirstNet, has to “reinvest any commercial money back into the network -- not the Opt-Out State.

(a) In General.—The First Responder Network Authority shall not offer, provide, or market commercial telecommunications or information services directly to consumers.

In actuality, sections 6204 – 6212 pertains only to the “First Responder Network Authority” or FirstNet, and doesn’t pertain to the States at all. This means that the term “reinvested back into FirstNet” is not mentioned at all in the law and does not even talk about the States, in fact it specifically addresses FirstNet the organization. The law only mentions that a State can’t, on its own, offer commercial services, or have lease agreements, unless done through a P3 – it says nothing about “reinvesting” anything.

Sec. 6302 (g) PROHIBITION.—
(1) IN GENERAL.—A State that chooses to build its own radio access network shall not provide commercial service to consumers or offer wholesale leasing capacity of the network within the State except directly through public-private partnerships for construction, maintenance, operation, and improvement of the network within the State.

Another thing I want to address is the potential revenue. It’s been stated that FirstNet is not obligated to demonstrate the networks potential in revenue creation with the State. The real statement should read, “FirstNet has no capability to demonstrate the revenue capability of the network”. Why? Mainly because FirstNet is still struggling with its own directional control. If FirstNet were acting like a private entity, then addressing all facets of revenue potential would be the driving goal of the entire organization -- but its not. FirstNet, “an Independent Authority within the Federal Government (DOC)”, can’t focus on revenue as driver and is in fact acting in the capacity of non-profit Federal entity, thus the reason they can’t collect revenue. The 10th Amendment of the Constitution shields them from intruding on the State’s right to govern its own implementation of the PSBN, thus the split in the law between what FirstNet can do and what the State can do.In the end the term “reinvested back into the network” directly pertains to the First Responder Network Authority – not the State.

But, what does the revenue opportunity look like for an Opt-Out State? The answer to this is actually really simple but hard to describe, unless you have been in the telecom industry for many years and have taken part in running an operators network. As part of the P3 model that a State should consider is the partnering between the DBOM contractor, or EPC, the Private Equity Consortium, the OEM vendor(s), and an Operator. Why an Operator (carrier)? Well, because they bring the operational experience needed to run and maintain the network for the long-term. The EPC brings the design-build aspect and the carrier operator brings the operational and maintenance aspects. With the Operator also comes their ability to commence, or transition, product controls, marketing, product management and development into the equation.

In order to understand your revenue, you need to understand your user-base, demand and market capabilities – something a carrier does daily. An operating partner brings an established creative approach to product portfolios as well as known customer base. Expanding on the Operators product portfolio and its customers base -- through the new P3 entity – we can layer more customers from the Federal, State and Public Safety market place, i.e. State and Federal agencies, commercial customer base, with an expanded product portfolio. Products cost money and users pay for their use. Services range from $15 bucks a month to thousands. Services are paid for hourly, daily, weekly, monthly, quarterly and annually based on the user’s needs and the service type. The more expanded product portfolio and user base (customers) the more revenue. In short, whatever your local, regional or national carrier partner collects in revenue currently in the geographic location can be multiplied with the expansion into new solid, long-term, contracts with Federal, State and local entities. Using these contracts and overlapping the user needs onto the entire network will afford ample room for “self sustainment” and profitability.  For example: some customers that need statewide coverage; some will need local coverage; and some will just need intermittent monthly service plans, all of which bring in profit.

To give you an example: if you have an Electric Cooperative that manages 83,000 electric customers and the Electric Cooperative wants to setup broadband service targeting 30% penetration (24,900) and utilizing a $50 a month contract fee; through an MVNO on the P3 network, the Electric Coop could recognize more than $1,245,000 in additional monthly revenue. Subtract a monthly MVNO fee, or script out a revenue sharing deal between the P3 entity and the Electric Cooperative, the Coop and the P3 will both create a new revenue streams – multiply this by all the organizations in the State and you can get the idea. What does an Electric Cooperative actually think it will be able to target in its penetration success?

A States ability to collect revenue and the amount of revenue it should expect is only bound by its own creative approach – the Public Private Partnership approach I have been talking about for the last 4 years is where this needs to go.

But whom am I other than…..

Just some guy and a blog……

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