Wednesday, September 7, 2016

FirstNet -- State of New Hampshire selects Rivada for its Opt-Out solution.....but why?

So the very first Opt-Out RFP hit the streets with New Hampshire back in January. Just recently the board, based on points, decided to go with Rivada over Parsons. This is a remarkable thing being that Parsons had only 4 weeks to respond to a bid to which Rivada spent a number of months massaging. Parsons still came in second beating Motorola and a few others. Beat Motorola! That is a big thing for this market. Remember Motorola is an industry leader in North America when it comes to the Public Safety market – they have 98% of the space. This isn’t the first time I’ve beaten Moto though. There were two other times as well and they were all about the Public Safety Broadband Network.

Who is Parsons? Parsons is what the market calls an EPC – Engineer, Procure and Construction – company. Parsons is usually associated with large-scale engineering and construction projects around the world; construction projects that are delivered with large Public Private Partnership arrangements. Why would an EPC be the best positioned entity for deploying the Public Safety Broadband Network as well as delivering a true Public Private Partnership?

Parsons does not promote a product, such as a radio, handset, or a “spectrum arbitrage solution”. By not producing a product this puts Parsons at a distinct advantage – the advantage of remaining non-committal to any product offering. By staying non-committal to any vendor’s solution, they are open to any solution that fits best for the client. In this case, for the PSBN network, we work with all vendors and have been working with them for years now. What about carrier relationships, don’t you have to be an OEM that works for the carriers to make any headway?

Parsons, which might surprise some, does a lot of work for the carriers. The EPC is best suited for the carrier space when it comes to the needed upgrades, new installs, large project road-mapping, and construction. So, naturally fitting into the build-out of the PSBN nationwide is not new to Parsons, especially when deploying large-scale Public Private Partnerships.

Parsons brings something that others cannot bring – a long history of constructing large complex builds; most importantly they bring direct P3 experience from around the world. What everyone needs to understand is that more than 80% of the Public Safety Broadband Network will be all about the civil and related construction elements – something Parsons is well suited for. The actual amount of OEM equipment in the PSBN will be less than 3% of the entire capital program to build it, so why put all the risk on an OEM to be the prime for the build – OEM being someone like a Rivada. Rivada’s primary focus is on selling its products -- not acting like an OEM. In fact, when an OEM says they can build the PSBN solution, all they are doing is adding cost to the budget by layering pass-thru partners as subs. Any additional costs to a P3 increases the amount of risk associated with the investment needed to fund the entire program. Parsons literally works on a daily basis with Billions of dollars in P3 funding models around the world. I can guarantee you that Rivada, Motorola, Nokia, Fujitsu, Ericsson or any other OEM provider has never even come close to working with the P3 model, especially in North America where the P3 model has never been used in the telecom or broadband space before.

An OEM creates and sells equipment that will be used on the network to power technology. With that product comes the need to develop new products, enhance existing products and manufacturer the tools to run those products. The life-cycle of an OEM is never-ending and cyclical in nature, something that Rivada, Ericsson, Nokia and others are akin to – why? Because they are in the business of selling products, not construction services. Nothing wrong with that, but for an Opt-Out State it could mean, and historically has meant, disaster for building out broadband. So, if the development and construction of a broadband solution, for an Opt-Out State, is relevant to >80% in civil and construction related services, why would you choose a vendor to build your solution who is responsible for <3%?

As with any EPC they focus on what’s known as multipliers. Multipliers are a number that divides the overhead and profit against the direct labor of a project. For the Parsons market that falls between a 2.5 to 3.5 region for any given project – really depends on the client, the location and the economy. For an OEM that same multiplier approach is in the ballpark of 5-7..why? Because you have to include all the product development, product management, warehousing, manufacturing process and the sales approach as part of the overheads – this is why OEMs don’t compete in the services market. Nothing wrong with that, it’s just a different market and a different business approach. One thing is for sure…you don’t want to be applying 5-7 multipliers to a project where you can get 2.5.-3.5 multipliers. Another fact is that an OEM who takes on the expertise to build and fund your network, will still need a Parsons anyway, because that’s what Parsons does for a living -- construction. What the OEM does is position itself to be the decision maker, takes on the primary risk (< 3% of the program) and subsequently does a “pass-thru” for its subs – that being a Parsons who gets >80% of the scope of the program thus the majority of the profit anyway, but without the risk. But who really takes on the risk of a fledgling telecom model that has failed in the past and will fail in the future? The State!

So let’s say you are New Hampshire and you choose to go with an OEM solution, the Rivada solution, what does that mean to the State?  First off the State may be blinded by the idea that the Rivada solution will pay for everything, which may be the case, but that means somebody will have to pay for it. There are two possibilities the taxpayers, or the private investors. What’s wrong with that? The fact remains that you are still paying for a much costlier build due to the layered parties all adding their overheads and costs to the sum solution. With higher costs means you have to sell those higher costs to either the taxpayers or the private investors. But, let’s go with the investor path.

In comparison to the state taxpayers, the investors are definitely no slackers when it comes to investing their own money – or their shareholder’s money. The investor will not invest in an opportunity that costs too much, detracts from their long-term gain, and carries too much risk. For a Parsons solution the risk is much lower in that you have the party that is responsible for more than 80% of the overall projects profit running your program; which equates to lower cost due to the fact that you are not layering other partner’s costs on top; and ultimately can contribute a much cheaper multiplier rate to the entire program. This is the case in point for why Parsons beats Motorola in these bids – Parsons simply comes in costing less while better positioned to take on the control and the risk of the entire solution.

Why didn’t Parsons beat Rivada though? The solution submitted to New Hampshire was put together in 4 short weeks – that includes model conception, content creation, printing, corrections, edits, approvals, then shipment. The overall proposal (the meat of the proposal) was rushed and put together within a week. The fact remains that had Parsons had more time to go over the proposal, and really look at the solution presented, they would have beaten Rivada as well.  By perfecting the approach, Parsons will insure an unbeatable approach on the next one.  

In the end, why would you want an overpriced OEM leading your program to install statewide broadband network who will only turn around and hire the same EPC firms to do the majority of the work; an OEM with no P3 experience at all; an OEM whose prime directive is to sell their proprietary equipment over anything else; an OEM whose business model does not align with the Public Safety Broadband Network’s future; an OEM who only increases the risk, cost and complexity to the entire solution? Why would you risk an entire statewide buildout of a Public Safety critical infrastructure, whose sole purpose is to insure the safety and wellbeing of First Responders and the public, to a product driven company who has no experience in designing, building, operating and maintaining a broadband network let alone no experience in Public Private Partnerships?

But what do I know I’m ……

Just some guy and a blog…….

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