Wednesday, March 29, 2017

FirstNet -- Colorado's Opt-Out Alternative is great opportunity for the market and the investment community within a State!

If you were given the chance to invest into a brand new, private, broadband company, of which you were given the rights to all the spectrum, the land, the rights-of-way, and the political pull, with the added advantage of more than 900 fixed long term lease holders and the right to expand commercial markets statewide right out of the starting blocks, would you? A broadband company covering both wireless and wireline product offerings that you could design, build and operate the way you want all while maintain a majority shareholder position…would you invest? A network and a partnership that will generate local jobs, foster economic growth and expand broadband to all...would you invest? How about partnership that will also net the State a portion of the 6.5 Billion that FirstNet was given that can be used as an availability payment for services through this new broadband company....would you invest? This is exactly what the State of Colorado is proposing in its recently advertised RFP as their Opt-Out alternative to FirstNet. How can you beat such a deal? Got to be a trick…right? Wrong. It’s all true.

It’s great to read what Colorado has put into its RFP for the Opt-Out pursuit. Those within the State really understand the opportunity they face with the Opt-out scenario and fully understand what a Public Private Partnership can truly incentivize. Case in point is the following from the Colorado RFP:

Colorado’s partner will enjoy several key benefits: (1) the use of 20 MHz of prime spectrum, (2) the ability for the state to apply to the NTIA for grant dollars to support RAN construction funding[1], and (3) the ability to monetize excess capacity by selling it, on a secondary basis, to others.  Initially, the capacity of a modern broadband network will greatly exceed the needs of public safety entities in most locations for many years to come; the potential for “excess” capacity will be substantial (see Section 2.7 for definition of excess capacity).


The inherent ability to utilize the bandwidth in an excess capacity mode is exactly what the State needs. This is not a motion towards “spectrum arbitrage”, or a leased spectrum algorithm of a carrier subscriber model, it’s a simple, resilient, and proven method of bandwidth allocation – much like we use all over the world today. The law specifically addresses the point that any solution has to be a “proven” platform before it can be considered part of the Public Safety Broadband Network. Well you can’t get any better than this. If you have multiple agencies that require their own separate-isolated solution, they can each have their own fiber based ecosystem with a prioritized RAN (radio access network) fully customizable for a given user, given event, or capacity re-utilization automation through a Managed Virtual Network Operation (MVNO). It’s simple, clean and effective and is fully trackable and billable at every level of the network layers. This is exactly what all the major carriers, ISPs, and conglomerate enterprise architectures use today, and its exactly the kind of infrastructure that Public Safety needs.

The essence of what the State is looking for can be found in section 2.7 of the RFP entitled: “Financial and Business Model Background”. (see below)
2.7  Financial and Business Model Background

Colorado seeks to enter into a partnership in which the Offeror assumes a majority of the risks associated with the implementation of the CO-RAN and anticipates this to be factored into the prospective agreement.  Assets that Colorado could potentially include in the final contract(s) include:
·      Access to Band 14 spectrum via the Spectrum Capacity Lease Agreement (SCLA) negotiated with FirstNet
·      Physical assets that may be utilized in the construction of the network including (but not limited to):
·      Existing publically owned fiber optics and/or conduit
·      Publically owned vertical assets
·      Rights-of-way
·      Community Anchor Institutions (CAI)
·      Guaranteed revenue streams for a variety of service offerings

In principal, (and in no particular order) Colorado believes the following regarding a potential business model:
·      The Offeror has the obligation to make available prioritized data and voice services to interested PSEs within Colorado via an agreed upon pricing structure.
o   Colorado would also be interested in structured pricing agreements for services and offerings associated with the Complimentary Efforts identified in Section 2.17
·      The Offeror has the right to sell data and voice services utilizing “excess capacity”[2] to others on a secondary basis, through whatever distribution channels/roaming arrangements the CO-RAN partner chooses. 
·      The Offeror must meet its coverage and capacity commitments, must comply with all FirstNet policies, must meet all network SLAs and all other contractual obligations.
·      The Offeror commits to delivering a network with specified coverage and capacity.
·      The Offeror must propose an overall financial framework that ensures sustainability of the network over the life of the agreement, taking into account the capital requirements to implement the network and the operational and maintenance costs to meet the overall performance requirements.  Any framework must fit within the boundaries set forth in the SCLA negotiated between Colorado and FirstNet as well as comply with the statutory requirements established in the Spectrum Act and Colorado law.
·      The Offeror must present to Colorado a detailed breakdown of:
o   Capital resources necessary for implementation
o   Expenditures for the operation and maintenance of the network
o   Mechanism or timeline for technology refresh and any associated costs
·      Any financial model and/or arrangement must ultimately be in accordance with the Act.


In short, a small team of investors gets the opportunity to target one of the greatest expansions of broadband since the late 90’s…only this time without the bubble attached. How can such a deal not beat a 25 year contract for a measly $5 Billion? That means a statewide P3 Opt-Out has to only net $200 Million a year. The Colorado P3 would net $200 Million a month!

Let me give you an example. There are 24 Electric Coops in the State of Kentucky that cover the entire State (including rural). The Electric Coops are considered Priority 2 Secondary Responders to the State's Public Safety Network and will have access too, if not mandated, to be on the PSBN solution for the State. How else are First Responders going to get to a neighborhood if all the power lines are down? Essentially that means 24 direct, long-term fixed contracts for SCADA support broadband service (typical leases). If we calculate a conservative 10% SLA agreement against their total capital cost to build over their area, then we will see SLA type revenue added to the State's P3 in the neighborhood of $85 Million annually (Capex $852 Million to build * 10% = $85 Million). 

But, thats not all. On top of that revenue the Electric Coops can provide broadband service to their own base of electric users -- thats 785,000+ customers. If the Electric Coops want to commission vanilla broadband services to their customers for $35.00 a month and we calculate against a very conservative 10% penetration rate that would mean an additional $29 Million (785K customers * 10% * $35.00 a month = roughly $29 Million) in added revenue to the Electric Coops. Remember thats just vanilla broadband access and doesn't include other services that could be sold.




Through the partnership the P3 would construct an agreement to share in the revenue rather than enforce capital requirements on the Electric Coops -- meaning the P3 will build the network, but in return they get a share of the Coops revenue for broadband services -- typically around 20% stake. That would mean that a P3 for the State's broadband network would net $90 Million annually, or $7.5 Million monthly. Remember thats only a 10% penetration rate on the Coops customers. How many customers do you think would be willing to buy broadband service from the Electric Coop if it meant rolling the fee into their monthly utility bill? It will definitely be higher than 10%, if not all of them. And we aren't even talking about the 800 Public Safety agencies yet, let alone the Department of Agriculture, Transportation and Energy. With all those fixed long-term contracts and then we add on top of all of it the commercial priority 3 users, i.e. AT&T, Windstream, Version, Netflix and Google, we will easily go above $200 Million a month in revenue. 



Imagine reaping the return of a 10-Million-dollar investment to make 100’s of millions monthly. This is exactly what the opportunity is that Colorado is promoting. Plus, not only does the investment team – the consortium – get a higher avoidance of risk, hiring percentage of ownership, they also get to pick their own contractor and their own OEM solution. Another big positive is that, the consortium, will get to run this goldmine for 25 years with renewable terms every 3-5 or 15 years. Such terms have never been available to the telecommunications market place – ever. Just the cost of acquiring the spectrum is typically double what you pay for the capital build, let alone the amount of time to acquire land, maintain rights-of-way, and fight the political fight with interface on the community and city zoning boards.

Colorado’s Opt-Out alternative to FirstNet is a deal made in heaven and should be respected and really taken seriously. The impacts of expanding the State’s economic base and establishing a strong, robust, infrastructure that can harness a prioritization of Public Safety, coupled with strong investment incentives for the State, is exactly what the State is proposing in their P3 RFP.  Our only issue is the fact that the investment market is full of trepidation when it comes too broadband.

The investment community gets weary of anything to do with telecommunications, i.e. broadband. I’ve spent a lot of time in the last few years trying to convince and educate many of the large-scale private investment players of the Opt-Out opportunities, but the trepidation is overwhelming – it’s like working for a company with a bunch of nay-sayers (not mentioning any names). What ever happened to the go-getter attitude we as Americans had taken advantage of within our capitalistic powerhouse of the economy? Most of my discussions resulted in a wait-and-see agenda. Once the first initiative, i.e. Colorado, Michigan, Alabama or others, gets moving, we will see a huge market expansion of financial investments into broadband nationwide, enough so to incorporate any of the American broadband investment acts being considered by the FCC.

The last 8-years have taken a toll on the market, the American psyche, and ultimately our ability to let go and strive for greater things. Who can doubt the amount of anxiety and despair when it comes to investing, especially in those ventures that, in the past, were so dreadfully painful to make – most specifically in the telecommunications space. Companies have grown to a point where the roots of the weeds have thickened so much that a complete burn is required just in order to provide some type of sunlight. Companies are frozen in the expansive spread of fixed long-term nay-sayer employees who have been feeding at a troth of incestuous hiring practices recreating a stagnant ambience of go-nowhere do-nothing attitude. Such behaviors and hiring practices have crippled the nature of carpe-diem. I’m afraid that the only way out of this hole is with a complete rebuild starting from the top of the corporate ladder. The nay-sayer attitude is like a big wet wool blanket on the market place.

To have such an opportunity that Colorado is promoting, is a heaven sent message to the American spirit to let go, make the investment, and strive to recreate and rebuild what was once achievable. The best thing about the Colorado offering is that it’s compact and attainable and doesn’t require any exhaustive solutions that aren’t already available. The biggest hurdle the market faces right now is the uphill struggle to convince, educate, and assure that the plan does work. The lack of success in the past has never been provided such an opportunity that Colorado is presenting to the market place today. Of course it doesn’t help that FirstNet has been fighting against such plans from the start.

FirstNet needs to grab hold of the Opt-Out solution and benefit from the State’s success. The Public Safety community doesn’t need another carrier provided service offering, they need a real solution that truly prioritizes Public Safety needs, while at the same time incentivizing the market and the robust broadband needs of the community. Imagine what could happen if FirstNet were actually trying to do what’s right for Public Safety and the Nation! I’m afraid that notion has been lost to the deficiency in foresight and the narrow minded struggles forced upon the leadership of FirstNet due to the existing political landscape and the intrinsic plethora of Federal Government oversight. The good thing is that no matter what FirstNet does, the Colorado Opt-Out alternative is perfectly achievable with, or without, FirstNet. As I have stated in the past, FirstNet needs the States, the States don’t need FirstNet. But, it would have been nice to see and hear FirstNet supporting the State’s right to do what it needs in implementing such a solution. I’m afraid that the weeds need to be completely cleared from FirstNet for that to every happen now. The future does not provide much for FirstNet and the weeds will continue to get thicker as time goes by.

Word to the wise, don’t take everything you hear in the press as being right and the only alternative for FirstNet and Public Safety is the carrier solution. Agendas are a foot. If you have doubts, then please email me at Dr.Myers@me.com. I would be glad to explain.  


Just remember though, I’m ….




Just some guy and a blog…..




[1] The State Alternative Plan Program (SAPP) managed by the NTIA ‘…establishes a spectrum capacity leasing authority and radio access network (RAN) construction grant program for any state that “opts out” of the First Responder Network Authority (FirstNet)…’ Find more information at: https://www.ntia.doc.gov/category/state-alternative-plan-program.
[2] An LTE radio network has a quantifiable uplink and downlink capacity, megabyte per second, (Mbps) in each sector of each site.  The number of billable gigabytes (GB) of data that can be delivered by a network in a period of time (e.g. one month), while operating the network in such a way that it delivers a near-optimal (not meaningfully degraded due to network loading) end-user experience can be estimated based on user behaviors.  A portion of this available capacity will be used for first responders.  However, not every first responder or agency will purchase service, therefore excess capacity will exist that – in principle – can be sold to other users on a secondary basis.  Selling excess capacity to consumers, businesses, and others at a market rate per GB or per minute of use (MOU) may be possible in many locations.

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