Friday, March 17, 2017

FirstNet ready to execute or be executed? What the State gains.

In a recent blog post Mike Poth, CEO FirstNet, stated that they have their organization is ready to execute their planned partnership with AT&T. The plan has laid out the following:

       ·      A network operations team to lead coordination on network design and other components;
       ·      A customer service team to prepare for delivering service, driving adoption and providing a public safety grade customer experience;
       ·      A forward-looking budget to ensure the most effective use of funds for the implementation of a public-private partnership and the Network;
       ·      A world class innovation and test lab and technical team are built to foster innovation for public safety; and
       ·      Independent procurement authority to enable more efficient and decisive purchasing of goods and services.

The layout of this organization is a good start, but lacks a great deal. What the organizational structure does account for is a possible structured way of providing oversight of the Opt-Out solution as well as an active partnership to control an Opt-in solution. The real big issue with the plan is that they don’t specify that the structure has to be actionable for either business model it chooses and that business model has to account for ownership of the outcome of such model – that being the revenue and the costs.

Moving forward with FirstNet’s definition of “Public Private Partnership” is poorly designed and only benefits the carriers and the FirstNet organization itself. All Public Safety gets is a few expensive handsets, forced payments for service, and a mandate for the State to pay its portion of the buildout. But, if FirstNet gets realigned by the new Administration then the same “structure” can persist – only this time the State and Public Safety will get all the loot and FirstNet will get a small approved budget. FirstNet can still do its partnership if it wants, but try valuating the need to have such a partnership when all the States are put in charge of their own build-outs through their own Public Private Partnerships.

Here’s a thought, building the broadband network has two paths of capital expenditure (capex) requirements to physically build the network; and the long-term operational costs (Opex) to run the network. Forget about all of the business plans right now, let’s look at brass tacks. The Capex program for a given State will average about .8 – 1.5 Billion (not included the outliers of Texas, California, and Alaska). The Opex always falls in at around 10% of the Capex budget. Now let’s look at the partnership arrangement. AT&T does not construct networks (capex) it runs and operates networks (opex). This means that roughly 90% of the networks Capex costs are still unaccounted for, yet FirstNet is partnering with an organization that only plays in the 10% of operations. So who will end up paying for the 90% capex? FirstNet only has 6.5 Billion and FirstNet only has installed assets in the major metropolitan areas (42% geographic coverage of US). In order to get AT&T interested in building out to the rural areas you need to show a return on investment, else they won’t touch it. If there was enough ROI for the carriers, then they would be in the rural areas already. Like I said, who is going to pay for it?

If one of the main reasons Public Safety acquired its own spectrum was to cover the rural areas and establish its own hardened network, especially where coverage does not exist today, then who within the FirstNet Opt-In solution will meet the requirement? I can guarantee you that on the current path, as it is written in the law, the State will get its funding requirements from NTIA to accommodate those needs; FirstNet will get its own budget and revenue paid; and the carriers will get all the spectrum – for FREE – subsidizing their already existing capacity covering the metropolitan areas. If that is the case, then this setup could be the biggest scam ever committed in the telecom industry and at the taxpayer’s expense. Here we thought the Rivada lawsuit was bad.  

The alternative to this outcome is the State Opting-Out of FirstNet and soliciting its own Public Private Partnership to construct its own network.  The law states that the State, thus Public Safety, can use their own revenue generated off their own network, thus prioritizing and subsidizing Public Safety for the foreseeable future. By Opting-Out the State then is positioned to sit as part of the consortium that controls its own destiny; the State can apply for its portion of the 6.5 Billion; FirstNet will get nothing outside of the remaining 6.5 Billion for those States that Opt-In to their solution; and the carriers get even a better means to expand their own footprint to the rural areas without having to spend any money. The spectrum stays under the control of the State’s approved Public Private Partnership.

How is a State that chooses to Opt-out better for the carriers? It’s quite simple and actually ingenious if I might say so, the State acquires the spectrum and allocates its use to its own P3 consortium (broadband company) then allows the carriers to MVNO the network expanding their own footprint to cover the rural areas. The carrier can either pay a fixed lease to the States P3, or it can share any of the revenue the carrier makes in accessing the larger footprint throughout the State. In the end, the carriers don’t have to pay for any capex requirements to build, expand and sustain their own infrastructure yet can move to an almost pure revenue option. You may note; this also allows for all carriers to have the same advantage, thus an open market to expand service offerings and reduce costs of access for the consumers, i.e. more competition. What does the FirstNet Opt-In model do for all the parties?

Some say that the reason FirstNet wants to partner with AT&T is due to speed-to-market. I can guarantee you that partnering with a carrier, using a carrier business model, will not speed anything up. Even the metropolitan areas, that the carriers are already deployed in, will not meet the standards that Public Safety needs. This means that AT&T's infrastructure will have to be upgraded. Plus, the existing radios on the network are not provisioned for the D-Block spectrum, which also means they will have to install new antennas anyway. Why install new antennas on the D-Block using existing towers that don't meet spec today and are constructed to meet commercial model needs not Public Safety? Why do you think we have so many outages during a disaster? What happens when AT&T starts deploying 5G? Just a thought.

Just some guy and a blog……

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