Wednesday, June 14, 2017

AT&T Plans to the States for FirstNet -- what really is at stake here?

For any given State this is what you need to expect from the AT&T offering for Public Safety Broadband. First, AT&T is going to come in an offer a service on their existing network – that’s all. The initial offering doesn’t do anything for Public Safety that isn’t already in use. Who cares in you get nationwide coverage and pre-emption. What good will nationwide coverage do for the Fire Department in Nashville, Illinois? The AT&T partnership still does not address the main concerns of covering the rural areas, they only cover the metro areas, and it definitely doesn’t put the Public Safety assets onto a separate and hardened infrastructure – no one is addressing these two main items. Why? Because AT&T doesn’t want to pay for it and FirstNet doesn’t have the cash. The cash shortfall is the main reason FirstNet still does not address the line-item in the law that specifies that the NTIA will be billing the Opt-In States for its portion of the build. In the end, if a State wants to get its rural coverage, its hardened assets, and a network truly prioritized for Public Safety, then it will have to pay for it.

Second, they will try to formulate a buildout of broadband infrastructure using existing assets they already own. The real issue with using AT&T’s existing infrastructure is that it is shabby at best and was only designed to meet commercial objectives – that is to get connectivity established just long enough to capture the bills. Ruthless preemption doesn’t really get you anything on a commercial network. You can put lipstick on a pig, but it’s still a pig.

The issue with the second task will be the physical buildout itself and the use of the D-Block spectrum. You must understand that AT&T is in a new cycle of upgrades – better known as 5G upgrades. You see AT&T was planning on a $40 Billion upgrade anyway, even without Public Safety, so all that AT&T and FirstNet are promoting is actually a shared vision of “I scratch your back you scratch mine”. AT&T gets an additional $6.5 Billion to deduct from its capital exposure on its own $40 Billion planned upgrades and in return will let Public Safety rides its network nationally. Why would a Public Safety entity in Denton, Texas, need to have complete coverage of AT&T’s network in Spokane, Washington? The answer is that it won’t. So what does granting complete coverage on an existing commercial network really get you? Well nothing that you don’t already have. The only real difference in this case, is that AT&T will allow for “ruthless preemption” over commercial traffic.  This type of service was never granted by AT&T before, but it has been granted through other major carriers for quite some time now.

So what does AT&Ts offer of “ruthless preemption” have that others don’t? Nothing actually, it’s the exact same service, only with the notion to prioritize specific users over others. This too has been a service that’s been in existence since the dawn of the telephone. I can guarantee you that a monster hurricane in Southern Texas would still wipeout the existing commercial infrastructure, so “ruthless preemption” on a wiped out network doesn’t provide much incentive for a State to Opt-In to a commercially provided solution.

Another aspect to consider is the actual physical build-out using the D-Block spectrum. What AT@T is initially offering actually doesn’t have anything to do with the D-Block spectrum. If one wants to use the new spectrum, D-Block, then the entire network needs to be upgraded with new radios on the given spectrum, that means new radios on towers, new upgrades in the cabinets for more ports, more security of the hut, required space on the tower and upgrades to the power to accommodate the new RAN. Following that we need to address the fiber routes into the location, all pill-boxes, any pole mounted solutions, splicing points, and upgrades to new conduit infrastructures to name the least. All of this takes time and money –money that is not truly intended to be used yet. Then we have the Band-14 devices, this is where Motorola is trying to position itself (which is good), but how do you convince an entire ecosystem of the smart phone market place to consider creating and equipping existing product lines to carry the Band-14 chip? You don’t just say, “hey Qualcomm, put in Band-14 chips, we think a market is here.” Without a real market driven supply and demand ecosystem Band-14 will never get executed. Even if the chip manufacturers produce chips for smart phones, I can guarantee you they will only commission a few to test the market. If the market fails, they will cease production. This is all really bad for the measly 3.5 Million Public Safety users and the Opt-in States. In the end, asking AT&T to build this solution is kind of like having a tsunami fill a styrofoam cup with water. The only people that stand to gain from this will be the commercial users of AT&T – once they acquire the D-Block spectrum.

AT&T doesn’t actually have the money set aside to make this happen and FirstNet only has $6.5 Billion left (that’s roughly $116 Million per State and territory), so the funding actually falls quite short. In order for a carrier, like AT&T, to actually spend money on its own capital programs of upgrades, they just don’t have the cash sitting in a savings account. These carriers negotiate different models of investments, cash rollovers, and budget reduction reallocations throughout its own structure of investments as to not impact the ROI from its revenue base of operations. In some cases, it will be cheaper to borrow cash from equity partners or investors; in some cases, it will be cheaper to allocate Net Proceeds towards capital expenditures; but I can assure you that AT@T will not just have a blank check without bringing it to the attention of its shareholders and the shareholders are in it for the money – not Public Safety. AT&T will do nothing that jeopardizes its relationship with its shareholders.

So, if AT&T has to go through hoops to acquire its own cash to invest into a new upgrade and build out what it needs to justify its approach, then what exactly did the propose during the RFP phase? It was stated that the Rivada Team lacked real investment as backdrop, when the same is true for both parties. AT&T doesn't have the cash either. AT&T does have a lot of equity partners though who will pretty much give money away to AT&T on a promise. This is where it gets sticky for what AT&T is offering to FirstNet. How do you justify spending an additional $33.5 Billion ($40 Billion - $6.5 Billion = $33.5 Billion) to your shareholders? How do you convince them that spending an additional $33.5 Billion of private money to fund a build out of Public Safety Broadband while at the same time allowing this minimal class of users to “ruthlessly preempt” the real revenue maker for the company – commercial services? How will the investors respond? They may be nice today, but I can assure you that when things start to get heated all investors start to ask where their money is -- and in not so nice terms. Every carrier goes through the same scenario every time it has to upgrade and/or install a new technology solution that commissions new services.

There are a whole host of variables to consider when acquiring cash, but the primary particular is “return on the investment”. In this case, Public Safety has to bring in enough revenue to justify the expenditure of $33.5 Billion. If that is not the case, which it isn't, then Public Safety together with another aspect of the offering has to fill in the blanks, thus AT&T using the D-Block spectrum for commercial services. But, how do you do that and still maintain “Public Safety Grade” performance and security features required? Commissioning “Public Safety Grade” and protecting a national asset, definitely costs a lot more than commissioning a network for commercial services. You need more power; you need isolated fiber; you need isolated access of all ingress and egress points within the network; you need isolated wireless connectivity; controlled access to towers; you need hardened and protected routes and facilities; and this is just the beginning.  

You can’t just bring up radios on the new spectrum and then commission a Band-14 market, you have to create supply and demand. I’m afraid the supply and the demand just isn’t there. How do you try and merge commercial services with highly protected network solutions in a shared spectrum solution? The only real option in protecting the D-Block spectrum and isolating sub-frequencies of the network, was the offering from Rivada Networks and their Spectrum Arbitrage solution. But the law specifically states you can’t use “unproven technology” and that it has to be “commercially available”, of which Rivada’s solution is not. I mean you can do this at the bandwidth level, but the bandwidth level usually is based on the fiber transport arena…not in the spectrum and isolating user groups. Merging two bands of frequencies is way more complex than just physically separating the users through fiber or microwave links. The Opt-Out solution allows for a State to physically separate its users while prioritizing at the same time. Most importantly, the Opt-Out solution does not interface on and existing commercial infrastructures with all its complexities associated.  

Getting back to the AT&T solution, what happens to the rural areas? How will AT&T justify its expenditures to build-out to rural areas that don’t bring in enough commercial and Public Safety revenue? Who will be responsible for paying for that coverage? Isn’t that the primary reason Public Safety got the spectrum, was to build out to the rural areas, or areas that the commercial carriers don’t cover? For the Opt-In State I can assure you that it won’t be the AT&T investor and it won’t be the Federal Government (FirstNet). For an Opt-In State there is only one other source of capital for such a requirement – the taxpayer. If AT&T doesn’t buildout the Public Safety Network to the rural areas, then what exactly is it doing? What good does nationwide coverage and “ruthless preemption” do for the small town of Denton, Texas or Spokane, Washington? Except for the ability to call each other at conferences. What about the long-term operations? Who will pay for that?

The primary points I’m trying to make is that the complexity of trying to merge the commercial business side of AT&T, with the Public Safety requirement for security and redundancy, do not play well with each other, thus will definitely be a problem for any educated investor. So who really gains from this partnership? Well, AT&T stands to gain the most. Possession is nine-tenths of the law. Once AT&T starts to merge the two solutions, then there will be a point of no-return established for FirstNet, its plan, and the Opt-In State. Once AT&T gets a good portion of its network entangled with the D-Block spectrum, then it will be cost prohibitive to change horses mid stride. If anyone thinks that such a solution will not end in a disaster, then you haven’t been paying attention to how the telecom markets operate. So what happens once everyone starts to see that such a relationship is falling apart? Maybe we should take heed of what happened with, or is happening too, Obamacare?

Every State that opts into the FirstNet partnership will face a number of difficult scenarios. One scenario is that the State has to contend with all its incumbent carriers about existing contracts, or lack thereof, opening up a Pandora’s box of anti-competitive lawsuits. AT&T will blame the Governor, the Governor will blame FirstNet, FirstNet will blame AT&T, and around we go. Another will be using a service that is already in existence today. How do you justify such a network with existing contracts offering the same thing? If AT&T decides to build out onto the D-Block spectrum, then the partnership doesn’t evolve to what is expected, how does the State recoup its spectrum and any investment of taxpayer money spent? Who pays for the State taking over its assets? Do you just rip and replace? How and who owns the new radios that have to be installed? Who owns the fiber routes? Who owns the space on the commercial towers? Who will be held responsible when the network goes down during a Tornado, earthquake, or hurricane? Plausible deniability and complete indemnity? I mean it’s not like you just lost your internet connection to your favorite social media network…lives are at stake.

But what do I know I’m….

Just some guy and a blog…..

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