Urgent Matters

Process for states’ opt-out opportunity complicates FirstNet business model

RSS

Table of Contents:

FirstNet's business model promises to be challenging, even under the best of circumstances. But will the processes surrounding the opt-out decision-making process by states and territories create even more problems?

By any measure, FirstNet’s task to build a sustainable nationwide broadband network for public safety is enormous. Just building a nationwide wireless network is not easy; if it were easy, there probably would be more than four commercial wireless carriers claiming nationwide coverage in the rich U.S. wireless market. However, many commercial wireless networks have been built, and the business model is well known, even if it can be difficult to execute.

What Congress has told FirstNet to do is exponentially harder, because it has to be the first entity to do several things:

  • Build a nationwide network that meets public safety’s standards for reliability and resiliency, which presumably will make the network more expensive than a normal commercial network;
  • Offer service on the network at a price that is something public safety can afford (i.e., at least competitive with the rates available from entrenched commercial providers); and
  • Deploy the network and build a self-sustaining business model with $7 billion in federal funding, which is less than the major carriers spend annually just to upgrade and maintain their networks.

In presentations at the April board meeting and last week’s Industry Day, FirstNet officials have done an excellent job of outlining the high-level business model. The components to pay for the deployment, maintenance and upgrades to the network are:

  • The $7 billion in federal funding, which is now a certainty, thanks to the FCC’s AWS-3 spectrum auction that generated more than $41 billion in revenue;
  • Fees that will be charged to network users;
  • Synergies realized by utilizing existing infrastructure; and
  • Monetizing the broadband capacity on the network that public safety does not use.

The equation is fairly straightforward, and FirstNet officials have expressed confidence that the combination of these four components can yield a business model that keeps FirstNet “in the black” financially at all times for the long term.

While the equation is known, the problem is that—other than the $7 billion in federal funding—the key components are unknown variables with potentially huge ranges that could have significant implications.

In terms of fee revenue, the basic concept is that FirstNet users will be charged rates that will be competitive to commercial rates. That’s a marketplace necessity, because no one is obligated to subscribe to FirstNet. If the pricing is not competitive with commercial offerings, many public-safety entities will just continue using commercial wireless service for data connectivity, even if it doesn’t guarantee preemptive/priority access during emergencies.

More uncertain than the user rate is the number of users. During the Industry Day event, a FirstNet official said the number of users could range from 4 million to 13 million, with difference being about $2.5 billion per year in annual revenue, based on $30 per month per user. These estimates reflect the importance of the ongoing proceeding that is exploring the definition of a “public-safety entity” that can be considered for priority access on the FirstNet system.

Indeed, determining whether traditional police/fire/EMS could be joined as potential prioritized FirstNet users by critical-infrastructure personnel from utilities, government, healthcare and transportation has significant operational and financial implications. But possibly an even larger question does not involve human subscribers.

Discuss this Blog Entry 2

on May 20, 2015

It appears that there are simply too many variables to achieve a workable solution especially when burdened by governmental processes and by that I mean federal, 50 states, and all other related authorities! The sooner Congress recognizes this the better for First Responders. We can't count on FirstNet; it's not in their interest to disrupt the currently mandated program.

Anonymous One (not verified)
on May 20, 2015

It would appear that FirstNet, as all wireless operators did initially, will begin build-out in the large population centers. That is all that would make financial sense. The question becomes at what time would build-out in less populated areas of the country be financially feasible? I do not see this happening for very many years. Would large areas of desert and very low population in the West ever be built?

Post new comment
or register to use your Urgent Communications ID
What's Urgent Matters?

Insights from Donny Jackson concerning the most important news, trends and issues.

Contributors

Donny Jackson

Donny Jackson is editor of Urgent Communications magazine. Before joining UC in 2002, he covered telecommunications for four years as a freelance writer and as news editor for Telephony magazine....
Blog Archive

Sponsored Introduction Continue on to (or wait seconds) ×