Cyren Call makes its business case

Any public/private partnership that would build a nationwide public-safety network will require at least 30 MHz of spectrum in the 700 MHz band to be economically viable, Cyren Call Communications officials recently said while detailing the company’s business plan.

Although supported by virtually every national public-safety organization, the political viability of the proposal unveiled by Cyren Call Chairman Morgan O’Brien at IWCE a year ago appears to be in jeopardy (see story on page 10). However, many fundamental assumptions included in the Cyren Call economic model are applicable to any public/private wireless broadband partnership that might be pursued to provide a nationwide broadband network to public safety.

Under Cyren Call’s plan, Congress would allocate 30 MHz of spectrum currently slated to be auctioned within a year to a public-safety broadband trust, which would pay as much as $5 billion to the U.S. Treasury for the airwaves. Money for this payment — not in Cyren Call’s original proposal but necessary to get Capitol Hill to consider the notion — would be raised through the capital markets as a government-guaranteed loan, which carries a more favorable interest rate and a longer term than a commercial loan.

This interest-rate and term-length advantage is critical to the economic model because it would let the trust lease the spectrum to commercial operators at monthly rates that would be less than they would pay the private markets if they bought the spectrum outright using a private loan, said Khai Nguyen, Cyren Call’s vice president of finance. But Nguyen emphasized that the commercial operators would need to pay more than the trust’s loan payment to retire the $5 billion debt.

“To protect the trust and the public-safety community, the commercial operators, in terms of lease payments, will have to pay an amount that’s higher than the interest rate that the trust has to pay, to give the trust a buffer [to create] some operating room should there be a default in the future,” Nguyen said.

After winning spectrum rights through a bid process, commercial operators would embark on a 10-year buildout of a nationwide, public-safety-grade broadband network that would leverage fourth-generation wireless technology. The airwaves would be leased on a regional basis through a process that would group desirable urban markets with less attractive rural areas.

Ultimately, Cyren Call envisions a network with 37,000 cell sites — serving more than 99% of the nation’s population and covering 75% of the continental U.S. — that would provide the 99.999% call-completion rate required by public safety, Nguyen said. The network also would include an overlay network — probably using satellite technology — that would provide primary coverage to the most rural areas and a redundant communications link where terrestrial coverage already exists.

By comparison, commercial nationwide networks available from carriers today have about 25,000 cell sites, do not offer such a large coverage area and are built to provide only a 98% call-completion rate.

“When we’re moving around at rush hour, [commercial users] all kind of accept — at some level — that there will be blocked calls,” said Cyren Call spokesman Tim O’Regan. “For public safety, that condition is absolutely unacceptable because human lives could be lost as a result [of a blocked call].”

In addition, to help ensure survivability, the network’s cell sites need to be hardened with additional backup power and alternative backhaul routes in case of an outage in the primary backhaul system. Overall, Nguyen said Cyren Call believes the additional public-safety demands will mean the network will cost the operators about $6 billion more than a typical commercial nationwide network.

For commercial operators to realize a return on such a sizeable investment, Cyren Call has estimated that the network needs about 35 million subscribers, but currently there are only 3 million potential public-safety users.

Moreover, although a public/private network could be built on the 12 MHz of 700 MHz spectrum already allocated to public safety, the necessary user costs would be exceedingly high — about $375 per month per user, Nguyen said.

As for proposals that call for the commercial spectrum to be auctioned but require the winning bidders to build out such a public-safety-grade network, Nguyen said such an approach would not generate the revenue Congress has budgeted for the auction.

“Think about it: No one would pay the full-market price for a spectrum license and then subject the license to all these conditions that would either raise its costs or lower its rate of return,” Nguyen said.

With 30 MHz of spectrum, however, a commercial operator would have the flexibility to leverage its considerable network investment to attract other kinds of customers, particularly critical-infrastructure, enterprise and commercial users. Such a mix would make it easier to reach the 35-million-customer threshold within 10 years, which should allow the network provider to offer service at average user rates of about $60 per month, Nguyen said.

Critics of the proposal have expressed doubt that a commercial operator can sell an affordable, profitable service while building a network that meets public safety’s rigorous coverage and survivability criteria, especially given the fact that public-safety users would have priority access.

In terms of the buildout, there likely would not be much friction between the trust and commercial operators during the first few years, said David Knutson, Cyren Call’s vice president of development. As with most networks, buildouts would begin in the most profitable urban areas and expand to less populated areas over time. Not only are base stations in these areas the most profitable, but also existing tower sites can be leveraged, so they are easier to install.

But as the network buildout extends to very rural areas — where a return on investment may be questionable, at best, especially if a new tower site must be built — there could be a need to revisit the terms of the original lease agreements to sustain the model, he said. And both sides would have considerable leverage in such talks, which could occur about five years into the effort, he said.

“The trust owns the spectrum; the lessees own the network. So there’s this nice marriage that requires these guys to work together,” Knutson said. “If the trust takes that spectrum away, that network is not going to be able to operate, and there will have to be an arrangement made to take over that network.

“There’s a mutual need to work together that’s built into this because the trust doesn’t want to lose the network, and the operator certainly doesn’t want to lose the right to use the spectrum. … For 95% of the country, it will be a non-issue, but for the 5% of the areas that will be the most challenging, there will be some interesting discussions that may be had in the future.”

Even if this sticking point can be resolved, many question whether commercial users would pay to be on a network where public safety is mandated to receive priority access.

“I talk to all the network operators, and if they don’t own the spectrum outright, they’re not building on it — bottom line,” said Andy Seybold, wireless analyst for Outlook 4Mobility. “Then, I’m told by Cyren Call that, if those [incumbent] guys won’t do it, we’re going to have other interested people in wireless coming in.

“So I’ve got a greenfield operator coming in at 700 MHz. He’s going to build out a voice and data network that he only has secondary use on, and he’s going to compete against Verizon, Sprint, AT&T and T-Mobile, which have 100% use of their frequencies. Now, if I’m a consumer, which network am I going to get on?”

Nguyen acknowledged that the question is legitimate, because it’s never been tested in the marketplace. But Knutson said the concerns are somewhat overblown and based on a perception of preemption in the circuit-switched world, where communications are blocked completely. That’s not the case in the IP environment in which this network would operate, where prioritization occurs on a packet level.

“In the IP world, it really turns into latency, and it’s more of a delay issue rather than a don’t-get-communication issue,” he said. “So, even though your bits might be delayed 30 seconds as opposed to getting a hard ‘failure; no network access’ message, in all likelihood, it’s going to go through at some point.”

Moreover, the Cyren Call model calls for commercial users to experience a 98% call-completion rate — the benchmark for commercial networks — even during heavy usage by public safety. In the case of a catastrophic incident like Sept. 11 or Hurricane Katrina, public safety could dominate the network, but Nguyen noted that commercial users in such incidents likely would try to flee the areas of devastation — and the corollary network congestion — rather than making calls using those base stations.

Meanwhile, Knutson believes the network’s survivability design will be very attractive to commercial users, given the failure rate of commercial networks during mega storms.

“Let’s look at it this way: The other networks are going to go down,” he said. “So, would you rather be on the most reliable network or the other network that is going to go down?”

BUSINESS PLAN REQUIRES 30 MHZ