Money problems continue to plague shared-network concept
A week ago, the FCC received a flurry of filings to address issues in its public-private partnership proposal to build and maintain a nationwide broadband wireless network. The network would be used by public safety and commercial entities on 20 MHz of spectrum in the 700 MHz band.
Having failed to attract a legitimate bidder for the 10 MHz D block—the winner of which would build out a network that also uses 10 MHz of adjacent public-safety spectrum licensed to the Public Safety Spectrum Trust (PSST)—earlier this year, the FCC wants to use the comments to get the concept right this time.
This promises to be difficult, as multiple comments call for changes in the PSST’s board makeup and—in some cases—the removal of the broadband license from the PSST.
While addressing such policy issues will not be easy, the FCC is equipped with the knowledge base and authority to handle this. After all, making such tough decisions is the agency’s primary function.
However, the FCC is ill-equipped to handle the financial matters surrounding a public-private partnership. Yes, the commission has the right to eliminate the reserve price on the D block, as well as the proposed financial penalties for a D-block winner that doesn’t reach an agreement with the public-safety licensee. But those costs are small potatoes compared to the cost of building the network.
In fact, it’s getting increasingly difficult to determine just how much this network will cost.
PSST advisor Cyren Call Communications long has estimated that the network deployment would cost between $13 billion and $20 billion, but several FCC commissioners testified before Congress in April that it would cost $6-7 billion.
As if that wasn’t enough of a discrepancy, giant telecommunications service provider Verizon estimated in its filing that the cost will exceed $20 billion—not for the entire network buildout but just for the incremental cost between a regular commercial network buildout and the cost to meet public safety’s desire for hardened sites and greater coverage.
Assuming that a typical nationwide commercial wireless network costs at least $10 billion—a very conservative number—Verizon is indicating that this broadband network for public safety would cost more than $30 billion to deploy.
Clearly, there is a problem here. A potential commercial partner is saying this network will cost about five times as much as many regulators proposing the notion believe. Until this $25 billion gap is addressed, there’s little hope that effective policy on the matter can be formulated.
After all, for a public-private partnership to work, the commercial partner has to be able to realize a reasonable return on its investment. If the dollars don’t work, no one will bid, which is what happened in the D block auction earlier this year. The FCC writing rules based on a network-cost model that is a fraction of actual costs likely would prove to be an exercise in futility.
No one is questioning that this proposed shared network would cost more than a typical commercial network. To make this attractive to a commercial partner, Congress—an entity with funding authority, unlike the FCC—may need to provide some financial incentives via direct funding or something indirect, like tax credits. However, to do this prudently, there has to be a better idea regarding how much the network will cost.
Similarly, funding from Congress is needed for the PSST—or whatever entity ultimately gets the public-safety license. With no other revenue source, the PSST has turned to Cyren Call to finance its operations to date. That arrangement has caused many to question the relationship, because now the non-profit PSST is getting advice from a for-profit advisor that needs a public-private agreement in place to have any hope of getting its $4 million loan repaid.
“Any organization that is funded the way the PSST is funded should be completely ineligible to be the public-safety broadband licensee,” said Jon Peha, a professor of electrical engineering and public policy at Carnegie Mellon who has studied the public-private partnership model at length. “The organization has to be accountable to public safety and it has to appear to be accountable to public safety.
“Any organization that is funded by a for-profit company—and worse yet, a for-profit company that has a vested interest in the outcome—at the very least appears to be driven by profit.”
However, Peha acknowledged that the PSST had little choice in the funding matter, because neither Congress nor another government agency provided an alternative, and the FCC has no funding authority.
“My biggest hope is that we can encourage Congress to fund it in a way that allows us to separate the whole funding issue from the PSST,” said Charles Werner, fire chief for the city of Charlottesville, Va. “I really believe this is the best opportunity Congress has to help public safety in a meaningful way.”
Indeed, congressional funding at some level appears to be crucial to making the public-private partnership concept economically viable. But the odds of such funding being made available in the middle of election season appear to be miniscule, at best, especially when there is such a large discrepancy regarding exactly how much money is needed.
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