San Francisco-area deal provides insight into LTE economics

Public-safety officials discussing the prospect of 700 MHz LTE networks being deployed for first responders have debated what the monthly subscriber fees would be for such systems — in fact, many questioned whether public-safety agencies would subscribe if the cost was not competitive with existing commercial offerings.

Some argued that the user cost could be as little as half the cost of commercial service, noting that these systems would not be saddled with massive upfront costs associated with paying for spectrum. In addition, government entities also could provide access to most needed site locations, which should limit the site-acquisition costs.

Others claimed that the monthly user fee likely would need to be similar to commercial service, noting that the above savings could be offset by added expenses associated with designing an LTE network to meet the resiliency and reliability standards that public safety demands.

Last week, the Bay Area Regional Interoperability Communications System (BayRICS) joint powers authority (JPA) approved a deal to clear the way for Motorola Solutions to deploy a 150-site LTE network for first responders in the San Francisco region and operate it for 10 years, after which the network will be turned over to the JPA.

On the surface, this network appears to have a lot of financial advantages compared to the challenges facing a commercial operator trying to build an LTE network. In addition to getting licensed spectrum for free, the federal government approved $50.6 million in stimulus grant funding for the project, which will cover a significant portion of the network costs.

Meanwhile, the JPA agreed to provide all sites and backhaul for the network. In addition, the JPA is responsible providing billing and customer-service systems.

Member cities and counties in the JPA negotiated the deal in a way to maximize their flexibility. No entity is required to subscribe to the network, and the JPA does not have to guarantee a minimum number of subscribers. The network will support Band 14 LTE devices from all vendors, not just those offered by Motorola Solutions.

Perhaps most importantly in this time of cash-strapped government entities, the JPA members will not have a lot of upfront costs associated with the network. As the recipient of the federal grant, Motorola is obligated to pay $21 million in matching funds, and the company has agreed to pay $23 million to remediate many of the sites for LTE use — a total of $44 million.

When everything was brought together, Motorola agreed to charge subscribers $38 per month per subscriber during the first year, although the company is free to increase the rate in future. Meanwhile, the JPA will add a monthly surcharge of at least $5 per month as an administrative fee, bringing the total user cost of $43 per month.

While this certainly is competitive with commercial-carrier rates, it doesn’t reflect all of the costs for a JPA-member subscriber, as Chris Flatmoe — the JPA representative from San Mateo County — noted during last week’s meeting.

Based on the initial target of 6,000 users on the LTE network, San Mateo County estimates it will spend an extra $12 per month per user in additional electricity to power LTE gear at sites and provide the heating and cooling needed to ensure that the site equipment operates properly.

In addition, Flatmoe estimated that it would cost his county $37 per user each month to have roaming privileges with commercial carriers that would be enabled when a user when the regional LTE network is unavailable to the subscriber. Flatmoe also expressed support for the JPA to establish a $50 million capital fund that would pay to revamp the network to a 5G technology when the JPA assumes full control over the system in 10 to 12 years — a $58 per month cost per user, he said.

There were other costs that Flatmoe included to reach a conclusion that he calculates that subscribing to the regional LTE network could cost his county at least $157 per user each month. Whether Flatmoe’s estimates are correct is debatable — some expressed concern that the figures may be high, while others noted that there were other expenses that he overlooked.

But it should be noted that Flatmoe voted for the deal on behalf of San Mateo County. He also expressed belief in the concept of a public-safety regional LTE network and support for his county paying a “premium” for such a dedicated network, so there is no reason to believe that he was trying to undermine its purpose.

Hopefully, the JPA will be able to leverage other federal grants to offset some of these costs and have enough subscribers on the network to spread the expenses across a larger base, thereby reducing the projected per-user monthly fee.

Whatever the outcome, this calculation episode should serve as a reminder to everyone that making wireless communications work is hard and that there are many layers to these broadband networks. In other words, even if Congress allocates enough money for the deployment of LTE systems nationwide, state and local policymakers should be aware that there likely would not be a “free” ride, because often-overlooked costs like backhaul, operations and support services can be substantial.

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