Opt-out scenarios from FirstNet appear increasingly tough for states, territories

There are several steps that need clarification. For example, not even FirstNet knows how the FCC will assess an opt-out state’s RAN plan, Swenson said.

“Frankly, the FCC still has to determine how they’re going to evaluate a state that potentially wants to build its own radio access network,” she said. “They have to put together the process by which and the requirements against which they’re going to evaluate that, and they haven’t done that yet. We’re talking with them about that, but honestly, net neutrality has been occupying them, from a priority standpoint.”

The sequence of the steps is harsh, particularly the notion that a state or territory must go through almost the entire lengthy process without knowing whether it will be able to reach a spectrum-lease agreement with NTIA and/or FirstNet (exactly who will make the decision is debatable, based on the language in the law).

Even tougher is the fact that a state that gets FCC approval for its RAN plan but is not able to secure access to the Band 14 spectrum theoretically could be left without a public-safety network in that jurisdiction. As a practical and political matter, I doubt seriously that FirstNet would leave any state or territory out of the system long term, but there is a very real possibility of a one-year or two-year delay that may not be very pleasant for anyone involved—FirstNet, the state/territory, the prime contractor, and—most important—the public-safety entities in that jurisdiction.

Resources also are an issue. Running an LTE network—even just the RAN—is no easy task, and the people who are qualified to do it typically can make far more money in the private sector than in the government arena. This reality is a struggle for FirstNet, which has more than a $6.5 billion surplus at the moment. Imagine how difficult hiring qualified individuals could be in the government for a state or territory trying to emerge from budget issues exacerbated by the 2008 credit crisis and/or pension-based struggles.

Of course, governors have been known to take calculated risks, usually based on a risk-reward analysis. In this case, the difficulty is trying to identify the potential reward for an opt-out state. In the earliest days of FirstNet, many governors thought they would be able to opt out of FirstNet, cut deals with potential network partners and put the excess cash into the general fund of the state/territory. But that is not allowed by statute.

Still, many continued to explore the opt-out alternative, because they have believed it offers them an opportunity to keep revenues generated in the state or territory within the boundaries of the jurisdiction—in other words, the money could be reinvested into the public-safety broadband network to (1) make the RAN more robust/resilient, and/or (2) lower subscriber fees to public-safety users in the jurisdiction.

But FirstNet officials have said that they do not believe such an approach is appropriate. Opt-out states and territories can keep revenues within their jurisdictions that are necessary to operate and maintain the RAN, but it can’t be an excessive amount. That’s because FirstNet’s business model is based on a handful of “have” states–those that generate user-fee and secondary-use capacity-leasing revenues in excess of their network cost—helping pay for the public-safety system in more rural “have not” states.

“I think [the opt-out alternative] sounded attractive to people when they thought that they could keep the money,” Swenson said. “But, if you want this kind of organization to be successful, you have to think about its entirety. I think that people are so focused on their state that they don’t go, ‘OK, this is for the country,’ so they don’t think about it that way.”

This notion that the statutory clause calling for a “cost-effective” deployment of the FirstNet system is based on a nationwide vision—not one from a state/territory perspective—is critical, and it seemed to be very popular among the lawmakers on the Senate Commerce Committee when Swenson testified on Capitol Hill in March. And that’s not likely to change, because there are lot more “have not” states than “have” states that would benefit from such a philosphy.

In other words, opt-out states are not likely to find enough allies in Congress to pressure FirstNet in changing its perspective on this subject in the political arena.

A better chance for success probably exists in a legal challenge of FirstNet’s preliminary interpretations, because the law is not clear on the scope of “cost effective” and includes one clause that stipulates that state funds generated within an opt-out state must be reinvested into the network within that state.