FirstNet takes first step toward getting down to business

One of most financially successful sports leagues in the world is the National Football League (NFL). Not only has the value of the league and its franchises grown spectacularly during the past several decades, but these gains have been enjoyed across the board. It is not surprising that teams in massive markets like New York are financially viable, but so is a franchise in Green Bay, Wis.—a city that is smaller than suburbs in larger markets.

At the heart of this success is the NFL’s revenue-sharing model, which calls for each franchise to get an equal piece of the TV-revenue pie. As my good friend Glenn Bischoff wrote in this space years ago, the key to making this happen was the NFL’s ability to convince Wellington Mara—owner of the New York Giants, which owned the NFL’s largest TV market—to agree to the structure, which he did.

Some describe this episode as an example of remarkable goodwill and visionary thinking on the part of the NFL and Mara. Other historians note that the upstart American Football League (AFL) was sharing its national TV contract evenly with all of its franchises, and there were rumors that a couple of the weaker NFL franchises might jump ship to the AFL to get a better deal, which would have been bad for the NFL.

I don’t know the real story; frankly, it doesn’t matter. The fact is that the NFL adopted a revenue-sharing model that was the envy of other sports leagues, many of which were characterized by the existence of strong franchises—the “haves”—and franchises that are so weak that they struggle financially and on the playing surface—the “have nots.” In response, many other leagues have adopted mechanisms like luxury taxes and salary caps to help address the issue, so all franchises have an opportunity to keep up.

In public-safety communications, the theme of “haves” and “have nots” is pretty common, both in terms of 911 and radio-communications systems.

Some “have” jurisdictions can afford to provide emergency personnel with the latest-and-greatest advances in next-generation 911, P25 and/or LTE. In contrast, some “have not” jurisdictions struggle to maintain basic 911 systems designed for a 1970s wireline-telephony world and do not have the money to even consider a P25 system (admittedly, some understandably may not want to migrate to newer technology, if the existing systems are working effectively).

The reason for these discrepancies is understandable. Public safety traditionally has been funded by local and state governments, and the ability for those government entities to access funds can vary tremendously. Even two cities that share a border can be in completely different financial situations, often based on the location of a large employment center.

On a different scale, similar discrepancies can be found among states. That’s one of the key issues that FirstNet is trying to tackle in the latest public notice that was approved yesterday.

FirstNet faces a monumental challenge in its mandate to deliver public-safety-grade broadband services to first responders nationwide. In addition to the considerable technical and operational issues that must be addressed, everyone agrees that the $7 billion provided by Congress will not be nearly enough to deploy—much less operate  and upgrade—a nationwide LTE network.

Thankfully, FirstNet does have other potential revenue streams, including the ability to sell excess spectrum capacity on the network to entities—perhaps commercial carriers or other enterprises—that would use the network on a secondary basis when public safety does not need the bandwidth. There certainly should be interest in this, based on the rousing success of the recent AWS-3 auction of licensed spectrum that generated almost $45 billion in bids.

Of course, no one can be sure what the value of secondary-use spectrum will be. However, it is reasonable to expect that whatever value exists will be generated primarily in larger markets, where spectrum is in the highest demand. For instance, in some FCC spectrum auctions, the amount bid for licenses in New York City represented 50% of the total bid in the auction.

Another primary revenue stream for FirstNet will be generated by subscriber fees collected from public-safety users of the network. In some densely populated “have” states, these fees could raise more than is needed to fund the network in that state.

With this in mind, FirstNet would like to take the excess revenues from “have” states and use the money to help fund services in the “have not” states.