New Hampshire committee report outlines regulatory, financial risks associated with ‘opt-out’ decision

New Hampshire should require that Rivada Networks—the state’s choice to build an alternative network to FirstNet–provide bonding or other financial assurances to protect the state from potential risks and penalties in an “opt-out” scenario, according to a report prepared by a state committee reviewing “opt-out” implications.

New Hampshire Gov. Chris Sununu yesterday announced his decision to have the state become the first to pursue the “opt-out” alternative to FirstNet. In making the announcement, Sununu cited a report from the FirstNet Opt-Out Review Committee that Sununu established to examine the implications of pursuing the “opt-out” alternative.

“It is clear that, while an opt-out decision comes with regulatory and financial risks, those risks can be mitigated through the safeguards and contractual provisions that the committee has recommended,” Sununu said in a prepared statement.

A copy of the public portion of the committee report—some parts were not released, because of their competitive nature or because of attorney-client privilege—reveals that the Opt-Out Review Committee believes that “there are numerous risk-mitigation measures that should be required of Rivada in order to protect the state’s interests” in an “opt-out” scenario.

One much-debated risk is the termination fee that New Hampshire would have to pay FirstNet to provide service, if the state’s “opt-out” efforts fail. While the termination fee cited in the draft spectrum management lease agreement (SMLA) by FirstNet for New Hampshire range from $20 million to $600 million depending on the timing of a failure, FirstNet CEO Mike Poth told the committee that the estimates represent a “worst-case” scenario, according to the report.

“In other words, the estimated termination payments contained in the draft SMLA represent a situation in which FirstNet has to come in and build a new network from scratch, with no revenue to offset the build out and operating costs,” the report states. “Assuming Rivada makes progress in the construction of an adequately interoperable network, the risk of that situation occurring may be mitigated.

“Moreover, FirstNet has made clear that the state would only be liable for the actual cost of reconstituting the network in the state. Rivada has represented that it will provide a bond, other form of insurance, and/or guaranty, to mitigate the risk to the state of ever becoming liable for these payments.”

Requiring such financial assurances from Rivada Networks—designed to ensure that the state of New Hampshire would not be exposed an expenses related to the alternative LTE radio access network (RAN) project—is a recurring theme throughout the committee’s report. The

“Rivada should develop a process for the state to review any proposed material deviations from the approved plan. Penalties for unapproved deviations should be specified,” the report states. “The state’s project-management oversight costs should be built into the alternative plan, not absorbed by the state.”