Process for states’ opt-out opportunity complicates FirstNet business model

By any measure, FirstNet’s task to build a sustainable nationwide broadband network for public safety is enormous. Just building a nationwide wireless network is not easy; if it were easy, there probably would be more than four commercial wireless carriers claiming nationwide coverage in the rich U.S. wireless market. However, many commercial wireless networks have been built, and the business model is well known, even if it can be difficult to execute.

What Congress has told FirstNet to do is exponentially harder, because it has to be the first entity to do several things:

• Build a nationwide network that meets public safety’s standards for reliability and resiliency, which presumably will make the network more expensive than a normal commercial network;
• Offer service on the network at a price that is something public safety can afford (i.e., at least competitive with the rates available from entrenched commercial providers); and
• Deploy the network and build a self-sustaining business model with $7 billion in federal funding, which is less than the major carriers spend annually just to upgrade and maintain their networks.

In presentations at the April board meeting and last week’s Industry Day, FirstNet officials have done an excellent job of outlining the high-level business model. The components to pay for the deployment, maintenance and upgrades to the network are:

• The $7 billion in federal funding, which is now a certainty, thanks to the FCC’s AWS-3 spectrum auction that generated more than $41 billion in revenue;
• Fees that will be charged to network users;
• Synergies realized by utilizing existing infrastructure; and
• Monetizing the broadband capacity on the network that public safety does not use.

The equation is fairly straightforward, and FirstNet officials have expressed confidence that the combination of these four components can yield a business model that keeps FirstNet “in the black” financially at all times for the long term.

While the equation is known, the problem is that—other than the $7 billion in federal funding—the key components are unknown variables with potentially huge ranges that could have significant implications.

In terms of fee revenue, the basic concept is that FirstNet users will be charged rates that will be competitive to commercial rates. That’s a marketplace necessity, because no one is obligated to subscribe to FirstNet. If the pricing is not competitive with commercial offerings, many public-safety entities will just continue using commercial wireless service for data connectivity, even if it doesn’t guarantee preemptive/priority access during emergencies.

More uncertain than the user rate is the number of users. During the Industry Day event, a FirstNet official said the number of users could range from 4 million to 13 million, with difference being about $2.5 billion per year in annual revenue, based on $30 per month per user. These estimates reflect the importance of the ongoing proceeding that is exploring the definition of a “public-safety entity” that can be considered for priority access on the FirstNet system.

Indeed, determining whether traditional police/fire/EMS could be joined as potential prioritized FirstNet users by critical-infrastructure personnel from utilities, government, healthcare and transportation has significant operational and financial implications. But possibly an even larger question does not involve human subscribers.