Process for states’ opt-out opportunity complicates FirstNet business model
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Opt-out alternative
Complicating this picture even more is the fact that each state and territory can “opt out” of the FirstNet system. Now, “opt out” does not mean that the state will lack a public-safety broadband network; it means that the state or territory will build the radio access network (RAN), instead of FirstNet building it. The network of an opt-out state still would connect to the FirstNet core and would be required to remain interoperable with the rest of the nationwide system. In addition, the opt-out state assumes responsibility for operating and upgrading the network–items that FirstNet would pay for, if the state accepted the proposed FirstNet plan.
But what happens to the money generated from user fees and commercial secondary use in an opt-out state? That is one of the key points of a public-notice proceeding that closed recently. FirstNet proposed preliminary legal interpretations that its job is to ensure that a nationwide public-safety broadband system is built and that can take money from states that generate a lot of revenue in these areas and distribute it to deploy the network in other states that do not generate much revenue.
Many states responding to the notice agreed with these interpretations, but there were several notable exceptions. Some noted language in the law that appears to require that certain revenues generated within an opt-out state remain in that state, instead of being distributed throughout the country. In some cases, the responses were surprising, because the states asking for this are not densely populated, so they were not considered opt-out candidates.
But the message that was reiterated even more strongly was that states want FirstNet to give their governors a detailed state plan that includes coverage areas and pricing. After receiving the state plan, each governor will have the option of accepting the FirstNet plan or choosing the opt-out alternative to deploy the RAN in the state. And, if the details of the plan change, the state wants another chance to reconsider its opt-out decision.
For FirstNet, the problem with this request is that it may not know all of the pricing details, because they could vary based on the opt-out decisions from other states and territories.
For instance, if Texas and California opted out—and I’m not suggesting that either necessarily would, because both have vast rural areas with little population density that may be difficult to cover economically—that would impact 9 of the 19 largest U.S. cities, in terms of population.
For a commercial entity that is considering a partnership with FirstNet, that would be a huge factor. As FCC spectrum auctions have shown repeatedly through the years, the value of spectrum is skewed dramatically to the most densely populated markets in the country, so having such markets in opt-out limbo could significantly decrease the overall value of the deal to a potential partner.