All In: Betting Against Opt-Out

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With FirstNet’s historic announcement of its selection of AT&T as its partner, we are about to achieve the promise of a state-of-the-art, nationwide, interoperable public safety broadband network.  Each state will soon be presented with the opportunity of FirstNet’s proposed network build – one that will forever transform and improve emergency response.  States would receive this at no cost and with no need to assume financial, technical, cybersecurity, public safety, or operational risks.  Unless governors want those costs and risks.

If a governor seeks to “opt out,” pursuing construction of the state’s portion of the network through an arduous process that Congress strongly discouraged, states face significant costs and risks.  APCO has said publicly that “opt-out is a false choice,” and here I offer a detailed explanation of why.

Let’s First Review History

In 2012, after years of a united public safety community, led by APCO and the Public Safety Alliance, advocating for the tools to improve communications for first responders, Congress created FirstNet.  Along with needed spectrum and funding, the public safety community supported the notion of a single nationwide governance body to implement the network.  Public safety leaders, and eventually Congress, agreed that to provide advanced communications capabilities, nationwide interoperability, rural coverage, cybersecurity, and national-level economies of scale, the way public safety communications networks are built had to change significantly.  Thus, FirstNet emerged, and so far it has proven quite effective.

As part of a political compromise, the law carved out a mechanism for states to “opt-out” of FirstNet’s plan and build their own portion of the radio access network, meaning the infrastructure that connects individual devices to FirstNet’s core network.  The rationale for this was partly philosophical, that states should have additional options, and some thought that this would provide FirstNet with an additional incentive to develop the most effective network design to meet public safety’s requirements.  In creating the opt-out provision, Congress took steps to strongly discourage states from building their own RANs.

For states attempting to opt-out, Congress imposed aggressive, unforgiving timeframes.  It established three separate approval stages – the FCC, NTIA, and FirstNet – each with demanding requirements.  Congress also made clear that there is no financial benefit to states of opting out.  To the extent that revenue can be gained from the excess spectrum capacity, any and all such revenue must be reinvested back into the network.

Let me pose a few rhetorical questions.  Has a promise of profit for opt-out states been accompanied by an explanation of how to get around the law’s requirement that any revenue be reinvested into the network?  Can a company offer better coverage or service than FirstNet, with its statutory mandate to cover rural areas, nationwide economies of scale, billions in federal funding, and the mandate to do what’s best for public safety?

I haven’t heard satisfactory answers to either of these questions.  FirstNet conducted a fair and competitive RFP process.  Some companies didn’t participate at all, and some were unsuccessful.  States should be skeptical of opt-out, to say the least.

Why Opting Out is a False Choice

I understand that when faced with deciding whether to accept FirstNet’s proposed RAN plan or attempt to opt-out, states want that decision to be based on a well-informed comparison of the options.  But I don’t see any scenario in which pursuing an alternative RAN build benefits a state’s citizens or its first responders.

FirstNet Has Inherent Advantages, Unmatchable by Individual States.

Due to its nationwide scope, partnership with AT&T, and statutory obligations, FirstNet will be able to achieve and sustain national-level economies of scale and purchasing power, rural coverage, greater spectrum capacity, and wireless broadband network expertise that are beyond the reach of any state acting alone.  FirstNet has already consulted extensively with state and local agencies.  This means that FirstNet knows what the priorities for each state (and its local components) are, as does AT&T.

Not only is FirstNet going to be based upon the most advanced wireless broadband communications technology available (including through the evolution to 5G technology and beyond), it will also meet public safety-specific requirements.  FirstNet is designed for this purpose, and has a proven partner in AT&T.  In contrast, a state would have to acquire and fund the workforce needed to manage a highly advanced, mission critical public safety network (including vendor oversight, marketing, customer care, disaster recovery, etc.), and find a qualified partner.  This would require a long-term commitment[1] of the state and its vendor to remain current with an evolving and increasingly complex cybersecurity threat landscape and to keep up with the rapid pace of innovation in order to remain interoperable with FirstNet.

FirstNet is also designed to maximize its public-private partnership with AT&T, and can assess fees upon its subscribers, its partner, and opt-out states.  A governor electing to reject FirstNet’s RAN build would face uncertain funding from NTIA for its own network build, pay fees to FirstNet to access FirstNet’s core network, pay its vendor, charge its own user fees (which must be competitively priced), and ensure that it has a sustainable financial model.

States also cannot guarantee sustainability.  State governors, policies, politics, funds, and priorities constantly change.  In 2018 alone, gubernatorial elections will be held in 36 states and three territories.  Opting out is a substantial commitment, yet no state can guarantee to its first responders and citizens that it will be able to remain sufficiently and continuously committed to the state RAN.  There is no rescue plan in the law for failed opt-out RANs.  If something goes wrong, the entire state could lose service indefinitely, leaving first responders without the service they will increasingly come to depend on.

Passing the opt-out review process is nearly impossible.

By congressional design, states seeking to opt out must hurdle three separate high bars in short order.  The law’s stringent provisions speak for themselves.

It’s no longer a question of control.

You don’t need to construct your own RAN to ensure you have the level of local control public safety expects.  LTE technology is completely different than land mobile radio networks, and offers numerous features that permit local customization.

States can’t profit from opting out.

The law is clear, despite any promises made by misguided vendors:

“Any revenue gained by the State… shall be used only for constructing, maintaining, operating, or improving the radio access network of the State.”[2]

Congress also recognized the need for FirstNet to charge states that opt-out a fee to access the core network, which Congress reserved exclusively to FirstNet to implement:

“If a State chooses to build its own radio access network, the State shall pay any user fees associated with State use of elements of the core network.”[3]

The amount of this fee will not be known at the time a decision to pursue opt-out is required.

Grant funding from NTIA for constructing opt-out RANs (in lieu of what FirstNet would spend to implement its proposal) has not been determined, and there is no guarantee of what amount opt-out states may receive.

Yet the ink was barely dry on the FirstNet legislation when vendors and consultants began preying on states to convince them to opt-out, often with false promises of revenue from monetizing the spectrum dedicated to public safety.  These businesses see more profit in keeping public safety divided than helping to achieve the goals of the FirstNet legislation.

Certain vendors have been quite public about trying to convince states to opt-out and hire them.  One in particular is promoting its dynamic spectrum exchange technology, which has not yet been proven in practice, let alone in a public safety environment.  A cardinal rule of public safety communications is that public safety shouldn’t be a proving ground for a proprietary, untested technology.

Further, the spectrum exchange model may bring a number of substantial financial risks to governors.  A recent economic analysis by NERA Economic Consulting explains that “the deployment of a state-owned RAN is costly,” consisting of initial capital investment, operating expenses, and upgrading or incremental capital expense.[4]  Among states that have issued RFPs to explore opt-out, its author, Christian Dippon, estimates that New Hampshire, Alabama, and Arizona can expect to pay as much as $48 million, $269 million, and $524 million, respectively.[5]

Against this backdrop, Dippon states that “a closer examination of the potential profit that the states could earn from opting out from the FirstNet program demonstrates that demand will likely be weak, leading to low revenue expectations and thus negative profits.”[6]  As Dippon explains, carriers tend to account for capacity needs in their network designs, and it is thus “not realistic that a mobile wireless service provider would expend such large amounts on solutions that are not permanent.”[7]  As a result, “states will incur substantial deficits, which they will only be able to cover by an increase in taxes.”[8]

Dippon casts further doubt on the economics of dynamic spectrum access, such as the complexities of formulating the roaming agreements that both public safety and commercial users would require (“the inability to place a call outside the opt-out state would make the opt-out network one of very low value to its subscribers”), the experimental nature of such a system (“no country has a working spectrum-exchange system”), and the strength of existing secondary markets for spectrum (“strong and thriving”).[9]  I would recommend any state considering opt-out to review this entire report as part of its overall due diligence efforts.

How Opting Out Will Harm Public Safety

Fragmented networks will add unnecessary costs and complexity to FirstNet.

Any opt-out state RAN adds complexity, operational risks, and integration costs to FirstNet and the remainder of the country.  At the same time, first responders are at a disadvantage as they await the conclusion of the opt-out process, and then the state’s network build.

Fragmented networks will imperil nationwide interoperability.

The most important goal of FirstNet is to create and preserve a nationwide level of interoperability for public safety broadband communications.  Historically, the state and local network build model has failed the country in this regard.  All it takes is for one state RAN to fail, and there goes interoperability within that state, with adjoining states, and nationwide.

Fragmented networks will introduce unnecessary cybersecurity risks.

Public safety broadband networks will be an attractive target for cyber attacks.  Congress knew this and incorporated a number of requirements of FirstNet to build in protections against cyber attacks.  Even one separate opt-out RAN introduces an external vulnerability that can impact the entire network.

The Good News

Thanks to a dedicated and talented Board and staff, FirstNet has accomplished its major statutory responsibilities to date: extensive consultation with states, localities, and public safety professionals across the country, and a well-executed procurement process that achieved what Congress had in mind for this public-private partnership – an expert wireless industry partner in AT&T, that, as Congress intended, permits FirstNet to leverage the experience and infrastructure of a commercial wireless service provider.

Indeed, in just the short amount of time since the Department of Commerce and FirstNet announced their partnership with AT&T, AT&T has shown how much value they can contribute to the public safety community.  AT&T will be making available quality of service, priority, and preemption services to states once a governor opts-in, without the need to wait on the build-out of Band 14, FirstNet’s dedicated spectrum.  In other words, as soon as governors opt in, the first responders in their states can benefit from priority access over AT&T’s existing network.

Our nation’s first responders deserve the best, and we owe it to them to achieve the vision of FirstNet. The entire country needs to band together to realize the efficiency, sustainability, interoperability, reliability, and security made possible only by a single nationwide network.  This is a chance to get things right for public safety, and I’m all in.

 

[1] The agreement between FirstNet and AT&T is for 25 years.

[2] 47 USC § 1442(g)(2).

[3] 47 USC § 1442(f).

[4] FirstNet: An Economic Analysis of Opting In vs. Opting Out, By Christian Dippon, PhD, NERA Economic Consulting (March 2017) at page 7,https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2939764.  This report responds to a paper prepared for Rivada Networks by Peter Cramton and Linda Doyle.

[5] Id.

[6] Id.

[7] Id. at 8.

[8] Id.

[9] Id. at 10-21.

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