Move over LightSquared: Is the U.S. Government the Next Wholesale Mobile Network Operator?

(Jun 5 2012) FCC , LTE , Public Saftey , Spectrum

1. Ten years after the 9/11 attacks on the World Trade Center, President Obama signed the Middle Class Tax Relief and Job Creation Act of 2012 that contained, amongst other measures, language establishing and funding a new national public safety LTE network for first responders.   Less well known, the new law incorporated "Covered Leasing Agreements" as an integral catalyst to spur and fund the new network operated by the First Responder Network Authority, FirstNet.  Produced under pressure as the ten year anniversary of the attacks came and went, the new law leaves many questions, not the least of which is: Is the U.S. government the new mobile broadband wholesale network in town?

   That the February passage of the Middle Class Tax Relief bill incorporates legislation to fund, build and manage a coast-to-coast national public safety network is no shock.  The WTC attacks cast a spotlight on fragmented public safety communications networks that failed to interoperate between agencies while also stymied by reliance on legacy voice-only networks.  In a striking example of both failures, the New York Police Department helicopter monitoring the burning towers could not communicate with on-the-ground Fire Department command staff.  Video streams that could have alerted command staff to the extent of fire load on the upper floors were not supported by today's technology.  In reviews following the attack, recommendations for improved communications resulted in significant advances in interoperability with widespread deployment of Project25 voice communications systems in major metropolitan areas.  But efforts to boost data communications capabilities - including video transmission - proved stubbornly resistant to progress. 

   That the law stipulates Long Term Evolution (LTE) for the new network is no surprise.  In the period since the WTC attacks, LTE emerged as a viable technology for public safety communications as well as an internationally harmonized solution for advanced commercial mobile broadband service offering significant manufacturing scale advantages.  Recognizing this, the FCC allocated a 10 MHz slice of the upper 700 MHz band freed with the shutdown of analog television.  In addition, the FCC envisioned an additional 10 MHz block complementing the original slice dedicated to public safety mobile broadband.  The second block, labeled the D-Block by the FCC, was put up for auction with other 700 MHz bands. Unfortunately, requirements aimed at making the D-Block useful for public safety had the effect of reducing the utility of the band for commercial mobile broadband deployment and no operator submitted a viable bid.  D-Block's limbo ended with passage of the Middle Class Tax Relief bill as Congress re-purposed the block towards public safety while combining it with the original 10 MHz block.

   Going beyond simply committing the additional D-Block spectrum for public safety, Congress strove to put in place a comprehensive foundation to address funding, governance, build-out and operation of a coast-to-coast public safety network based on LTE.  With a need to construct more than 40,000 base stations to deliver robust coverage in urban and rural environments, Congress supplied $9B to cover initial capital and operational costs.  Beyond its initial funding, FirstNet is required to achieve permanent self-funding with the aid of network user fees, lease fees related to network capacity and lease fees related to infrastructure.  In the case of network user fees, proceeds will come from public safety entities as well as secondary users not affiliated with public safety.

   Where things become interesting, however, is the concept of lease fees related to network capacity.  The law specifically calls for public-private arrangements to build and run the national network.  Even though the law prohibits FirstNet from selling services directly to enterprises or consumers, Section 6208 suggests that FirstNet can outsource construction and operation of the network to private mobile network operators who will be entitled to carry any commercial traffic on a secondary basis over FirstNet spectrum and backhaul fiber networks.  In essence, FirstNet will obtain part of its permanent self-funding by charging its private partners for wholesale access to its network.  With no definition of what a secondary user is or what constitutes access to network capacity on a secondary basis, FirstNet has broad freedom to create both a national public safety network and a secondary wholesale network supporting the commercial needs of partners supplying needed construction and operational aid.

   The implications for mobile network operators are profound.  Not surprisingly, AT&T and Verizon Wireless snapped up most of the prime 700 MHz LTE spectrum.  Limited roaming support due to interference concerns and filter complexity leaves smaller operators including Sprint, T-Mobile, C-Spire and others struggling to build a competitive LTE services on coverage-friendly spectrum below 1 GHz.  By banding together, smaller operators could offer FirstNet a partnership delivering broad 700 MHz-based LTE service in a large region or nationwide.  As partners, these operators then gain the right to offer roaming customers access to the public safety network when out-of-region, albeit as secondary users. Of course, whether these smaller operators have the financial wherewithal to engage in this ambitious effort or the extent to which terminal devices will be available for all the band combinations remain open, and difficult, questions.

   Verizon Wireless can also win in this new FirstNet paradigm.  With its 700 MHz LTE service hosted nearby on Band Class 13, the national operator is arguably best positioned as the natural roaming partner for public safety users that roam off the Band Class 14 footprint operated by FirstNet.  By entering into a partnership with FirstNet, Verizon Wireless could augment capacity by pushing some traffic to FirstNet as secondary users. Given Verizon Wireless' rejection of public safety priority requirements in the D-Block auction attempt, it is unlikely Verizon will go down this.

   The FirstNet partnership model is not limited to mobile network operators.  We may see companies outside the mobile network operator fold take a shot at the opportunity to build and operate the public safety network.  Large government integrators such as Lockheed Martin, Boeing and General Dynamics may view this as an enticing opportunity that comes just as defense spending starts to wind down.  Potentially leveraging expertise gained standing up extensive military wireless networks inIraqandAfghanistan, these players may prove credible contestants to become future wholesale network access suppliers across theUnited States.

   Passage of the Middle Class Tax Relief and Job Creation Act of 2012 has set in motion a chain of events creating opportunity for mobile network operators thirsting for spectrum capacity.  For operators, the opportunity means access to capacity, but saddled with complexity and no guarantee of device support.  For the government, the challenge means striking the right balance between public safety requirements and a sustainable financial structure supported by healthy private partners.  Only one thing is clear, industry consultants will make a ton of money guiding the public and private parties on this unprecedented journey. Let the jockeying begin!

   By: Ken Rehbehn, Principal Analyst, Yankee Group

    

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