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FirstNet Searching for Private Sector Partnership

Law360
June 8, 2015

On May 14, 2015, the First Responder Network Authority (FirstNet) held its first “Industry Day” session since the release of its draft request for proposals (RFP) for a comprehensive network solution to build, deploy and operate a nationwide interoperable broadband network for first responders. A product of the Middle Class Tax Relief and Job Creation Act of 2012, FirstNet is an independent authority housed within the National Telecommunications and Information Administration and is charged with taking all actions necessary to create, operate and maintain the network.[1] The act provides $7 billion from spectrum auction revenue for the construction of the network and directs the Federal Communications Commission to assign 20 megahertz of prime contiguous spectrum to FirstNet. The spectrum allows FirstNet to meet the broadband communications needs of first responders and to enter into leasing arrangements with commercial providers for wholesale access to FirstNet’s excess network capacity on a secondary basis. Following the record amount of revenue raised by the FCC’s AWS-3 auction earlier this year[2], FirstNet is expected to be fully funded by this summer.

The Industry Day was the first in a series of upcoming efforts by FirstNet to socialize its vision of a nationwide public safety broadband network, as reflected in the draft RFP, with potential partners from the commercial sector. It included presentations from key FirstNet officials covering the network’s proposed operational architecture, coverage and technical requirements, as well as business model. According to James Mitchell, senior program manager for operations and one of the Industry Day presenters, FirstNet is looking to solicit input from all stakeholders in order to validate many of the assumptions that formed the basis of the draft RFP and understand “where industry’s mind is ... as well as public safety, states, all of our market participants” to ensure the success of its final RFP.

As FirstNet begins to answer some of the most critical questions regarding the reliability, affordability and sustainability of the network, carriers, vendors and owners of network infrastructure, as well as other entities that wish to partner with FirstNet, should keep in mind some of the opportunities and challenges of doing business with FirstNet. Among other things, the following key takeaways could be gleaned from the draft RFP and the Industry Day presentations.

FirstNet Has Articulated a Consistent Sense of Its Mission, Objectives and Technical Needs

Nine months after releasing its draft statement of objectives for public comment, FirstNet has made very few changes to the overarching principles that will guide the deployment, operation and ongoing maintenance and growth of the network. FirstNet has adopted a thorough approach to soliciting public input, including by releasing 13 separate requests for information (RFI) seeking answers to very specific aspects of the network architecture. More significantly, the consistency of the statement of objectives reflects FirstNet’s commitment in its ultimate mission of providing emergency responders with advanced yet affordable communications capabilities that operates seamlessly nationwide. It also reflects FirstNet’s commitment to a performance-based procurement approach, which provides flexibility while encouraging ingenuity and collaboration. The 16 objectives[3] articulated in the draft RFP serve as anchoring tenets for FirstNet while providing transparency to its public safety users and commercial sector partners who may otherwise be skeptical of the value of participating in this endeavor.

Similarly, FirstNet’s technical requirements have remained consistent following the development of a set of technical recommendations almost three years ago. The recommendations, initially developed by the FCC’s Technical Advisory Board,[4] prescribed 101 requirements based on the commercial Third Generation Partnership Program (3GPP) Long Term Evolution (LTE) standards that covered the minimal recommended technical specifications for FirstNet, ranging from prioritization, preemption, quality of service, to device management and testing and security. As the commercial 3GPP standards evolve, so will FirstNet’s public safety grade standards evolve to keep up with the latest services and offerings, in part thanks to the infusion of $300 million in federal research and development funding dedicated to advancing public safety communications. FirstNet is thus positioning itself to leverage the 3GPP standards-setting process for LTE-based services to develop and deploy a comprehensive ecosystem for public safety mobile broadband services.

Sustainability Continues to Be Difficult to Determine Due to Complex Variables

Although Congress provided FirstNet with $7 billion in spectrum auction revenues to fund the network, there is clear consensus that the amount, by itself, will be insufficient to deploy, maintain and operate a nationwide public safety broadband network. Indeed, a recent General Accountability Office report[5] estimated the cost of constructing and operating the network over the first 10 years to be between $12 billion and $47 billion — easily more than double the amount Congress chose to spend. To account for the shortfall, FirstNet is seeking to leverage every tool that is available at its disposal to reduce cost and increase revenue. According to John Quinlan, FirstNet’s deputy chief financial officer for strategic planning, those tools include “fees,” “synergies” and “excess network capacity.”

Unfortunately, numerous factors, some of them still evolving, continue to challenge FirstNet’s ability to fully realize the potentials of these revenue generators or cost reducers, thus clouding the overall forecast for sustainability of the network. First, while FirstNet is authorized by law to charge monthly fees to public safety users of the network or any other entity’s access to network infrastructure owned by FirstNet, the amount of such fees will not become substantial until later phases of network deployment. Indeed, FirstNet will be better served relying upon these fees for later phases of its deployment and to offset the ongoing operational and network upgrade costs than for initial network deployment. Furthermore, the number of public safety users who will be charged a monthly fee will primarily depend on how FirstNet defines “public safety entities” — an issue of statutory interpretation that has generated some controversy among stakeholders. The cost of the fees, the perceived value of the service, and whether there are commercial alternatives available all could affect the number of network users. Indeed, during Industry Day, Quinlan stated that the number of public safety users could be between 4 million and 13 million — a broad range that shows the unreliability of fees as a revenue source.

Second, FirstNet has indicated that it fully understands that it does not have sufficient resources to undertake a greenfield network construction project and that most cost-savings will come from leveraging access to existing network infrastructure, be they private sector towers or backhaul facilities or state and local buildings and other assets. Nevertheless, access to public sector infrastructure can be a bureaucratic and time-consuming process that can be waylaid by local politics.[6]  Access to commercial sector infrastructure, on the other hand, would require rental or access fees, further adding to FirstNet’s costs. Some commercial providers, however, will likely seize the opportunity to offer FirstNet access to their physical infrastructure in exchange for utilizing some or all of the network’s excess capacity, thus providing FirstNet some opportunities to reduce costs. FirstNet must therefore carefully conduct cost-benefit analyses to identify whether synergies exist that are desirable in particular instances.

Finally, the revenue that FirstNet could realize from leasing excess network capacity to commercial partners is extremely difficult to estimate. During the Industry Day presentation, Quinlan suggested that if one relies on the $2.71 megahertz-per-population price of the recently concluded AWS-3 auction, FirstNet could realize nearly $17 billion from leasing its spectrum capacity. He further argued that, due to the spectrum’s immediate availability, its ideal propagation characteristics for mobile broadband, the existing 700 MHz ecosystem with extensive 4G LTE deployment, and lower up-front payment in comparison to an auction, the revenue could potentially exceed $17 billion. But comparing the revenue generated from a one-time auction of spectrum that is competitively bid by multiple providers to the amount FirstNet can charge for leasing its excess capacity on an ongoing basis in areas where FirstNet may or may not have multiple commercial partners makes the $17 billion figure highly unreliable. At a minimum, a discount must be considered given the secondary nature of commercial wholesale access to FirstNet’s excess network capacity; providers are simply unlikely to pay as much for spectrum to which they cannot guarantee access at all times. In contrast to the $17 billion estimate, the Congressional Budget Office previously estimated the auction value of half of FirstNet’s spectrum (the 10 megahertz D block spectrum) to be $2.75 billion. The broad range of spectrum valuations makes the value of leasing excess network capacity difficult to predict. Companies that are evaluating partnering with FirstNet should therefore keep in mind the challenges to FirstNet’s achieving financial sustainability as well as the potential costs of obtaining leased access to FirstNet spectrum.

The State Opt-In/Opt-Out Process Remains One of FirstNet’s Biggest Challenges

One of the most challenging aspects of FirstNet’s operation is the act’s state opt-out process, which allows states to undertake their own deployment of a Radio Access Network (RAN) within their state rather than rely on FirstNet.[7] Further complicating the picture is the act’s requirement for an opt-out state’s RAN to be fully integrated and interoperable with FirstNet’s core network and for any excess revenue generated by the opt-out states to be fully reinvested in FirstNet’s network.

The state opt-out option creates complications for FirstNet’s procurement strategy at nearly all levels. For example, despite extensive solicitation of state input and consultation, FirstNet has yet to make its draft service level agreement (SLA) for RAN integration for opt-out states available for comment. In addition, it is likely that FirstNet proposed two acquisition approaches encompassing both a nationwide proposal and a state or regional RAN proposal to account for the possibilities of states opting out. Both categories currently rely on a “50 state opt-in” model to estimate the amount of revenue necessary for FirstNet to be self-sustaining. That amount will change if states decide to opt-out of FirstNet’s nationwide plan, potentially threatening FirstNet’s ability to remain solvent. Finally, any RFP into which FirstNet enters with a commercial partner could be subject to a protracted modification process to account for opt-out states or be rejected outright. While FirstNet is keenly aware of this vulnerability and is making significant efforts to make the “opt-in” scenario much more attractive than the “opt-out” one, it will need to adapt if a state ultimately decides to deploy its own RAN. Commercial partners can play a constructive role through the RFP process to help FirstNet meet these challenges.

For Potential Offerors — Time to Do Some Homework

According to TJ Kennedy, FirstNet’s acting general manager, in the end, the strongest RFP responses will reflect a close alignment of the public safety communities’ interests with the offeror’s own financial incentives. It will demonstrate that the offeror has some skin in the game to bring public safety customers onto the network, and that means creating a network that meets the needs, requirements and objectives of public safety.

Being able to meet the baseline expectations of public safety entities as well as the 16 objectives outlined in the draft RFP, all while staying commercially profitable, will require levels of synergy and efficiency that few private sector entities actually possess. Therefore, it is crucial that companies looking to participate in the final procurement process immediately begin to identify viable partners who can help create the necessary scale and cost-savings to submit joint proposals to FirstNet. Understanding the unique requirements of the federal procurement process, such as small business subcontracting incentives, will also be crucial.

In the end, developing a clear understanding of FirstNet’s mandates and objectives, its procurement strategy and requirements, as well as potential risks and the unpredictability of certain variables, combined with the ability to form strategic partnerships that fully leverage the capabilities of other players in the ecosystem, will be essential for any competitive offer to FirstNet.

—By Shawn H. Chang, Anna M. Gomez and Michael A. Lewis, Wiley Rein LLP

Shawn Chang is of counsel in Wiley Rein's Washington, D.C., office and former chief counsel for the U.S. House of Representatives, Energy and Commerce Committee, and Communications and Technology Subcommittee.

Anna Gomez is a partner in the firm's Washington office and former deputy assistant secretary for communications and information for the NTIA of the U.S. Department of Commerce. She also served for 12 years in various positions at the FCC, including deputy chief of the International Bureau.

Michael Lewis is a senior engineering adviser in Wiley Rein's Washington office and former engineering adviser to the chief of the FCC's Private Radio Bureau.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] See Middle Class Tax Relief and Job Creation Act of 2012, Pub. L. No. 112-96, 126 Stat. 156 (2012)

[2] The auction concluded on January 29, 2015 and raised more than $41.3 billion. See Federal Communications Commission, “Auction of Advanced Wireless Services (AWS-3) Licenses Closes, Winning Bidders Announced for Auction 97,” Public Notice, DA 15-131 (Jan. 30, 2015).

[3] The 16 objectives include build, deploy, operate, and maintain the network, financial sustainability, compelling and competitively priced services, device ecosystem, application ecosystem, accelerate speed to market, user service availability, service capacity, cyber security, priority services, integration of opt-out state RANs, integrating of existing infrastructure, lifecycle innovation, program and business management, customer care and marketing, and facilitation of FirstNet’s compliance with the Act and other laws.

[4] The Middle Class Tax Relief and Job Creation Act of 2012 required the FCC to establish a Technical Advisory Board for First Responder Interoperability (Interoperability Board) to “develop recommended minimum technical requirements to ensure a nationwide level of interoperability for the nationwide public safety broadband network.” See Middle Class Tax Relief and Job Creation Act of 2012 § 6203(c)(1)(A), Pub. L. No. 112-96, 126 Stat. 156 (2012).

[5] General Accountability Office, FirstNet Should Strengthen Internal Controls and Evaluate Lessons Learned, GAO-15-407 (Apr. 2015).

[6]  See Urgent Communications, “Swenson says LA-RICS providing FirstNet with valuable lessons about outreach, infrastructure sharing,” Apr 9, 2015.

[7]  In this context, the RAN is essentially the series of terrestrial antennas, towers and base station equipment that serve to provide connectivity to end-user devices and the core network.