The Lowest Risk Publicly-Owned Network: The Case for Public Ownership

The case for public ownership of a wireless broadband network lies in these six areas.

Invalid Private Sector Solutions. Private sector solutions have mostly proven invalid to date - the industry remains immature and public sector entities have not had success in finding reliable partners that have adequate financing, experience, risk tolerance or motivation to invest the needed capital for a reliable network and still provide the service to the public sector at an acceptable rate (i.e., the pool of private sector owners is inadequate and their service offers have been largely unattractive).
Public Infrastructure and Operations. Public sector entities already operate infrastructure and have field operations, and both enjoy significant efficiency benefits from a network, which provides a stable revenue stream to pay for the network out of budget savings.
Lower Cost of Capital. Public sector entities enjoy better and lower-cost access to capital than private owners.
Longer Payback Periods. Public sector entities expect longer payback periods for an infrastructure investment than do private entities.
Excess Bandwidth. Marketing excess bandwidth after public sector needs are met provides a secondary revenue stream for recovery of network costs, lowering project risk and providing a source of non-tax public revenue.
Sustaining Community Benefits. Finally, public sector owners enjoy ancillary, sustaining benefits when they make the network resource available to various stakeholders in the community.

Network Strategic Plan

Given these circumstances, a network strategic plan begins with a goal to optimize public control and benefit by owning the network. But that doesn't leave the private sector completely out of the picture. The lowest risk venture will bring in private sector partners in a Public Private Partnership through a solid Procurement Process that provides the most competitive alternatives / best value.

If any of the necessary components are available through a public catalog or off of an inter-local agreement, or any other non-bid method, those options should be evaluated against two bid options:
1) Using a system integrator, where a single RFP will seek a company to assemble the components into a comprehensive, integrated solution; and
2) Pursuing multiple components through separate RFPs (e.g., Equipment, Deployment, Operations, Market Development), or some combination thereof.

Following a vendor selection process and negotiations to arrive at the best price and solution, the remaining strategy component is a focus on cash flow, rather than capital expense, when considering network infrastructure cost recovery.

Long-term financing takes advantage of an option available to public sector entities, but also shifts the emphasis on financing to an operations budget. We recommend a long term, 7-8 years, to align the annual network financing goal with anticipated annual cost savings.

Network Cost Recovery

A strategy to align annual network payments with annual operational budget savings, provides management with an annual savings target. Budgeted cost recovery is the most conservative approach: it focuses full cost recovery where public management is in complete control.

An added benefit of public ownership is excess capacity: public uses of the network bandwidth can be expected to range between 5 and 25% of network capacity, depending on the amount of high-bandwidth applications like video.

The first step in a budget approach is to identify potential savings in operations and then set annual departmental targets, with the total meeting or exceeding the annual network capital expense.

Savings from network operations fall into two categories:
a) direct avoided costs, actual expenses currently in the budget that will be cancelled altogether or reduced based on wireless applications running on the network (e.g., elimination/reduction of cellular accounts and plans); and
b) redirected expenditures - anticipated efficiencies achieved through business process improvement (e.g., labor cost reductions, fuel cost reductions, etc.)

Managers should develop prioritized departmental assessments & strategies:
1. Public Safety & Disaster Preparation / Prevention - Mobile Field Data Access ('MFDA"), Video Surveillance, Asset Tracking, Automatic License Plate Recognition ('ALPR"), Staff Limits
2. ITC (mobile / fixed telecom)
3. Utilities (AMR Data Backhaul & Mobile Field Data Access)
4. Mobile Employees - Mobile Field Data Access; Inspectors (Public Health, Animal Health, Building, Permitting, Engineering); Public Works / Streets; Parks and Recreation

When the network project is structured in this manner, the focus is on annual and sustaining efficiencies through integrating departmental wireless network applications for departmental budget savings. The management goal is to recover network costs through tighter management, using annual goals to meet or beat annual network cost targets based on departmental challenges. Surplus savings can be used to finance additional applications or end-user equipment, or to pay off the network asset in advance of original project goals, providing added efficiencies and/or less project risk. Managed correctly, this process should produce a long-term, sustainable, virtuous cycle of benefits and efficiencies that releases operational budget savings for continuous improvement.

Full Use of Network Asset

The primary plan for network capital cost recovery through operational budget efficiencies, Plan A, produces excess bandwidth after government needs have been met.

Plan B for cost recovery is available by leveraging the excess bandwidth capacity after government needs have been met. Such a Revenue Enhancement Option affords the public entity an alternative plan not only to support a back-up network cost recovery strategy, but also to provide a new resource for community needs.

This network resource can be leveraged in a variety of ways, but it's important to note that unlike most revenue options available to the public sector, it does not involve a tax. Sales of excess bandwidth provide a non-tax resource, best achieved through offering a portfolio of wholesale and retail access service offers.

To provide the most benefit to the taxpayers and the community, the public network owner’s ultimate goal should be to achieve full capacity utilization. As with other resources with finite capacity, any slack capacity can be priced at marginal rates to optimize potential revenue.

The focus of this review so far has been on recovery of network capital costs, with no mention of the operating costs necessary to provide services and network maintenance. Because the wireless broadband network constitutes a natural monopoly, at least for the short-term, it provides an attractive resource that the public network owner can trade to an interested potential partner for low or no-cost services.

The lowest risk path is to recruit a private partner to operate and maintain the network in exchange for a long-term lease to use the excess bandwidth to make a business. Additionally, a deal may be struck with that partner to share any revenue generated from using the network in exchange for taking responsibility for operating expenses, offsetting further risk.

Besides the public network owner itself, potential alternate anchor tenants include:
- regional school districts (ISDs);
- regional municipalities;
- neighboring governmental agencies;
- federal and state agency branch offices; and
- large employers.

Network capacity optimization is most likely with a strategy to pursue local stakeholders, most notably incumbent Internet Service Providers, which currently lack such a metropolitan area mobile wireless broadband resource. Further, new Internet Service Providers, those most likely to pursue niche strategies by buying small amounts of network capacity without the need to make a large capital investment or to win a public bid, bring new competition to the local market.

And in conclusion

MetroNetIQ believes that public entities are in an enviable position when it comes to taking advantage of new communication technologies and applications.

The strategy outlined in this brief is the lowest-risk, highest-return means for a public entity to leverage its unique position in the marketplace and improve the long-term social and economic prospects of its community by bringing in a new communications infrastructure resource.

The access to low-cost capital, long-term presence in the area, and significant operating budget that public entities enjoy make them the logical local organization to introduce a new infrastructure into an area at the lowest risk. Public entities are the only network owner who would hold in mind the best interests of all stakeholders in the region.

The Bottom Line

By owning the network and operating it as a public infrastructure whose principal goal is to benefit the community and all its stakeholders, the public entity can take much of the risk off the table, open up new opportunities that would otherwise be unavailable and provide a winning solution that benefits the entire community in a sustaining manner.

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