Date of Original Version
37th Telecommunications Policy Research Conference, Sept. 2009.
Abstract or Table of Contents
Deploying a single nationwide broadband wireless network to serve all public safety users would have great advantages over the existing fragmented public safety systems. A nationwide system could be created to serve both public safety and commercial subscribers, which would allow a provider to exploit important economies of scope but force it to meet the more costly requirements of public safety. In 2007, the U.S. Federal Communications Commission tried to establish a public-private partnership whereby a commercial partner would commit to serving public safety agencies in return for access to valuable spectrum in which it could serve paying customers. No commercial partner emerged from the initial auction, sparking intense debate about the potential of the underlying policy, whether it should be tried again, and if so, how. Thus, this paper considers the viability of a public-private partnership approach from a for-profit provider’s perspective. To do so, we present a model to estimate the net present value (NPV) of a wireless network over a 10 year period by calculating costs based on the number of cell sites required and revenue based on the number of subscribers acquired using projections of market penetration each year. We apply this model to both a public-private partnership that serves commercial subscribers in addition to all public safety personnel on 20MHz of 700MHz spectrum, and a commercial-only network that serves just commercial subscribers on 10MHz of 700MHz spectrum.
We find that the NPV/cell is greater for the public-private partnership than for the commercial-only network for any population density in which the cells are deployed. This implies that the value of the additional 10MHz in the partnership is more than the cost to meet public safety's more stringent requirements. Furthermore, we demonstrate that the NPV/cell in both networks increases rapidly with population density such that urban regions are profitable and rural regions are unprofitable. This implies that rural areas are only covered by a network if build-out requirements are imposed on the license. We find that the population covered by a partnership can be increased from 56% (i.e. the region where NPV/cell >0) to 93% and the partnership still breaks even (i.e. NPV = 0). In this case, the urban 56% of population acts to subsidize the coverage of the unprofitable 37% of population covered. Moreover, we find that if population covered is increased further to 99.3%, a public-private partnership is sustainable if given an upfront subsidy of about $2B to cover initial costs. However, at this level of population coverage only 50% of area would be covered and thus, many rural agencies would be left out of such a nationwide network. Additionally, we find that urban areas opting-out of the partnership significantly reduces NPV while rural areas opting-out have no negative impact on NPV. Thus, if big cities are allowed to opt-out, this significantly increases the subsidies required to bring coverage to a given fraction of the country.