FirstNet : An Economic Analysis of Opting In vs. Opting Out

In February 2012, Congress created the “First Responder Network Authority,” otherwise known as “FirstNet.” FirstNet is charged with overseeing the construction, operation, and maintenance of the country's first nationwide public safety broadband network (NPSBN). FirstNet is obliged to leverage existing telecommunications infrastructure and to use commercially available equipment. Going forward, it is also required to generate the funding necessary to operate, maintain, and improve the network. To do so, FirstNet is allowed to collect network user fees (e.g., from public safety entities) and lease fees from public-private arrangements. In the latter scenario, a commercial entity would construct, manage, and operate the network under the auspices of FirstNet, and the commercial entity would have access to network capacity on a secondary basis to provide commercial services. States have the opportunity to either opt in or opt out of participating in FirstNet's nationwide network. For states that opt in, the costs to build, operate, and maintain will be shouldered by FirstNet. States that decide to opt out of participating in FirstNet must still construct a dedicated public safety network to serve their jurisdiction but will have to cover much of the cost to build, operate, and maintain it. Two economists have suggested that a state that opts out of FirstNet can avoid the cost and financial risk of funding its own network by simply deploying an auction-based spectrum exchange to raise revenue. This paper finds that such an approach is illusory and would actually expose states to financial risk with no benefits for first responders