An Economic Analysis of Opt-In/Opt-Out: Payments to FirstNet and Annual Spectrum Network Capacity Payments

Abstract

FirstNet was created to establish a Nationwide Public Safety Broadband Network (NPSBN) to provide reliable, modern and interoperable communications to first responders. Every Governor has the right to “opt-out” of the FirstNet plan for his or her state and develop an alternative plan for the radio access network of his or her state. Due to the economics of the wireless industry, states with high-density and/or high-income populations are likely to generate financial surpluses from this network, while states with low-density and/or lower-income populations will likely operate at a loss. Since Congress mandated a nationwide, self-funding PSBN, network operations in “profitable” states will inevitably subsidize loss-making states. In its NPSBN solicitation, FirstNet determined that the amount necessary for its operational sustainability over 25 years was $5.625 billion. In an opt-in state, FirstNet’s contractor contributes to FirstNet via “Payments to FirstNet” only to later receive funds from FirstNet to be reinvested into the network. Specifically, AT&T will pay a nationwide total of $18 billion and receive $16 billion for reinvestments. For opt-out states, FirstNet has required “Capacity payments.” Based on a small number of publicly available data points, it seems highly likely that the opt-out states’ capacity payments are at least equal to $18 billion. Contrary to opt-in states, opt-out states are not entitled to receive reinvestment funds.