Editor’s Corner: It’s time for ‘nationalized’ 5G idea to die

The idea of the U.S. government building its own 5G network and potentially selling spectrum on a wholesale basis continues to rear its ugly head, like the umpteenth version of a bad Halloween movie.

The issue came up again last week when CNN reported that senior officials were alarmed at White House pressure to grant a contract to Rivada Networks for building a 5G network using Department of Defense (DoD) mid-band spectrum. CNN said the effort was being led by White House chief of staff Mark Meadows, acting at President Trump’s behest. Apparently, Trump was encouraged to help Rivada by veteran GOP strategist and Rivada investor Karl Rove, according to the report.

As New Street Research analysts wrote in a report over this past weekend, it sounds as though the administration is of mixed minds, and given the White House merely responded with a “no decision has been reached” comment instead of something stronger suggests it’s not concerned about the political consequences of the opposition. (Plus, the Trump campaign in August listed 5G among the president’s second-term goals, saying he would “win the race to 5G and establish a national high-speed wireless internet network.” So, there’s that.)

Of course, Rivada CEO Declan Ganley promptly denied the suggestion that the Trump administration is pressuring defense officials to award a contract to Rivada without a competitive bidding process. Ganley told The Irish Times that the story emerged as part of a partisan political battle as the U.S. presidential election enters the final stretch.

For the next week, we can blame everything on the run-up to the election.

RELATED: Rivada: We’re not interested in nationalized 5G

Rivada’s EVP Brian Carney told Fierce a couple of weeks ago that the company isn’t interested in participating in any free government give-away or a nationalized 5G network. The company did, however, respond to the DoD’s Request for Information (RFI) and peddled its idea for a wholesale business model. In an excerpt describing its response, Rivada said a wholesale network would not compete with any existing retail carrier business in any geographical area.

“Rather, it would provide those existing 5G carriers with quick and flexible additional 5G capacity if they needed it, either on a short-term or long-term basis,” the company explained.

Rivada calls its model for providing network capacity to wholesale customers the Open Access Wireless Market (OAWM). According to the company, conceptually it’s similar to the open-access wholesale electricity markets that have been in operation for years and have helped drive down costs and increase investment in that sector.  

Who’s playing ball?

The problem comes when considering who’s going to buy excess capacity. “The established carriers are not going to buy capacity from Rivada unless they are forced to do that, and then we’re another step toward socialism,” said industry analyst Roger Entner, founder of Recon Analytics.

But wait a minute. Hasn’t the idea of a government-run 5G network come up before? And didn’t that get buried? No, it turns out, it did not.

Investment analyst Craig Moffett broke it down into a five-part story in a report earlier this month, starting with the story Axios reporters broke in January 2018 that cited a PowerPoint deck and memo that proposed a government-sponsored 5G network.

RELATED: CTIA applauds White House for rejecting government-mandated wholesale 5G network

“This topic is like a zombie,” Entner said. The industry and a lot of people thought they had driven a stake into the heart of it, and “apparently we missed the heart and it gets resurrected over and over again. It comes back … and it should be dead. It’s not a good idea.”

So, who’s behind it?

Given the frequency with which this idea keeps coming back from the dead, it begs the question: Who keeps reviving it? Moffett noted that the DoD’s RFI took the most definitive step toward a national 5G network, identifying spectrum between 3100-3550 MHz. “In a case of the strangest of strange bedfellows, this time not only is Karl Rove advocating for the network, but so is former Google CEO Eric Schmidt,” Moffett wrote.

Indeed, at the INCOMPAS show last month, Schmidt explained why he prefers to use a spectrum sharing model rather than the decades-old approach of using auctions to distribute spectrum. He recently wrapped up a four-year term as chairman of the Defense Innovation Board (DIB), which was set up to apply Silicon Valley innovation to the DoD.

“China’s already won this race,” Schmidt said. “We’re definitely playing catch-up. It’s a national emergency. The solution is to act quickly, and the quickest way is to use existing dynamic spectrum, use some form of wholesale model that would use private sector money to build out the network very quickly.” He indicated that he’s been told the effort could get done within two or two and a half years.  

There’s a lot of political intrigue in this story, so maybe that gives it some legs. Schmidt and Rove aren’t the only big names associated with the idea. Former Republican speaker of the House Newt Gingrich has criticized the nation’s carriers for moving too slow on 5G and in 2019 called for making shared spectrum available for a carrier-neutral, wholesale-only, nationwide 5G network.  

During a Hudson Institute event a couple weeks ago discussing the DoD’s RFI and its impacts, FCC Commissioner Michael O’Rielly, who, unfortunately, will give his last speech as an FCC commissioner during GSMA Thrive this week, said the moves contemplated via the RFI are problematic. When all is said and done, the FCC’s approval will be required for commercial use of the spectrum. O’Rielly said all five commissioners have rejected the idea multiple times at a recent House hearing and he suspects any nominee to the commission going forward will need to answer questions about it before getting approved to serve on the FCC.

At the same event, former FCC commissioner Robert McDowell pointed out that putting this idea out there adds a degree of uncertainty. If the government is contemplating getting into the 5G game, that could drive up the cost of capital. Just teeing it up creates questions for those who are lending money to wireless carriers and other companies in the ecosystem. Eventually, what could happen is higher costs for companies building out 5G.  

Plenty of industry folks have voiced their opposition. CTIA President and CEO Meredith Attwell Baker noted in her commentary that the idea of dedicating a huge swath of critical mid-band spectrum to building a military-controlled 5G wholesale network has rightfully been met with universal bipartisan condemnation.

“All five FCC commissioners have been vocally opposed to the concept: FCC Chairman Pai concluded nationalization would be a “costly and counterproductive distraction” and the senior Democrat on the FCC Commissioner Jessica Rosenworcel reflected it “really misses the mark,” Baker wrote.

Analysts indicate this isn’t going away with the election. Even though it seems as though the Communications Act makes it clear that federal agencies can’t use spectrum for non-governmental applications and it would seem that the DoD is trying to do an end-run around the FCC, one can’t simply dismiss it all out of hand, Moffett wrote. “In fact, one can’t even say with certainty that the idea of a national 5G network would go away if the Democrats win,” he said.

New Street Research analysts say they think auctions will remain the principal tool for spectrum allocation for some time to come. “Still, what the DoD is successfully doing is causing the sector to contemplate how to meet the needs of the DoD directly, without going through NTIA or the FCC,” wrote policy analyst Blair Levin. “We think that trend will continue. The old process in which NTIA identifies government frequencies to be transitioned to the private sector and the FCC auction them off has been challenged in the last few years and that challenge is likely to continue.”

Congress and the FCC have already set the precedent of allowing incumbents to use their leverage to derive financial benefits in the incentive and C-band auctions, he noted. “So it may have been inevitable that the biggest incumbent with the most leverage would eventually look for its own set of benefits in terms of authority over and control of the process, regardless of Rivada’s efforts,” Levin wrote.

Plenty of folks will be gathering, virtually, this week to discuss spectrum, spectrum policy, 5G, the impact of COVID-19 and a host of other issues during the CTIA 5G Summit as part of GSMA Thrive. A week before the U.S. presidential election and all of this, there should be plenty to talk about. — Monica @malleven33

Editor's Corners are opinion columns written by a member of the Fierce editorial team. They are edited for balance and accuracy.