Is the 800 MHz TA Over-Relying on Cost Metrics?
Wednesday, April 29, 2009 | Comments

         

By Matthew J. Plache

In January 2007, the FCC’s Public Safety and Homeland Security Bureau overseeing the 800 MHz public-safety reconfiguration released an order designed to level the playing field in negotiations by breaking down the information imbalance between Sprint Nextel and public-safety licensees. Prior to that time, Sprint Nextel had access to the universe of cost information from every individual deal, while individual licensees were forced to negotiate in a vacuum, restricted from access to information on any deal other than their own. The January 2007 order allowed public-safety licensees to share frequency reconfiguration agreement (FRA) and planning funding agreement (PFA) cost information among themselves. The order stated that sharing such information “is necessary to the conduct of good faith negotiations.”

Included in the bureau’s order was a requirement that the 800 MHz Transition Administrator (TA) begin publishing aggregated cost information on completed FRAs and PFAs — specifically, “information regarding median costs for the key common elements of PFAs and FRAs that it has approved, broken down by the size and complexity of the public-safety system.” As the bureau explained, this requirement was adopted for the benefit of the public-safety community, “to provide further guidance to public-safety licensees in upcoming negotiations” so that entities will not have to rely “solely on disclosure of individual agreements to inform subsequent negotiations.”

This was the genesis of the TA’s cost metrics, published in matrix form that includes a series of cost tables showing aggregate cost data for completed FRAs. The matrix sets forth the aggregate median, 25th and 75th percentile costs for completed deals based on numbers of subscriber units. The data shows total costs, as well as expenses by individual cost category such as project management, engineering, subscriber equipment reconfiguration and others. It also includes information based on number of base stations and types of subscriber units.

The matrix should be used as a rough guide. For example, systems are categorized by subscriber number only — 1,001 – 2,000 units; 2,001 – 4,000 units; and 4,001 –10,000 units — without taking into account factors such as number of agencies or government jurisdictions served, the type of geography covered, channel loading issues, equipment access restrictions, system age and other factors that make each individual reconfiguration unique. Truly understanding the relationship between one deal’s costs and those of any other requires close study and comparison of the individual systems and plans of reconfiguration. Such one-on-one comparisons are simply not possible with an aggregate table.

Yet the matrix is useful for its intended purpose to provide baseline information to individual licensees to assist them in planning and negotiating their own individual reconfigurations. The cost metrics set forth in the matrix aren’t a substitute for the needs of any individual public-safety entity in its own specific reconfiguration. As the FCC has recognized in its reconfiguration orders, every reconfiguration is unique and must be negotiated separately. The bureau reemphasized this in the January 2007 order stating, “While information derived from other negotiations will allow licensees to craft more accurate determinations of their rebanding costs, such information is not, by itself, dispositive.”

Indeed, in publishing the matrix, the TA emphasized, “The FRA data is provided for informational purposes only. Licensee reconfiguration costs can and do vary based on a number of factors. The TA reviews all licensee cost estimates and will approve for reimbursement any reasonable and prudent expenses directly related to the reconfiguration of the licensee’s 800 MHz system.”

Applying the Numbers

As we move forward with negotiations, it is important to keep these words in mind. The easier and less costly deals have been resolved, while the more complex and more expensive deals have been left to the end. The TA recognized this in its most recent quarterly report as a primary basis for the slowing pace of FRA negotiations. “Many of the remaining nonborder licensees without FRAs have large and complex systems, often with numerous call signs,” said the report, released in March. The TA’s cost metrics are based only on agreed-to FRAs, and therefore, they are skewed by the less complex, lower cost deals. Accordingly, they are of diminished relevance for the remaining deals.

However, the TA has recently begun placing more emphasis on the matrix as a yardstick for reviewing negotiated FRAs. In requests for information (RFIs), the TA has asked licensees to explain why costs under individual deals are more expensive than the median costs under the matrix. Licensees receiving these RFIs have a difficult time answering the question. The obvious answer is that the matrix is skewed toward the easier deals completed first and accordingly don’t reflect the complexities and costs of the individual reconfiguration under consideration. But because licensees don’t have access to the FRAs used by the TA in developing the cost metrics (except by obtaining them from individual licensees, something that can be done in limited scope at best), it’s nearly impossible to be more specific when making comparisons to previous deals. A licensee can only describe the particular difficulties of its own individual reconfiguration.

The TA’s job is to evaluate negotiated FRAs and verify that all costs are reasonable. Use of the published metrics as anything more than an informational tool in conducting that evaluation presents serious problems. In particular, using the median costs under the matrix as a presumptive standard to be overcome by the licensee is unreasonable, and any trend in that direction should be reversed, unless the TA is prepared to make all individual FRAs available through a clearinghouse for review and comparison, so licensees could have fair opportunities to respond to presumptions. Even then, a notice and comment rulemaking would be warranted before creating any kind of cost presumption based on aggregated data from signed FRAs.

Alternatively, the TA could review each deal on the basis of the individual circumstances and requirements presented, which is in fact how deals are negotiated in the first place. RFIs can be posed based on the actual scope of work for the deal under review rather than based on the published cost matrix. The TA or Sprint Nextel should not use the cost matrix as a basis for denying needed costs for the more difficult and higher cost deals still in negotiations.

The FCC ordered cost data to be kept and published as a means for protecting public-safety entities with a level playing field and access to information needed for good-faith negotiations. The data remains useful for informational purposes, but it is not legitimate as a presumptive standard. It would be ironic indeed for this data now to be turned into something that it’s not and unfairly used as a basis to deny the reconfiguration needs of the parties it was supposed to protect.

Click here to read TA Deputy Program Manager Brett Haan's response.


Matthew J. Plache is a partner in the law firm of Catalano & Plache. The firm has numerous clients involved in 800 MHz reconfiguration.

 



 
 
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