How Much Does AT&T Stand To Gain From FirstNet?

Earlier this year, AT&T (NYSE:T) won a 25-year contract from the First Responder Network Authority (FirstNet) to build and run the first broadband network that will cater to first responders including police officers, firefighters, and emergency medical services in the United States. In this note, we take a look at what the contract could mean for AT&T.

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What Is FirstNet?

The current radio systems used by first responders in the United States have multiple disadvantages. For one, the local radio systems deployed across the country have different standards and generally cannot communicate with one another, rendering them less useful during major disasters. Moreover, the costs of the systems are also high for municipalities given that they are locked into a service provider’s equipment and software. However, in 2012, the federal government began to make plans for a new system that allows responders to communicate on a single network in real time, instead of using multiple separate, incompatible systems. Earlier this year, the agency in charge of the initiative signed a contract with AT&T to build and operate a nationwide IP-based, high-speed mobile communications network that gives first responders priority access. With the service, FirstNet is expected to match the voice capabilities of traditional radios while providing a host of new features such as video, encryption, mapping as well as other applications.

How Does AT&T Benefit?

AT&T will invest about $40 billion over the life of the contract in building and operating the network. The federal government will provide AT&T with 20 MHz of valuable telecommunications spectrum while making payments of $6.5 billion over the next five years to support the network buildout, as construction goals are met. While there isn’t enough financial data to gauge the exact impact of this public-private investment on AT&T, it’s likely that it will open up a new and stable revenue stream for the company. The FirstNet network could eventually become a standard for first responders in the U.S., with over 35 states and U.S. territories opting into the network as of early December. It’s likely that more states will get on board in the coming weeks, given that the deadline for enrollment is the end of this year. The spectrum that comes with the contract might also be valuable to AT&T. For instance, Wells Fargo previously estimated that out of the 20 MHz of spectrum, first responders are likely to utilize under 1% of that spectrum – implying that AT&T could leverage the rest to bolster its own spectrum position. Moreover, Verizon’s increasing interest in this business could also indicate that it is lucrative.

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