Q1 2020 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to the entire first quarter update conference call. At this time all participants are in place on a listen only mode and we will open the floor for your questions comments after the presentation.
It is now my pleasure to turn the floor over to your host you talked about really ma'am the floor is yours.
Thank you Catherine good afternoon, and thanks, all for joining US with me today are mccauley, our chairman Morgan Obrien, our CEO , Rob Schwartz, our president and C.L.L. and Jim Gray our CFO before we begin. Please note that our discussion may contain forward looking statements and our actual results may differ materially from those implied.
Information regarding the risks factors that could cause such differences.
Can be found in our public filings, including our most recently filed 10-K and Form 10-Q for the quarter ended June Thirtyth 2019.
With that I'd like to turn the call over to more going on right.
[noise]. Thank you Natasha and thank you everybody for joining us this afternoon.
Our Investor day in late May was the last time, we spoke with many of you.
And since then we conducted our successful capital raise just a few weeks ago.
This incremental equity funding of $100 million set in motion in acceleration of lending efforts to clear the spectrum and helps prepares to monetize this valuable asset.
Another important element of this race it was a core group of current investors who increased their position in the terex.
We appreciate this continuing sign of confidence from our longer term shareholders.
And at the same time welcome many new shareholders from this offer.
We gave a lot of thought to proceeding with the follow on offering when we did rather than waiting for the fccs fun water.
We knew there would be a period of some months before the FCC acted like we followed by that first customer lease of our spectrum.
In the meantime, what could we do it would be most effective and converting our spectrum opportunity to revenue.
That first lease will require a confidence in our ability to quickly provide clear spectrum.
And we're tuning incumbents will require capital.
So rather than waiting to raise those funds, we opted to make the best use of the waiting period, but getting the funding in hand now. So we can proceed with returning and begin immediately working to shorten the time to first revenue.
In addition, as you might expect we think minimizing the time from first lease because availability of clear spectrum will have a very positive impact on prospective customers in our pipeline.
We're adding new professionals to our experienced team who are actively reaching out to incumbent licensees to take the necessary steps to clear the proposed 900 megahertz broadband allocation.
While prioritizing markets, but the earliest commercial opportunities.
We've already successfully reconfigured several large utilities and required licenses from a number of incumbents.
As to the all important FCC proceeding.
On July 2nd the period for reply comments closed.
Those supplies were notable not only for the growing support they indicated.
But also for the absence of any any unanticipated issues that they raised.
Incumbent technical concerns were fully set out on the record before the M. PRM was adopted.
And the NPRM technical rules largely mirror the ones we had proposed.
With the closing of the reply comment round, we believe the stated the record and the FCC proceeding provides everything necessary for a final report and order.
Which gives us good reason for optimism.
In addition to the so strong support of our well known allies like Southern company and Cameron.
The record now contains helpful statements from historically less friendly quarters.
For example, in its Comminutes Southern California Edison wrote.
Southern California, Edison, one of the largest electric utilities in the United States details the exigent circumstances require utilities to have broadband access.
Putting weather conditions like hurricanes on the Gulf and Atlantic Coast, and drought welfare conditions on the West coast.
Threats from cyber attacks on utilities are also increasing it must be guards against.
S C. He views the current proceedings as holding nothing glass and the potential to have a defining.
Once in a generation impact on the ability of utilities to continue to deliver safe and reliable power to their customers for decades to come.
You didn't reply comments, the New York Power Authority.
That.
The proposal of Pdvwireless thing and the enterprise Wireless Alliance and the Commission's notice of proposed rulemaking, if implemented would provide new York power authority with the secure license spectrum to support its efforts to help modernize the electric grid in New York State.
Specifically, such a real lot realignment, which supports New York power Authority's efforts to enhance its operational and programmatic capabilities and leverage the benefits of evolving innovation in wireless equipment.
Another example of a National Rural Electric Cooperative Association Road and its reply comments.
Broadband spectrum is necessary to support deployment of smart grid technologies in rural areas, such as digital supervisory control and data acquisition systems called skater to remotely monitor and control substation and fuel devices Tele protection to guard against potentially hazardous faults distribution automation to intelligently route power through the grid.
Metering video security and other applications.
Importantly from an FCC advocacy perspective, it isn't just the utilities that have supported the proposal.
In this reply, United parcel service right.
You P.S. generally supports the commission's tenant that proposal to reconfigure the 900 megahertz band to add a broadband service provided that never been operators are adequately accommodated and protected from harmful interference.
There is a broad consensus at realigning the 900 megahertz band into two segments serves the competing needs of Narrowbanding comments and perspective broadband entrance, assuming certain additional safeguards protecting now and operations are set forth in the rules.
[noise] in another set of comments General electric stated.
GE renewables supports the Fccs proposal to create a 900 megahertz private enter broad private enterprise broadband segment that will target the communications needs of industrial operations in a band with highly favorable propagation and penetration characteristics.
It would provide our customers with the private broadband option for a system that is not tied to the internet.
And therefore is less susceptible to cyber security problems.
And also from the reply comment around the wireless infrastructure Association Road.
As the record reflects realignment of the 900 megahertz band will facilitate the intersection of wireless broadband and the utility and critical infrastructure sector.
New investments.
New infrastructure, new jobs and increased innovation will flow from a quick decision.
No even outside the FCC proceeding we're seeing support.
For example in its wildfire mitigation plan submitted to the California Public utility Commission.
San Diego gas and electric road.
San Diego gas and electric plans to deploy long term evolution for Ltd.
Using a dedicated radio frequency spectrum.
This will improve the overall reliability ABS, San Diego gas and Electrics Communications network, which is critical for fire prevention and public safety.
I also want to make sure that I mentioned, the progress that we're making with the railroads.
As you know and Terex has always recognized that railroads unique nationwide 900 megahertz license.
That includes frequencies that are within the proposed broadband SEC.
And we have worked with the railroads from the outset to craft an appropriate solution that would meet their current and future requirements.
The goal was to incentivize the railroads to vacate their narrowband operations in the proposed bribing allocation in exchange for better spectrum lower and the bad.
Both in his comments on the record and its related ex parte communications with the FCC.
The association of American railroads.
He has made a strong showing as to its need to retain its current 900 megahertz geographic footprint.
And the need for wideband or 125, kilohertz bandwidth that would be capable of supporting advanced trade safety applications.
So hey are the association American railroads.
And in Terex have reported to the FCC. It proposed frequency exchange agreement that would address both of these requirements.
And we're optimistic that the FCC will adopt in a specific provision consistent with the operational needs of the nation's rail carriers.
So you can see the major players.
Above and beyond our principal advocates are supportive of core elements of the NPL around and have filed comments, explaining why they need private LTC capability.
And why that needs urgent.
All of which provides additional incentives for the FCC to move promptly.
Now to be sure. Many of these same parties have disagreements within terex over how best to make broadband available at 900 megahertz, but at this late stage in the proceeding its up yet up to the FCC to craft resolutions of these remaining issues.
Based on our outreach.
And on what we're hearing from others, including publicly filed notices of ex parte Communications. We believe the commission staff already is in substantive discussions with parties to the proceeding and appears to be working towards the final outcome.
We remain optimistic that the commission will adopt a final order before the end of the year.
Certainly we believe the opportunity is ripe for the kind of win win that Washington politics thrives on.
But seldom sees these days.
Enabling the government agency to point to an action that is taken that will reduce the risk of damage.
For example from cyber attack and wildfires.
The firstly no countervailing increase in risk to a competing interest.
And just last month in the speech and Argentina.
FCC Chairman Pie again asserted a key component of his spectrum policy.
Quoting chairman he said.
We are pursuing an all of the above approach to spectrum policy.
That includes freeing up low and mid band spectrum for next generation wireless services as well.
Close quote now as our investors understand the 900 megahertz proceeding is the only low band spectrum currently under consideration and the Fccs fast plan for next generation wireless services.
No August 2019.
We're five years into a regulatory process, we started in 2014.
Were seemingly on the verge of positive FCC action.
Everything happening on the grid that is crying out for our solution.
You may recall, southern California, Edisons line about exigent circumstances require utilities to broadband access.
Ranging from cyber attacks wildfires to natural disasters and the growth of data centric smart devices.
All of a tightness in awareness that action must be taken.
Today.
And to your access to capital in hand.
To make the spectrum available by aggressively pursuing the retooling process.
Now I'll turn it over to Rob.
[noise], Thanks, working and good afternoon, everyone [noise].
Within this past quarter's bookends, our Investor day, and our capital raise we continued im proud to make solid progress on our key areas of focus we can just provide an overview of our strong positioning for success with the FCC proceeding. So I'll cover the further commercial progress of our broadband business and the continued development of our organization to be operationally ready to support this growth.
As you know, we recently renamed our company repositioning ourselves in the marketplace and reinvigorating our image as we continue to evolve and define the intrinsic value of our offering to our targeted customer base, our new name and Terex is derived from a last word for architectural elements that provide foundational support constraints.
Leveraging our 900 megahertz spectrum and Terex is focused on serving the needs of critical infrastructure through advanced private broadband solutions made possible by dedicated and foundational spectrum.
And our vision is clear to enable the transformative broadband capabilities needed to modernize critical infrastructure for energy transportation logistics and more as the Fccs 900 megahertz NPRM process progresses towards its final stages.
We felt that now is the ideal time to announce this new identity to carrier commercial offering into the future.
And to support the continued growing demand for our initiatives, we recently raised $100 million through follow on equity offering.
We are well funded to move forward with a retooling plan, providing us with the ability to prioritize customer opportunities negotiate spectrum leases and onboard these customers as soon as possible once we receive clearance from the FCC via the report and order.
We are now well positioned to be able to read tune a significant majority of the country and we'll work to accelerate the time to revenue.
Turning to our customer pipeline and pilot opportunities. We continue to work with a growing number of potential customers interested in deploying private LTE networks. Since we last spoke in May we've made further progress in developing our customer pipeline.
And we see a building interest for private broadband networks, not only for electric utilities, but also from water oil and gas transportation government and enterprise sectors as well.
Our pilot with Amarin continues to make progress as you may recall, it and its 5 billion dollar Smart energy plant Amarin stated its intention to develop quote a wireless footprint statewide including private LTE.
This pilot is allowing amarin to demonstrate select use cases that show the value of utilizing private broadband network as a platform for their operational efficiency and resiliency to date Amarin has demonstrated 14 different use cases on our spectrum varying from switching between public and private networks skater and capping controllers to name just a few.
We along with average are very pleased with the results achieved during this phase and we look forward to average conclusion of the private LT pilot on 900 megahertz spectrum later this month.
We're also working on pilot designed with several other customers that have similar needs to amarin.
For a private LTC system. One 900 megahertz is a foundational element that brings greater benefit to the organization and the communities that they serve.
Including valuable cases of cyber security resiliency after disasters and multiple other use cases, leveraging the large ecosystem of devices and infrastructure that exists within are not heard megahertz bad.
Our team continues to work with these entities to define their initial deployments, we hope to share more details in the near future on these and other additional experimental licenses for both the critical infrastructure and our enterprise customers that we're working with.
And I shared in the past, we launched and our founding members of the utilities broadband Alliance noted above which is comprised of both utilities and vendor partners dedicated to championing the advancement and development of private broadband networks for America's critical infrastructure industries.
Since launching in February the alliance has made a lot of progress in both attracting members as well as building a platform of information sharing collaboration planning.
To advance dedicated wireless connectivity for an increasingly connected grid.
Other hosted a successful event at the TC show in San Antonio in June with over 60 attendees.
And as part of this up a forum utility members and vendors assembled and working groups to identify and collaborate on solving key business cyber security technical and use case issues.
And you have its first member summit is planned for this October as being hosted by Southern company Southern link in their Birmingham, Alabama facility. This is an important location because its the network operation center for their private LTE deployment. The first of its kind by utility in the U.S.
This event will be a gathering of industry thought leaders and experts to explore the challenges and opportunities that lie ahead for utilities and to discuss the role of private broadband as a strategic asset for the utility of the future.
We expect to have participation across the utility industry, including C level executives as well as representations from key industry trade groups, including the Edison Electric Institute.
We continue to work with the department of Energys National renewable energy lab and rail.
Where we are leveraging their energy system integration facility to conducting an evaluation of the performance of private LTV as the communication systems for active grid controls. The goal of the project is to provide a deeper understanding of why a robust telco communications plan must be an integral part of the modernized grid strategy.
By developing a private LTE wireless communication capability at 900 megahertz integrated within advanced distribution management system known as a dms for the evaluation of secure cost effective and resilient grid operations.
We believe this project will produce results that showed 900 megahertz private LTC systems provide the performance and reliability utility applications require.
The initial results we presented in mid September by en route to the department of energy, we look forward to sharing more with this on more on this with you soon.
Turning to our organization.
Our commercial readiness continues to evolve as we work to prepare our resources for commercialization of our broadband operations, we're focusing even more of our resources on driving the development of our growing broadband customer pipeline and simultaneously building the organizational platform products and operations to support our broadband commercial service offerings.
That includes adding new strong team players that are bringing with them deep expertise, but also a can do attitude that's important for our culture and the industries that we serve.
The critical infrastructure industry continues to step forward and further defining their needs for and benefits from a private LTE network to their internal organizations and to the industry overall.
And we are well positioned to help address those needs.
900 megahertz when combined with the global standard of LTP technology provides a proven long awaited option for implementing private broadband for these market segments.
With many investor owned utilities growing through acquisition.
They are consolidating their operations to sustain their grid resilience and therefore, having a unified telecommunications strategy is emphasize more and more in our discussions.
We believe the communications platform grounded with 900 megahertz private LTV is a forward looking solution that helps address this convergence efficiency and growth.
And it's also an important factor in supporting new business model paradigms.
We've seen interest from many utilities that are looking towards enabling smart communities at an evolution to fiveg, our discussions and platform provides the foundational elements to help utility executives build on these visions.
We're on a mission to enable the much needed strengthening of our nation's electric grid and critical infrastructure to support our economy help prevent cyber risks and minimize the impact of future natural and man made events.
And to further drive this industry wide benefit we continue through our top down initiatives to work with industry associations federal and state regulators and industry, leading utilities to further develop an understanding of the value in creating and adopting an industry wide network of networks, we're seeing growing support for this concept.
Our spectrum is economically efficient and can be the core of making these advanced capabilities possible that powering private broadband networks.
And with that I'll turn it over to Tim.
Thanks, Rob good afternoon, everyone.
During our Investor day in May I outlined four key components of our initiatives that we're aiming to achieve this fiscal year.
I'd like to remind you all that that was again.
One obtaining the report in order to formalizing starting to execute on our returning plan.
Three exploring options to fund our pension plan and for signing at least one commercial agreement for the use of our spectrum.
As Morgan and Rob just shared we've made good progress in all four of these areas and I'd like to take a few moments to further expand upon to specifically.
The proceeds from our July equity raise provide us with the proper funding needed to move forward on our base business plan.
The net proceeds of $94 million raised have provided additional strength to our balance sheet and supplied us with the funds needed to opportunistically, we tune in advance of the Fccs final order.
As a result of this race. We've also established relationships with strong new partners represented by our active Bookrunners on the deal Morgan Stanley JP Morgan and Evercore.
While also strengthening our relationships with B Riley and Craig Hallum, who also participated in the deals.
We look forward to building upon these relationships and inherently increasing investor awareness of our company and initiatives.
We've also made advancements and planning for the execution of our returning.
With our capital raise now complete.
We are well positioned to accelerate our market clearing activities beginning this current quarter ending September thirtyth.
We plan to prioritize our activities in markets, where we believe we have near term customer opportunities, thereby shortening the time to revenue post in FCC report in order.
As a reminder, we expect the full cost of the retooling process to total $90 million to $120 million over the next three years.
Going forward, we will provide further details on our reach in spending and our quarterly updates.
As of June 32019, the company had $69 million in available cash and debt free.
As shared during our Investor day, we expect to spend approximately $30 million annually before we tuning related spend in each of the next few quarters.
As such the past quarter spend is where we expected it to be.
Our cash position decreased by $7.7 million from the previous quarter.
Keep in mind that the June 30 cash number does not include the $94 million in net proceeds raised in July .
Based on our confidence in the progress Weve made at the FCC, our customer pipeline and completing our capital raise I'd like to reiterate some additional items from our May Investor day.
By fiscal year end 2024, we target to have a portfolio of escalating contractual lease commitments with typical initial terms of around 20 years, plus renewals producing annual run rate of revenues in the neighborhood of $125 million to $150 million.
We also expect to exit fiscal 2004, with an EBITDA margin run rate approaching 80%.
That concludes our prepared remarks, I'd now like to turn it over to the operator for questions.
Thank you.
Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments. Please press star one on your phone at this time.
We ask that will pose your question. Please pick up your handset is listening on speakerphone to provide optimum sound quality. Please hold a moment we poll for questions.
Your first question is coming from George Sutton.
Your line is live.
Thank you hi, guys. So I'm curious when we think of southern and Amarin and folks you're working with that are clearly thought leaders in the space is there a non obvious incentive for someone like that to be the first mover here and beyond that first signing I'm curious how you envision others to respond, particularly if its a thought leader that's the first customer.
Hey, George its Morgan, let me, let me take a crack at that and then I'm going to turn it over to Rob.
I would say that the.
First mover advantage is not a.
A position that the utility industry naturally seeks that's something we have discovered by talking to them, it's kind of the reverse of their conservative nature on the other hand, when we're talking about a negotiating lease terms for the kind of.
Dollars that are involved in some of these transactions there are ways to incentivize.
Early adopters and we're certainly aware of those and we put those kinds of things on the table.
Early on.
In talking with southern in particular.
We made the point that then that we thought that they were legitimate pioneers because as southern link and that.
We would be only too happy to.
Healthy industry follow behind them in there and their pioneering.
At this point I see.
Some signs that they're they're willing to do that but again, it's sort of counter to the culture of that industry.
I'm sure you guys and stuff to add to that is too high George.
I think the good news I think is as you mentioned with southern as they are the first mover include they've already built the robust private LT network covering their footprint.
So we're not looking really for the icebreaker here were looking for those that are following in that model and with as I mentioned with Southerns leadership utility broadband alliance in hosting this upcoming event.
It's really in their interest to share their learnings as they are already through and other ways.
And this formula will be away for all these other folks that are coming in at all levels of knowledge that run through our folks like cameras that are as I mentioned are completing their their pilot shortly.
You saw from the comments, there's plenty of other entities that are showing strong interest and more importantly strong need.
For the spectrum on the record folks like Southern California, Edisons, Morgan mentioned, even Duke and a lot of the names you've seen as members of Abba.
Ever GE national grid Excel energy the role at varying stages of awareness of the need and now just trying to develop their plans on how to do it but they don't have to do it alone because the the collective now really through the broadband alliance and with our facilitation.
Is something that that doesn't need to be a standalone outlier instead as the group moving forward together now that southerners really demonstrated capabilities in Africa has completed their pilot.
We noticed recently Eversource and also a Florida power and light surprisingly of both filed to move some of their spectrum off of buying off of where they would be on top of your 900 that looks like very good progress from our perspective or are we reading that correctly.
Well.
We saw the same thing you thought which is that.
As the Florida power and light they filed pretty extensive.
800 megahertz footprint mirroring what they have at 900, which would suggest.
That they might be considering the advantages of moving to 800 and off of 900 as 900 becomes more home for broadband. So we took it as a positive sign that going into any more details about.
Discussions, we might be having with them or any of the other parties.
All right last question, if I can start got oddly weak over the last few days Mark you know outside of just the market weakness and.
I'm just curious.
Morgan if you think about the history here of NPR Rams and going through this whole process and moving towards a final ruling I mean, our belief is because there were some numbers being thrown out percentage wise. Our belief is this is a 99% likelihood.
Of getting through a final ruling could you just kind of talk about sort of what's the historic percentage that we would see once something has reached this level.
Alright, so Matt I'm glad you brought it up let me just start with us.
Of course until I hold that report and order in my hand, I don't consider it done.
And I know you feel the same way so anything short of having it in our hands and the time for reconsideration to have elapsed theres, a thursday lesser degree of certainty, but but having said that you look at various milepost along the way towards an FCC decision and I think the one that is not getting enough attention is that.
Faced with essentially.
All the arguments against.
Creating 900 megahertz broadband.
Unanimously the notice of proposed rulemaking, which was voted on by every commissioner proposed to do that.
And since that commission unanimously proposed to do that nothing has been put on the record by any means by any stretch of the imagination to weaken it far from it there is many more voices and support and support and urgency so.
I may not go all the way with you to 99%, but I'm I'm a lot closer to you than some of the other numbers that might have been bandied around.
Perfect. Thanks, guys.
Your next question is coming from James Ratcliffe.
On slide.
Hello can you hear me.
Yes, now we had there were some static.
Yes, there is some static.
This is the caution OCA for James.
Two questions. Firstly do you see the progress in the 900 megahertz process as linked to the progress on any of the other FCC spectrum matters for example, the C band or CBS .
And secondly, when we think about the re tuning process.
One of the bottlenecks other than financing are there limits based on the resources. Your team has one other resources really at the groups that are being retained thank you.
Okay, but let's start this is morgan, let's start by saying that.
Explicit linkages in my view there are none.
Between our proceeding and as others, however to the extent that all proceeds if the FCC.
Clamor for attention to get to the to the final.
And.
There is the relationship there that the prioritization of ours has to went out to get that precious time and attention. So I guess to that extent you could say so but other than that it's just it's just in a basket of the very few things that the chairman can do too.
Demonstrate actual new broadband opportunities create jobs.
Promote new technology.
Serve the public interest.
None so that's that's that side the second aspect had to do with the returning process and I would say that.
As a result of the recent capitalization.
We're 100% equipped to take care of any re tuning that could conceivably be necessary to get us to the kind of results that we talked about previously in the years ahead, we can we can return.
Everything that needs to be re tune within the the numbers that we put out there that 90 to 120 million recognizing that as we get into this.
The likelihood is that large incumbents, because we're seeing this already large incumbents, who might have been candidates to returning our becoming candidates for moving to read to broadband and so it shrinks the size of the task, we can't predict with accuracy, how that's going to work out, but we have a awful lot of experience and rebranding we've done thousands of them and and I keep saying. This is this is a smaller task because they even then it appears because of the way the larger systems.
It just makes more and more sense for the larger systems to consider you fall off in the broadband.
And not simply spending that time and resources, even though the resources are ours to to to go to another set of narrow band channels.
I actually think that's the exception, but we'll see as we get into it.
Got it very helpful. Thank you so much.
Your next question is coming from Philip Cusick.
Sir your line is live.
Hi, guys. Thanks.
I Wonder if you could dig in too for us the actual returning process like are there people that need to be hired to do this when do you need to start to ramp that up and and how should we think about the cost scaling once you do get that order. Thank you.
Ah Okay. Let me let me give you my stab at that the process has started we have hired people the.
The environment because of the extensive re banding entry tuning that was done at 800 megahertz has quite a few experts that we can.
Les our hands on and that we're familiar with so some relatively modest internal staffing up is involved and I would say you could take the 90 to 120 million and our roughly three year process and say.
In equal increments, we're probably going to be trying to push through that I'll be honest and say I'm. The one that says.
Go faster go faster because the sooner it is inevitable.
That broadband is coming in 900 megahertz, the less sense. It makes for any large system sustaining our bad so I just think the bed the sooner the game is over a better off everybody is but.
Tim May want to.
Yes, so the way Morgan laid it out is probably a good way to look at it we'll have more guidance as we get deeper in the weeds in the process, which we're starting now.
So probably by our next call, we'll give a little more guidance on that rolled up but I think the way Morgan.
Did that works for now.
Okay, and then to follow up on an earlier question any update you can help us with on discussions with your early potential customer list and their acceptance of your revenue model. Thanks.
Sure Phil so.
Hey on Investor Day, we give a lot of color about sort of the size of the pipeline being close to 40 customers and we continue to see.
Expansion of those relationships in greater interest the facilitation of utilities broadband Alliance has brought new parties to the table as has the project in general we talked about where there's an industry oversight group. So.
Yes. These are large customers and these are long decision cycles with the so theres shades of gray between when they first enter the process and when they get to the end of the of the pipeline.
But without violating the NDS that we have with really all of these parties through the discussion.
It's a process that typically starts either within piloting trialing looking it services, we're participating in someone else's effort in doing so so the advantage of having some of these group efforts, where we're multiple parties, we're able to see it that that gets them through a lot of the first stage. What's happening also is that the demand set as you saw in some of the both the recent press with some of the blackouts and wildfires and some of the issues about cyber security are all driving not just the telecom level interest within these big organizations with C level interest to really deal with the mitigation of these of these growing risk and so that's also putting greater speed on on some of the decision making process as well and we're seeing that with some of the entities that are coming so as far as your question on on the on the on the model itself. The long term leasing model, we're seeing good traction its a new model for these utilities that historically over the years on all the private networks they deployed Mrs going back.
Decades have gotten their spectrum for free so it's an education process, obviously not different than what what you do with the marketplace, which is educating them about what spectrum cost. There is a lot of good comparables out there explain spectrum values and so as we get through that process as a greater understanding our early customers were seeing traction with leasing we're absolutely seeing customers that want to figure out if they can pay more of that upfront versus overtime and we are having those kind of conversations were somewhat economically neutral as long as we can obviously capture that what we see as the value for the spectrum. So these are large.
The big game hunting conversations whether they are going to be one off negotiations for their under their form of customer contracts very often but the good news is we're seeing good traction from from numerous parties in the way in which we are proposing to move forward, but limit can I. Just this is maury let me just.
Emphasize something which Rob just said.
Historically.
Utilities say spectrum is for free.
Delivered to us and we'll deploy private systems and go about our business and so that's the mindset.
To move off that mindset of no spectrum is not free spectrum has to be acquired and it has to be acquired in some form of marketplace transaction that big step number one big step number two is okay. If it has to be paid who pays for it is that the shareholder of the investor on utility or is it the ratepayer of the investor on utility our answer all along has been.
Yes, you have to pay for it but if you pay for it through the rate payer through a rate making process in which it is determined to be a prudent and necessary investments for the safety security better.
Performance of the grid.
The only question is what's the fair market price to pay and once we get a couple of these established and yeah. We're we're we're talking specifics was with serious players.
Once once we get past that for a few.
My theory is.
The rest I mean, why why would why would if we sell at a fair market value for the first four why did we sell the fifth one for Les I mean, it's it's there is a fair market value of this spectrum in the marketplace established by lots of transactions.
Okay. Thanks, guys.
Thank you Bill.
Your next question is coming from Mike Crawford.
Your line is live.
Thanks, Mike Crawford from B. Riley FBR I was hoping that you could just go into any more detail if possible on the experience at southern and animation are seen with their CBRN overlay test along with the 900 megahertz broadband.
Mike just to clarify question, specifically the interaction between Crs are saying and 900.
Yes, and how.
The potential satisfaction or just as fashion with the system that enables densification.
And overall performance and what benefits, they're seeing or what else they might find lacking if anything.
Yes, obviously.
Also as a member of the CBS Alliance and we're learning a lot through all of the development efforts going on and I know you are following closely.
We see Crs as I think the industry does as a great solution for campus in building really what has what they describe as sort of a super Wi Fi capability right. So the areas, where you used to put Wi Fi, but now isn't as robust because of all the users and the lack of available channels is going to be evolution took to the Crs for a lot of those solutions, what it's not and is clearly to the vendors have said. This is it's not a wide area technology. So it is a natural complement from our view to using 900 megahertz for utilities as we've talked about that need to cover big statewide territories of rural areas places, where they need long throw of spectrum without any kind of.
Additional capital to be able to cover those areas and so.
The the early view of overlay specifically.
No no significant issues I think for us the first iterations of it is overly physically of CBS gear, which as you know it's still early stage and hasn't been fully approved yet by the FCC and isn't isn't done from a real standpoint. So we're looking forward to and as vendors have told US is the integration of that equipment to be as cost efficient and physically as efficient in deploying on on a site and a site lease as possible because that's going to make it a lot more valuable.
So we see that natural evolution happening because CBS has a great ecosystem of vendors like the 900 megahertz does it's the same vendors and there is a belief from their standpoint that that should happen and so I think as the CBS ecosystem can you continue to develop and we see the the final rules and the and the auctions occurring I think we'll just continue to see that being an integrated part of the solution. We've always said that in order for utilities to solve all of their needs, it's going to be a hybrid network that theyre going to deploy where they already have a lot of fiber they utilize copper even utilize existing carrier networks for what we see as lower value use cases, and so we think it's CBS , we part of that tool kit when they go to solve their full solution, but an essential underlay of the technology or the foundation as we like to say is going to be the 900 megahertz, it's going alone that brought coverage.
All right. Thanks, Rob and then final question is if you could just clarify if there was any change in the company's prior position.
As outlined in this discussion you had with the FCC and filed on the docket.
For this July 18th meeting, where you talked about.
Support.
For the FCC proposal exempting comments with complex systems from mandatory relocation if that's any change from prior stance.
No we've we've.
From the outset that idea being floated.
By the FCC, we've supported it because our experience is there is a relative handful of very complex systems and to try to use the concept of mandatory returning on those is just not realistic and so.
The issue is how big is it how many systems so.
Is it is it six markets is that 11 markets is it 25 or whatever the number is.
I think our position is yes, there is a category of systems. So complex that they should be in a in a in a in a bucket by themselves, but I think going to be decided I would assume the thing to be decided by the FCC is how many to put in there.
And Mike just to add to it mortgage I think we really applaud the concept of the FCC, saying, it's creating this exclusion for those most complex systems, because well it takes longer and more complicated and those do include what we think are really the only opposition.
It doesn't prevent the rest of the country from moving forward on a timely manner and so being able to put those in a box that they they address and saying, let's make sure. We look at those independently and give them more time more capabilities to address the complexity of their systems. We can move forward with the rest of the of the demand set within within the rest of the country.
Right and of course, some of those might voluntarily want to.
Broadband.
Exactly.
You took the words out of my mouth, I pointed once you're not pointing a gun and somebody.
They can relax and think about.
What is the best use of this backdrop and and why would I be different from any other utility in wanting access to broadband capability. So just if you diffuse the emotions.
And in some handful of these markets, we said when the FCC proposed it we said that's a good idea.
Okay. Thank you very much.
Your next question is coming from Bill Manav.
Sir your line is live.
Hi, yes.
Hoping you guys could comment on I guess the.
There was a ruling out but just to be quite in DC last week that potentially could slow down the rollout of fiveg.
Just curious how you guys.
See that if it has any potential effect to your business plan and financial projections et cetera.
Yes, Hi, Bill I don't know if from our standpoint, I don't think it has any impact on our on our business model. The utilities are looking to roll out this infrastructure on.
A lot of their own assets in fact, there on the other side of that Fiveg issue very often because that matter as I understood was about the carriers trying to get access to a lot of.
Existing pools and other infrastructure the utility zones. So their advantage that they are actually already there and have a lot of those rights of way.
And between that and commercial systems, they've got all the sites they likely need to deploy.
Great. Thanks.
Well, let me let me just make a point I think it's useful maybe for clarification as between Fourg LTE deployment, we're anticipating for critical infrastructure.
Near term and then Fiveg and our answer always has been.
The basically the universe of broadband systems are on LTV, and we'll be moving one way or another to fiveg over some period of time in some aspects not all aspects because in some aspects where coverage and penetration is everything fiveg may never be viable are necessary, but they're they're much more complementary than anything else and ARPU.
Hi, I completely agree with Rob and if Fiveg has slowed down for one reason or another really has no impact on.
What we see to be the current necessity and opportunity for utilities to deploy LT Fourg actually is Morgan said that it does point out one other important issue and that's the rationale for building. These private networks in the first place by utilities is that they have that control of their network. So they are not reliant on what the carriers are doing relative to their deployment and having to.
Both build and also operate the system. So by building their own systems. They are not reliant on on third parties that are worried about these deployment issues.
Perfect. Thank you.
Thank you.
I think we May we may add wrap it up at this point.
And thank everybody and wish everybody.
Happy remainder of the summer, we're assuming that many of you are going to be going off the points that are less.
Filled attention than your normal lives.
We hope to talk to you again in September .
Thanks very much.
Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.
Okay.