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Karl Rove and a Pitch for a Nationwide 5G Network Tailored to Trump’s 2020 Campaign

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Earlier this spring, Karl Rove, the veteran Republican strategist, was making the rounds in Congress to talk up Rivada Networks, a telecommunications company with a 5G business model predicated on partnering with the Department of Defense. Rove, who is not a registered lobbyist but is an investor in Rivada, met with staff members of the Senate Armed Services Committee and had a phone call with his old friend, John Cornyn, a Republican Senator from Texas who is a co-author of the Secure 5G and Beyond Act. As the broadband system is structured now, the F.C.C. allocates radio spectrum through periodic auctions where the highest bidder—typically one of the major telecom companies—wins control over bandwidth for a fixed number of years, setting prices and choosing where to invest in infrastructure. The D.O.D. spectrum, which is set aside by the government for classified, unclassified, and emergency communications, blankets the country but is often unused. Rivada wants to monetize it—minute by minute, hour by hour, as needed, to telecom and other companies—and share the proceeds with the government. (If the military needs the airwaves, Rivada’s software would automatically bounce commercial users.) “Its technology has the coolest name,” Rove told me. “Ruthless preëmption.”

The Rivada system, Rove explained, would bring 5G cellular services to rural America, which has largely been left behind by the big telecom companies. “We’re becoming a country divided between those that have access to high-quality broadband and those who don’t,” Rove said. “And it used to be that that divide was perhaps more between rich and poor, and that still remains, to some degree, but it’s more urban and suburban versus the rest of America.” The former Speaker of the House Newt Gingrich and the 2020 Trump campaign manager, Brad Parscale, have been making a similar case, in editorials and tweets. (Both say that they have no financial stake in Rivada, which is privately held, and have not been paid by the company or its associates.) Bypassing the auction process, the Rivada argument goes, will allow less-well-resourced companies to enter the market at a lower cost, which will spur development of cellular services in underserved areas. “We’re an advanced developed country, but we are paying among the highest prices in the world for broadband,” Rove said. “Economically, we’re entering a world in which the use of spectrum is going to become an important tool for economic growth and vitality.”

Aside from Rove, the only other known investor is Peter Thiel, the Silicon Valley billionaire, self-avowed libertarian, and early Trump supporter. In a recent essay, Jonathan Lee, a telecom attorney, wondered, “What is it about Rivada’s plan/service that requires lifelong ‘free market’ defenders to embrace the heavy hand of government?” To Scott Wallsten, the president of the Technology Policy Institute, the answer is obvious. “They’re hoping to get access to spectrum without having to pay for it,” he said. “And, I mean, it’s this hugely valuable commodity, worth billions and billions. If someone is just given it, that’s just a gigantic subsidy.” If Rivada’s proposal were to be adopted, it would create a new asset class—bandwidth—that could be traded on the commodities market, like oil or soybeans. And it would make Rivada, which holds patents to run this market (a process known as dynamic spectrum arbitrage), an extremely lucrative company. Charles Duan, the director of technology and innovation at the R Street Institute, a D.C. think tank, recently wrote in Fortune, “The company would be able to extract payments from potentially every player on the network.”

Declan Ganley, the Rivada chairman and C.E.O., is an enigmatic Irish businessman with an uncanny ability to spot markets before they materialize. He began building his fortune in his early twenties, trading forestry holdings in Russia and aluminum in Latvia after the fall of the Soviet Union. In Albania, Ganley and his associates established the Anglo-Adriatic Investment Fund to collect the privatization vouchers that the Albanian government was handing out to its citizens. (It failed when the government changed the rules.) In the late nineties, Ganley began buying wireless-spectrum licenses throughout Europe, eventually selling them to Comcast. In 2001, he put together a consortium of investors to create Cable Bulgaria, the country’s first private cable-television company. “It is a cash cow, not just for the next two years but for the next 80 years,” Ganley told the Wall Street Journal at the time, calling Bulgaria the Silicon Valley of the Eastern Bloc. (He no longer owns it.)

When the Coalition Provisional Authority (C.P.A.) took over governance of Iraq, in 2003, Ganley tried to capture some of the billions of dollars allocated for reconstruction by bidding to build the country’s cellular-phone system. When that proposal was rejected, he endeavored to set up and run its emergency-communications system. Defense contracts are typically awarded on a competitive basis. But Jack Shaw, the U.S. Deputy Under-Secretary of Defense for International Technology Security at the time, helped Rivada partner with a Native Alaskan company, Nana Pacific, to take advantage of a provision in federal contracting law that allows small, minority-owned businesses to obtain government contracts without having to bid for them. That law also exempts Native American companies from a three-million-dollar contract cap, as well as from having to be minority-run. But the plan went sideways when the C.P.A. discovered that a clause had been surreptitiously inserted into the contract that opened a back door for Ganley’s group to build the Iraqi commercial cellular network after all. According to a report in the Irish Times, it was Ganley who instructed Shaw to add the clause that let Rivada circumvent the telecommunications bid; Ganley denies the assertion, claiming instead that he—Ganley—was a whistle-blower who was “raising questions about being encouraged to purchase expensive equipment that was not needed for his project.” In any case, the D.O.D.’s inspector general, and then the F.B.I., got involved. Shaw, who had served in the Ford, Nixon, Reagan, and both Bush Administrations, was eventually fired, and Nana Pacific lost the contract.

But, in the years since, Rivada has continued to partner with a number of Native Alaskan corporations to obtain government telecommunication projects without having to go through the bidding or review process. It is a scheme that has scored Rivada hundreds of millions of dollars of defense contracts, as well as contracts from the Department of Homeland Security and U.S. Customs and Border Protection. (Companies that partner with Indian-owned businesses also get a five per cent incentive from the D.O.D.) Over the years, Ganley has developed deep ties to the American military and the Republican Party establishments, as well. Since 2007, Rivada has donated nearly half a million dollars to the Republican Governors Association; one of its board members is Edwin Feulner, the founder and former president of the Heritage Foundation.

A few years ago, the First Responder Network Authority, which is also known as FirstNet, was created by Congress to establish “a nationwide, interoperable public safety broadband network.” The Department of the Interior sought proposals for the project, which was worth $6.5 billion, and Ganley made a push for it. According to Rivada’s spokesperson, Brian Carney, the company was proposing “a network for first responders that was allowed to monetize any excess capacity that the first responders weren’t using. We’d provide free service to first responders, and any time they weren’t using the network we would sell that on a wholesale basis to the highest bidder, on a dynamic basis where the market sets the price and we share that revenue with the government.” In the run-up to the request for FirstNet proposals, Rivada added the former governors Jeb Bush and Martin O’Malley to its board. Even so, the company’s application to submit a bid was denied by the Department of Interior after the reviewers rated Rivada’s business management, leadership and program management, architecture and infrastructure, and, perhaps most crucially, security, to be unacceptable. The “substantial number of significant weaknesses and deficiencies” in Rivada’s proposal, they wrote, “introduce excessive, increased risks” that might “result in [its] inability to perform.” They also determined that Rivada “did not adequately demonstrate that its proposed wholesale marketplace . . . would be adopted by potential customers,” creating “a significant risk of unsuccessful performance.”

Ganley, who is notoriously litigious—having sued the government of Albania for the failure of the Anglo-Albanian Investment Fund, the government of Mexico for disqualifying Rivada from a contract bidding process, the Irish broadcaster RTE for its portrayal of him in a forty-minute-long television documentary, and an Irish blogger for a defamatory tweet—turned around and sued the U.S. government. In her decision denying Rivada’s claims, the U.S. Court of Federal Claims judge Elaine Kaplan noted that, among many other deficiencies, Rivada “lacked relevant experience managing subcontractors in ordinary settings, let alone in completing projects of this size and complexity.”

Rivada’s FirstNet plan differs from its 5G plan primarily in terms of which government agency would be sharing its spectrum. According to the retired brigadier general Robert Spalding, who worked on cybersecurity for 5G networks at the National Security Council, the D.O.D. is unlikely “to give up its spectrum voluntarily,” since “conventional wisdom in D.O.D. says you never give up spectrum.” Although Rivada is asking the Pentagon to share, not cede, its airwaves, Spalding said that “right now, at least, D.O.D. doesn’t distinguish between the two.” But Rivada, which boasts retired generals, a retired admiral, a former D.H.S. deputy secretary, and a former director of foreign policy for Donald Trump’s transition team on its board, is well positioned to navigate the military and national-security bureaucracy. Earlier this month, the National Spectrum Consortium, a trade organization with ties to both the Pentagon and the White House, put out a call for a “technical concept” paper on spectrum sharing, which suggests that Rivada may yet find a willing partner in the D.O.D. “The National Spectrum Consortium is talking about making awards by September,” Carney, the Rivada spokesperson, said. “One of the things they’ve called for is proposals for dynamic spectrum sharing in a 5G context.”

Last week, a reporter for the Verge tested out Samsung’s new 5G phone on Verizon’s service in Chicago. The result illustrated everything that is wrong about the way the two major American telecom companies, Verizon and A.T. & T., are deploying 5G. While standing near a 5G node, the reporter was able to get phenomenally fast Internet speeds that allowed him to download an episode of “The Office” in eight seconds. But, once he moved away from the node, the speed dropped precipitously and ceased to exist when there was no longer a sight line. Verizon, like A.T. & T., is building its 5G system on a millimetre-wave spectrum, which has tremendous capacity—hence its speed—but extremely limited range. Much of the rest of the world has chosen to forgo the blazing speeds of millimetre-wave technology, opting instead for 5G systems that operate on mid-band spectrums that, while not as fast, have greater range and reliability. According to Jessica Rosenworcel, the senior Democratic commissioner at the F.C.C., “if we want to serve everywhere in the country—and not create communities of 5G haves and have-nots—we need to pivot fast to an auction of mid-band spectrum. It’s especially important for rural America, where the challenging economics of service do not support the high cost of high-band infrastructure for mobile use.”

The D.O.D. spectrum that Rivada wants to share—again, without going through the F.C.C.’s auction system—operates on the mid-band. Rove’s argument that Rivada’s wholesale open-access system will bring 5G cellular services to rural America is appealing to those of us who live in places where those services don’t currently exist. Whether or not it would actually come to fruition is anyone’s guess. Mexico’s wholesale open-access system has been a bust. And CoverageCo, a company that Rivada’s spokesperson, Brian Carney, pointed to as an example of an innovative rural-service provider, went out of business last year. Its goal was to provide coverage in my home state, Vermont. According to a report at the time, “a key revenue stream—customers of major cellular carriers connecting to cellular networks through CoverageCo’s antennas, allowing the company to collect fees from those carriers—didn’t bring in enough proceeds to make the business viable, simply because call volumes in many areas weren’t high enough.” Rosenworcel, at the F.C.C., told me, that although the Rivada effort “diagnoses the right problem,” its system “is not the cure we need.”

Ganley has also been pitching the Rivada plan as a way to “destroy the Chinese business model,” because “it drops the price of capacity” and gives carriers an incentive to bypass equipment made in China that might pose strategic threats to individuals and infrastructure. (This argument has less valence now that the Trump Administration has blocked U.S. companies from using technology made or designed in countries deemed to be a national-security threat.) Cybersecurity is crucial for the coming 5G network, which promises to connect almost all human activities and industrial control systems to the Internet. That is one reason that the government is banning equipment manufactured by Huawei and other companies with ties to the Chinese government and its intelligence services from American telecom networks. But it isn’t clear that a nationwide system run by Rivada would be secure. Though sharing spectrum with the Department of Defense is not inherently risky, a single company running a nationwide spectrum-allocation system may prove vulnerable to attack. “If there’s one point of entry then, presumably, if you breach that one point, you’ve got access to the whole network,” Wallsten, at the Technology Policy Institute, told me.

Four years ago, when Rivada was pursuing the FirstNet contract, the company projected revenues of twenty billion dollars over seven years. With its nationwide 5G system, it hopes to claim a sizable share of a market projected to be worth $3.5 trillion. Even if Rivada fails to deliver 5G service to rural communities, or challenge Chinese dominance, gaining access to the Defense Department spectrum could still earn the company an enormous amount of money. “There are lots of people who have studied spectrum and know that it’s becoming increasingly valuable, and they look at a wholesale network and see it as a very viable and strong commercial enterprise,” Rove said. “The downside is, if the wholesale market doesn’t emerge, they still have a very valuable nationwide 5G network that could be sold off, if need be in parts, which is pretty good collateral.”

So far, the Trump Administration has not taken up the Rivada gambit, though it offers the President a way to appeal to his rural base while also seeming to take action in the race with China for 5G supremacy. But, as Thomas Hazlett, a professor at Clemson University, who specializes in the information economy, told me, “Trump is a target of opportunity on this. Certainly, his predilections for overturning normal processes are known. The idea is that you have this kind of special project, and it goes against the liberalization trend at the F.C.C., and you tie it to national security and all these other issues. The political system would seem to be ripe for that.”





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Thanks !

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