The Value Proposition for Spectrum Acquisition by Utilities

1. September 2014 The Value Proposition for Spectrum Acquisition by Utilities 1

2. Components of spectrum value • Inherent asset value & asset appreciation • Security • Communications reliability • Competitive lever

3. Inherent asset value • Spectrum is an asset, and can be capitalized just like poles and wires. • Involve your accounting leadership early and often in the process; they need some education about this unusual asset. • Valuation is....difficult. There is no efficient market for spectrum. Each transaction, each situation, is unique. • Get assistance • experienced spectrum broker and • a technical advisor like UTC spectrum services. • Valuation of the spectrum asset is not just about frequency. It's also about the ecosystem around that spectrum. • Buyers & sellers • Neighbors • Equipment manufacturers and other users

4. Inherent Value 2 - Technical Considerations • Management needs to understand the technical trade offs at a high level. Like real estate, it‘s all about location, location, location (frequency). • Higher frequencies • Have more information carrying capacity • Provide less coverage/range, so you need more towers • Can use smaller antennae • Lower frequencies • Can have large antennae • Provide better coverage/range • Have less information carrying capacity • Once again, get assistance.

5. Asset appreciation • Unlike most physical assets, spectrum will hold its value and/or appreciate over time • The biggest factors in appreciation are • Scarcity • The ecosystem of stakeholders • FCC operating rules (zoning) of your spectrum and adjacent blocks

6. Security • ICS cybersecurity has become a very visible topic – a topic with some leverage • Private communications links (based on private spectrum) are arguably more secure • Public carrier communications systems are a target – smaller-scale private systems are generally not • Utilities can demonstrate compliance and security controls on a private system

7. Communications reliability • The traditional argument for private utility spectrum is communications reliability and integrity. • A built-for-purpose communication system can be stronger than a public, one-size-fits-all system. • Utilities are low on the priority list for public communications usage during emergencies. • Communication reliability directly impacts workforce safety. • Hurricane Sandy illustrated how public communications services can be down just when first responders need them the most

8. Competitive lever • Without some spectrum rights, utilities have no leverage on public communication carriers’ cost. • Private spectrum and the system you build can be a platform to provide telemetry and communication services to other utility types within your service area (e.g. water, coops, small munis...). • Spectrum rights across geographies can assist in M&A activities.

9. Policy and other considerations • The FCC controls the market. • The FCC exists to manage US spectrum efficiently. • Dealing with the FCC is a long and complicated process. The UTC staff can assist greatly. • Their largest stakeholders (aside from the public) are the communications carriers. Everyone else is a distant, distant third. • Broadband spectrum is highly desired by communications carriers, so price is often out of reach for utility companies. • Cybersecurity concerns for the industrial control system will add some weight to arguments for dedicated utility spectrum, but...still not a slam dunk.