What would President Trump think? U.S. Law Enforcement Agencies Paying 5 TIMES the Prices. Motorola Charges EU Countries? via Citron Research
Background
Motorola Solutions (NYSE:MSI) was created when Motorola spun off their telecommunications division in 2011. With an 85% market share of radio communications for law enforcement and other first responders (FR), Motorola has used its dominant position in a fragmented customer base to control the market for first responder communications in North America. Motorola also has a worldwide presence selling broadband networks and equipment though numerous partnerships.
But it’s time investors start to realize …
How Motorola Really Makes Its Money!
While Motorola’s has many operating divisions, the bulk of its profits come from selling overpriced handsets into its single source contracts in the United States….taking advantage of both tax payers and the first responder community. In fact, handset sales in the U.S. carry an 83.6% gross margin (see below), while device sales in Europe are at 9%.
Citron’s analysis shows that U.S. device (handset) sales are contributing a whopping 76.7% of Motorola’s bottom line!
From a series of articles reported by McClatchy last year:
“The industry giant has landed scores of sole-source radio contracts and wielded enough pricing power to sell its glitzy handsets for as much as $7,000 apiece, at a taxpayer cost of hundreds of millions, if not billions, of dollars that could have been saved in a more competitive market.”
http://www.mcclatchydc.com/news/nation-world/national/economy/article24779224.html#storylink=cpy
Motorola Solutions has been coasting on a simple formula: Dote on police, fire and sheriff’s departments; woo contracting officials; pursue every angle to gain a sole-source deal or an inside track, and where possible, embed equipment with proprietary features so it can’t interact with competitors’ products.
These tactics are borderline anti-competitive and definitely stand out in stark contrast to the new age of government approach to spending: https://www.ems1.com/ems-products/communications/articles/2098335-Motorola-fights-to-keep-spot-in-EMS-police-and-fire-communication-market/
This is exactly what MSI does when supplying U.S. first responders with critical communications equipment.
What would President Trump say if Lockheed was charging the US Air Force 5 Times what it Charged the United Kingdom for an F-35 ??
“We’re going out to bid in virtually every facet of our government. We are going to save a fortune.”
http://fortune.com/2016/03/15/trump-lowest-bidder-contracts/
Citron can publish pages upon pages of documentation, but to make things easy and understandable we present one clear example.
In 2016, the city of Chandler, Arizona bought 30 APX 6000 Police Radios from Motorola … here is the contract:
http://www.chandleraz.gov/content/20160512_34.PDF
After a “discount” Chandler paid $5,200 apiece for this radio:
Compare this to the MTP-6550 radio sold to first responders in the U.K.
http://www.tetrahandsetsandaccessories.co.uk/images/handsets/200/mtp6550.jpg
Note the 6550 is their high-end product with a color screen, etc. Most police jurisdictions in the UK pay far less for their Motorola phones, for lower-end B/W screens. The highest-end phone that Motorola sells to the UK government is significantly cheaper than the lowest end phone it sells to U.S. Law Enforcement agencies.
https://www.police.uk/procurement/airwave-radio-hand-held/
One former senior Motorola executive, who declined to be identified to avoid harming relationships, said that everybody knows that a cell phone costing a few hundred dollars is far more powerful than today’s two-way emergency radios. He said that public safety agencies shouldn’t be paying more than $800 for a “ruggedized cell phone.”
The reason why the UK and the rest of the world is less expensive is simple: Their LMR network (TETRA) is an open platform; Motorola faces competition to sell in these markets.
Competition on an Open Platform is Motorola’s Kryptonite
Motorola’s overseas units, operating in TETRA markets, generate gross profit margins LESS THAN HALF of it U.S. corporate average. The reason is that Motorola doesn’t have monopoly control on the TETRA platform.
- Note: Motorola has been able to exploit the system because the vast majority of U.S. contracts are awarded on a local level. Yet, most are funded by government grants through DHS and/or the U.S. Department of Commerce, right from the US Taxpayer.
In fact, Motorola has developed its own “in-house system” of procuring federal funding for these non-competitive, outdated, and overpriced projects.
Your Tax Dollars at Work
https://www.motorolasolutions.com/en_us/solutions/government-grants.html
FirstNet: The Bomb for Motorola
FirstNet is a communications system for first responders proposed after the 9-11 disaster. That dark day stressed our first responder system on a national level like no other, exposing major vulnerabilities in our disaster infrastructure. Specifically, our first responders were grievously impacted by their inability to respond to the disaster across multiple jurisdictions.
The U.S. has moved (albeit slowly) to develop an independent, interoperable communication system for first responders. Finally, AT&T will likely begin the build out in 2017.
As the Federal government has a strong interest in stimulating competition and innovation in first responder communications, they are doing it through the support of FirstNet. Wilbur Ross, President Trump’s appointed Secretary of Commerce who will oversee the major source of funding for local first responder communication systems, has already expressed his support for the project.
Article by Citron Research
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