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Friday, May 17, 2019

Subsidizing monopolies

All the FCC Commissioners testified before Congress yesterday.  No, I didn't listen to it.  But I am scanning their statements to see if there's anything important.

First, of course, the most important question: Did they capitalize the "R" in "E-Rate"?  Well, it turns out only Commissioner O'Rielly used the word.  He did capitalize!

So what did they say about the E-Rate?  Not much obviously.  Is that a bad thing?  Part of me just wants Congress to forget all about our little program.

Chairman Pai:  While the Chairman did talk about the Universal Service Fund, and said the digital divide was a top priority, he focused on on the Connect America Fund and mentioned the Rural Health Care Program.  The only statement I found that concerns the E-Rate:  "...we developed a reorganization plan to create a Fraud Division within the Enforcement Bureau...to combat USF fraud...."  Good.  Stay focused on fraud.  Because most improper payments are the result on unwitting applicants getting snared by the huge, secret, nebulous and ever-shifting rules of this program, and don't benefit anyone personally.  Better to focus on people intentionally taking improper payments for self-enrichment.

Commissioner O'Rielly: Anybody want to guess?  Yup, overbuilding.  This time, he takes his complaint further: "providers serving hard to reach areas can face serious financial difficulties if a new government-subsidized provider 'competes' to serve existing customers—or worse—takes only the most highly profitable customers.... It recently came to my attention that new E-Rate-subsidized fiber networks were overbuilding local USF-funded Texas broadband providers and stealing
their core anchor customers. By manipulating the contracting process to favor the bids of particular providers or self-provisioned service, some local school districts have been actively undermining local USF-supported providers’ existing investments, and as a result, making it even more difficult to serve surrounding communities where some households may lack any Internet access at all."  Wow.  Let's unpack that.

" a new government-subsidized provider": Yes, the new provider benefits from the E-Rate subsidy, but the existing provider benefits from the E-Rate subsidy and the CAF subsidy.  So it's a government-subsidized provider winning a bid over a doubly-government-subsidized provider.

" 'competes' to serve existing customers": Yup, competes.  The Form 470 process does increase prices and reduce flexibility for applicants, but it can create competition.  And clearly this whining is coming from someone who lost a competition.

"takes only the most highly profitable customers": I think of this as Ma Bell's Lament.  My dad worked for Ma Bell, and when they lost their monopoly, he said that since competitors would skim the profitable business (long distance and business local), Ma Bell would have to raise rates on residential local service.  He wasn't wrong, but....  Sucks when your monopoly gets taken away.

Wait a minute, though.  Take a step back.  "most highly profitable"?!  Shouldn't LCP (Lowest Corresponding Price) guarantee that school districts are the least profitable customers?  I know LCP isn't enforced, but should a Commissioner be admitting that to Congress?  And LCP aside, I object to the idea that the cost of bringing service to remote areas should be funded by overcharging school districts.  Why are you trying to make the E-Rate fund that service?  That's the job of the High Cost Fund.  And why aren't Connect America Fund projects required to serve surrounding communities?

"manipulating the contracting process to favor the bids of particular providers": If the Commissioner has evidence that an applicant's procurement has not been fair and open, he should Code 9 that applicant. [Whistleblower calls used to be called "Code 9" calls, because if you called in and said "Code 9," you could be anonymous.  Alas, the Client Service Bureau has no sense of tradition, so if you want to report a program violation today, you press 3.]  Except, you know what?  Self-provisioned fiber FRNs are essentially pre-Code-9ed; the procurement process is scrutinized more closely than it would be under a typical Selective Review or Audit.  If, on the other hand, the Commissioner only has a complaint by a telecom company with no evidence of malfeasance, he should not say such things to Congress.

"favor the bids of ... self-provisioned service": Has the Commissioner seen what applicants have to go through to get approval for self-provisioned service?  The system is set up to favor lit fiber over leased dark fiber, which is favored over self-provisioned.  And why would an applicant want to favor self-provisioned?  E-Rate unpleasantness aside, self-provisioning projects are a tremendous pain in the filament.  The only reason to go through the hassle of laying your own fiber is to save money.

"some local school districts have been actively undermining local USF-supported providers’ existing investments":  Does the Commissioner have evidence that districts are trying to undermine someone's investment?  What possible motivation could they have for actively undermining a telecom company?  I'll grant that the provider with existing fiber may have been counting on charging a lot of money to the school district, but the district is not seeking out lower prices because it wants to undermine anyone.

"making it even more difficult to serve surrounding communities where some households may lack any Internet access at all": So taking away one customer makes it more difficult to serve other customers?  Hmm.

Perhaps the Commissioner is right and an unscrupulous school district (or, based on the questions in his letter to USAC on the subject, more likely a consortium of districts) has colluded with a service provider to fix a procurement and wastefully install more fiber on poles where fiber already exists.  If that's true, the Commissioner should give it to the local Attorney General, not complain to Congress about it.

Or perhaps a service provider got CAF funding to lay some fiber in a remote area, with a business plan based on monopoly pricing, and another company came in and undercut them.  Speaking as a small business owner, I completely agree that competition sucks, and it makes it much harder for me to bring E-Rate to all applicants.  Speaking as a taxpayer, though, I'm glad that no one has a monopoly on E-Rate consulting.  (OK, if I had a monopoly, I would be a beneficent overlord and the program would be much improved, but that's an exceptional case.)

Or perhaps the applicant consortium was larger than the footprint of the already-subsidized existing carrier's monopoly, which again messed with the business plan.  I have certainly pointed out in the past that large consortia can limit competition., and suggested that applicants "take a close look at whether that consortium is really going to save you money."

Whatever the case, it's not an issue for Congress.

And it doesn't strengthen the Commissioner's "humble request ... that Congress consider the FCC’s Universal Service Fund (USF) as a primary means to distribute new funding" in order to avoid "wasteful and duplicative spending and adverse consequences...."  I mean, even if his example were valid, he's basically saying: "We need to keep all the funding in the USF so that we don't see the kind of duplicative and wasteful spending that we're currently seeing in the USF."

But the Commissioner did get the most important thing right: the big "R" in "E-Rate."

Thursday, May 16, 2019

再见, 华为

What does President Trump's Executive Order on Securing the Information and Communications Technology and Services Supply Chain have to do with the E-Rate, you might ask?  It will probably affect which vendors you can buy equipment from.

Not that the FCC needed an Executive Order to get on this.  Back in April, the Commission released a Notice of Proposed Rulemaking "to prohibit, going forward, the use of USF funds to purchase equipment or services from any communications equipment or service providers identified as posing a national security risk...."  The NPRM quickly focused on two vendors: Huawei and ZTE.  The FCC created Docket 18-89 for comments, and they keep coming in.

Meanwhile, the 2019 National Defense Authorization Act (skip to section 889, page 282) declared that no executive agency should purchase from Huawei Technologies Company, ZTE Corporation, Hytera Communications Corporation, Hangzhou Hikvision Digital Technology Company, or Dahua Technology Company.  And the Commission sought comment on whether that applied to purchases through the USF.

So one of these days, the FCC is likely to prohibit the use of equipment from those countries.  Does that matter?  Well, I couldn't find any instances of E-Rate applicants making any C2 purchases directly from Huawei  (SPIN 143036885) or ZTE (SPIN 143044152).  But some of the comments in the docket are from telecom companies using equipment from those vendors who are going to be facing some serious replacement costs.  So perhaps some C1 services will be creeping up.

Meanwhile, the tariffs on Chinese imports have already affected C2 pricing.  The September 10% tariffs increased prices from many C2 manufacturers, but I haven't read anything about the effect of the new jump to 25%, but it's got to have some effect.

Tuesday, May 14, 2019

Someone's head restin' on my knee

I happened across some suggested changes to the program over at Funds for Learning, and I can't resist running my mouth.  The suggestions:

  1. Bring back voice
  2. Make all network infrastructure eligible (security, monitoring and management are mentioned)
  3. C2 budgets should be per-entity, not per-entity.  By which I mean, per-organization, not per-location.
  4. C2 budgets should be doubled.
  5. The C2 budget floor should be tripled.
To which I say:
  1. Let's expand C2 first, and see if we've got money left.  Back when the program ran out of money every year, I think I was the first to suggest throwing voice out of the program.  Now that we don't hit the cap, I'm OK with letting voice back in.  But first, let's fully fund C2.
  2. I agree that the per-student cap reduces the need to nit-pick nework equipment.  And all sorts of security equipment should be eligible in any case.  Monitoring and management are a little more questionable to me, but if we're going to pay for MIBS (the "M" is for "managed"), then it seems like management should be eligible, whether it's a service or a piece of equipment.  But what FFL said was, "There should be zero ineligible network infrastructure."  That's a bit too far: let's not let servers back in, or network storage (I'm looking at you, video servers).  But yes, let's allow security, management and monitoring.  It's irresponsible to run a large network without them.
  3. Yes, yes, yes!  This should be the FCC's top E-Rate reform priority.  It's a simple change, and would dramatically simplify the C2 process.  And it would give school districts the power to decide where they need equipment, rather than having to live by the fiction that all locations have equal C2 needs.
  4. Yes!  My back-of-the-napkin calculations say we should make the C2 cap at least $500/student, and the program could afford $600/student, but doubling would be a step in the right direction.
  5. Yes.  Small applicants are leaving this program in droves, so the FCC should do whatever it can to bring them back.
What is the FCC doing about C2, anyway?  When the Wireline Competition Bureau released their Report on Category 2 Funding, I wondered if the next step would be an NPRM.  I mean, it seems like they'd have to do one, no?  They did request comment on C2 budgets back in 2017, but that doesn't count as an NPRM, does it?

If no Order is issued, applicants who applied for C2 in FY 2015-2016, as well as applicants who have never applied for C2, would find themselves back under the 2-in-5 Rule for FY 2020-2021.  (Applicants who first filed for C2 in FY 2016-2017 would go back to 2-in-5 in FY 2021-2022, and so on; as their 5-year budgets expired, applicants would go back to 2-in-5.)

If the FCC is going to release an Order, I'd think it would be before the Eligible Service List is prepared.  At this point, I don't think that leaves enough time for an NPRM.  An interim Order would create more chaos, as applicants try to figure out if they should lock into a new 5-year cycle, or see if something better is coming.

Here's a question that I would not have considered back in 2014: would a return to 2-in-5 be a bad thing?  I mean, the worst part of the 2-in-5 Rule was that most applicants never got a sniff of C2 funding.  With the vastly increased cap and everything but broadband tossed out of C1, we wouldn't run out of money unless applicants started requesting more than $600/student.  That might be enough.  But there are other problems with 2-in-5.  So if we're not going to run out of money, how about we go to 5-in-5?  Request whatever you need whenever you need it.

You can say it's stupid, but in the WCB's C2 report, they said that $150/student was enough. (Well, they said the "budget approach appears to be sufficient for most schools and libraries," but then they went on to talk about how few schools had spent all their money, so they were basically saying that $150/student was enough.  So if applicants don't need more than $150/student, then why not just get rid of the restriction, and let them spend what they need?  Even if applicants spend $300/student every 5 years, we'll stay under cap.  The only argument for keeping the cap so low is that applicants don't need more.

So let's try it: everyone can request all the C2 they want.  If it turns out that the WCB was wrong about C2 needs and demand exceeds the program cap, then approve applications on a first-come, first-served basis.  Yes, EPC might buckle under the weight of applicants trying to be the first to submit, but the strain would probably be less than the current strain at the end of the window.

But wait, why have a gold rush of applicants jumping on EPC at the start of the filing window?  Why have a filing window?  If we're approving applications as they arrive, there is no need for a filing window.  

And since C2 caps and 2-in-5 would both be gone, we'd no longer have a need for C1 and C2, would we?

Well, I did not expect to end up there, but wouldn't it be loverly?

Thursday, May 02, 2019

The Bus is Back

Some in Congress are trying to force the FCC to allow WiFi on buses.  When I blogged about WiFi on buses five years ago, I was not sanguine on the idea.  Now, I'm OK with it.

But in order to meet the expectations of long-time readers, I'll start with my complaints about the idea.

First, is the Digital Divide (or Homework Gap or whatever) a big problem?  In a 2017 survey, only 13% of students said they sometimes they cannot do homework because they lack Internet access outside of school.  OK, it was an online survey, but still....

Second, we can't solve the Digital Divide (or Homework Gap or whatever) during the bus ride home. 

  1. Only about half of kids take the bus
  2. Bus rides aren't long for most kids.  How long?  Well...
    1. One vendor says 40 minutes a day.
    2. North Carolina's DOE says 24 minutes/ride, 48 minutes a day.
    3. Arkansas says 49 minutes each way, 98 minutes a day.
    4. In West Virginia, it's 40.7 minutes in the morning, 81.4 minutes a day.
    5. The largest research study I found (covering rural schools in 5 states) showed that even in rural areas, 15% of kids rode less than 30 minutes, 75% less than 60 minutes.
  3. Bus WiFi is only useful if connected to the Internet.  How stable is the Internet connection on those long rural routes?  I predict a new excuse: "The bus WiFi ate my homework."
Third, connectivity is half the problem.  The other half is a device.  Students can only work on the bus if their district allows them to take laptops or netbooks home.  A 2017 survey found that 14% of schools give students a computer to take home [skip to slide 19 of the presentation].


On to the things I like.

First, we have the money.  The program is nowhere near cap, so an additional $250 million per year won't break the bank. (484,000 school buses x $44.97/month x $12 months)

Second, some school districts are using school buses as neighborhood access points.  Just park the bus near the end of its route, leave the WiFi on overnight, and boom! you've lit up that neighborhood.  Assuming, of course, that the neighborhood has good cell phone reception.

Third, it gives the kids something productive to do on the ride home.  Assuming that you can lock down the Internet access to prevent the kids from having any fun.

I said I was OK with it.  I didn't say I loved it.

Sunday, April 28, 2019

Cowabunga

The first wave is out!  And it's a big one.  USAC's New Brief on the subject says that over half of the applications got an FCDL.  We've had bigger waves, but we've never had one this large so early.

It's definitely the low-hanging fruit.  Why do I say that?
  1. The News Brief  says that commitments were issued for 18,500 applications and 24,000 FRNs.  So they vast majority of the applications approved had 1 FRN.  
  2. While over half the applications were funded, only 18% of the requested funding was committed. So the amount of funding per application was way below the average.
  3. Only 6% of the funding is for Category 2, while 34% of the funding requested was for C2. So they avoided C2 for the most part.

Here's a table to put this wave in historical perspective.

FYWindow closeDays passedPIA approvedDays passedFirst FCDLTotal daysMillionApps
20193/27/1903/27/2019314/27/1931$53018,500
20183/22/1863/28/2018234/20/201829$501*15,033*
20175/11/201715/12/2017145/26/201715$474,919
20165/26/2016146/9/201676/16/201621$172,251
20154/16/2015-273/20/2015625/21/201535$1517,100
20143/26/2014-193/7/2014695/15/201450$60714,600
20133/14/2013575/10/2013195/29/201376$13012,023
20123/20/2012354/24/2012777/10/2012112$64623,800
20113/24/2011756/7/2011196/26/201194$39818,500
20102/11/2010915/13/2010135/26/2010104$42918,200
20092/12/2009494/2/2009264/28/200975$1346,931
20082/7/2008634/10/2008215/1/200884$35210,000
20072/8/20074/23/200774$20221,000
20062/16/20064/26/200669$1844,880
20052/17/20056/27/2005130$3427,700
20042/4/20044/27/200483$43
20031/16/20035/1/2003105$230
20021/17/20024/24/200297$2339,300
20011/18/20017/23/2001186$478
20001/19/20004/14/200086$25313,000
19993/11/19997/13/1999124$1166,000
199811/23/1998$733,000
*The FY 2018 first wave was released it on in two waves, on 4/20 and 4/21; I'm counting those as one wave.

Wednesday, April 17, 2019

Tempest in a specially constructed teapot

USAC has sent a letter to Commissioner O'Rielly in response to his letter with questions about consortium's overbuilding existing fiber.

First, the most important question: did USAC capitalize the "R" in "E-Rate"?  No!  Philistines!  They even have the gall to shrink the big R when quoting from the Commissioner's letter (he used the big R consistently in his request, perhaps to avoid being labeled O'rielly).  USAC didn't even acknowledge that they were altering the Commissioner's letter with something like "E-[r]ate" or "E-Rate [sic]."

On the main question, USAC's response is a big nothingburger: USAC doesn't know which special construction projects are overbuilding existing networks because carriers don't share the routes of their fiber deployments with the public.  Perhaps the Commissioner will explain exactly what he means by "overbuild" and make a new request.  At one point, he hinted that "overbuild" might mean "installing new fiber in a county where some fiber is already installed." Even so, I can't find any way to find out whether fiber optic cable is hung on poles in a particular area.  USAC mentioned the National Broadband Map, but that's only useful for determining consumer access to Internet access at speeds of at least 25 Mbps (the FCC's benchmark for "broadband").  I can't find any tool that determines if there is any fiber installed in a geographic area.  I guess it's safe to assume that if an ISP is offering 25 Mbps to consumers, it's probably moving that traffic to fiber somewhere nearby.

And now, a little analysis that no one cares about.  The numbers don't add up for me. For example, in FY 2017, USAC says 19 applicants requested special construction as consortia.  Of those, 18 got a funding commitment, 2 were denied for cost-effectiveness, and 2 are still pending.  That's 19 applicants and 22 results.  That must mean that some poor applicants are both Committed and Denied and/or Pending. And if you look at the dollars, there is $74 million requested, $34 million Committed, $2 million Denied-for-cost-effectiveness, and $3 million Pending.  That leaves $35 million unaccounted for.  So that means that almost half the applicants are neither Committed, Denied-for-cost-effectiveness or Pending.  (I suppose most of them are Denied-for-reasons-other-than-cost-effectiveness.)  That means that at least one applicant had a result other the 3 results shown, so we've got 19 applicants and 23+ results.

While writing this, I was just watching a Funds for Learning webcast [my inability to focus on one thing at a time is no reflection on the quality of the info or presenters], and one of their slides (you can see it right around 21:00 in the recording) showed that program-wide in FY 2019, applicants planned to spend much more on lit fiber with special construction ($175 million) than on leased dark fiber ($69 million) and self-provisioned ($57 million) combined.  So some (perhaps most) of the funding shown in the USAC letter will be used to connect existing lit fiber networks to applicant locations, which means it's not overbuilding.  For context, requests for lit fiber with no special construction total $1,889.7 million.

So how much overbuilding is going on?  No one knows.  But we do know that it isn't much.

Tuesday, April 09, 2019

Special constriction

You know I'm going to read and comment on a new report out from the Benton Foundation and EducationSuperHighway called "Improving the Administration of E-Rate."

Oh dang, it's long. And no pictures.  OK, maybe just the Executive Summary.  Here's my Executive Summary Summary:
  • USAC is using a flawed cost model to delay and deny special construction applications.
  • PIA is asking confusing, opaque and flawed questions. 
  • “Cardinal change rule”  ('nuff said).
Damn, they pulled me in.  I'm reading on.

"But nothing in the FCC’s orders authorize USAC to administer its duties through a hidden process, based on non-transparent criteria...."  What?!  The entire PIA process is administered through 700 pages of hidden processes and non-transparent criteria!  Yes, the special construction approval process is kafkaesque, but it's no worse than any Cost-Effectiveness Review (CER). All the points they raise apply to all CERs, as some of us have been pointing out since the CER first appeared.

The report also says that the ever-shifting questionnaire on fiber builds is improper because USAC is making changes in the standards for approval of E-Rate applications.  That may be true, but we don't know; the standards are secret.  It may be that the questionnaire is in the PIA procedure manual that the FCC approves every year.  We'll never know, because the FCC says that the routine processing of funding applications is a law enforcement action.

I like the report's discussion of the Public Records Act (PRA) requirement that information collections be approved by OMB. " The absence of OMB approval appears to provide any E-rate applicant with a complete, statutory defense to any agency action." Oh, snap!  Except unapproved information collections are nothing new.  Remember Item 21 Attachments?  Required information collection, but not approved by OMB.  And don't forget bid evaluation worksheets.  Shouldn't Service Substitutions and SPIN Changes be on a form?

Next, the report turns to the "cardinal change rule." I agree that USAC has provided no guidance on what the rule is, but what did you expect?  They haven't even defined what an RFP is., even though they're requiring them for some applications. (Add RFPs to the list of information collections without PRA approval from OMB.)

The recommendations in the conclusion are all very good and quite reasonable.  But since the FCC believes that E-Rate applications are law enforcement actions, it wouldn't be prudent to give all that information to the suspected lawbreakers (applicants).  

Also, reducing the fear and uncertainty in the E-Rate application process will put us E-Rate consultants out of business.  In principle, that's good, but in practice ... well ... can we wait until my kids are out of college?