Black Wednesday?

The picture is getting clearer, and I can't say I like it.  Over the past couple of weeks, Chairman Wheeler has been dropping hints about changes coming to the program now.

On January 24, Chairman Wheeler blogged:

the opportunity has opened to use existing funds to immediately begin to expand E-Rate funding targeted to high-speed connectivity to students in schools and libraries. These additionally available funds will begin to be put to work this year for schools and libraries. This will be done without affecting the program’s existing structures and the 2014 program application process that is now underway.

Then in his statement on the State of the Union address, he said:

By applying business-like management practices to E-Rate, we can take steps this year that will make existing funds go farther to significantly increase our investment in high-speed broadband connectivity for schools and libraries....

Now the New York Times is supplying more details, and reporting that more details will be revealed by Chairman Wheeler in a speech on Wednesday.  The things that jumped out at me:

The proportion that goes to broadband service in schools and libraries will increase to $2 billion a year from $1 billion....

[To which the grammar curmudgeon says: $2 billion is not a "proportion."  I think maybe you meant "portion."  A proportion is a ratio, not an amount.]

The changes will not require any additional taxes or assessments....

Most of the redirected spending in 2014 will come from funds left over from previous years. Next year, much of the money will come from changes to the E-Rate program, including the elimination of programs that pay for outdated technologies, like paging services, dial-up Internet connections and email programs that are available free elsewhere. 

The spending will be used to increase available broadband speeds and provide wireless networks in schools....

OK, let's start with growing broadband funding to $2 billion.  Since bandwidth is Priority One, applicants have always gotten as much bandwidth funding as they've asked for.  So the reason that broadband funding is $1 billion per year is because applicants haven't asked for more.  So how is the FCC going to create an additional $1 billion in broadband demand?  I can think of a few ways off the top of my head:

1. Increase the discount level for broadband.  So if you have a 40% discount, you'd get a 60% discount on broadband.
2. Set aside $2 billion for broadband, essentially making it above Priority One (let's call it Priority Zero).  That would change cost-effectiveness calculations for some applicants, tipping them toward more expensive solutions which are made cheaper by the E-Rate subsidy on broadband.
3. Change the eligible services list:
1. Stop funding non-broadband Internet access.  Tell applicants that the E-Rate will no longer fund Internet connections with bandwidth below a certain cutoff.  That cutoff used to be 3 Mbps, but I guess the President has moved it to 100 Mpbs.
2. Remove technologies that don't use broadband.  So, for instance, tossing POTS lines and PRIs out of the program would provide incentive for applicants to move to hosted VoIP and SIP trunks, which would increase applicants' need for bandwidth and for more robust Internet connectivity.  (I would say redundant Internet connections, since that is the most cost-effective and widely used way to increase the reliability of Internet connectivity, but the FCC has said redundant connections are a not eligible for funding.)
3. Allow off-campus use of cellular data plans.  Because if your goal is to increase school districts' spending on broadband, there is no better way than to encourage the use of the wildly expensive model of providing mobile broadband to each student.
4. Throw open the bundling gates.  If cell phone carriers are allowed to supply a free device with the purchase of data plans, high-discount districts will go for that in droves, since the E-Rate-eligible data plans are close to free.
5. Allow more flexibility in fiber wide area network contracts.  Let applicants self-provision dark fiber, or allow non-recurring charges to cover the cost of connecting school campuses to existing dark fiber networks.
6. Include WLAN access points (or other internal network components for that matter) when calculating funding for broadband connectivity.  And find a way to fund them, since there won't be enough funding for Priority Two in 2014-2015.
4. Expand the definition of broadband.  If you count broadband-related services like hosted VoIP  and Web hosting as broadband, you can make it look like more money is being spent on broadband.

All of them are bad ideas.  Well, #4 is just a little sleight of hand, which doesn't do any harm; the $2 billion target is just political, not needs-based, so accomplishing it by means of a switcheroo is fine with me. #1 and #2 won't come anywhere close to doubling demand, especially because we're already well into the application window.  And #3 would be brutal for applicants.  Suddenly, applicants would have to re-evaluate their technology choices, adjust their tech plan accordingly, then submit a new Form 470.  In less than three weeks.

Let's hope that the FCC is just planning to roll unused funding over into 2014-2015 now, believing for some reason that applicants will be encouraged to spend more on broadband than they have in the past.

OK, now onto the FCC's plan to get $1 billion "from changes to the E-Rate program, including the elimination of programs that pay for outdated technologies, like paging services, dial-up Internet connections and email programs that are available free elsewhere."  Let's see, eliminating paging and dial-up will save, what, maybe $10 million?  Email service might save another $10 million.  If they're also going to throw out email servers (which makes sense if you're going to toss email service), maybe we'd save another $10 million. That's $0.03 billion saved.

But the real concern is the statement that "The changes will not require any additional taxes or assessments."  Does this mean that the FCC has no intention of raising the cap?  Or just that they don't intend to change the program fees at this point?  Because if the FCC is planning to have $2 billion out of $2.3 billion go for broadband, that is going to be a vicious change for applicants.  And there is no way that we're going to get 100 Mbps to every student for $2.3 billion.

I guess we'll know more on Wednesday.