Heads Will Roll

What's the Chairman up to?  The N.Y. Times reports that he'll "offer his fellow commissioners a proposed regulatory change to promote Wi-Fi in schools."  He wants the change on the July 11th agenda.  What is the change going to be?

But first, how will the Chairman propose to pay for it?  He's said he'll increase the fund by $2 billion, which the Times says will come from "an E-Rate reserve account."  There is no reserve account, so we're probably looking at adjustments to withholding requirements, which is not increasing the size of the fund, it's just clawing future rollover money into this year.  We'll get a one-year bump at the cost of years of lower future rollovers, reducing funding available in future years.

The Times also says he'll save money by "phasing out obsolete services, like pagers and directory assistance."  Phasing out obsolete services will save the program about $0.01 billion/year.  Getting rid of Webhosting would save about $0.027 billion/year.  The $600 million that the Chairman and Commissioner Rosenworcel keep talking about is achieved by throwing voice out of the program.  But since they're talking about "phasing out" voice, we won't see more than a couple hundred million in savings next year.

How much money do they need?  The total to put Wi-Fi in all schools is somewhere between $3.2 billion and $12.2 billion, depending on who you believe.  We won't need all that in the first year, but the FCC also wants to increase broadband to schools, so we'll need some billions to cover that, too.

What will the change be?  The Chairman's recent blog post offers some tea leaves for us to read: "With modernized rules for internal connections, E-Rate could help over 10 million students...connect to Wi-Fi in their classroom."  Where does this 10 million figure come from?  Let's see, the E-Rate serves about 50 million students. Uh oh.  Please tell me it's not the 1-in-5 Rule.  The 2-in-5 Rule is a failure that hurts the program, and the 1-in-5 Rule would be worse.  And if you want only a fifth of the schools to apply in the first year, you're going to have to have a Pecking Order Rule, which is the Dinner Table Rule with the FCC determining the order in which the schools will line up in for their funding.  There's three new levels of complexity for applicants: the Pecking Order Rule layered on top of the Dinner Table Rule layered on top of the 1-in-5 Rule.

But wait, that will only work if the Priority Rules change.  So we'll have to have Priority One, which will be broadband (and nothing else), then Priority 1a, which will be Wi-Fi, then Priority Two, which will be everything else.  Everyone gets P1, then P1a is distributed using the PeckingOrder-DinnerTable-1in5 chimera, and there will never be any money for P2.

It's just the wrong approach.  The E-Rate rules are like a hydra: chop off a rule that you don't like, and 2 more will spring up in its place.  You've got to attack the core.  The FCC has created a big pool of pent-up demand by underfunding the E-Rate for 17 years.  The solution is to increase supply and decrease demand.  How to increase supply?  Uncap the fund.  Decrease demand?  Adjust the discount levels so that the incentive produces the level of expenditure you want.  Focus eligibility more tightly.  Make Priority levels reflect FCC priorities for the fund.  (No need to phase voice out of the program; just move it to Priority Three.)  Stop driving up costs with wasteful procurement rules.

I'm not getting my hopes up, though: Chairman Wheeler just seems to be teeing up a few hydra heads.  I don't completely agree with Commissioner Pai's proposal, but at least he wasn't just chopping off heads.