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Monday, March 03, 2008

2-in-5 is 0-4

The "Two-in-Five Rule" fails again. It has failed every year. Man, I hate the 2-in-5 Rule. I've stated my reasons before. This rule has got to go.

USAC just released its demand estimates for 2008-2009. Overall demand is up 16%, Priority 1 demand up 9%, Priority 2 demand up 24%, blah blah blah. But here's the number that jumped out at me: Priority 2 demand by 90% applicants is up 50%. That's exactly the demand that the 2-in-5 rule was supposed to suppress. What a spectacular failure!

With the Priority 1 at $1.95 billion, Priority 2 for 90% applicants at $1.07 million, we're over $3 billion in requests right there. E-Rate Central listed recent approval rates, and showed that for 2007-2008, about 86% of requests are being approved. Assuming that the approval rate for 2008-2009 is 86% (which ignores the upward trend in recent years, but let's be conservative), USAC will need $2.6 billion just to fund the 90% Priority 2 requests. So the FCC had better let this year's denial threshold stand at 83% and start stockpiling cash for next year.

In fact, the FCC had better roll over the $450 million now available into 2008-2009 right now. Otherwise, USAC will not have enough cash to fund any Priority 2 requests for 2008-2009, since it won't have enough income to cover all 90% applicants.

The Priority 2 funding system is broken, and the 2-in-5 Rule just makes it worse.

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