NPRM goes live

Well, the Notice of Proposed Rulemaking (NPRM) about changes to the Eligible Services List (ESL) was published in the Federal Register today, so that means the comment period closed 9/18 and the reply comment period closes 10/3.


I've got to think the FCC intends to include the changes in the 2009-2010 ESL, which I think means delays in the application window. In a normal year, the FCC releases the ESL for comment in July, closes the comments in August, then sits on it and releases it unchanged in late October. If it takes two months when no changes occur, how long will it take to incorporate changes?

Looks like another year of almost no time between the release of the ESL and the opening of the window. And maybe we'll even be facing a shortened window.

What I'd really like to see is the whole window pushed back a few months. I think it's absurd and wasteful (and in most cases illegal) that districts have to select vendors and sign contracts in January for services that won't start until July at least.

What a difference a date makes

E-Rate Central's August 18th newsletter has an interesting discussion about unused funds, rollovers and denial thresholds.

The first thing that jumped out is that all of a sudden, there is $800 million available for rollover. E-Rate Central made a projection about how big the fund might be for 2009-2010, and at first blush it seems rosy: $3.5 billion available for next year. But compare that to demand, and it doesn't seem that great. For 2008-2009, if you look at Priority 1 requests from all applicants and Priority 2 requests from applicants with a discount of 80% or greater, the demand was over $4 billion. And the Priority 2 demand from 90% schools increased 50% from FY 2007 to FY2008, so I'm betting that even with $3.5 billion in the fund, 80% applicants get diddly for Priority 2.

More interesting was the mention of why the rollover happens the way it does; I hadn't read the rules regarding rollovers for a long time. It all goes back to the Third Report and Order, which created the rollover by changing Part 54.507 of 47 U.S.C. to allow the FCC to rollover funds "in the second quarter of each calendar year." That's why we get the rollover at the end of the second quarter each year. Now imagine if they changed the rule to "each October." That way they'd be rolling the money into the fund before the opening of the window, allowing applicants to make more educated guesses about the coming funding year. It's not as good as my proposal to set the Priority 2 denial threshold before the start of the funding year, but it's a start.

This $800 million windfally provides the perfect opportunity. They could do the rollover for 2009-2010 this October, and it would still be close to a billion dollars. It would require an FCC order pretty soon, so I don't see it happening, but it would be nice....

COMADness

Here's a chilling appeal. It seems the poor applicant got a COMAD for over $2 million from a 2004-2005 Basic Maintenance funding request, because the "maintenance agreement/contract did not specify the location of eligible products or services for which the Basic Maintenance was to be provided." The way I read it, the applicant had a valid contract which listed all the eligible products covered, but did not list the location. And because the location was not listed in the contract, they're out $2 million. That's some serious nitpicking.

Gotta hope the FCC waives this one.

Enough already

Someone has got to stop the ADA madness.

In their latest Washington Update for members, CoSN (the Consortium for School Networking) talked about the Anti-Deficiency Act (ADA). And the news is just depressing.

For those of you new to the program, back in 2004, the ADA shut down funding commitments for about 5 months because it was decided that the ADA applies to the Universal Service Fund, and the ADA is completely unsuited to the way the E-Rate program is funded. The 5-month pause in commitments was ended by a one-year exemption granted by Congress. Since then, Congress has continued to grant one-year exemptions each year.

Now CoSN is guessing that the next exemption will not be approved before the start of the year. I'm pretty sure that the current exemption will expire Dec. 31st, so for at least a little while, funding commitments will be suspended again. That's not such a disaster in January, but really, shouldn't the exemption be permanent now?

Unfortunately, when FCC Chairman Martin was asked by Rep. Markey if the E-Rate needed the ADA, he said no. Mystifying.

And CoSn, which knows a lot more about Congressional politics than I'll ever know, has linked the future of the ADA exemption with the political future of Sen. Stevens, who has been a supporter of the exemption (because he's from Alaska, where lots of schools really depend on the E-Rate to pay for incredibly expensive Internet connections). Unfortunately he's under indictment.

It's time for someone over at the Capitol to pass a permanent exemption, regardless of what Chairman Martin says. It's been 4 years.

86% discount? Sorry, not this year

E-Rate Central is reporting that at last week's USAC board meeting, the projection was that Priority Two requests will only be funded down to the 87% level. (Although at this point the board is only asking the FCC to deny applications at 83% and lower.)

Can we get rid of the 2-in-5 rule yet? Over a year ago, I declared that this rule must go. What is the FCC waiting for? 2-in-5 doesn't succeed in cutting demand, it harms applicants and creates waste.

Alas, we haven't seen the flood of appeals to the FCC due to the 2-in-5 rule that I predicted a year ago. I don't know if that's because most applicants have figured out the 2-in-5 thing, or because the denials haven't really started coming in big numbers yet. So it looks like we'll be stuck with 2-in-5 at least through the 2009-2010 funding year.

Travel blog

Tomorrow I'll be passing through Lawrence, KS. While I have a powerful urge to visit 3833 Greenway Drive and ask for Ms. Smith, I guess maybe she stopped working there back in 2005. Since I don't have any forms to drop off, I think I'll just stay on the Interstate and give them a salute as I pass by.

All in all, a good day

First, the routine: the FCC has released the proposed Eligible Services List (ESL) from USAC, and requested comments by August 14th. That's been the pattern the last couple of years: wait until everyone's on vacation, then give applicants only two weeks to submit comments. But the FCC has made it clear that it only wants comments "limited to determining what services are eligible under the Commission’s current rules." So there isn't much to comment on, really.

Simultaneously, the FCC has released a Notice of Proposed Rulemaking (NPRM) to change the eligibility rules. Commenters have a full 30 days to comment. Here are my preliminary comments on the proposed changes (I reserve the right to show solidarity with our presidential candidates by flip-flopping on at least one of these at a later date):

• filtering software: yes
• a broader classification of basic telephone service: yes
• dark fiber: yes
• text messaging: whatever
• firewall service: yes
• anti-virus/anti-spam software: yes yes yes
• scheduling services: no
• telephone broadcast messaging: no
• certain wireless Internet access applications: no
• interconnected Voice over Internet Protocol (interconnected VoIP): yes

It is wonderful that the FCC is considering the changes. It's a shame the list isn't longer. Some things that should be on the list:

• reasonably redundancy
• filtering service
• anti-virus/anti-spam service

And the FCC should take this opportunity to kill the 2-in-5 rule.

But here's what worries me: the FCC has been closing ESL comments in mid-August, then considering the rather simple comments for 2 months, then releasing the ESL so late that it has to waive it's own rule about giving applicants 60 days between release of the ESL and opening of the window to file 471s.

Let's run the numbers. Let's say we're going to get a traditional 80-day window (OK, so the window has been for shorter lately; I'm a traditionalist) ending on February 5th. That puts the opening of the window on November 17th. Go back 60 days from that, and the FCC should be releasing the ESL around September 18th. Even if the NPRM gets in the Federal Register next week, the Reply Comment period will be after September 18th. So once again, there is no way the FCC is going to follow it's own rules.

I'm afraid we're looking at a very delayed ESL release. Still, I'll put up with some delay if it means a better ESL.

Things that make you go "Huh"

Sometimes I'm sure I must be missing something. I was looking at a recent appeal where USAC denied funding because "ineligible products and services may not be factored into the cost-effective evaluation." Huh? Look at USAC's page on Constructing an Evaluation. One of the examples includes the following criterion: "Other cost factors (including price of ineligible goods and services, price of changing providers, price for breaking contract, etc)."

I think what USAC meant to say was that in evaluating cost-effectiveness, the price of eligible products and services must be the primary factor, and that the cost of ineligible products and services, if the applicant wishes to consider them, must be in a separate criterion.

Uniting behind a bad idea

AT&T again led a bevy of big phone companies to the FCC to discuss changing the reimbursement system. And this time the ALA (American Library Association) went with them.

It looks like AT&T and the ALA found an idea they could agree on. As I blogged earlier, AT&T led the big telcos into the FCC a year ago to oppose the ALA's idea of forcing applicants to file BEARs. Then last September, AT&T again led the big telcos to the FCC with a bunch of proposals, including one to set up "E-Rate discount accounts."

The idea was to have all the approved funding for applicants go into an account from which applicants could pay for eligible services. And now the ALA has gotten behind it. AT&T mentions "an informal coalition of service providers and education associations" working on the proposal, but only the ALA sent representatives, and if anyone from the education side had been involved, they would likely have changed the wording, since "education association" is another way of saying "teachers' union."

It seems like a good idea, right? I mean, applicants get the funding up front, no one has to make an outlay up front, and it's less hassle for USAC, since they don't have to process multiple invoices.

Well, it's a terrible idea. Especially for applicants.

Are all the reps from the big telcos and the ALA new to the E-Rate program? Don't they remember August 2004? That was when USAC suspended funding commitments because of the Anti-Deficiency Act (ADA). Basically, the ADA says you can't commit funds until you have the funds on hand. And since USAC doesn't have all its funds for the fiscal year on hand at the beginning of the fiscal year, it had to stop making commitments for several months. The only reason things are back to normal is because Congress keeps exempting the E-Rate program from the ADA.

So along come these folks and try to turn a theoretical lack of funds into an actual lack of funds. Under their plan, "each applicant would have access to its committed E-Rate funds at the time of USAC commitment." But as was so painfully demonstrated back in 2004, USAC doesn't have the funds at the time of commitment. So it just can't work.

But let's say that they way the program was funded was completely overhauled, or maybe that USAC funded the accounts on a monthly basis (just ignore the skyrocketing number of checks USAC now has to cut and ignore those pesky non-recurring costs).

It still stinks.

First, it creates more work for applicants. There is a reason that so few applicants do a BEAR every month: it's too much work to sort out ineligible vs. eligible, then apply discounts every month. Most of the FRNs in the program are under $3,000 (as I mentioned earlier). That works out to less than $250 a month. So now some poor accounts payable clerk has to take time every month to deduct the $11.95 directory listing fee (or whatever) from the $247 phone bill, then take 40% (or whatever their discount is) of that and charge it to the special E-Rate discount account, then charge the rest to internal accounts.

I can see why the telcos want that: anything to push the accounting headache off onto applicants. But why does the ALA want it?

Second, there is the issue of only paying for what's eligible. As I mentioned earlier, the accounts payable clerk has to know the Eligible Services List well enough to know that the directory listing fee is ineligible. Compared to Internal Connections, the eligibility rules for telcom are pretty straightforward, but still, how can a bookkeeper be expected to know that the monthly maintenance fee for a cell phone is not eligible, but the monthly maintenance fee for internal wiring is, but only if it's on the regular phone bill, because otherwise it's a Priority Two Basic Maintenance of Internal Connections charge, which may not be covered depending on the district discount?

Now if the telcos were willing to send a bill in which they clearly stated what portion was eligible for E-Rate discount, this problem would be solved, but that is not part of any proposal I've seen.

Third, the conditioning of the government bookkeeper is going to result in more unnecessary expenditures. Ask anyone who works for the government: you spend all the money in your accounts before the end of the year. So if USAC sends an applicant $3,000 for telecommunications, then the business office is going to find a way to spend the whole $3,000.

Fourth, it will be a bookkeeping hassle for applicants. How do they close the books at the end of the year? Are applicants going to return unused funds? How is that going to work? And what about those nightmare Internal Connections projects that don't get approved until the end of the fiscal year, and don't get installed until 13 months after that? Public entities aren't supposed to carry funds over from year to year, but there will be this one account.... And I guess applicants would have to have separate accounts for each FRN in order to determine what gets charged where. USAC is going to have to stick its clumsy hands into applicants' accounting rules.


The "E-Rate discount account" is a dream come true for service providers: they only have to do one invoice, they don't have to think about eligibility, and there's no USAC review of invoices potentially slowing payment. But it's a nightmare for applicants.

I'm not worried, though, because the proposal simply isn't possible: USAC doesn't have enough funds at the time of commitment to fund the accounts.