Who's bleeding now?

Everyone seems pretty sanguine about the prospects for the E-Rate program under Obama and his pick for FCC Chairman, Julius Genachowski. So, of course, I'll take the contrarian view.

I'll start by talking about how the E-Rate managed to survive the Bush presidency and Rep. Joe Barton, who openly campaigned for it's demise. When Bush arrived in office, he wanted to end the E-Rate. What stopped him? I think it was the discovery that the funding never goes into the Treasury, so abolishing the E-Rate would not have freed up money for other priorities. And since the E-Rate brings money into every Congressional district in the country, Congress is reluctant to just kill it. Seeing that he couldn't outright kill it, Rep. Barton correctly reasoned that if he could get the E-Rate into the Treasury, he could "bleed it dry": once the E-Rate was just one of many competing priorities, it could slowly be cut and cut and cut. He was working on that until he lost his chairmanship when the Democrats took over the House.

Now here comes the Obama presidency, and everybody's happy with his new pick for FCC Chairman. They're both tech-friendly, and Genachowski even helped pen the original Report and Order. And Obama's Technology and Innovation Plan seems very pro-E-Rate. It sounds like he's going to expande the E-Rate: "Obama will recommit America to ensuring that our schools, libraries, households and hospitals have access to next generation broadband networks. He will also make sure that there are adequate training and other supplementary resources to allow every school, library and hospital to take full advantage of the broadband connectivity." (Will training become eligible? Or is it already?)

Nothin' but blue skies.

So what's that dark little cloud on the horizon?

Well, as more and more programs are paid from the Universal Service Fund, there will be pressure to take money from the E-Rate. How about those rollover funds we get every year? Why not take that unused funding and roll it into funding home broadband connections? I mean, every school has broadband, but most houses don't, so where is the priority? In the past, I worried that the ballooning High Cost program would take funding from the E-Rate. Now it looks like new programs will be competing for Universal Service funds.

How ironic if Rep. Barton's dream of killing the E-Rate comes true because of an expansion of the Universal Service Program.

I've got your maintenance right here

I just saw a request filed with the FCC from a service provider about Basic Maintenance of Internal Connections (BMIC). I don't know how the service provider would feel about me bandying their name about, so I'll just use "SP" to refer to them.

SP correctly identified a basic problem with BMIC: no one gets approval for these contracts in time to cover July, so now they have to decide whether to front the money in the hopes of later approval, or forego maintenance. But the remedy that SP proposes falls short.

SP suggests that applicants be allowed to make an annual payment, then if funding isn't approved, decide what to do at that point. But the math doesn't work: we're talking about 90% applicants, so if they're paying 10% of the contract amount, that will cover just over a month. As a result, in early August the applicant still won't have funding approval, and the 10% payment will have run out.

A single annual payment is half the solution. The other half is to allow applicants to pay get funding for the annual payment even if the contract does not run July 1-June30.

That would allow applicants to set up maintenance contracts to run June-May.

Let me give an example. Let's say the change I'm suggesting is implemented for 2009-2010. In that case, an applicant would sign a contract now to cover June 2010-May 2011, and put it on their 471. In that scenario, the applicant doesn't care if their BMIC FRNs are funded by July 1, as long as they get funded before the end of the funding year.

True, the first year would be ugly: applicants would have to have one contract to cover July 2009-May 2010, and another to cover June 2010-May 2011. But in subsequent years, it would be much better for applicants.

Will you be audited?

Lots of people have been asking how likely they are to audited. Well, I can't say for sure how this year's audits were assigned, but it's a safe bet that it will be similar to last year. So here is a table form the most recent OIG report:

Stratum	Disbursement amounts	Number of applicants	Number of audits	Likelihood of audit
1	Over $10 million	10	10	100%
2	$500,000 to $10 million	468	114	24.4%
3	$100,000 to $500,000	1,780	105	5.9%
4	$10,000 to $100,000	8,086	26	0.3%
5	>$.01 to $10,000	10,101	5	0.0%
Total		20,445	260	0.3%

So an applicant that gets less than $100,000 has very little chance of an audit. Getting over $500,000? You can expect an audit every 4 years.

It's nice to know that the FCC is basically leaving the small applicants alone.