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Wednesday, April 25, 2012

2-in-5 is 0-8

The 2-in-5 Rule fails again, as it has every year since its inception.  The demand estimate for FY2012 has been released.  Of course total demand is up (21.5%), but the heinous 2-in-5 rule is only supposed to reduce demand for Internal Connections (IC).  Total IC demand is up 33% from last year.  OK, but a lot of that is probably from the FCC's weird backwards roll-over of funds into a funding year that was already done in order to fund all P2 requests.  Let's see...yup, that decision has increased IC demand from 40% applicants by over 1,000%  So we really should be looking just at IC demand for 90% applicants.  The 2-in-5 Rule should be reigning that in.  So how did the demand for Internal Connection from applicants at the 90% discount level change from last year?  Demand is up 40% since last year.  Abject failure.

And the bottom line is this: P1 demand plus P2 demand from 90% applicants totals over $3.8 billion.  Now let's say 15% of those requests get denied; the USAC only has to come up with $3.25 billion.  The fund cap might grow to what, maybe $2.3 billion?  And unless the FCC improperly delays the rollover until after June (47 C.F.R. 54.507 says the FCC should rollover funds "in the second quarter of each calendar year"), like they did last year, I'm betting on a lower-than-normal rollover this year.  Let's say $500 million.  That only gets us to $2.8 billion in funding. Uh oh.  We're about a half billion short.  Could it be that 90% applicants will not get P2 funding this year?

Time to start looking for change under the sofa cushions.  And here's today's wild digression: here's an analysis I like that reaches the conclusion that the likely value of a pound of change found in the sofa cushions is $12.77.  So to make up our $450 million shortfall, we'd need about 35 million pounds of coins.  How many sofas do they have over at the USAC?

A more sobering way to put it: if we asked every person in the country to kick in $1, we'd only be about 2/3 of the way to covering the shortfall.

Not to worry, the FCC will probably just keep dumping rollover money into FY2012 until there is enough money to cover the 90% FRNs.  With all the weird games they've been playing with rollovers, the amount of unused funding is bound to increase, as applicants cancel duplicative FRNs necessitated by the complete uncertainty of the P2 denial threshold overlaid by the evil 2-in-5 Rule.  But it will take time for that money to come in, especially since they chucked the rollover from Q3 2011 back into FY2010, so I won't be surprised if no FY2012 P2 FRNs are approved until after the funding year has ended.  Which will, of course, put us in the same situation for FY2013.

We're moving the wrong direction.  I have always said that the denial threshold should be set before the window opens, but now it looks like P2 requests will never again be funded until after the funding year is over.

But back to my original rant.  The 2-in-5 Rule is not working.  Can we get rid of it now, please?  In a year or two it will be meaningless, since we'll only be able to cover P2 for 90% applicants once every 3 years, anyway.  But let's toss it now, anyway.

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