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Sunday, March 23, 2014

Fun with discounts

I don't think highly of consortium purchasing, but I thought of one more way the FCC could make consortiums more widespread: get rid of the discount matrix.  If all applicants got a 65% discount, it would remove one impediment to consortium membership.  Imagine you are a 90% applicant, and you're offered membership in a consortium for bandwidth.  Joining the consortium would cut the cost of your bandwidth in half.  You have to go for it, right?  Not so fast.  What is the consortium's discount?  If the consortium will get less than an 80% discount, your net (post-discount) cost will actually go up.  Think it over: if your $1,000 pre-discount cost was cut to $500, but your discount dropped from 90% to 70%, your net cost would go from $100 (10% of $1,000) to $150 (30% of $500).

It's rarely a good idea to join a consortium with applicants that have a lower discount, unless the consortium charges high-discount districts less than low-discount districts (and I haven't seen that).  Otherwise, the other consortium members are taking money out of your pocket.  The FCC could change that by tossing the discount matrix; if everyone has a 65% discount, then no one has to worry if they're losing funding.

The fun you can have with consortium discounts first occurred to me when I worked for a small district with a 90% discount, surrounded by districts with discounts of 20-40%.  I did an Internet pairing grant with a large 40% district, so conceptually, it made sense to file a consortium application.  However, I looked at the numbers, and my district would have lost money.

But check it out: the consortium as a whole would have gotten more E-Rate funding than we did as separate entities.  Because consortia do a straight average of members' discounts.  So it didn't matter that our 40% partner was 4 times as large; we would both have gotten a 65% discount.  (If we'd had to do a weighted average, the discount would have been 50%.)  Since their costs were much higher than ours, the extra 25% they got in funding would have been much larger than the 25% we lost.  But I couldn't figure out an ethical way for that big district to compensate my little district for the increase in their E-Rate funds, so we filed separately.

And, of course, I wondered if you could take it to an extreme.  Does a consortium have to serve all the schools in a district?  Typically, consortium members include all their schools in the Block 4 sub-worksheet for the district, but could I include only some of the schools in a district in the sub-worksheet, if only those schools are being served?  I can see a lot of ways to play with that.  Now take it a step further: a lot of districts should file as a consortium.  Because NSLP participation tends to fall off as kids get older (free lunches are not cool), and schools tend to get larger.  A district with 300 kids per grade level might look like this:
# of
Per school
If that district does the normal district weighted average, it gets a 63% discount.  But if it files as a consortium, with each school as a separate consortium member, it gets a 72% discount.

I've got to think PIA would quash that, but I wonder if it's been tried.  

1 comment:

  1. Poor rural/urban schools cannot stand a narrowing of the ESL AND a reduction in the discount rate. Doesn't fit what E-Rate has been all about