Search This Blog

Monday, June 30, 2014

Hey, Theseus!

We've learned a bit more about how the Chairman's "Leverage GSA pricing so schools can buy for less" idea will work in a recent FCC blog post.  I blogged about the problems with buying off the GSA Schedule, but it appears that the solution that the FCC and GSA have embarked on is even more complex.

I suppose I should just wait to see the final product, but here are some possible problems of the top of my head.

First, the GSA has to establish BPAs.  Here are some headaches they bought by agreeing to do that:
  1. Timing of the bid: The E-Rate rules require that bidding take place at least 6 months before the start of the Funding Year.  The BPAs have to be in place before bidding starts.  So the GSA is going to have to get BPAs in place by December at the latest for services that don't start until July 1.  How is the GSA going to feel about signing contracts so far in advance?  I guess they're not actually signing contracts, so it's not as bad as all the illegal contracts that applicants have to sign, but it's still bad procurement.
  2. Timing of installation: Under E-Rate rules, equipment can be installed any time up to September 30th following the end of the funding year.  (And if the funding commitment comes after March 1, there is an automatic extension for another year.)  So the BPA will have to cover a period of at least 22 months or even 34 months (for example FY2015-16 BPAs will need to be in place as of December 2014 and remain available until September 2016, or September 2017 if the FCDL is issued late enough). Current BPAs cover 12 months.
  3. Does the GSA know that E-Rate procurement rules forbid the specification of make and model of equipment?  Since the GSA Schedules are make-and-model-specific, I'm not clear on how the GSA is going to craft BPAs that are model-agnostic.
Once the BPAs are set up, what will applicants have to do to run a reverse auction?  In order to use, you’ll need a valid GSA eBuy username and password.  Clicking through a couple of links, I find that GSA Advantage has a registration form for state and local governments.  To purchase on GSA Advantage, a State or Local government issued credit card for payment must be used.  I can't say this for certain, but I'd be surprised if school districts and libraries can purchase a fork-lift Wi-Fi upgrade (which they'll want to do because the 1-in-5 Rule is coming) with a credit card.  And it looks like private schools get left out.

What else is on the registration form? "Businesses have the option of rejecting orders placed by State and Local government buyers."  Let's hope the BPA addresses that.  "The use of GSA Advantage by State and Local Governments is restricted to only those domains (URLs) approved by GSA."  It looks like step 1 is to have your CIO contact the GSA to get their domain authorized.  Is the GSA ready for 50,000 E-Rate applicants to request URL approval?

Note that most applicants will be going through the registration process just to make this one purchase.  

Now that I'm registered, I can start my reverse auction.  Again, I'll have to learn a new system for this one procurement, but OK.  I don't need to worry about inviting outside vendors, since only vendors listed on the BPA will be allowed to bid.  Let's see, E-Rate rules say I can't name make and model, and the reverse auction process requires that I take the lowest bidder.  So I guess I'm purchasing a Wi-Fi grab bag.  And since the reverse auction process is going to require that I specify exact quantities, I'll have to do a full network design in order to get that grab bag.

Since I did the reverse auction, do I still need to post a Form 470?  I guess I'll have to, since the Form 471 requires a 470 number.  What if I get a lower bid in response to the 470?  Can I consider the reverse auction bid alongside other 470 bids, and create an evaluation matrix, so that I might not end up picking the winner of the reverse auction?  

Since the FCC expects Wi-Fi installations at small schools and libraries to cost $6,000 or less, we can't really be expecting GSA contractors to bid on them.  In fact, the only applicants who are going to get any interest on their reverse auctions are large applicants, who can get good pricing without this song and dance.

Who's going to figure out how these reverse auctions fit into state purchasing laws?  Is a bid involving only firms on a GSA BPA going to satisfy state bidding requirements?  Don't bet on it.

This procurement labyrinth means the hydra and chimera have been joined by a minotaur: it has a GSA BPA for its body and a bidding process for its head.  The good news is that at least applicants will be able to ignore this beast.

Friday, June 27, 2014

Cap in Hand

Chairman Wheeler acknowledged that "Many are asking us to simply raise the contribution rate and send more money to schools and libraries."  He promised, "I will not hesitate to recommend this should it be warranted."  A recent news report said, "An FCC official emphasized that the agency has not ruled out increasing the overall size of the program if it's necessary to meet the president's goals."

This morning it occurred to me that there is a simple way for the FCC to put their reforms where their mouth is.

Uncap the E-Rate fund.

Uncapping the fund is fiscally responsible.  It increases and decreases the contribution rate as necessary to meet applicant needs, instead of setting some artificial spending level, and then crafting increasingly incomprehensible program rules to fit the number.  Right now, the cap trumps all program goals and priorities.

Think how it would simplify the program to go topless.  Because of the cap, we've got Priority Two and the 2-in-5 Rule.  But think a little deeper: the filing window is only necessary because of the cap.  Funding commitments are only necessary because of the cap.  Without the cap, the list of steps in the application and funding process would be:
  1. Get discounted bills.  
That's the way the program was originally supposed to work.

OK, some applicants might have to let service providers know they're eligible.  If USAC doesn't know what your discount level should be, they might have to ask you.  Oh, and I guess we'd still need a form where you certify away your first-born child.  But the complexity of the application process is a result of the cap.  (Well, a lot of the complexity comes from the FCC's misguided and ineffective attempt to regulate the procurement process of local governments, but I've done that rant.)

At this time of year, what could be more student-centric than pulling off that flat cap and tossing it in the air?

Wednesday, June 25, 2014


I've been thinking about Chairman Wheeler's goal of bringing Wi-Fi to 10 million students.  My first thought was, "I guess that leaves libraries out."  Then I got thinking about how you count that.  Let's take my little town, because it's a nice small example.  Our local school district has about 1,000 students in K-8.  To provide enough Wi-Fi in their buildings, they're going to need something like 90 access points.  Those 1,000 students are served, so giving funding to the local library would be redundant.

Hang on, though: in theory, the local library serves all those kids and more.  But it has at present 4 or 5 computers in the kids' area, which I've never seen all used.  I've never seen a kid using the Wi-Fi (except after Hurricane Sandy, when a lot of us were getting our Internet there).  A 1-to-1 initiative at the school may drive up BYOD traffic as kids bring their Chromebooks in to get Internet access after school, but I can't imagine the library needing more than a single 802.11n access point to connect all the students that come in.

So the E-Rate has two choices to cover the kids: the school needs 90 APs, the library needs 3.  If you're looking for most bang for the buck, the most students per dollar, covering the library is the way to go.

If the Chairman wants to do a "per-something" budget for applicants, instead of going per-student for schools and per-square-foot for libraries, we should go per-device.  Instead of getting $100/student to implement Wi-Fi, schools would get maybe $250/computer.  It makes no sense to allocate funding based on human bodies or building size.  Bodies and buildings don't use Wi-Fi; devices do.  It should be obvious that a 1-to-1 school with 500 kids needs more Wi-Fi than a school with 1,000 kids and 200 computers.  And much more than a library that serves all 1,500 of those kids with an access point or two.

Would some applicants lie about how many devices they have?  Probably.  But we accept NSLP numbers, and look how unreliable they are.  The number of devices could at least be audited without violating anyone's privacy.

What do we do about BYOD?  Nothing.  Because if everyone has about the same amount of BYOD traffic, then the division remains equitable.  Remember, with per-whatever funding, we are no longer concerned with actual need.  We're just looking for a fair way to allocate insufficient funding.  I think that the allocation would be slightly skewed, but in the right direction.  In my experience, the fewer low-income families in a community, the more BYOD demand there is.  So ignoring BYOD would tend to put more funding in needier communities.  Nice.

And check out this unintended consequence: The more devices a school buys, the more funding it receives.  Without paying a dime for end-user equipment, the per-device allocation encourages applicants to put more devices in students'/clients' hands.  With an incentive program like the E-Rate, we should always look at what behavior we want to encourage.  Broadband and Wi-Fi are useless without end-user devices, so let's encourage applicants to buy more devices.

Monday, June 23, 2014

Mystery Invoices

I must be missing something.  I was looking through USAC's 2013 Annual Report, and I came upon the chart on page 15, showing invoice processing, and I noticed the numbers didn't add up.  So I dumped the data into Excel and added a row at the bottom:
Q1 Q2 Q3 Q4
invoices received 196,428 333,079 451,211 520,444
invoices paid 176,272 302,112 405,089 471,081
invoices rejected 10,740 18,874 24,865 30,813
??? 9,416 12,093 21,257 18,550
Let's look at Q4 as an example: USAC got 520,444 invoices, paid 471,081 and rejected 30,813.  What happened to the other 18,550?  They can't be dumping thousands of invoices into a black hole, could they?  Maybe the dreaded "pass zero" invoices are in that row; those invoices wouldn't fit in the "rejected" row, since they are technically approved, but they wouldn't fit in the "paid" row, either, since they are approved for $0, so there's no payment.

Anyone out there have a guess?  Or maybe someone could give us the actual answer....

Sunday, June 22, 2014

The FCC Taketh Away

I recently called Chairman Wheeler to task for saying he'll increase the contribution factor to allow more E-Rate funding only "should this be warranted." (I think it's warranted already.)  Well, check this out.

Chairman Wheeler's hit list of services that he finds "outdated" saves the program about $600 million a year.  Almost all that savings  comes from voice, both landline ($377 million) and cell phone ($176 million).  By tossing voice out of the program (to make room for more broadband and Wi-Fi), we would save about $550 million per year, or $138 million per quarter.

Well, it's a quiet Sunday afternoon here at the Riordan household, so I thought I'd peruse the Proposed Third Quarter 2014 Universal Service Contribution Factor since I felt like taking a nap.  The contribution factor: 15.7%.  Last quarter, it was 16.6%.  Seems like a small drop, but how much is 0.9% in dollars?  It's $123.5 million.

So at the same time the FCC is cutting the size of the USF by $123.5 next quarter, they're talking about tossing voice out the program to save $138 million, because the fund is so strapped.

If you take a look at the contribution factor history, you can see that the peak was 17.9%, which we hit in Q1 of both 2010 and 2012.  I'm not advocating that the contribution factor should be that high, but if the FCC "rolled back" the contribution factor to 2010 levels and used the extra to pad the E-Rate, we'd have an extra $300 million next quarter.  Annualized, that's $1.2 billion.

And here's a little rant for dessert:
Hey, wait, wasn't Commissioner Pai just complaining the contribution factor was 16.6%?  Sure enough, on June 18th, he said it was 16.6%.  OK, we're still in Q2, so I guess it is still 16.6%, but since June 12th he's known it would be dropping to 15.7%.  So while he can at the moment claim "over an 80 percent increase" since 2009, he knew when he said it that in two weeks, it would be only a 65% increase since 2009.  It's lucky for him that the Commish chose 2009 and not 2010, since the contribution factor has actually decreased 12% since the beginning of 2010.  A decreasing contribution factor wouldn't have fit his narrative.

Saturday, June 21, 2014

Dancing Deckchairs

Reaction to Chairman Wheeler's reform proposal has been swift and unkind.

The President of ISTE released a statement calling the reforms "a step backwards."  Ouch!  "Let’s stop rearranging the deckchairs."  Zing!  And it ends with a call to action: "Join us in telling Chairman Wheeler to raise the E-Rate’s cap now and make our shared vision for connected classrooms and libraries a reality. Tweet to @FCC using the hashtag: #RaiseTheErateCap."  Are dingoes on Twitter?

Meanwhile, a gaggle of education associations sent a letter to the commissioners, saying:
  1. "We believe any effort to modernize the E-rate Program must include increasing the E-rate funding cap."
  2. "Moving away from a need-based method by incorporating a per-pupil allocation erodes the equitable distribution of E-rate fund...."
When President Obama first announced his ConnectED initiative, I thought he was running it through the E-Rate because the FCC can increase the size of the E-Rate without congressional approval.  The administration was estimating how much the USF fee on phone bills would increase.  So why has Chairman Wheeler changed it from an increase in funding for technology to a "modernization" and refocus on broadband and Wi-Fi?

One other note on the letter from educators: they mentioned a per-square-foot funding formula for libraries.  I don't recall hearing that one before.  That will benefit older communities, and communities with shrinking populations, as they will have oversized libraries, whereas newer suburbs will tend to have undersized libraries.

E-Rate Bestiary

I was reading the Chairman's press release about the reforms circulating at the FCC, and I was thinking, "He is busily chopping heads off the hydra."  For example, he promises an expedited application process, then says it's for small-dollar, cost-effective applications.  So now your application has to go into a pre-review to determine what kind of review it's going into.  Creating new paths through the process does not simplify the program; it just adds to the tangle.

But it gets worse: it looks like the Chairman is planning to actually graft a head onto the hydra.  I was reading some of the press reports, and found a tidbit from an anonymous "senior FCC official" (reported in both The Hill and Reuters): Wi-Fi funding will be "allocated depending on the size of a school's student body."  I try not to use vulgarities in this blog, but this idiocy has me sorely tempted. This isn't E-Rate 2.0, it's a whole new spinoff: hey kids, line up to get the Wi-Fi-Rate!  Think about it: the Chairman has set up a separate pile of funding that is going to be allocated in a new way with a different discount matrix.  It's worse than grafting heads: he wants to bring in a second hydra!  Only it's not a hydra....

Have you figured out that it gets worse?  Remember that the Commissioner keeps saying that "modernized rules" will bring Wi-Fi support to 10 million students next year.  So it really seems like he's going to bring Wi-Fi to 20% of the nation's students each year.  Yup, the Chairman was dissatisfied with the paucity of heads on the E-Rate hydra, so he's bringing in the  PeckingOrder-DinnerTable-1in5 chimera.  However, the chimera won't grow two heads for every one that's cut off, so the Chairman has proactively grafted the 80% top discount and per-student funding allocation onto the chimera.  The Wi-Fi-Rate is a whole new beast.

Kudos to the Chairman: he's taken the per-student allocation idea, which was supposed to simplify the program, and turned it into a way to make the program more complicated.

What does this mean?  Well, it means you know exactly what your district is going to get for Wi-Fi funding: $1 billion divided by 10 million students means $100/student.  But you don't know when you'll get it.  Somehow, the nation's schools will be divided into 5 groups, and will be funded in one of the next five years.  The schools that won't get any funding until FY 2019-2020 should be called "the Group of Death."

By the way, the Chairman's 10-million-students-at-a-time schedule puts us on track to reach 99% of students in 5 program years, but those 5 years end on June 30, 2020; the Prez said "within 5 years" on June 6, 2013.  To hit his goal, we need to wrap this up by PY 2017-2018, so we should be shooting for 16.6 million students per year.

Friday, June 20, 2014

Actually, That's Not Quite Right

The second page of Chairman Wheeler's fact sheet on his reform proposal is just back-patting and stat-spewing.  Pardon me if I don't join in.  Instead, I'll do a little fact-checking.

This administrative review is already delivering huge dividends
  • More funds: No.  It's the same amount of funds.  By changing accounting practices, the Chairman will claw money back from future rollovers into this funding year.  It's a one-time funding bump that will mean less funding available in future years.
  • Faster processing: Double the pace of any previous year?  Let's just see about that.  Well, OK, that looks true.  As of June 20, $1.07 billion approved.  The closest I can find is 2010, when by June 18, $567 million approved.  Rounded to the nearest whole number, it is 2 times bigger.
Vital role in connecting U.S. schools and libraries
  • Federal government’s largest education technology program: Yup.
  • 1996, 14% of classrooms had Internet; 2005, the E-Rate program had successfully connected 94% of U.S. classrooms to the Internet: The numbers are right, but you can't say the E-Rate caused that increase.
  • emerging educational technology ... school boundaries:  Careful, there, Chairman Wheeler!  Remember, services can only be funded when they are used at eligible locations.
  • In libraries, high-speed broadband access provides...technological transformation of learning...: Blah blah blah
  • Three out of five schools in America lack the Wi-Fi...: I think that's based on a recent CoSN survey, which actually said that 41.2% of the 472 tech directors who responded are at least "somewhat confident" that a typical school is ready for a 1:1 initiative.
  • Half of school buildings have older, slower internal wiring that won’t carry data at today’s broadband speeds: Again, from the CoSN survey.  True, half the 463 tech directors who responded said they had some Cat5 in the building, but 61% said they had some Cat 6, and 77% said they had some Cat 5e.  Also, Cat5 can handle gigabit and PoE.  Are "today's broadband speeds" above a gig? (Yeah, OK, an 802.11ac AP can in theory handle more than a gig, but Cisco's only 802.11ac AP, for example, can only manage 1000BASE-T.)
  • no E-Rate money was available for Wi-Fi last year: Another way to put it: "We chose not to make any funding available for Wi-Fi last year."  You could have followed your own rules and pro-rated funding among 90% applicants.  Or you could have been more parsimonious with rollovers in the past and had enough to keep the P2 gravy train going for the 90%ers for another year.
  • when some Wi-Fi support was available in previous years, it reached just 5% of schools and 1% of libraries: And that is not going to be fixed by defunding outmoded services and clawing back future rollovers.  You need a lot more money.
  • an overwhelming majority of commenters have made clear that improving in-classroom Wi-Fi is one of -- if not the most -- important connectivity upgrade priority: It's nice that you heard that.  It's too bad you didn't also hear them saying that the size of the fund needs to be increased.
It's really disconcerting that so many decisions are being made on such inaccurate perceptions.

Blowin' in the Wind

What's coming out on July 11th?  Chairman Dingo [sorry, I couldn't resist] has released the broad strokes of his plan; the particulars are circulating at the FCC, but not public.  Let's take a look at the proposed changes.

Close the Wi-Fi Gap
  • Commit at least $1 billion in support to Wi-Fi next year to connect over 10 million students... followed by another $1 billion in 2016 with predictable support continuing in future years.  
  • Provide multi-year funding predictability..., and stop cutting rural schools out of Wi-Fi funding.
  • ... gradually phasing down support for non-broadband services.
  • Adopt clear broadband goals to measure overall program success....
My reaction:
  • Three problems: 1) a billion is not nearly enough, so they'll have to implement the Pecking Order Rule, 2) if you connect 10 million students a year, it will be 2021 before you connect 99% of students and 3) if you carve out $1 billion for Wi-Fi, there won't be enough left to cover broadband.  Could we see pro-rating of broadband access?
  • Does "multi-year funding predictability" mean multi-year funding commitments to cover multi-year contracts?  That's a fine idea, but if the fund doesn't increase, the multi-year commitments will consume the entire fund, and no one will get funding for new services.  No one is "cutting rural schools out of Wi-Fi funding."  Rural schools face the same standards for Wi-Fi funding as everyone else.  It may be true that there is not as big a concentration of poverty in rural areas, so the P2 gravy train has not reached them, but that's not being cut out.
  • At least he said "non-broadband" instead of "obsolete."  Let's be honest about why we're tossing voice: not because it's obsolete, but because the FCC wants to focus on broadband.
  • Clarity is good.  We'll have to wait and see if the goals are good.
Make E-Rate Dollars Go Farther: 
  • Set the maximum program match at 4 to 1  for Wi-Fi services.
  • Speed consortium applications to drive down prices.
  • Increase transparency on how E-rate dollars are spent and on prices charged for E-rate services.
  • Leverage GSA pricing so schools can buy for less.
My reaction:
  • Finally, the death of the 90% discount!  Oh wait, it's only for Wi-Fi?  So I guess some applicants will still get everything else at 90%.
  • I'll keep saying it: consortium purchasing does not drive down prices.
  • I'm all for transparency.
  • Well, first of all, schools and libraries can already use GSA pricing, if state law allows it.  Second of all, GSA pricing is not the best.  Let's look at the Cisco AIR-CAP3702I-A-K9, which is Cisco 802.11ac access point with internal antennas.  Oops, it's not avaialable through GSA.  OK, let's look at the model with the external antennas and hope the school can place them where students can't detach the antennas.  On GSA, the lowest price for the AIR-CAP3702E-A-K9 is $1,020.48.  On Amazon, it's $794.61.  On Newegg, it's $925.89.  OK, maybe Amazon and Newegg are a little sketchy.  I don't have a quote for a AIR-CAP3702E-A-K9 in front of me, but if you know anything about buying Cisco, you know it's about the discount off list.  On GSA, the best deal is 36% off list.  That's pretty good.  But I know where I can get 44% off list.  Let's plug those APs into a WS-C3650-48FS-S switch.  GSA: $6,327.71, which is 40% off list. Amazon: $2,365.00.  Newegg: $2,823.99.  Because the GSA schedule is not about getting the lowest price.  It's about administrative convenience and decent prices.
Deliver Faster, Simpler, More Efficient Applications and Other Processes
  • Fast, simple process for multi-year applications.
  • Expedited process for small dollar, cost-effective applications.
  • Speed review of all applications.
  • Move to electronic filing of all documents.
  • Simplify discount calculations.
  • Zero tolerance for fraud or abuse: toughen document retention and site inspection rules.
My reaction:
  • I'm in favor of multi-year commitments, but adding a new procedure for those applications does not simplify.
  • Yes! Wait, only for "cost-effective applications"?  So your application has to pass a Cost-Effectiveness Review to get the expedited process?
  • Yes!
  • For 2014-2015, 98.3% of 471s were filed online.  Not much room to move.
  • Like, say, by setting up a separate discount matrix for Wi-Fi?  I think this may be the "every school in the district gets the district discount" rule.  Simple is good.
  • Are you telling me the FCC has been tolerating fraud and abuse?  I thought we always had zero tolerance.  At least he didn't say "strike force."  But I think tightening rules will increase compliance/audit costs by more than it reduces improper payments.
In sum, it sounds like the application process might actually improve a little, and I'd be happy to see more transparency.  And dropping the top discount to 80% is a positive step, even if it is only for Wi-Fi.

Wednesday, June 18, 2014

Bye, bye, Miss American

Commissioner Pai gave a speech at the Federal Communications Bar Association today, and he decided to talk about the E-Rate.  That's kind of surprising, since E-Rate isn't big business for lawyers, but I'm always happy to see what he has to say.

Most of the points were the same as his American Enterprise Institute speech. In spite of his call for Commissioners to "be willing to go the extra mile to forge a bipartisan agreement," it doesn't look like Commissioner Pai has moved an inch.  Since I've talked about his plan before, I'll follow my usual analytic technique of shooting my mouth off about whatever jumps out at me, ignoring the places we agree (like transparency and simplification).

Well, here's something that all the commissioners agree on: the program should toss phones and save $600 million.  What's not clear is what voice service will be tossed.  Commissioner Pai calls for defunding "stand-alone telephone service."  Does that mean cell phone service is eligible as long as it's for a smartphone that also has data access?  It sounds like Commissioner Pai wants to continue to fund voice-over-broadband, which means that the $600 million savings is illusory: schools and libraries will shift spending on voice to any voice technology that's eligible.  Since VoIP costs about the same as traditional voice, the $600 million will just be moved to a different voice technology.  It's time for the Commission to face the fact that if they want to have another $600 million available for broadband next year, they need to throw all voice services out of the program now.

[Those who think that the FCC is in the pocket of the telcos will no doubt notice that the telcos have for the past 2 years been trying to transition all their customers from traditional voice to VoIP.  Not because it's better for clients or cheaper, but because they don't want to support copper any more.  Is it coincidence that just as the telcos are trying to move away from traditional voice, the commissioners are unanimous in their intent to move the E-Rate away from traditional voice ?]

Wait, Commissioner Pai wants to "let local communities decide how funds could best be used to help local kids."  What if local communities decide that traditional voice is the best use of funds?  You can't turn the program into a block grant with a one-page application and still split hairs on what kinds of voice services will be eligible.

If the program is refocused from voice to broadband, the Siouxland Libraries would not get any E-Rate funding, because their Internet Safety Policy makes clear that the library does not filter adult computers, which makes CIPA compliance problematic.  Without CIPA, the library can only get funding for telecommunications, so Internet access is out.  And the FCC has not really made clear what the criteria are for VoIP to be purchased as a Telecommunications Service.  So if the library pays separately for WAN links, those would be eligible, but nothing else.  Want to see the Siouxland Libraries get funding?  Change the CIPA rules so that only children are protected from the Internet.  If the libraries want to give adults unfiltered access, let them do so.

In what reality is it "inside-the-Beltway advocates" that have "demanded that the Commission increase the budget"?  Read the hundreds of comments from schools and libraries that point out the need for more funding.  Try to find an applicant that recommended that the Commission keep funding flat.  And excuse me Yoda, but how does requesting an increase in funding maintain the status quo?  Wouldn't holding funding levels flat be maintaining the status quo?

I share Commissioner Pai's concern at the sharp increase in the USF.  So how about for the next 17 years, we cap all the other funds and uncap the E-Rate?  Maybe that will contain costs.

"I will not support any reform plan that boosts E-Rate’s budget."  So I guess the Commissioner's "extra mile to forge a bipartisan agreement" doesn't reach as far as considering a fund increase.

There is no “red-tape funding gap.”  Commissioner Pai's statement that "we’ve been collecting about $400 million more for the E-Rate program each year than actually goes out the door" is factually incorrect.  Here's a list of the funding caps and disbursements for the last 4 years.  Amounts are in billions.
Year Collected Disbursed Difference
2009 $2.25 $1.88 $0.37
2010 $2.27 $2.28 ($0.01)
2011 $2.29 $2.23 $0.06
2012 $2.34 $2.22 $0.12
2013 $2.38 $2.20 $0.18
The numbers are a little funky, since the Collected amounts are the cap for the funding year, while the Disbursed amounts (taken from USAC's 2013 Annual Report) are for the calendar year.  But it's clear: while 2009 got close to $400 million, since 2010 the average is $90 million.  And that funding is not "sitting on the table." It is rolled into future years.

Want to spend all the money collected every year?  Let applicants add new funding requests and increase the amounts on funding requests during the funding year.  The fund will operate at a deficit every year.

So instead of having $600 billion in savings by tossing traditional voice and $400 million in red-tape savings, we've got $0 billion in savings as applicants switch from tradition voice to VoIP and $90 million that we're clawing back from future rollovers.  Instead of freeing up billions of dollars, we have an opportunity to save $90 million by pulling it back from future years.

No matter how you divide up the fund, whether the current priority system or a per-student budget, there is not enough funding to pay for every school and library to get Wi-Fi to every room and 100 Mbps of broadband to every building.  Per-student funding will hide the problem, not solve it.

So Commissioner Pai and I aren't going to agree, because I, like the rest of the applicant community, recognize that the fund needs to grow.  Pai doesn't see it.

Wednesday, June 11, 2014

Heads Will Roll

What's the Chairman up to?  The N.Y. Times reports that he'll "offer his fellow commissioners a proposed regulatory change to promote Wi-Fi in schools."  He wants the change on the July 11th agenda.  What is the change going to be?

But first, how will the Chairman propose to pay for it?  He's said he'll increase the fund by $2 billion, which the Times says will come from "an E-Rate reserve account."  There is no reserve account, so we're probably looking at adjustments to withholding requirements, which is not increasing the size of the fund, it's just clawing future rollover money into this year.  We'll get a one-year bump at the cost of years of lower future rollovers, reducing funding available in future years.

The Times also says he'll save money by "phasing out obsolete services, like pagers and directory assistance."  Phasing out obsolete services will save the program about $0.01 billion/year.  Getting rid of Webhosting would save about $0.027 billion/year.  The $600 million that the Chairman and Commissioner Rosenworcel keep talking about is achieved by throwing voice out of the program.  But since they're talking about "phasing out" voice, we won't see more than a couple hundred million in savings next year.

How much money do they need?  The total to put Wi-Fi in all schools is somewhere between $3.2 billion and $12.2 billion, depending on who you believe.  We won't need all that in the first year, but the FCC also wants to increase broadband to schools, so we'll need some billions to cover that, too.

What will the change be?  The Chairman's recent blog post offers some tea leaves for us to read: "With modernized rules for internal connections, E-Rate could help over 10 million students...connect to Wi-Fi in their classroom."  Where does this 10 million figure come from?  Let's see, the E-Rate serves about 50 million students. Uh oh.  Please tell me it's not the 1-in-5 Rule.  The 2-in-5 Rule is a failure that hurts the program, and the 1-in-5 Rule would be worse.  And if you want only a fifth of the schools to apply in the first year, you're going to have to have a Pecking Order Rule, which is the Dinner Table Rule with the FCC determining the order in which the schools will line up in for their funding.  There's three new levels of complexity for applicants: the Pecking Order Rule layered on top of the Dinner Table Rule layered on top of the 1-in-5 Rule.

But wait, that will only work if the Priority Rules change.  So we'll have to have Priority One, which will be broadband (and nothing else), then Priority 1a, which will be Wi-Fi, then Priority Two, which will be everything else.  Everyone gets P1, then P1a is distributed using the PeckingOrder-DinnerTable-1in5 chimera, and there will never be any money for P2.

It's just the wrong approach.  The E-Rate rules are like a hydra: chop off a rule that you don't like, and 2 more will spring up in its place.  You've got to attack the core.  The FCC has created a big pool of pent-up demand by underfunding the E-Rate for 17 years.  The solution is to increase supply and decrease demand.  How to increase supply?  Uncap the fund.  Decrease demand?  Adjust the discount levels so that the incentive produces the level of expenditure you want.  Focus eligibility more tightly.  Make Priority levels reflect FCC priorities for the fund.  (No need to phase voice out of the program; just move it to Priority Three.)  Stop driving up costs with wasteful procurement rules.

I'm not getting my hopes up, though: Chairman Wheeler just seems to be teeing up a few hydra heads.  I don't completely agree with Commissioner Pai's proposal, but at least he wasn't just chopping off heads.

Get your spot now

It's that time again: the rush to get a spot at USAC's applicant training.  In case you missed the announcement, registration is open for the fall training.  Well, that's not quite true: registration for the DC training is already closed.  All 265 spots filled in less than 12 hours.

That seems like a problem to me.  I have two suggestions:
  1. Do what rock bands do when they sell out: add another show.  Even better, run a separate training for SECA and E-mpa®.  I'd guess half of DC's registrants come from those two groups.  Apart from the "see and be seen" factor, both groups now wrap meetings around the training, so state coordinators and consultants need to be in DC at that time.  A separate training would also allow us to ask the kind of questions that no one else cares about, and if you subscribe to Commissioner Pai's belief that consultants are evil, it would protect the applicant sheep from the consultant wolves-in-sheep's-clothing.
  2. Put it on the Web.  I'm all for continuing the live sessions, but even if they all fill up, only about 2,000 people will see a presentation.  There are about 21,000 applicants.  Even assuming that each applicant sends only one person, it's only enough to cover 10% of applicants.  And the pool of potential applicants is over 56,000, so only 3.5% of potential applicants can get a look.  USAC already has a YouTube channel.  Why not put the presentations up there?  Apart from reaching a wider audience, it would also help that poor school employee whose supervisor says in February, "Oh, you need to get us E-Rate funding."  They used to put videos online, but I can't remember seeing any since 2007.  Maybe the opportunity for viral fame would bring back the skits.  And maybe after Bad Lip-Reading got through with the Cost-Effectiveness Review presentation, it would better reflect reality.
Which training will fill up next?  LA.  (Los Angeles, not Louisiana)  Less than 24 hours after the trainings were announced, there are only 38 spots left.