Hypothecational argument

I guess no one will be surprised by the Gray Lady's position in their op-ed on increasing the size of the E-Rate funding.  That's right, our country's paper of record has once again come down solidly on the side of capitalizing the "R" in "E-Rate."

The rest of the opinion piece?  Not surprisingly, the Times came out strongly in favor of the increase.  They did have the unfortunate honesty to point out that the 16-cent increase that the Chairman talked about is actually, on average, a 48-cent increase per household, since the average American household has 3 phone lines.  But at least they had the discretion not to calculate the cost for businesses.  Not to worry: Commissioner O'Rielly already exaggerated the impact on business for the Chamber of Commerce (see my comment on this post).  Otherwise, I don't have much to say on the article.

I also stumbled across an opposing op-ed in Forbes, written by Tim Worstall.  Actually, the editorial is not about the E-Rate (it's mentioned only in the title and a quote from the Times), it's about "hypothecation."

But first, I'll write a paragraph correcting a misconception described by Mr. Worstall.  Before getting to his thesis, he takes a paragraph to launch a dig at the Times by pointing out that rural areas are underserved by sewer and phone service, so why are we focusing on Internet?  OK, first sewer.  You can live just fine without connecting to a sewage network if you handle your sewage with a septic system.  However, you can't get information from the Internet by installing a digital septic system; you have to be connected to the network.  Phones?  Well, if Mr. Worstall had done any research beyond reading the Times op-ed, he would have found that the idea of universal service originated in 1934 for telephones.  Universal service didn't expand to cover the connection of schools and libraries until 1996. Connecting rural areas to phone service has been the job of the High Cost Program, the largest component of the Universal Service Fund.

The opening of the next paragraphs says, "this isn’t really about phones or the internet, broadband or not."  I should have stopped reading there, but he sucked me in with a new word: "hypothecation."  I think I'd heard it in reference to a mortgage I signed, where it means pledging collateral, but when it comes to taxation, it's the ear-marking of revenue to a particular purpose.

Mr. Worstall makes sound arguments against hypothecation, but I have two problems with his conclusion:

1. No recommendation concerning politics and taxation should be based on logic, since there are few subjects in which logic and reality are further apart than in politics.
2. Moving the E-Rate into the Treasury was part of Joe "Bleed It Dry" Barton's plan to scuttle the E-Rate back in 2005.

So, rather than argue logic, I will respond like the Jersey boy I am: "Hey, pally, I got your hypothecation right here!"

Where's that window?

So now that we know that the new Form 470 will go live tomorrow, the next question is, when will the new Form 471 go live?  On the first day of the filing window, I suppose.  When will that be?  The ESL is out, so USAC can pick a date whenever they like.

Which got me wondering: what is normally the delay between ESL release and announcement of the filing window?  The answer:

FY	ESL release	Window announced	Days to announce	Window open	60 days?	Window close	Window days
2005	10/14/2004	11/5/2004	22	12/14/2004	61	2/17/2005	65
2006	11/22/2005	11/23/2005	1	12/6/2005	14	2/16/2006	72
2007	10/19/2006	10/20/2006	1	11/14/2006	26	2/7/2007	85
2008	10/19/2007	10/28/2007	9	11/7/2007	19	2/7/2008	92
2009	11/21/2008	11/24/2008	3	12/2/2008	11	2/12/2009	72
2010	12/2/2009	12/3/2009	1	12/3/2009	1	2/11/2010	70
2011	12/6/2010	12/10/2010	4	1/11/2011	36	3/24/2011	72
2012	9/28/2011	11/22/2011	55	1/9/2012	103	3/20/2012	71
2013	9/27/2012	11/13/2012	47	12/12/2012	76	3/14/2013	92
2014	10/22/2013	11/20/2013	29	1/9/2014	79	3/26/2014	77
2015	10/28/2014	11/20/2014	23	12/27/2014	60

[I started with 2005 because that's when the Third Report and Order created the requirement that the ESL be released at least 60 days before the start of the filing window.]

The information in green italics is "what-if" data.  If USAC announced the window dates today, that would be 23 days after the ESL was released.  If the window opened exactly 60 days after the ESL release, that would be December 27^th.

This year is different, because USAC has to deal with a major systems overhaul before opening the window.  The Form 470 changes were very minor, but the Form 471 is a whole new beast.

So my uneducated guess on the window dates is:
Window opens: January 15
Window closes: March 25

That would give us a 69-day window, which is the shortest since 2005, but not a lot shorter than recent years.

Now who'll get C2?

Back in July, I looked at who might get Category Two (C2) funding.  My analysis said that it would take $2.3 billion to cover 80% schools.  If the Commission gets the $1.5 billion cap increase in place for 2015, and we get the $1 billion that the Chairman plans to leverage out of the existing fund, we're looking at something like $4.9 billion.  I'm guessing that C1 funding demand will be maybe $2.4 billion (based on an earlier estimate of $1.8 billion in broadband, with growth of 10%, plus $400 million to cover phasing-out voice).  So that leaves $2.5 billion for C2.

That's a little more than enough to cover every 80% applicant.  They won't all use their entire $150/student budget, so it looks like the 70%ers will be able to wet their beaks, too.  By FY 2016-2017, we could reach 50% applicants.  By FY 2017-2018, all applicants could receive C2 funding.

Of course that assumes that spending on broadband doesn't spike.  My prediction there: increasing demand will outrace falling prices, and we will see a net increase in demand.  But I'm betting that the demand increase for broadband will be 10-20%, unless applicants start installing unnecessary 1-Gbps circuits just because the FCC says they need it (based on President Obama saying it was a good goal, apparently based on SETDA's recommendation,  which was based on...well...if we need a maximum 100 Mbps/1,000 students today (a number we dreamed up on p. 23), then we'll need...well...more in 2017-2018).  My growth estimate is based on the same kind of analysis used to arrive at the 1-Gbps/1,000-students goal; it just feels right.

The $1.5 billion is official-ish

A little more information on the $1.5 billion increase in the E-Rate.  The FCC notice says that a proposed draft is being circulated to the Commissioners.

There is a staff report full of numbers based on the CoSN and SHLB reports, but I don't have time to crawl into those numbers just now.  The bottom line number seems to be increasing the USF charge by $2/line/year to fund it.

The press release seems to be just rehashing the info from earlier reports and anecdotes, so I'm only going to scan the graphs, because I like my data in pictures.

Well, the graphs at the top of page 4 caught my eye.

• I would love to see the data behind the graph on the left, because it absolutely does not agree with my experience.  I'd like to see how they define "Affluent" and "Low income."
• The graph on the right shows how fast bandwidth demand is increase, which is what it's meant to show.  What is also shows, which the FCC did not intend it to, is that the Avery County School District, with an enrollment of 2,266, had, as of May 2013, a peak bandwidth need of less than 120 Mbps.  Even with the same fast growth on the chart, they wouldn't be up to 150 Mbps yet.  But the FCC says they need at least 200 Mbps to serve those 2,000 students, and they should have over 2 Gbps.  The artificial goal set by the President based on some numbers made up by SETDA will result in capacity being over 13 times greater than needed.

I look at the graph on page 5, and it strengthens my feeling that we're actually going to see a $1 billion increase in the fund.

But take a look at that graph on page 5.  It says we're going to $3.5 billion in FY 2015.  Really?  If they're going to completely change the funding landscape, I hope they do it at least 28 days before the window opens.

And faster than a speeding bullet, Commissioner Pai has voiced his displeasure.

Christmas a month early

Well, it looks like Commissioner Pai was wrong.  He said that Chairman Wheeler was going to increase the size of the fund in December.  It looks like the Chairman isn't waiting that long.  Less than 2 weeks after the mid-term elections, the N.Y. Times says the Chairman will today announce a $1.5 billion annual increase in the E-Rate.

That's good news for the program, I think, although it might paint a bit of a bull's-eye on the E-Rate program.  Congressional Republicans already proposed an amendment that would have blocked any increase in the E-Rate program.

An additional $1.5 billion per year is probably enough to cover Category 1 demand for the foreseeable future, and it may be enough to get Category 2 funding to all applicants by 2020.  If they tacked the extra $1.5 billion starting in FY 2015-2016, then we might actually reach President Obama's goal of broadband and Wi-Fi to 99% of students by 2018.

But am I the only one who thinks maybe $1.5 billion is the Chairman's opening position, and that we'll see a "compromise" of $1 billion?

Most importantly, the N.Y. Times is sticking with the big "R" in "E-Rate."

$150-in-5 is forever

As I was poking around in the text of the actual rules at the end of the E-Rate Modernization Order, I noticed something else that will be significant if the FCC fails to take any further action: if you apply for C2 funding in FY 2015 or 2016, you're stuck with $150-in-5 forever.

 The rule that sunsets the $150-in-5 Rule, §54.502(c), says that in FY 2017 and later, the 2-in-5 Rule kicks back in for applicants "which did not receive funding for category two services in funding years 2015 and/or 2016...." So for applicants which receive funding in FY 2015 or 2016, the 2-in-5 Rule never kicks back in.

So as you're planning for FY 2020 and beyond, keep that in mind.

BMIC only temporary

Every time I read the E-Rate Modernization Order (EMO), I see something else I hadn't noticed, and that I haven't seen anyone else point out.  Today I noticed that the last sentence of paragraph 131 says: "Absent Commission action, in funding year 2017 and in subsequent funding years, support for basic maintenance, managed internal broadband services, and caching functionality, as an internal connection, will be available only to those applicants that received support in funding years 2015 and 2016 and are operating under a five-year applicant budget."

OK, sure, we all expect that FCC to take action.  And it's not shocking that caching and MIBS are temporary.  But I had not noticed that Basic Maintenance (BMIC) was on the chopping block.  And really, I think it's likely the FCC will not take action to preserve the eligibility of BMIC.  That's fine with me.  As I've said before: "Basic Maintenance is just a headache and a great place to run small scams.  No one understands the rules.  Approvals always come too late.  Wash it all down the drain."

Did you notice the possible incentive for schools to get some C2 funding in FY 2015 or 2016?  If you get C2 funding in FY 2015 or 2016, then BMIC, MIBS and caching remain eligible for you, even if they become ineligible for everyone else.  Of course, if the FCC takes no action, there won't be any funding available for C2 after FY 2016, but still.

Looking ahead to PIA, but not looking forward to it

Now that the new Eligible Services List has been out for a week, I've had time to ponder, "What interpretation might USAC make that the FCC didn't intend?" What has me worried today?  The items listed under categories that have been made ineligible.  I'm afraid USAC is going to interpret what the FCC said literally, and that will result in some decisions that probably don't match the FCC's intent.  Let's go category by category, using the handy list in Appendix B.

Circuit Cards/Components
Taking the broad view, all Category 2 equipment is a concatenation of circuit cards.  I think we can be pretty sure that if you buy a stock router, USAC won't consider everything inside to be ineligible.  But what if you want to upgrade the RAM on that router?  Sorry, that's a circuit card.  What if you want to connect it to fiber?  You'll need to insert a fiber network interface card, which is a circuit card.  Want to get really worried?  Read the definition of "Circuit Cards" on page 30 of the old Eligible Services list, and think about chassis switches.  Your Cisco 6509 is a $6,000 chassis with (ineligible?) circuit cards worth $60,000 or so stuck in it.  I guess since the fan tray and power supply aren't circuit cards, you can get funding on them.  Should we be planning to stack fixed-port switches?  Even then, I guess we won't get funding for the uplink GBICs, since they're circuit cards.

"C'mon," you're saying, "those are components of eligible equipment; of course they're eligible."  Well circuit cards were only ever eligible if part of eligible equipment, so the change is that circuit cards inserted into eligible equipment are no longer eligible.  I don't think that's what the FCC meant, but that's what they said.

Data Protection
Since firewalls and UPS units are exempted, we lost:

• Tape backup: Since servers are gone, this is no loss.
• Proxy server: Oh dear, are we going to get stuck on semantics?  Caching devices generally proxy web requests, so caching servers are proxy servers.  So I'm afraid some caching vendor is going to use the words "proxy" and "server" in proximity, and PIA will deny funding.
• Virtual Private Networks: The FCC wants VPNs excluded, so this should be OK.  VPN functionality is included in a lot of eligible routers, firewalls, and caching devices, so PIA may bring up the issue, but it should be relatively easy to claim ancillary use.

Interfaces, Gateways, Antennas

Since antennas were exempted, the only problem I can see is an unstated rule.  If you read the rules on On-Premise Priority Category One Equipment (O-PPCOE), there is an unwritten assumption that O-PPCOE is equipment that is normally Priority Category Two, but can be made Priority Category One under certain conditions.  If it's ineligible equipment, then it's bundled ineligible equipment, not O-PPCOE, right?  If a CSU/DSU is no longer eligible under Category 2, can it still be O-PPCOE?  I don't see how.  Uh oh.  Every circuit except dark fiber is terminated with some kind of O-PPCOE, and now in many cases, some of that is going to be bundled ineligible equipment.  Oh, the pain.

Servers

I actually think this is pretty clear.  Good riddance.

Software

New rule: Only software supporting eligible equipment is eligible.  

Old rule: Only software supporting eligible equipment is eligible.

That's not an eligibility change.

Storage Devices:

First, my unreasonably precise complaint: every piece of equipment on the eligible services list includes some storage device, even if it's just ROM.  My real complaint: "caching" is storage; you can't cache without a storage device.

Telephone / Video / Voice/video Components

Fine, all gone.

I hope that USAC will be reasonable, but I'm expecting at least one of the worries listed above to be realized during PIA this year.