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Friday, December 19, 2014

Where oh where has my E-Rate 2.1 gone?

Where's the dang Second Report and Order and Order on Reconsideration (FCC 14-189), a.k.a. E-Rate Modernization Order Part 2 or, as most applicants will call it, the Manna from Heaven Order?  It was approved on December 11th, but the only information we have so far is a press release and a recording of the meeting where it was approved.  I was going to be all responsible and read the Order before commenting, but I can't wait any longer.

The big news, of course, is the $1.5 billion dollar increase in the cap.  So now instead of  $2.4-billion-a-year program, it's a $3.9-billion-a-year program.  That is unquestionably good news, but we've been expecting that since November.  The big questions left for me:
  1. Is the cap raised for 2015-2016, or do we have to wait for 2016-2017?
  2. What about the $1-billion-a-year-for-the-next-two-years bump that the Chairman promised?  Will that be added on top of the $3.9 billion cap?  That would mean $4.9 billion for the next two years.
I'm sure we'll know the answer to question #1 when the Order and Order comes out.  I just hope the Order and Order also makes clear the fate of the $2 billion that the Chairman found.

But I'm really curious to see what the Order and Order has to say about other changes.  According to the press release, the Commission approved the following changes:
  1. Large up front construction costs don't have to be amortized, and applicants can pay up-front construction costs over multiple years.
  2. Dark fiber and lit fiber will be treated the same. 
  3. Schools and libraries can self-provision fiber.
  4. Providing an incentive for state support of last-mile broadband facilities through a match from E-rate of up to 10% of the cost of construction, with special consideration for Tribal schools and libraries
  5. Carriers that receive subsidies from the High Cost program have to offer high-speed broadband to schools and libraries at rates reasonably comparable to similar services in urban areas.
  6. $150-in-5 is no longer a 2-year pilot; it's a 5-year pilot.
My reactions:
  1. Buy that WAN!  The contract might say "lease," but if you're paying the cost of building the network in year 1, then paying a small maintenance fee, it looks like a purchase to me.
  2. Go over to the Dark side!  If you're leasing fiber, dark almost always makes more sense.  In the past, you couldn't get funding for the buildout of dark fiber, so it only made sense if there was some unused dark fiber on nearby poles, but now you can pay someone to build a dark fiber network to suit your needs.  And you know what?  This actually simplifies the program.
  3. Rollout your own!  This is going to be a good choice for a lot of applicants, especially combined with #1 above.  I'll be very interested to see if the Order gives any thought to existing self-provisioned networks.  Will pole attachment fees on existing applicant-owned fiber be eligible?  What about maintenance fees?
  4. What?  Does that mean if an 80% applicant builds a fiber network, and the state opts to kick in 10% of the cost, the E-Rate will kick in another 10%, and the applicant gets a free WAN?  Based on Commissioner Pai's comments, it sounds like it.  Oh, crap!  Look for 80% applicants to self-provision fiber rings, whacking the E-Rate for big bucks to cover the cost of installation and have the non-discounted 10% covered by state and E-Rate funding.  Even 70% schools can spend millions, get 90% of it covered, and then spread the 10% cost over several years.  The staff comments at the end of the meeting make it clear that only applicants wanting to self-provision also have to consider fiber leases, which should restrain the gold rush.
  5. Yeah, yeah, just like they have to give applicants the Lowest Corresponding Price.  I'll believe it when I see it.
  6. This makes sense.  I had been advising 90% clients that if they didn't get any C2 funding for the next 2 years, unless the FCC took action, they'd be back to sky's-the-limit 2-in-5 funding in year 3.  I never thought it was likely to happen, but I had to advise them of the possibility, and it was a small incentive for them to wait.  Now that perverse incentive is gone. 
So instead of calling it the Second Report and Order and Order on Reconsideration, maybe we should call it the Cap-Raising Dark Fiber Order.

How did the telecom carriers let this happen?  Think about what's happened since July.  Voice is being phased out.  Mobile data got chucked.  Now digital transmission is going to transition to dark fiber (leased or self-provisioned).  So the people paying into the fund are being squeezed out of payments from the fund.

O'Rielly mentioned that the definition of rural will change.  I'm guessing that's a change to the rules surrounding Urban Clusters.  The original E-Rate Modernization Order said only buildings located in Urbanized Areas would be considered "Urban," which would have moved a lot of formerly Urban applicants to Rural.  But in an Erratum, they added Urban Clusters with a population of at least 2,500.  That would have moved a lot of formerly Rural applicants to Urban.  Commenters asked to have only really large Urban Clusters be considered Urban, and it looks like they won.

Anyway, it all looks like good news for applicants.  But I want to read the Order before I decide whether it's really a good thing.

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