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Wednesday, June 17, 2015

Sometimes the forbear eats you

The FCC has released the Third Quarter Contribution Factor: 17.1%.  I have the 3Q factor from 2014 handy from a previous post, so let's see how things have changed over the last year.

That's a 9% increase in the contribution factor!  What caused the jump?  Let me dump all the data into a spreadsheet and see what happened.

Well, it's not due to a jump in spending.  Total demand is up less than 1% (an 8% decrease over at Low Income compensating for a 4% increase in E-Rate and a 15% increase from Rural Health Care).
The problem is a 6% drop in the contribution base.  People just aren't making enough long distance calls.  I found the Contribution Factor announcement from early 2007 in a previous post, and the contribution base has dropped 20% since then.  It sure does seem like the FCC is going to have to end its forbearance of USF fees for ISPs.

Monday, June 15, 2015

Be still, my beating heart

Want to make your heart skip a beat?  I've got 2 ways to do it, courtesy of USAC.

The first one applies to everyone.  Go to the Data Retrieval Tool, and look up your funding for FY 2007.  Isn't it exciting to get "No Records Found Matching Your Criteria" where your funding should be?  Don't worry, it's not you.  All the data from 2007 is gone.  Where did it go?  No idea.  When did it vanish?  I can say for certain the data has been missing at least since yesterday morning, but that it was there a week earlier.  Does anyone have a "No Records" sighting for 2007 before yesterday?

The second only applies if you submitted (or certified) your application after 8:00 p.m. Eastern time on the last day of the window.  If you did, go to the 471 Display page, put in your 471 number (if you didn't submit late, try using 471 #1051523), then click the "Display" button.  Look at the "Date Submitted" and "Date Certified."  April 17th?!  Out of window?!  Not to panic; the display tool seems to be showing you the date UTC (Coordinated Universal Time (the acronym is a sort of anagram, but at least it's properly capitalized, unlike "E-rate")) instead of Eastern time.  So don't worry; your application is in window.  Probably.  In the old 471 Display page, you would have had "Certified - In Window" at the top of the form to calm you, but now you have to go to the Application Status tool to bring your pulse back to normal.

E-Rate is always a thrill!

Tuesday, June 09, 2015

Apples to apples to apples to apples

As promised, today we'll look at comparing the cost of fiber leases (lit and dark) to self-provisioning and bandwidth service agreements.

I tried to build a spreadsheet that broke out every conceivable cost.  Under a normal contract, you would probably be leaving the vast majority of them blank, but I think PIA is going to be instructed to ensure that all costs are being considered, so you should be prepared to defend every number in there, especially blanks.  You can see that in my hypotheticals, I didn't fill in every number for every type of service.

How to use my spreadsheet?  Fill in the yellow blanks from amounts in the bids you're considering.  Feel free to leave blanks for amounts not included in the bid.  (The spreadsheet assumes that you've already selected the most cost-effective solution in each category, so there is only space for one Dark, one Lit and one Self-Provisioned.)  You can fill in grey blanks, too; I greyed them out just because I thought it was unlikely that your contract would have those fees, but they're still included in the calculations.

Notice the tab for the BandwidthNeed worksheet.  It's basically yesterday's worksheet, and here serves 2 purposes.  First, the cumulative costs are copied into the Cumulative Cost area of the CostCalculation worksheet, so you can compare to the costs to your leased solutions.

The second purpose of the BandwidthNeed worksheet is to give you a basis for stating future bandwidth needs.  You'll need that to figure out when you'll need to buy new electronics.  If you look at the sample numbers I put in, a 1 Gbps connection is projected to be enough until Year 11.  I rounded it down to Year 10.

The handling of upgrades is a little clunky.  For lit fiber, I assumed that equipment would be leased (or included in the cost of the bandwidth), so it's just a matter of"determining" how much the monthly fee will change.

For dark fiber leases and self-provisioning, I assumed that a bandwidth upgrade would probably mean an equipment purchase.  So over in cell H8, you'll see that I'm anticipating an equipment purchase in Year 10 (120 months into the contract).  There are two rows, so you can put in a second upgrade if you want.

You'll notice that there are 3 terms available.  In the first row of each term, in column F you'll put the length of that term in months.  (Note that if your term is not divisible by 12, there will be an error in the Annual Cost for the year during which the term ends.) Fiber contracts often have 2 terms; the initial term, when you're paying off upfront costs, and subsequent term(s), when you're just paying maintenance.  I added a 3rd term for flexibility.  In the hypothetical contracts I put in, I have an initial term of 5 years, because the hypothetical dark fiber lease has 5 years of higher fees paying off most of the cost of stringing the fiber, then a much lower fee for the next 15 years.  Then I have the second term end 10 years into the contract, where I'm anticipating the upgrade to 10 Gbps will increase the Monthly Cost of the lit fiber lease.  The Monthly Cost of the dark lease and self-provisioned don't change, but you'll notice that the equipment purchase from H8 bumps up the Annual Cost in Year 10.

Some shortcomings of the spreadsheet:

  • Only allows 2 equipment upgrades
  • Only allows 3 terms
  • Doesn't do a present-value calculation 
  • Only one contract of each type can be inserted
  • It's way more intimidating than I'd like it to be, since most of it will be blank
  • Contracts with terms that are not whole years will cause a miscalculation; for example, if your first term is 42 months (3.5 years), the spreadsheet will act as if it were a 48-month (4-year) contract.
Any feedback on the spreadsheets would be welcome.

Monday, June 08, 2015

How about them apples?

Based on the FCC Fiber Build Workshop and USAC service provider training, it's becoming a little clearer what applicants are supposed to do to make the apples-to-apples cost comparison for dark vs. lit fiber.

First, you determine what your term will be.  USAC mentions terms of "5, 7, 10, or even 20 years."  I've seen 40-year IRUs, but 20 years does seem sufficient.  For one thing, the highest speed I could find anyone cramming down current fiber cable is 15.5 terabits/second, and you'll probably need more speed than that before we reach year 30.  Within the next 20 years, you'll want to move to a better fiber optic cable.

Once you've figured out how long the term of your dark contract, you just compare the total cost of a dark fiber (self-provisioned or leased) and compare it to the total cost of leased fiber (or a service agreement for a certain amount of bandwidth).

Simple, right?  Not really.

Let's look at what ought to be the simplest: the 20-year cost of a service agreement.  Just multiply your current monthly cost by 240, right?  Well, that hides two bad assumptions: 1) your bandwidth needs will stay flat for 20 years, and 2) the cost of bandwidth will stay flat for 20 years.  Neither is true.  You could assume that you'll keep your monthly cost flat, and just take whatever bandwidth you could get for that price, but I'll bet that hasn't been true for you in the past.

Not to worry: I am coming to your rescue with a spreadsheet to calculate future costs.  First, to project future bandwidth needs, I just used Nielsen's Law of Internet Bandwidth: bandwidth increases by 50% per year.  (OK, it's based on one guy's residential connection speed, so it's pretty bogus, but it's amazing how often I see it quoted.)  For future costs, I found data showing annual decreases in cost/Mbps between 27% and 35%.  So let's look at the results for 20 years out, assuming you're currently paying $1,000/month for a 100 Mbps circuit:
20-year cost
50% 27% $649,466.79
50% 35% $190,709.91
Well, that's quite the stark difference, eh?  That's why your financial adviser is always going on about compound interest.  The bad news for the telcos is that the 27% is probably a more accurate number, since the 35%  number is a based on a small sample and covers backhaul prices, not retail.

My cost-estimation spreadsheet is cooler, though; you just fill in the cells shaded yellow with data from two years from your own network: the current service (or from the best bid) and any year from the past.  The example that's in the network shows a T-1 in the year 2000, which cost $400/month, and the current 100 Mbps Ethernet circuit, which costs $1,000/month.  The spreadsheet annualizes the cost/Mbps decrease (19.67%) and bandwidth increase (32.31%), and then extrapolates those costs over 40 years.  If you go to cell F39, you will see that, based on the past for this school district's network, your total cost for a 20-year service agreement is $455,883.34.

By the way, column B estimates how much bandwidth you'll need each year.

Also, none of those cells are locked, so you can mess with the spreadsheet any way you want.  And if you mess it up irreparably, you can just download a fresh copy.  By the way, the PriceDecrease worksheet shows how I came up with the 27% and 35% annual cost decreases, if you're interested.

I wouldn't bet much on the numbers actually turning out to be right 20 years from now (or 5 years from now), but they are based on real data....

Tomorrow, let's look at the cost of leased fiber.

Tuesday, June 02, 2015

Not up to the challenge

At yesterday's E-mpa® meeting, John Harrington from Funds for Learning delivered a report that was chock full of data (and more importantly, data delivered in the form of pictures, just the way I like it).  I found this to be the most interesting picture:

The blue column is the number of entities that applied in FY 2014-2015, and applied again in FY 2015-2016.  The red column is entities that didn't apply last year, but did apply this year.  The green column is entities that applied last year, but didn't apply this year.

The most significant bar for me is the green bar for Schools.  Almost 30% of schools that were in the program have left!  I guess it's not really surprising.  If you're a single-building school, you have maybe 10 phone lines, 2 cell phones, a cable modem, and a website.  The phone lines were running you about $3,000/year, the cell phones $720,the cable modem $1,500, and the website $1,200.  Let's say you're able to prove that 1% of your kids are low-income and you got a 40% discount.  Your funding was close to $2,600 last year.  This year?  Maybe $1,300, if you're able to show that most of the cell phone bill was for voice.  Next year?  $600. (Not able to document enough low-income students?  Last year's $1,300 in funding becomes $300 this year.)  If I'm one of those schools, I might drop back into the program one year to collect my $150/student in Category 2 funding, but otherwise, it's not worth my time.

And then there's the data that's not on the graph: according to the US Dept. of Education, there are 30,861 private schools in this country.  So school participation in the E-Rate has dropped from 30% to 22%.

Maybe they're moving into consortia?  Nope, the number of consortia in the program also dropped.  Hey whoa, those slivers are so tiny, they obscure the fact that almost 30% of the consortia that were in the program last year left this year.  So much for encouraging consortia.

Not long ago, the Chairman said: "These reforms will only have their intended impact if schools and libraries step up to take advantage of new opportunities. Early indications are that they are up to the challenge."  I guess 2,596 schools weren't up to the challenge.