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Tuesday, February 12, 2019

And I C2 far, and I C2 much

So the FCC's Wireline Competition Bureau has release the long-awaited Report on Category 2 Funding.  We've all been on tenterhooks, waiting to see if the budgets would continue or we'd go back to 2-in-5 (OK, no one really thought we'd go back to 2-in-5), whether the budgets would be increased or decreased, etc.

This is a Report, not an Order, so nothing is written in stone (but it's not written in pencil, either).  Will we see an NPRM before the FCC makes an Order?

But I'm not going to wait to run my mouth.

On the main point, yes, budgets are better than the old 2-in-5 nonsense.  I actually wonder if 2-in-5 might spread funding to all applicants now that the funding cap is $3.9 billion instead of $2.3 billion.  But 2-in-5 created some twisted incentives for applicants, so good riddance.

OK, I'm done agreeing with this report.  (I know I've been offline for a while, so long-time readers probably read the above and wondered if I'd gone soft.  Fear not; I'm still a curmudgeon.)

I'll jump right to the Conclusion, which has a few conclusions, and make my ill-considered response:
  1. "the category two budget approach is generally sufficient."  No, it isn't.  More on that below.
  2. "the category two budget approach is a clear improvement over the two-in-five rules approach."  True, but not for the reasons given.  The fund boost from $2.3 billion to $3.9 billion (and tossing voice out of the program) would probably have fixed the 2-in-5 problems mentioned in the report.
  3. "The category two budget approach may not be sufficient, however, for schools and libraries at the funding floor, as well as libraries outside of highly-concentrated urban areas."  Also true, but again not for the reasons you give.  The C2 budget is too small for everyone, not just small locations.  The exceptionally low participation rate among those locations is more due to low need; at that size, you buy cable Internet access and it comes with a wireless access point/router.  What else are you going to buy?  If you did need a switch or cabling or another access point, you bought all that years ago, and you don't need to upgrade to 802.11ac or 10Gb uplinks or anything, so you haven't spent anything in the last 5 years.
And the Recommendations:
  1. "retain the category two budget approach."  Agreed.  It's a pretty good approach, and it's not worth disrupting the program to try something new.
  2. "consider some targeted changes to the budgets moving forward such as an increase in the funding floor."  Agreed.  Wait, that implies all other applicants don't need an increase. No on that.
  3. "..." What about that too-close-to-free 85% discount level?  Not even a look at whether that should be changed?
  4. "..." Hey, what happened to the request for district-wide (as opposed to location-specific) budgets?  Not even a mention?  C'mon, that was the most urgently needed change.  In a couple of footnotes, we can see that the FCC got requests to ditch location-specific budgets from:
    1. Council of the Great City Schools
    2. Florida E-Rate Team
    3. SECA
    4. CoSN
    5. CSM Consulting
                They left out comments from a couple of major players that I can think of:
    1. SHLB: "allow school districts and libraries some flexibility to distribute their allotted funding among their locations as best meets their needs."
    2. E-MPA® "recommends that the FCC discontinue the 'per entity' budget in favor of a 'per district' budget"
I don't think I need to talk about the reasons we need district-wide budgets.  Everyone agrees we need them.  I think E-MPA® describes the reasons well in their NPRM comments.

My big beef with the report: "We also find that the category two budget approach appears to be sufficient for most schools and libraries."  Oh, hell no.

I'll get to criticism of the data in the report and the reasoning that led to the conclusion, but first, let's take a step back.  Why were the budgets put in place?  To keep demand within the fund's means.  Well, the demand estimate for 2018 was $2.77 billion, compared to a funding cap of $4.06 billion.  Including the $1.2 billion in carryover unused funds, we could have covered $5.26 billion in demand.  So we came in $2.49 billion under the program's funding cap.  Total C2 demand was $745 million.  Adding in the $2.49 billion, we find that we could have covered a demand of $3.23 billion for C2, more than 4 times the demand.  So instead of a $150-in-5 budget, it looks like we could easily afford a $600-in-5 budget.

If the purpose of the C2 budget is to keep demand within the program funding cap, let's make the budget $600 every 5 years.

OK, now I'll criticize the data. I'll just look at the data in the Conclusion.
  1. "no requests have been denied due to insufficient funding."  True on the surface, but how many applications have had their funding reduced?  And even more important, how many applicants only put part of their need on an application?  In the old days, at least the FCC could see what applicants thought they needed.  Now, they only see what fits in the C2 budget; applicants pay full price for all the other equipment they need.  That amounts to a partial denial of funding.  Add another layer to the ridiculous secrecy in the E-Rate program: hidden denials.
  2. "86% of schools have [requested C2 funding] in at least one year..."  That seemed really high, so I checked further up in the report and found what they actually measured: 86% of schools which were part of a C1 request were also part of a C2 request.  (It seems they used locations, not billed entities.) Last time I checked, the number of school districts participating in the E-Rate had dropped to under 85%, and the number of private schools was down around 17%.  No question that many more schools are getting C2 funding than in the past. As you may remember, I like pictures, so the graph on page 7 works for me.  Let's not pretend that the increase in the percentage of applicants getting C2 funding is all due to the increase in the numerator (the number of schools getting funding commitments); it's also due to a decrease in the denominator (the number of schools applying for E-Rate at all).
  3. "Almost half of schools (48.6%) and most libraries (84.6%) have used less than half of their allocated five-year budget, and a supermajority of schools (73.2%) and libraries (94.4%) will use less than 90% of their budgets."  Those numbers would be useful if we'd already reached the end of the budget cycle.  Since none of those applicants have had 5 funding years in which to spend their 5-year budget, we shouldn't draw any conclusions from those numbers.  Some schools are going into year 2 of their 5-year cycle, so it's not surprising they've used less than half of their funding.  Wait a minute! Wait, on page 7 it says: "Approximately 42,000 schools have used more than 75% of their category two budgets, and 30,000 have used more than 90%. An additional 16,000 schools have used between 50 and 75% of their budgets."  Uh, that means 17% (not 48.6%) of schools have used less than half their budgets, and 71.7% (not 73.2%) have used less than 90% of their budgets (and at most, those schools have completed 80% of the funding cycle).  Where did that 48.6% number come from?  I can't find any more about it in the report.
  4. "the data from the first five-year category two budget cycle..."  Much more accurate to say, "the data from the first four years of the first five-year budget cycle."  0% of applicants have completed the cycle, and some applicants are just starting their cycle.
On to criticizing the reasoning.

"Low total budgets may be deterring participation by these entities because the administrative costs of participating outweigh the benefits of doing so."  If that's true, maybe we should look at how we can increase the budget to try to bring back the 33% of applicants who have left the program since FY 2014.  Let's increase the budget for everybody until we get back to the participation we had in 2014: 26,059 applicants filed Form 470 in FY2014, but only 17,446 applicants filed Form 470 in FY2018.  Take a look at the library data in the report.  Increasing the per-square-foot budget for urban libraries from $3.20 to $5 increased participation from 58% to 84%.  Bigger budgets will increase participation, and we all want that, don't we?

"We also find that the category two budget approach appears to be sufficient for most schools and libraries."  Yes, the approach is sufficient, but it seems like they're implying that the amount is sufficient.  That's based on some unexplained percentages which don't agree with numbers elsewhere in the report.  And those percentages indicate what applicants use, not what they need.  There are lots of reasons applicants don't use all the funding they need.  Here are a few off the top of my head:
  1. PARCC and SBAC arrived in FY2014, and that meant a major network upgrade for a lot of schools.  So when C2 funding became available in FY2015, a lot of districts had a pretty new network.
  2. Since funding is per-location, a district is likely to have locations where they aren't using 100% of the funding (early childhood), and locations where they need much more than 100% of funding.
  3. Having to go through the E-Rate process creates extra work, requires understanding of hundreds of pages of words, forces applicants to sign illegal contracts, locks in pricing and configuration 4-18 months before services are delivered, and restricts applicant flexibility in searching for the lowest price.  So unless you have to, you don't want to do it.
  4. Not all purchases fit the E-Rate window.  Actually, none do.  Technology budgets aren't set by February, so districts don't know what they'll be buying in the coming year, so the Form 470 is an educated guess.  But the reality is worse: most C2 applications are not approved by June 30, and vendors that do work for schools are booked for the summer by then, so for major projects, you really need to apply 15 months before the project starts.  It is extremely bad practice to contract for a tech purchase more than a year before you'll install. 
  5. The individual who certifies a form is taking considerable personal risk.  School and library employees don't get paid enough to take that kind of risk.
  6. Since funding is per-location and per-piece-of-equipment, trying to figure out what to change in order to reduce a funding request is like a hellish word problem, so most applicants will apply for less than the maximum.  And since you don't know pricing when you file the Form 470, the amount could be much less than the maximum.
  7. Indexing the budget decreases the percentage of funding used every year .  If an applicant used 100% of their C2 funding in FY2015 and didn't apply for another 5 years, by FY2019, 6.4% of their C2 budget would be unused (assuming a 2.6% inflation adjustment for this year).
  8. The vanishing E-Rate subsidy for voice services and equipment has hurt technology budgets, so districts don't have the money to pay their share.
Here's my anecdote on the sufficiency of $150 per student.  I've been involved in projects to build new high schools.  So those schools need the following eligible items: cabling (including racks, patch panels, etc.), switches (including uplink and stacking modules), UPSes, access points, wireless controller, a router, and the installation and licensing for all that equipment.  What do they get for $150/student?  The access points.  And maybe part of the switches.  Dropped off in boxes.  There is $0 for cabling, most switches, a controller, a router and any installation.

But you know what shows up in the data?  Those schools have unused funding, because they couldn't hit the cap exactly, and indexing has provided more funding for those schools.

Of course, existing schools don't need so much cabling (although I'm seeing more clients bump up against the limitations of Cat5e and OM2).  But $150/student is not enough to replace the APs and switches, and 6 years is a mighty long replacement/upgrade cycle on that equipment.

If the FCC really wanted to know what the need was, they'd ask applicants how much they spend on eligible equipment each year.  Or CoSN could do a survey.  (Maybe they already do.)  I'm confident they'd find spending on eligible internal connections is more than $150/student.

But let's get back to the biggest failure of the report: no recommendation concerning per-location budgets.  Everyone hates the per-location nonsense.  Switching to per-district budgets should be the top priority in C2 budget improvements.