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.

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.

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.

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.

Wi-Fiction

Here's another estimate on the cost of upgrading schools' network infrastructures to give every student Wi-Fi access.  You may recall I estimated $5.5 billion.  Then Funds for Learning estimated $10.8 billion.  Now CoSN (the Consortium for School Networking) and Education SuperHighway (ESH) have estimated $3.2 billion.  The differences are explained by the methodology.  My estimate was just extrapolated from a single data point.  Funds for Learning created a per-student average based on what schools had been requested, and applied that to all schools.  CoSN/ESH created a per-classroom basket of goods to calculate a per-school cost, and added district-level gear.  It then multiplied those costs by the number of schools and districts in the U.S., and came up with $2.9 billion.  And then added $300 million for libraries based on...nothing.

Who's right?  Nobody.  Obviously, my estimate is unreliable, since every school is different, and I used only one district with 2 schools.  FFL's estimate is bound to be too high, since it's based on what high-discount schools spend, and we know they overspend because 90% is too close to free.

CoSN/ESH's estimate suffers from being based on a theoretical configuration and average prices.  The quantities are reasonable, but I can't say they're right. I find the prices to be very optimistic.  $520 for an access point, installation included?  I'm seeing hardware prices around $1,000 for a manageable 802.11ac access point.  And what switch offers 6 gigabit PoE ports for $73 (OK, you don't need PoE on all ports, but you sure do for those access points)?  $12/port installed?  For a managed gigabit PoE switch, I'm seeing closer to $20/port for the hardware only.

CoSN/ESH also tried to estimate what percentage of schools actually need the upgrade.  That's a good idea, but I don't like their estimates for two reasons.  First, I think their view of current infrastructure is too optimistic.  For instance, they say that 43% of school LANs are ready for 1:1.  That's based on a CoSN survey of 472 tech directors.  Are those 472 representative of the nation?  I'd argue that they're likely to be more forward-looking since they are CoSN members, and proud of their networks since they volunteered to answer the survey.  Still, it's probably the best data out there.  But what is the actual data?  The question was, "How confident are you that the typical school's wireless network would have the capacity to handle a 1:1 deployment this fall?"  Only 15.2% were "very confident";  26.6% were "somewhat confident."  So what the data actually says is that 41.8% of tech directors surveyed are at least somewhat confident that most of their schools are ready for 1:1. It does not say that 43% of school networks are ready for 1:1.  It gets worse: in CoSN's report, we learn "no district reports full access in more than 71% of its schools."  And that's any wireless access, not enough capacity to handle 30 devices per room.  So 0% of the districts surveyed are completely ready for a 1:1 initiative.  I think all their estimates are overoptimistic.

But the bigger problem is that they are assuming that schools which have adequate infrastructure installed will not make upgrades.  If you offer someone an 80% discount, the meaning of "necessary" changes.

• If I have to pay full price, I can get by with my current 802.11n-AP-in-every-third-room network.  But if I can get an 802.11ac AP in every room at 80% off, then that's what I'll do.
• Is it necessary to upgrade that 5-year-old switch to a new managed PoE switch at a cost of $1,200?  Maybe not; we'll have to run an extension cord to the access points and suffer with 100 Mbps ports.  If the new switch cost $240?  Oh, yes.  
• CoSN/ESH say 80% of schools have 6 drops/classroom.  Maybe.  Do they have 6 Cat6 drops ideally placed for future needs?  No, we installed Cat5 (which can handle gigabit on a good day), and hadn't anticipated the need for drops for an access point in every classroom, not to mention one for the smartboard and one for the projector.  I can't afford the $200 for a cable run to replace that 40' patch cable snaking up the wall and across the ceiling to the projector, but if I could get it for $40, then yes.
• Late 2015, we'll see Wave 2 (MU MIMO) 802.11ac APs.  Time to replace all the APs.  And the upcoming 802.11ad (WiGig) sounds perfect for 1:1.  Each WiGig AP will deliver multiple gigs of data, so we need Cat6 cabling and 10 Gig PoE switches. Time to replace everything!  1-in-5 Rule?  Guess I'd better upgrade to Cat6 and 10 Gig PoE everywhere now, so that I'll be ready for WiGig.

If Priority Two funding becomes available to 70% applicants, look for a tsunami of forklift upgrades.  Even for 40% applicants, the demand will spike.

So I find the $3.2 billion figure to be a significant underestimation.  I'm liking my $5.5 billion guess more and more.

My final criticism: the report says that we'll be able to spread the $3.2 billion across 4 years.  Really, who's going to wait 4 years?  I suppose there are some schools who are upgrading this year who won't want to upgrade for 4 years.  But I don't think we can count on a quarter of applicants waiting 4 years.  Wireless access points get better every year, and they're easy to replace.

My crystal ball says requests for Wi-Fi gear will be: $4.2 billion in FY 2015-2016, $2.3 billion in FY 2016-2017, and $1.8 billion every year after that.  If maintenance is eligible, be ready for $500 million per year.

When exactly will the Chairman be convinced that $2.4 billion per year is not enough, even if he plays some game with the accounting to give the fund a one-time $2 billion goose?