2-in-5 meets 1-in-5

Because I like to ask stupid questions, I wonder: Will the 2-in-5 Rule remain in effect once the 1-in-5 Rule kicks in?  Seems nonsensical?  Think more.  Will districts that have already exhausted their 2 years of eligibility for Priority 2 be allowed to apply for Category II next year?

The FCC has made this question less interesting by not funding P2 in 2013-2014 and (apparently) 2014-2015.  But still, applicants who saw the surging demand and were wise enough to get P2 funding in both 2011-2012 and 2012-2013 (knowing that P2 funding was going the way of the dodo), should not be receiving funding in 2015-2016 under the 2-in-5 Rule.  But now that P2 funding is going the way of the dingo, could they be eligible for P2 (or C2 or CII or whatever) in 2015-2016 under the new 1-in-5 Rule?

If not, that could be painful.  I did some calculations, and if the FCC sets the pre-discount per-student amount at $150 (which is apparently in the Chairman's proposal), I don't think $1 billion is going to be enough funding to cover P2 demand from 80-90% applicants.  I think there's a chance that the Commission will have to take most of the $2 billion Wi-Fi set-aside to cover 2015-2016, and this whole new Category II chimera collapses in the second year.

And what if the Commission applies the 1-in-5 Rule retroactively?  Applicants that got P2 in 2011-2012  wouldn't be able to apply in 2015-2016, and those who got funding in 2012-2013 wouldn't be able to apply in 2015-2016 or 2016-2017.  You don't think it's fair to apply it retroactively?  Well, think of it from the point of view of a 40% applicant, who hasn't had a nibble of P2 funding ever.  Why should that applicant have to wait another 5 years so that the gluttonous 90%ers can gorge on P2 yet again?  Haven't they waited long enough for their turn?

And by 2017-2018, we'll have a new president, who will want to put her or his own major campaign contributors into the FCC, so all bets are off.

Hey, Theseus!

We've learned a bit more about how the Chairman's "Leverage GSA pricing so schools can buy for less" idea will work in a recent FCC blog post.  I blogged about the problems with buying off the GSA Schedule, but it appears that the solution that the FCC and GSA have embarked on is even more complex.

I suppose I should just wait to see the final product, but here are some possible problems of the top of my head.

First, the GSA has to establish BPAs.  Here are some headaches they bought by agreeing to do that:

1. Timing of the bid: The E-Rate rules require that bidding take place at least 6 months before the start of the Funding Year.  The BPAs have to be in place before bidding starts.  So the GSA is going to have to get BPAs in place by December at the latest for services that don't start until July 1.  How is the GSA going to feel about signing contracts so far in advance?  I guess they're not actually signing contracts, so it's not as bad as all the illegal contracts that applicants have to sign, but it's still bad procurement.
2. Timing of installation: Under E-Rate rules, equipment can be installed any time up to September 30th following the end of the funding year.  (And if the funding commitment comes after March 1, there is an automatic extension for another year.)  So the BPA will have to cover a period of at least 22 months or even 34 months (for example FY2015-16 BPAs will need to be in place as of December 2014 and remain available until September 2016, or September 2017 if the FCDL is issued late enough). Current BPAs cover 12 months.
3. Does the GSA know that E-Rate procurement rules forbid the specification of make and model of equipment?  Since the GSA Schedules are make-and-model-specific, I'm not clear on how the GSA is going to craft BPAs that are model-agnostic.

Once the BPAs are set up, what will applicants have to do to run a reverse auction?  In order to use ReverseAuctions.gsa.gov, you’ll need a valid GSA eBuy username and password.  Clicking through a couple of links, I find that GSA Advantage has a registration form for state and local governments.  To purchase on GSA Advantage, a State or Local government issued credit card for payment must be used.  I can't say this for certain, but I'd be surprised if school districts and libraries can purchase a fork-lift Wi-Fi upgrade (which they'll want to do because the 1-in-5 Rule is coming) with a credit card.  And it looks like private schools get left out.

What else is on the registration form? "Businesses have the option of rejecting orders placed by State and Local government buyers."  Let's hope the BPA addresses that.  "The use of GSA Advantage by State and Local Governments is restricted to only those domains (URLs) approved by GSA."  It looks like step 1 is to have your CIO contact the GSA to get their domain authorized.  Is the GSA ready for 50,000 E-Rate applicants to request URL approval?

Note that most applicants will be going through the registration process just to make this one purchase.  

Now that I'm registered, I can start my reverse auction.  Again, I'll have to learn a new system for this one procurement, but OK.  I don't need to worry about inviting outside vendors, since only vendors listed on the BPA will be allowed to bid.  Let's see, E-Rate rules say I can't name make and model, and the reverse auction process requires that I take the lowest bidder.  So I guess I'm purchasing a Wi-Fi grab bag.  And since the reverse auction process is going to require that I specify exact quantities, I'll have to do a full network design in order to get that grab bag.

Since I did the reverse auction, do I still need to post a Form 470?  I guess I'll have to, since the Form 471 requires a 470 number.  What if I get a lower bid in response to the 470?  Can I consider the reverse auction bid alongside other 470 bids, and create an evaluation matrix, so that I might not end up picking the winner of the reverse auction?  

Since the FCC expects Wi-Fi installations at small schools and libraries to cost $6,000 or less, we can't really be expecting GSA contractors to bid on them.  In fact, the only applicants who are going to get any interest on their reverse auctions are large applicants, who can get good pricing without this song and dance.

Who's going to figure out how these reverse auctions fit into state purchasing laws?  Is a bid involving only firms on a GSA BPA going to satisfy state bidding requirements?  Don't bet on it.

This procurement labyrinth means the hydra and chimera have been joined by a minotaur: it has a GSA BPA for its body and a bidding process for its head.  The good news is that at least applicants will be able to ignore this beast.

Cap in Hand

Chairman Wheeler acknowledged that "Many are asking us to simply raise the contribution rate and send more money to schools and libraries."  He promised, "I will not hesitate to recommend this should it be warranted."  A recent news report said, "An FCC official emphasized that the agency has not ruled out increasing the overall size of the program if it's necessary to meet the president's goals."

This morning it occurred to me that there is a simple way for the FCC to put their reforms where their mouth is.

Uncap the E-Rate fund.

Uncapping the fund is fiscally responsible.  It increases and decreases the contribution rate as necessary to meet applicant needs, instead of setting some artificial spending level, and then crafting increasingly incomprehensible program rules to fit the number.  Right now, the cap trumps all program goals and priorities.

Think how it would simplify the program to go topless.  Because of the cap, we've got Priority Two and the 2-in-5 Rule.  But think a little deeper: the filing window is only necessary because of the cap.  Funding commitments are only necessary because of the cap.  Without the cap, the list of steps in the application and funding process would be:

1. Get discounted bills.  

That's the way the program was originally supposed to work.

OK, some applicants might have to let service providers know they're eligible.  If USAC doesn't know what your discount level should be, they might have to ask you.  Oh, and I guess we'd still need a form where you certify away your first-born child.  But the complexity of the application process is a result of the cap.  (Well, a lot of the complexity comes from the FCC's misguided and ineffective attempt to regulate the procurement process of local governments, but I've done that rant.)

At this time of year, what could be more student-centric than pulling off that flat cap and tossing it in the air?

Device-centric

I've been thinking about Chairman Wheeler's goal of bringing Wi-Fi to 10 million students.  My first thought was, "I guess that leaves libraries out."  Then I got thinking about how you count that.  Let's take my little town, because it's a nice small example.  Our local school district has about 1,000 students in K-8.  To provide enough Wi-Fi in their buildings, they're going to need something like 90 access points.  Those 1,000 students are served, so giving funding to the local library would be redundant.

Hang on, though: in theory, the local library serves all those kids and more.  But it has at present 4 or 5 computers in the kids' area, which I've never seen all used.  I've never seen a kid using the Wi-Fi (except after Hurricane Sandy, when a lot of us were getting our Internet there).  A 1-to-1 initiative at the school may drive up BYOD traffic as kids bring their Chromebooks in to get Internet access after school, but I can't imagine the library needing more than a single 802.11n access point to connect all the students that come in.

So the E-Rate has two choices to cover the kids: the school needs 90 APs, the library needs 3.  If you're looking for most bang for the buck, the most students per dollar, covering the library is the way to go.

If the Chairman wants to do a "per-something" budget for applicants, instead of going per-student for schools and per-square-foot for libraries, we should go per-device.  Instead of getting $100/student to implement Wi-Fi, schools would get maybe $250/computer.  It makes no sense to allocate funding based on human bodies or building size.  Bodies and buildings don't use Wi-Fi; devices do.  It should be obvious that a 1-to-1 school with 500 kids needs more Wi-Fi than a school with 1,000 kids and 200 computers.  And much more than a library that serves all 1,500 of those kids with an access point or two.

Would some applicants lie about how many devices they have?  Probably.  But we accept NSLP numbers, and look how unreliable they are.  The number of devices could at least be audited without violating anyone's privacy.

What do we do about BYOD?  Nothing.  Because if everyone has about the same amount of BYOD traffic, then the division remains equitable.  Remember, with per-whatever funding, we are no longer concerned with actual need.  We're just looking for a fair way to allocate insufficient funding.  I think that the allocation would be slightly skewed, but in the right direction.  In my experience, the fewer low-income families in a community, the more BYOD demand there is.  So ignoring BYOD would tend to put more funding in needier communities.  Nice.

And check out this unintended consequence: The more devices a school buys, the more funding it receives.  Without paying a dime for end-user equipment, the per-device allocation encourages applicants to put more devices in students'/clients' hands.  With an incentive program like the E-Rate, we should always look at what behavior we want to encourage.  Broadband and Wi-Fi are useless without end-user devices, so let's encourage applicants to buy more devices.

Mystery Invoices

I must be missing something.  I was looking through USAC's 2013 Annual Report, and I came upon the chart on page 15, showing invoice processing, and I noticed the numbers didn't add up.  So I dumped the data into Excel and added a row at the bottom:

	Q1	Q2	Q3	Q4
invoices received	196,428	333,079	451,211	520,444
invoices paid	176,272	302,112	405,089	471,081
invoices rejected	10,740	18,874	24,865	30,813
???	9,416	12,093	21,257	18,550

Let's look at Q4 as an example: USAC got 520,444 invoices, paid 471,081 and rejected 30,813.  What happened to the other 18,550?  They can't be dumping thousands of invoices into a black hole, could they?  Maybe the dreaded "pass zero" invoices are in that row; those invoices wouldn't fit in the "rejected" row, since they are technically approved, but they wouldn't fit in the "paid" row, either, since they are approved for $0, so there's no payment.

Anyone out there have a guess?  Or maybe someone could give us the actual answer....

The FCC Taketh Away

I recently called Chairman Wheeler to task for saying he'll increase the contribution factor to allow more E-Rate funding only "should this be warranted." (I think it's warranted already.)  Well, check this out.

Chairman Wheeler's hit list of services that he finds "outdated" saves the program about $600 million a year.  Almost all that savings  comes from voice, both landline ($377 million) and cell phone ($176 million).  By tossing voice out of the program (to make room for more broadband and Wi-Fi), we would save about $550 million per year, or $138 million per quarter.

Well, it's a quiet Sunday afternoon here at the Riordan household, so I thought I'd peruse the Proposed Third Quarter 2014 Universal Service Contribution Factor since I felt like taking a nap.  The contribution factor: 15.7%.  Last quarter, it was 16.6%.  Seems like a small drop, but how much is 0.9% in dollars?  It's $123.5 million.

So at the same time the FCC is cutting the size of the USF by $123.5 next quarter, they're talking about tossing voice out the program to save $138 million, because the fund is so strapped.

If you take a look at the contribution factor history, you can see that the peak was 17.9%, which we hit in Q1 of both 2010 and 2012.  I'm not advocating that the contribution factor should be that high, but if the FCC "rolled back" the contribution factor to 2010 levels and used the extra to pad the E-Rate, we'd have an extra $300 million next quarter.  Annualized, that's $1.2 billion.

And here's a little rant for dessert:
Hey, wait, wasn't Commissioner Pai just complaining the contribution factor was 16.6%?  Sure enough, on June 18th, he said it was 16.6%.  OK, we're still in Q2, so I guess it is still 16.6%, but since June 12th he's known it would be dropping to 15.7%.  So while he can at the moment claim "over an 80 percent increase" since 2009, he knew when he said it that in two weeks, it would be only a 65% increase since 2009.  It's lucky for him that the Commish chose 2009 and not 2010, since the contribution factor has actually decreased 12% since the beginning of 2010.  A decreasing contribution factor wouldn't have fit his narrative.

Dancing Deckchairs

Reaction to Chairman Wheeler's reform proposal has been swift and unkind.

The President of ISTE released a statement calling the reforms "a step backwards."  Ouch!  "Let’s stop rearranging the deckchairs."  Zing!  And it ends with a call to action: "Join us in telling Chairman Wheeler to raise the E-Rate’s cap now and make our shared vision for connected classrooms and libraries a reality. Tweet to @FCC using the hashtag: #RaiseTheErateCap."  Are dingoes on Twitter?

Meanwhile, a gaggle of education associations sent a letter to the commissioners, saying:

1. "We believe any effort to modernize the E-rate Program must include increasing the E-rate funding cap."
2. "Moving away from a need-based method by incorporating a per-pupil allocation erodes the equitable distribution of E-rate fund...."

When President Obama first announced his ConnectED initiative, I thought he was running it through the E-Rate because the FCC can increase the size of the E-Rate without congressional approval.  The administration was estimating how much the USF fee on phone bills would increase.  So why has Chairman Wheeler changed it from an increase in funding for technology to a "modernization" and refocus on broadband and Wi-Fi?

One other note on the letter from educators: they mentioned a per-square-foot funding formula for libraries.  I don't recall hearing that one before.  That will benefit older communities, and communities with shrinking populations, as they will have oversized libraries, whereas newer suburbs will tend to have undersized libraries.