USAC E-Rate Modernization Order Summary:
USAC published a Special Edition Schools and Libraries News Brief dated August 12, 2014 summarizing the new E-rate modernization Order (FCC 14-99). The summary focuses on the three major changes designed to:
- Close the Wi-Fi gap by providing Category 2 funding for inter-building wired and wireless broadband data distribution;
- Maximize the cost-effectiveness of E-rate spending by increasing pricing transparency, designating “preferred master contracts,” and encouraging consortiums; and
- Simplify E-rate program administration and application processing.
The two timing issues, which applicants may find a bit confusing, deal with: (a) Category 2 budgets and funding for FY 2015 and FY 2016; and (b) the phase-down of discount rates on Category 1 voice services. In both cases, the issues arose from apparent compromises in the final Order that established sunset dates if certain provisions are not reauthorized by the FCC in the future.
Under the Order, funding for internal Category 2 Wi-Fi equipment and services is to be allocated based on five-year pre-discount school or library budgets capped at:
- $150 per student per school;
- $2.30 per square-foot per library; and
- A minimum $9,200 floor for small schools and libraries.
Although these are five-year budget caps, the allocation process involved has only been authorized for FY 2015 and FY 2016. This means that the FCC must act before FY 2017 to continue the process or to come up with a new process. In our view, the most likely scenario is that the FCC will elect to continue the five-year budgeting process.
If the FCC does not act, however, the initial Category 2 process defaults to the current Priority 2 process (including the re-initiation of the 2-in-5 rule). Whether or not the process changes as of FY 2017, applicants receiving Category 2 funding in either or both of the first two years will still be covered up to their budget caps for the first five years. While it is too early to tell if this would be to their advantage or disadvantage, we would not expect the FCC to act in a manner that would disadvantage the early Category 2 adopters.
The timing issue on the phase-down of discounts by 20 percentage points per year on Category 1 voice services is different. As indicated in the summary, “If the FCC takes no further action on this phase down by the opening of the funding year window for funding year 2018, the phase down will continue.” This timing is virtually meaningless. As shown in the table below, by FY 2018 only the poorest of applicants will be receiving any discount on voice services at all.
| Discount Rate Phase-Down Chart for Category 1 Voice Services |
Current
FY 2014 |
Discount Rate as of |
| FY 2015 |
FY 2016 |
FY 2017 |
FY 2018 |
FY 2019 |
| 20% |
0% |
|
|
|
|
| 25% |
5% |
0% |
|
|
|
| 40% |
20% |
0% |
|
|
|
| 50% |
30% |
10% |
0% |
|
|
| 60% |
40% |
20% |
0% |
|
|
| 70% |
50% |
30% |
10% |
0% |
|
| 80% |
60% |
40% |
20% |
0% |
|
| 90% |
70% |
50% |
30% |
10% |
0% |
Additional summary information on the E-rate modernization Order is available in our newsletter of August 4, 2014, together with a summary of the draft Eligible Services List for FY 2015 in our newsletter of August 11, 2014.
E-Rate Modernization Staff Report and Maps:
The FCC issued a Public Notice (DA 14-1177) last week referencing two items — a staff report on E-rate modernization and maps showing fiber connectivity nationwide for schools and libraries.
The Staff Report, prepared by the FCC’s Wireline Competition Bureau and the Office of Strategic Planning and Policy Analysis, provides:
- A summary of the changes adopted for funding Category 2 services with a projection of the impact of these changes if they are extended, and if they are not.
- A new staff analysis of the extent of fiber connectivity to school and library premises, and on current pricing.
- An overview of new broadband funding likely to become available as a result of the phase-out of funding for non-broadband services.
The Report essentially provides the rationale for the key changes incorporated in the E-rate modernization Order, laying the groundwork for extending those two sunset provisions discussed above. We found the following three points to be statistically interesting:
- Noting that the Priority 2 demand in FY 2013 was over $1.7 billion, the staff indicated that available funding would have covered only about 60% of that demand. The decision not to fund Priority 2 at all that year was based on the assumption that 90% applicants could not effectively have used prorated funds if their expected 10% match increased four-fold. The 60% figure is interesting because it implies that roughly $1 billion was available, but not used. This is a much higher figure than has ever been shown in public USAC documents as being available, but may be the basis for the FCC’s earlier assertion that it had identified $2 billion to fund Category 2 in FY 2015 and FY 2016.
- The staff also outlines the case for establishing per-applicant budgets for Category 2 services. This suggests that absent such budgets, as had been the case historically, funding necessary to reach all schools and libraries over a five-year horizon would require about $2.5 billion rather than the $1 billion annual funding targeted in the Order.
- As shown in the table below, a projection was made of the expected savings to be realized by making certain “legacy” services immediately ineligible and by phasing out other voice services. By the fifth year, this savings is projected to reach almost $1 billion.
The Public Notice and the Staff Report both discuss fiber connectivity maps available on the FCC website. The data for these maps was drawn from a number of sources and appears to represent just a first step in an evolving broadband mapping project. Based on these maps, the Report estimates that “roughly 65 percent of public schools have fiber facilities to the building,” but cautions that “this analysis may somewhat overstate the extent of fiber connectivity to schools.” To the contrary, early indications from a number of states suggest that the maps miss many of the existing fiber-connected schools. The FCC is explicitly seeking assistance from states, districts, schools, libraries, and others to provide additional connectivity data.