E-Rate: Funding Year 2011

There's quite a bit going on with the federal E-Rate program this summer. There are a few critical Notices of Proposed Rule-Making (NPRM) out there and there is also a draft of the Eligible Services List for FY2011. This is the earliest I can remember seeing a draft ESL posted. Many of the NPRM suggestions are embedded in this draft ESL, so I'll take a moment and highlight a few of these:

* "Dark Fiber" would become eligible - Applicants and providers have sort of worked around this over the years by proposing that that provider 'light' the fiber by supplying the electronics on each end. In some cases, this has simply led to an additional switch for the district to power and house in their wiring closets. This could be a good development, as schools and districts seeking to connect might often find a vendor with fiber optics available for lease. It would also take away some guesswork with network proposals. Do you need 10Gb between all sites? Well, if you have the electronics to support that, go for it.

* "Web hosting" would become ineligible - This could be a big deal for a few of my districts. Some applicants have taken advantage of third-party hosting sites for the district web presence. It keeps the district from having to maintain a server and web services on that server. We've had districts who have had their web site hacked. At times, this has been due to security updates and patches not being applied. There's some level of security in having this housed by a provider specializing in web hosting.

I do see the other side of the equation, though. The program itself is about connectivity and a web site is not directly related to connectivity (or, perhaps, not as much so as in years past). Also, all parties have sought to take full advantage of what is or isn't eligible and have walked a thin line to gain every advantage possible. Any service that's eligible "to a point" lends itself to applicants or providers seeking to push the proverbial envelope. Removing this certainly prevents that, but it would put districts in a tough spot as they would be forced to consider whether to continue hosting services if forced to pay the full price themselves.

* "Web servers" would become ineligible - See above, as the logic is similar. The program has grown increasingly strict over the years as it pertains to servers eligible for purchase under Internal Connections. If web hosting is deemed ineligible, logic would dictate that web servers would be deemed ineligible as well.

There are other removals for services that were not being purchased by many (if any) applicants. T-2's, Global Service Provider fees and a Network Access Registers (related to Centrex phone service) were all crossed out of the draft ESL.

"Should I Apply for Internal Connections?"

It's early February, which means "E-Rate Form 471 filing" to the K-12 CIO community. I've had several districts ask me or speculate aloud regarding whether to apply for Internal Connections (Priority 2 funding) for their schools. It's a difficult question and I'm never in a position to say "don't apply", but we can certainly look at the data to speculate on the situation.

E-Rate Central does a great job of this in a recent newsletter. In it, there's an interesting graphic that details the past three funding years, the amount of rollover funds and the Priority 2 funding threshold. Their chart states:

Funding Year 2007, $650M rolled over, P2 threshold 81%
Funding Year 2008, $600M rolled over, P2 threshold 87%
Funding Year 2009, $900M rolled over, P2 threshold will likely be 70-78%

I thought I'd look at some of the cumulative USAC data a different way - all data approximated and keep in mind FY 2009 is still being funded:

Funding Year 2007, $1.4B total P1, $482M P2 90%, $463M P2 80-89%
Funding Year 2008, $1.6B total P1, $641M P2 90%, $208M P2 80-89%
Funding Year 2009, $1.4B total P1, $432M P2 90%, $399M P2 80-89%

That same E-Rate Central note above points out that there's only about $500M available to be rolled into FY 2010 at this time. I suppose that could grow slightly, but there are other factors at play. With the economy as it is, discount levels have risen for many districts. There are more 80% and 90% schools, which is going to mean more school districts at a cumulative 81% and above.

My theory (and it's only one person's opinion) is this: School districts see that the FY2009 P2 threshold is going to go below 80%. They also see that they may have a higher discount level for the first time (or first time in years). Those factors will likely combine to produce great demand in the higher discount levels. Add that to the amount of available rollover funds (which will be similar or less than FY2007/FY2008 levels) and we could see an FY2010 P2 threshold above 80%.

This certainly doesn't mean "don't apply", but the historical numbers presented don't support another year of sub-80% P2 funding. We shall see.