E-rate 2.0: Understanding the New Category 1 ServicesOctober 22, 2014

Moderator:

Noelle EllersonAssociate Executive

Director, Policy & Advocacy

Presenter:

Aleck JohnsonVice President

EdTech Strategies, LLC

Sponsored by:

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Backgroundo E-rate 2.0 Order (released 7/14/2014) replaced

Priority 1 and Priority 2 with Category 1 and Category 2

o Historically Priority 1 included Telecommunications and Internet Access• Recent changes diminished the distinctions between

the twoo E-rate 2.0 focuses on broadband services• Non-broadband services subject to significant cuts

The New Category 1o New Category 1 focuses on broadband includes

fewer services and breaks down the distinctions between Telecommunications and Internet Access

o Non-broadband voice services subject to phased elimination through decreased discounts• Discounts drop 20%/yr. starting in FY2015

o Other non-broadband services eliminated entirelyo “Savings” will allow greater funding of Category 2

Category 1 vs. Priority 1Before E-rate 2.0: Priority 1

Broadband Internet/Digital Transmission Service

Website Hosting

Leased Wide Area Network Service Email ServiceLocal Phone Service Paging ServiceLong Distance Phone Service Custom Calling FeaturesCellular Phone Service Cellular Data ServiceVoice Over IP Service Voicemail Service

All services eligible at same discount rate

Category 1 vs. Priority 1After E-rate 2.0: Category 1

Broadband Internet/Digital Transmission Service

Website Hosting

Leased Wide Area Network Service Email ServiceLocal Phone Service Paging ServiceLong Distance Phone Service Custom Calling FeaturesCellular Phone Service Cellular Data Service*Voice Over IP (VoIP) Service Voicemail Service

Bold – still eligible at full discount ratePurple – eligible at reduced discount rate until phased outRed – eliminated from eligibility

Category 1 Serviceso Discounts on voice/telephone services reduced 20%/yr.

starting in FY2015• Decreases until 0% discount reached

o Other non-broadband services eliminated• Cellular Data*• Website Hosting• Email Service• Paging Service• Voicemail Service

• Components of Voice Services - Directory Assistance- Text Messaging- 900/976 call blocking- Custom calling Services- Direct Inward Dialing- Inside Wire Maintenance

The New Category 1: Financial Impacts o Lots of data available from various groups

on what this will mean• Different assumptions, different data sets• Different agendas and spin• Accurate data still somewhat difficult to come

by – shifting goal posts, shifting definitions, using data for purposes other than what was originally intended

The New Category 1: Financial Impacts Official Estimates from FCC of “savings”:

Funding Year “Projected Savings” per year

FY 2015 $342MFY 2016 $582MFY 2017 $789MFY 2018 $937MFY 2019 $968M

Source: WCB & OSPP Staff Report, WC Docket 13-184, Rel. August 12, 2014

The New Category 1: Projected Impactso Keep in mind: “Projected Savings” are funds that

will no longer flow to applicants for C1 serviceso Unless applicants discontinue services or cut costs

associated with those services, these are costs that are shifted dollar for dollar to applicants

o Some groups have estimated “savings” of $1.1B to $1.3B annually

o A Little Bit of Context: EETT in 2002 was $700.5M. EETT in 2010 was $100M.

Category 1 Impacts: Two Quick Estimateso Impact of E-rate 2.0 varies from entity to entity

• Depends on the services currently/previously purchased• Changes in discount rate methodology may modify slightly

o Assumptions:• Cost of services remains the same• Entities continue to purchase same services• C1 is fully funded• Current rules re: reducing discounts, eligible services stay in place• Cellular 50% eligible

Category 1 Impacts: Medium School Districto Medium sized district

• ~10,000 studentso Relatively low poverty (40% discount, NSLP 16%)o Applies for local, long distance, web hosting, Internet, and

WANo Does not apply for cellular

Category 1 Impacts: Medium School DistrictFunding Year Total Cost Discount District Cost Change

FY2014 $195,494.96 $86,017.78 $109,477.18 $-

FY2015 $195,494.96 $65,199.36 $130,295.60 $20,818.42

FY2016 $195,494.96 $46,602.48 $148,892.48 $39,415.30

FY2017 $195,494.96 $28,005.60 $167,489.36 $58,012.18

FY2018 $195,494.96 $28,005.60 $167,489.36 $58,012.18

FY2019 $195,494.96 $28,005.60 $167,489.36 $58,012.18

◦ Total P1/C1 reduction over 5 years is $234,270.27

Category 1 Impacts: Medium School District

F Y 2 0 1 4 F Y 2 0 1 5 F Y 2 0 1 6 F Y 2 0 1 7 F Y 2 0 1 8 F Y 2 0 1 9

$86,017.78 $65,199.36

$46,602.48 $28,005.60 $28,005.60 $28,005.60

$109,477.18 $130,295.60

$148,892.48 $167,489.36 $167,489.36 $167,489.36

District cost vs E-rate Cost FY2014-2019All Services Discount All Services Cost to District

Category 1 Impacts: Education Service Agencyo Serves ~20 school districts, plus private schoolso Medium poverty – discount rate of 60% (NSLP 45%)o Files separate applications for WAN (providing service to

districts, private schools, and ESA) and voiceo ESA spends very little on voice, having moved to an internally

hosted VoIP solution (previously would have been ~$100k higher) o Does not apply for web hosting

o Total cost of non-WAN/Internet services is ~$158k/yr.

Category 1 Impacts: Education Service AgencyFunding Year Total Cost Discount IU 13 Cost Change

FY2014 $157,797.60 $96,256.54 $61,541.06 $0.00FY2015 $157,797.60 $37,669.68 $120,127.92 $58,586.86FY2016 $157,797.60 $18,834.84 $138,962.76 $77,421.70FY2017 $157,797.60 $0 $157,797.60 $96,256.54FY2018 $157,797.60 $0 $157,797.60 $96,256.54FY2019 $157,797.60 $0 $157,797.60 $96,256.54

Total P1/C1 reduction over 5 years is $424,778.16

Category 1 Impacts: Education Service Agency

F Y 2 0 1 4 F Y 2 0 1 5 F Y 2 0 1 6 F Y 2 0 1 7 F Y 2 0 1 8 F Y 2 0 1 9

$96,256.54

$37,669.68

$18,834.84

$- $- $-

$61,541.06

$120,127.92

$138,962.76

$157,797.60 $157,797.60 $157,797.60

ESA Cost of p1/c1 ServicesAll Services Discount All Services Cost to IU 13

Category 1 Impacts

o Impacts will vary dramatically based on the services applied for in the past• Districts using cellular data, web hosting, email

services will be hardest hit initially• Voice services phase in could spread impact

over several years depending on discount rate

Category 1 Summary

o Major changes in both services eligible and discounts for eligible services

o Elimination of some services and discount reductions for others means most applicants will see less reimbursement/discount (in $ terms) than would have been the case prior to E-rate 2.0

o Impact a function of the services sought and whether applicants can move to more cost effective solutions

o Money “saved” in Category 1 will likely mean more money available for Category 2

Future Presentation

o 10/29/14 – Understanding the New Category 2 Services

o Archives of this presentation and previous introduction to E-rate 2.0 presentation available on AASA website

Send questions to erate@aasa.org

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Aleck JohnsonEdTech Strategies, LLCajohnson@edtechstrategies.net

Questions? Send them to erate@aasa.org