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

Moderator: Noelle Ellerson Associate Executive Director, Policy & Advocacy Presenter: Aleck Johnson Vice President EdTech Strategies, LLC Sponsored by:

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Background o 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 two o E-rate 2.0 focuses on broadband services Non-broadband services subject to significant cuts

The New Category 1 o 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 entirely o “Savings” will allow greater funding of Category 2

Category 1 vs. Priority 1 Before E-rate 2.0: Priority 1 Broadband Internet/Digital Transmission Service Website Hosting Leased Wide Area Network Service Service Local Phone ServicePaging Service Long Distance Phone ServiceCustom Calling Features Cellular Phone ServiceCellular Data Service Voice Over IP ServiceVoic Service All services eligible at same discount rate

Category 1 vs. Priority 1 After E-rate 2.0: Category 1 Broadband Internet/Digital Transmission Service Website Hosting Leased Wide Area Network Service Service Local Phone ServicePaging Service Long Distance Phone ServiceCustom Calling Features Cellular Phone ServiceCellular Data Service* Voice Over IP (VoIP) ServiceVoic Service Bold – still eligible at full discount rate Purple – eligible at reduced discount rate until phased out Red – eliminated from eligibility

Category 1 Services o 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 Service Paging Service Voic 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$342M FY 2016$582M FY 2017$789M FY 2018$937M FY 2019$968M Source: WCB & OSPP Staff Report, WC Docket , Rel. August 12, 2014

The New Category 1: Projected Impacts o Keep in mind: “Projected Savings” are funds that will no longer flow to applicants for C1 services o 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 Estimates o 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 District o Medium sized district ~10,000 students o Relatively low poverty (40% discount, NSLP 16%) o Applies for local, long distance, web hosting, Internet, and WAN o Does not apply for cellular

Category 1 Impacts: Medium School District Funding YearTotal CostDiscountDistrict CostChange FY2014 $195, $86, $109, $- FY2015 $195, $65, $130, $20, FY2016 $195, $46, $148, $39, FY2017 $195, $28, $167, $58, FY2018 $195, $28, $167, $58, FY2019 $195, $28, $167, $58, ◦Total P1/C1 reduction over 5 years is $234,270.27

Category 1 Impacts: Medium School District

Category 1 Impacts: Education Service Agency o Serves ~20 school districts, plus private schools o Medium poverty – discount rate of 60% (NSLP 45%) o Files separate applications for WAN (providing service to districts, private schools, and ESA) and voice o 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 Agency Funding YearTotal CostDiscountIU 13 CostChange FY2014 $157, $96, $61,541.06$0.00 FY2015 $157, $37, $120,127.92$58, FY2016 $157, $18, $138,962.76$77, FY2017 $157, $0 $157,797.60$96, FY2018 $157, $0 $157,797.60$96, FY2019 $157, $0 $157,797.60$96, Total P1/C1 reduction over 5 years is $424,778.16

Category 1 Impacts: Education Service Agency

Category 1 Impacts o Impacts will vary dramatically based on the services applied for in the past Districts using cellular data, web hosting, 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

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Aleck Johnson EdTech Strategies, LLC Questions? Send them to