E-Rate Modernization Zone

1. E-Rate Modernization Zone The Positives and the Negatives IT1 SOURCE, LLC Richard Fly Director, Government Programs

2. Unsustainable Path Existing E-Rate format no longer fully effective “80% of schools and libraries believe that their broadband connections do not meet their current needs.” - Jessica Rosenworcel, FCC Commissioner • Current funding accounts for less than 50% of demand • Program designed to provide “access”, but does not assist with upgrade to faster speeds • Current pace of demand effectively eliminates Internal Connections support • Promotes gamesmanship within application process • Encourages continuation of legacy systems • Provides no path for Common Core implementation “Although the E-Rate program has been successful in bringing affordable telephony and basic broadband connectivity to K-12 classrooms, in the era of tablets and digital content, the connectivity provided under the current E-Rate framework is no longer sufficient.” - Margaret Spellings, LEAD Commission Co-Chair

3. $5.2 Billion Demand Data courtesy of Funds for Learning, LLC Demand Outpaces Funding!! Steady increase in overall demand FY2013 funding cap set at $2.38 billion Priority 1 demand for FY2013 approximately $2.7 billion Funding cap being consumed by P1 demand at higher and higher discount levels (64% in FY2013) No remaining funding to support Internal Connections demands - entities forced to find alternate funding streams Internal Connections and Basic Maintenance (Priority 2) Funding Requested Amount ($ Billions) Telecommunications and Internet Access (Priority 1) Funding Year

4. Cumulative Annual Demand as a Percentage of Funding Cap Based on Priority System and Discount Threshold Cumulative Percentage of Cap Data courtesy of Funds for Learning, LLC

5. Goals of E-Rate 2.0 Goal 1 Goal 2 Ensure Affordable Access to High-Speed Broadband • Internet Access • WAN/Last-Mile • Internal Connections Maximize Cost-Effectiveness Make Application Process Fast, Simple, and Efficient Goal 3

6. Goal 1 – Affordable Access Steps to Close the Gap • Additional $1 billion target for eligible internal connections in FY 2015 and 2016* • Removal of telephony and video support to focus attention on broadband connectivity • Expands eligible products and services within Category 2 • Established funding floor to ensure all schools have some access to support • Establishes functional bandwidth targets for better adoption of connected classroom * Fund shifting may still occur – additional $1 billion must be used for Category 1 until demand is met

7. Structural Differences Highlighted differences between old and new E-rate 1.0 E-Rate 2.0 • Priority levels (1 & 2) • 2-in-5 Rule • P1 cap exhausted before P2 is funded • P1 provides Internet and Telecom • Heavy support for phone services • Little to no support for managed services • P2 discounts up to 90% • No minimum spend • Category levels (1 & 2) • 5-yr “budget” (can be spent all in year one) • Category 1 funding cap remains • Removes telecom, video, servers, storage • Schools may request discounts on purchases up to $150/student (over 5 years) • Basic maintenance and managed Wi-Fi are eligible for Category 2 • Category 2 top level discount reduced to 85% • $9,200 funding floor

8. Category 1 Services Voice Support Discounts for voice services will phase down 70% discount for FY2015 20% decrease each funding year Services no longer eligible (FY2015 - no phasing) Paging Telephone service components Text messaging Custom calling services Email Web hosting Voicemail

9. Key Bandwidth Targets Adoption of SETDA recommendations INTERNET ACCESS Short term: 100Mbps per 1,000 students and staff Long term: 1Gbps per 1,000 students and staff WAN/LAST-MILE Short term: No performance measure Long term: 10Gbps per 1,000 students and staff **FCC will track and report affordability by price per mb and per user**

10. Goal 2 – Cost Effectiveness Increase Pricing Transparency All services and equipment purchased must be made available by USAC No entity may opt out – unless specific law, rule, or other restriction provides exemption All vendor contracts must allow for dissemination of pricing data Promote Consortia and Bulk Purchasing USAC instructed to prioritize consortia applications WCB may designate master contracts for Category 2 WCB may exempt master contracts from Form 470 filing requirement FCC rules updated to allow consortium leads to seek bids, even without authority to purchase services

11. Goal 3 – Make Application Process Fast, Simple, and Efficient Simplify Application Process Simplify Discount Rate Calculations Simplify Invoice and Disbursement Process Additional Measures to Improve Administration

12. Simplify Application Process Streamline for multi-year contracts • Form 471 only submitted for first funding year Eliminate tech plan requirements Exempt certain broadband services from competitive bidding • Bandwidth speeds must be at least 100 Mbps down and 10 Mbps up at pre-discount of $3,600 AND be commercially available Ease signed contract requirement Requires electronic filing of documents Enables direct connections between schools and libraries

13. Simplify Discount Rate Calculations Adopt district-wide discount rates • Requires discount based on entire district, rather than building-by-building rate Update definition of “rural” • Adoption of US Census Bureau definition – based on population density and geography National School Lunch Program – CEP utilization • Eligibility calculated by multiplying percentage of directly certified by CEP national number (1.6) School-wide income survey changes • E-Rate discounts may only be applied to surveys actually collected

14. Simplify Invoice and Disbursement Process Adopts invoicing deadline • 120 days after date of last service OR • 120 days after Form 486 notification Extension process streamlined • Allows applicants to request and automatically receive one-time 120-day extension **Changes allow SLD faster process to de-obligate funding**

15. Additional Measures to Improve Administration Extend document retention and inspection requirements • Document retention extended from 5 to 10 years • Applicants and Providers must permit appointed personnel to conduct compliance inspections Appeals must be first submitted to USAC for review Modernization of USAC IT systems FCC requirement that USAC provide more clear and simple communication Expediting review of applications, specifically Category 1

16. Items to Consider Are your processes up to compliance standards? How will changes to telecom components affect your budget? How will changes to Category 2 affect your IT strategy? • Are you eligible for discount for new Category 2 products? Check new discount rates based on updated information – make sure budgets are accounting for changes Work more closely with your Procurement/Purchasing Departments to better leverage existing contracts – eliminate need for Form 470 Work with Providers who have capability to leverage master contracts Make sure that your competitive bidding process is compliant with FCC and SLD requirements

17. When All Else Fails… GET ASSISTANCE You do not have to go this alone USAC: http://www.universalservice.org/sl

18. THANK YOU IT1 SOURCE, LLC Richard Fly richard.fly@it1.com (602) 235-0308 http://www.it1.com