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How the E-Rate program modernization impacts the channel

Changes to the E-Rate program enable technology upgrades for schools and libraries, spelling more business for MSPs and education-focused resellers.

The E-Rate program, a national initiative that has been granting technology discounts to schools and libraries for nearly two decades, is getting a new look that could spell more business for managed services providers and education-focused resellers.

The Telecommunications Act of 1996, which included provisions promoting low-cost access to telecommunications services, provided the impetus for E-Rate, launched in 1998. The Universal Service Administrative Company (USAC), a nonprofit corporation, manages the program on behalf of the Federal Communications Commission (FCC). The discounts stem from the Universal Service Fund, which is funded by the mandatory contributions of telecommunications providers.

In its early days, E-Rate focused on telecommunications services, such as Centrex and local phone services, as well as Internet access -- basic connectivity. The program also supported internal connections, a category that covered everything from cabling to servers and software. That orientation will change starting with the 2015 funding year. FCC's E-Rate program modernization effort will phase out some traditional E-Rate-supported internal connection technologies, while placing greater emphasis on others. For example, E-Rate will dial down the discount rate for voice services, such as interconnected voice over IP (VoIP), over the next few years. At the same time, E-Rate modernization will expand funding for Wi-Fi networks in schools and libraries. And, in an important move for managed services providers (MSPs), E-Rate will make managed Wi-Fi services eligible for discounts next year.

Channel partners believe the rejuvenated E-Rate effort could spark increased business next year, especially in the field of wireless networking -- an area that has seen diminished funding.

Atlantic Computing Technology Corp., a West Hartford, Conn., company that designs and implements wireless networks for K-12 customers, has pursued E-Rate opportunities for four years. While the company has landed projects -- including a Wi-Fi network deployment for schools in Manchester, Conn. -- funding for such projects dwindled over the past two years when E-Rate funding for "category two" services evaporated, noted Steve Brown, business development manager at Atlantic Computing. Category 2 funding covers wireless equipment such as access points and controllers. Category 1 focuses on telecom and Internet services.

The FCC's modernization order in July restored funding for Wi-Fi, in part, by discontinuing or phasing out legacy services and redistributing the dollars.  As a result, Brown expects an uptick in school Wi-Fi projects.

"We are excited about E-Rate and the changes the modernization is bringing to the table," he said.

Wireless isn't the only area seeing more money: The amount of E-Rate funding is set to expand for all covered products and services. On Dec. 11, the FCC announced plans to boost E-Rate funding for "broadband connectivity capable of delivering gigabit service" over the next five years. Specifically, the FCC has raised the annual spending cap on the E-Rate program from $2.4 billion to $3.9 billion. 

Wireless leads the way

Wi-Fi networking will top the wish lists of many schools, industry executives have predicted. While the E-Rate funding year won't begin until July 2015, technology providers and schools are already preparing for projects that would commence next summer. Applications for E-Rate funding are generally due in the first calendar quarter.

"Wireless has really taken front and center," said Russ Keene, a K-12 sales manager with CDW-G and the company's E-Rate expert.

Keene said CDW-G and Cisco Meraki have created a managed wireless offering in light of the E-Rate program modernization. FCC has made basic maintenance services and managed Wi-Fi eligible for category 2 support for funding years 2015 and 2016.

There's money specifically set aside for Wi-Fi networks now, so there is going to be a sharp uptick in the number of opportunities [for channel partners].
David Blackpresident and CEO of Insource Technology Corp.

The Wi-Fi service will provide remote management for a monthly fee, freeing schools from having to worry about their wireless environment, Keene said.

Until the recent funding developments, the chief wireless-related concern for financially strapped schools was a dearth of E-Rate dollars. Many school districts depend on E-Rate to deal with budget shortfalls, noted David Black, president and CEO of Insource Technology Corp., a Houston-based solutions provider that offers enterprise wireless and managed IT services. The resumption of funding is a welcome relief for those schools, he said.

"There's money specifically set aside for Wi-Fi networks now, so there is going to be a sharp uptick in the number of opportunities [for channel partners]," Black noted.

Channel partners believe schools will tap E-Rate funding to help them upgrade to 802.11ac Wi-Fi products. The 802.11ac technology operates in the 5 GHz band and supports such high-bandwidth applications as video streaming.

Black suggested entry-level 802.11ac products will be the technology of choice for schools that can afford it. Access points in the 802.11ac category have list prices in the $650 to $700 range, he said. Insource Technology partners with Wi-Fi vendors such as Meru Networks and Ruckus Wireless.

David Callisch, vice president of marketing at Ruckus Wireless, believes Wi-Fi will lead the way next year. He said schools use the technology for much more than Internet access, noting that Wi-Fi runs lighting control systems, cameras and HVAC control systems.

"Schools now view it as a utility, not an amenity," Callisch said.

Keene said CDW-G is recommending 802.11ac for schools looking to upgrade. He said an 802.11ac access point can typically accommodate a classroom of 30 to 35 students without signal degradation.

Schools that can't quite afford 802.11ac products, however, can opt instead for 802.11n, Black noted. He said some manufacturers have moved their enterprise products to a new list price point in the $395 range.

"For schools that really have a tight budget, I would not rule out going with entry-level [802.11n]," Black said.

Additional changes to E-Rate coverage

The arrival of upgraded Wi-Fi will drive additional technology deployment opportunities for the channel. Keene said 802.11ac needs to run on top of a solid core network, a requirement that calls for 10 Gigabit Ethernet.

Some schools may decide to upgrade their switches in conjunction with the introduction of more powerful Wi-Fi technology. Schools with 10/100 Mbps switches, for example, may adopt Gigabit Power over Ethernet (PoE) switches. Switches qualify for E-Rate program discounts.

"Some don't have PoE [but] have older Fast Ethernet switches," Black said. "They need to upgrade those to get the desired performance out of the wireless."

Schools may also need to update their cabling infrastructure to accommodate higher data transmission rates. Keene said schools may pull out Category 4 and 5 cabling to run Category 6 and 6a cables instead. E-Rate covers cabling as long as the switches and other devices connected to the cable are E-Rate-eligible, he noted.

As MSPs and resellers pursue Wi-Fi and wired networking business, they may find a broader spectrum of schools seeking technology. Historically, E-Rate offered the highest discounts to the least affluent schools. The revised program has introduced a new eligibility approach, which continues to provide discounts based on economic status, but also provides a funding baseline for all schools.

Ronald Sheps, director of state, local and education at Weston Group North America, a value-added networking distributor, said every school building is guaranteed a minimum of $9,200, regardless of need. Sheps spoke recently at an E-Rate modernization webinar hosted by Carousel Industries, a unified communications and managed services provider.

Brown said the E-Rate program changes have encouraged some affluent school districts to apply for funding. In the past, fewer wealthy schools participated in the program, since discount levels were based on the percentage of students receiving free or reduced-price lunches.

"Some schools would completely dismiss filing a 470 [the E-Rate funding application form]," Brown said. "Now, it is definitely something they are doing -- some for the first time."

Detailed program processes

Schools must go through a multi-step process to participate in E-Rate. The initial step for many will be reviewing the numerous 2015 program changes, which impact everything from eligible services to document submission. Next, the school files form 470, in which it describes the services it is requesting. A request for proposal (RFP) may also be prepared at this time.

Meanwhile, a service provider seeking to bid on an E-Rate-funded project must first apply for a Service Provider Identification Number (SPIN). Once it has obtained a SPIN, a service provider can review and respond to a school's service request, based on form 470 and an RFP, if applicable. The 470 forms are available on the USAC website.

The school selects a service provider and then completes the remaining steps, which include a program integrity assurance review.

Brown said schools and their technology partners need a good deal of persistence as they work their way through a complicated bureaucratic process. E-Rate involves plenty of rules and regulations, including those governing which technologies and services are eligible for discounts and which are not. Program participants also must fulfill administrative obligations, such as maintaining records for a period of 10 years. Those records include various E-Rate forms, including 470s, discount rate calculations, requests for proposals, and documentation related to winning and losing bids, he explained.

"Some people will make it seem like it is impossible, but it is not," Brown said. "You need to be a tenacious kind of person who is willing to deal with the details.”

The FCC’s E-Rate modernization order aims to streamline the program, pursuing measures such as requiring the electronic filing of documents and simplifying the invoicing process.

Next Steps

Find out about education IT resellers in the K-12 space

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Is the E-Rate program process a deal-breaker for your company?
There are certainly problems with the E-Rate program.

It took us forever to get through the massive amount of paperwork and to receive funding. We even had to outsource to some consultants.

While we weren't happy with the added costs and labor, the upgrades to our library made it worthwhile. The good outweighed the bad for us, and it will for anyone else who simply applies patience.

However, there really is a lot of paperwork!
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