Funding Models Steve Updegrove Tammy Closs Net @Edu ICS Feb 6, 2005
The objective of this segment is to review and discuss financial, operational, regulatory, and legislative aspects associated with convergence of services.
Brief recap of prior related Net@Edu presentataions/discussions
Trends (if any)
Division of responsibility
IT budget and operational impact
IT related highlights
Non-IT related highlights
Net@Edu ICS (VoIP) review with Georgetown in 2001
Net@Edu ICS (VoIP) review with Northwestern, Cornell, Berkeley in 2002
Net@Edu ICS (VoIP) review with Penn State 2003
Benchmarking focus meetings
CIC Networking, etc. groups
Institutional funding sources
Relationship with state government
Internal budgeting philosophies (eg, LCF)
Cost allocation philosophies (eg, subsidy)
Cost recovery philosophies
Technology and other designated fee use
Use of incentives
No one-size-fits-all solutions
Monthly/flat fee approaches are popular
Usage-based solutions fair, but overhead and have-not impacts may result
Technology fees play key role
Subsidy from LD is mostly history
Service refresh/replace plan is important
CALEA, regulatory impacts of concern
Entwined technology/architecture issues
Need to orchestrate among broader groups of personnel and services
More detailed cost management and plans
Maintain ability to audit accurately
Less subsidization across services
More reliance on technology, etc. fees
Increased complexity/interrelated budgets
Accountability for budget items
Vestiges of voice vs data vs video
“ Deputy” CIO positions emerging
Fixed term vs part time vs full time staff
Criteria for performance reviews
Regulatory/Legislative IT Budget and Operational Impact
In CIO Magazine, Jon Surmacz reports that, “Companies will spend billions in 2004 to comply with industry rules, self-imposed policies, and laws enacted by federal and state governments. In today’s regulatory climate, compliance spending has become another cost of doing business.” These increased cost may include:
Personnel in the form of network security, legal, policy and procedure development, compliance monitoring/reporting and others that may put more demand on existing employees or require hiring of additional.
Network services including fees and surcharges
Hardware/software to provide redundant/reliable service levels
Regulatory/Legislative IT Related Highlights
Access for the disabled
Access to Wireless Networks & Devices
Do Not Call/Fax/Spam
P2P File Sharing
Broadband over Power Lines
NPRM for IP enabled services
Rewrite of the 1996 Telecommunications Act
Universal Service: The federal Universal Service fund provides subsidies for telecommunications services in K-12 schools and public libraries, rural health facilities, and in high cost areas such as rural areas. Telecom carriers contribute directly to the fund according to a percentage of their interstate and international long distance revenue which is set quarterly by the FCC. Universities contribute to the fund indirectly, through charges that carriers are permitted by FCC regulations to pass through to their customers.
Eligible Services: The FCC is currently considering whether the list of services eligible for subsidies should be expanded to include high speed Internet access and other advanced technologies. If enacted this change would be likely to increase the cost of the universal service program. However, subsidization of high speed access could be beneficial to students in rural areas and could facilitate distance learning opportunities.
Contribution methodology: The FCC is currently considering alternative methods of calculating the carrier contributions to the fund, because dwindling long distance revenue will cause problems for the fund down the line. This issue is expected to heat up within the next 3-6 months, although it could also be addressed in a re-write of the Telecom Act of 1996 currently under discussion in Congress.
IT Related, continued
E-911: Currently owners of multi-line telephone systems (MLTS) are not required by federal law to comply with E911, although a few states have such requirements. The FCC is currently considering whether E911 requirements should be expanded to MLTS.
E911 is also linked to Voice over IP, and poses unique challenges because phone calls made using laptop computers are inherently The VoIP industry is working on standards to resolve these issues. The FCC’s NPRM on IP-enabled services also requested comments on the need for mandatory E911 compliance for VoIP services.
For universities, a pressing issue is E911 for cell phone users. Many students use their cell phones on campus. The cellular industry is currently under an FCC mandate to phase in E911 service, so that students calling 911 from their cell phone somewhere on campus can be located. That system is far from being perfected, but the industry is currently working toward compliance.
IT Related, continued
Access for the disabled: Colleges and universities are required to comply with the Americans with Disabilities Act, providing reasonable accommodations for the communications needs of disabled faculty, staff and students. This includes many requirements for physical accessibility of telephone equipment and the provision of assistive services when required. All new telephone equipment that is purchased must be hearing aid compatible. Recent developments include FCC approval of Internet based telecommunications relay services for the hard of hearing, and even video relay service.
Intercarrier compensation: This relates to access charges that carriers charge for completion of calls on their local facilities. The impact on universities is both direct and indirect. FCC rules prescribe certain line charges that appear on the institution’s phone bill, which for large institutions amount to thousands of dollars per month. In addition, when carrier costs go up, they pass these costs on to consumers.
ITFS: ITFS spectrum was originally used by educational and non-profit licensees for Instructional Television Fixed Service . Now it may be used for two-way broadband data transmission. As such, the spectrum has become more valuable. ACUTA has been part of a higher education coalition seeking to preserve the spectrum for educational purposes. Under the current law, institutions may lease out their excess spectrum. In June 2004, the FCC amended the ITFS/MDS band plan and rules to encourage the development of wireless broadband services. This decision is considered a “win” for ITFS. The FCC decided that the educational eligibility requirements for ITFS would remain in place. Commercial entities may lease ITFS spectrum, but they cannot buy it.
IT Related, continued
Access to Wireless Networks and Devices: The issue is tenants’ rights to place over-the-air reception devices (OTARDs) for licensed and unlicensed devices on their leased premises. Such devices include Wi-Fi access points, television antennas, satellite dishes, and similar devices. OTARD rules allow tenants to install such devices in areas subject to their exclusive use and control. However, the FCC’s Order exempts campus dormitory housing from this requirement because it is not a typical residential lease. Typical leases, such as apartments or homes, would be subject to the rules.
Do Not Call, Do Not Fax and anti-Spam Laws and Regulations :
The Federal Trade Commission and Federal Communications Commission have enacted rules to implement controls on telemarketing, including the national Do Not Call registry. The FTC did include student numbers, with a provision that numbers must be added by the individual user, not by the university on their behalf.
The FCC has also enacted rules to implement the Junk Fax Prevention Act. Those rules are potentially problematic, because they prohibit sending a fax advertising products or services to anyone without advance written permission. That portion of the rules is currently on hold, but will go into effect in June. ACUTA is part of a coalition of nonprofit organizations seeking an exemption for individuals with whom the institution has a pre-existing business relationship.
The FTC had also adopted rules to implement the CAN SPAM act. Those rules apply to colleges and universities, and will require the development of policies and procedures throughout the institution to ensure compliance.
IT Related, continued
P2P File Sharing: The higher education community continues to work to address illegal file sharing on campus. Policies have been adopted and are being enforced. Technological solutions such as bandwidth monitoring and control are being utilized on some campuses. On 3/23/04, the RIAA filed suit against 532 individuals for illegal file sharing, including 89 individuals on 21 different university networks. Names of the universities were also released. On 12/16/04, the RIAA announced an additional 754 lawsuits, individual end-users of university computer networks at six schools were among the targeted parties.
Broadband over Power Lines: In October 2004 the FCC adopted rules governing access to broadband services over power lines (BPL). The rules are designed to promote the development of BPL systems by removing regulatory uncertainties for BPL operators and equipment manufacturers while ensuring that licensed radio services are protected from harmful interference. Various companies are implementing trials of this new technology.
IT Related, continued
NPRM for IP enabled services: The FCC has initiated a rulemaking regarding the regulatory treatment of VoIP and other IP-enabled services. The NPRM incorporates questions as to what regulation is appropriate, classification of services, 911 and E911, disabilities issues, and numerous other issues. ACUTA’s comments stated that the class of IP-enabled services that do not involve the PSTN and do not replace traditional telephone service should be declared unregulated interstate information services.
The FCC also granted pulver.com’s petition for a ruling that its Free World Dialup offering is not a telecommunications service. The FCC found that state regulation of the service would likely be preempted because the service is an interstate information service. The Free World Dialup service allows broadband customers to contact other pulver.com customers, but does not provide access to the PSTN. The FCC also granted a 2003 Vonage Petition. The Commission concluded that Vonage’s service is an interstate service subject to only federal jurisdiction.
Rewrite of the 1996 Telecommunications Act: The 1996 Act was designed to promote competition and established a new regulatory scheme for the telecom industry, allowing local exchange carriers to apply for approval to provide interstate long distance service inside their service areas. It also created the opportunity for competitive local exchange carriers (CLECs) and established the current universal service system among other reforms. Congress is expected to consider major amendments to this law in the next session that may address new and emerging technologies, address the concerns of rural carriers, reform the intercarrier compensation and universal service structures, and enact other reforms.
Regulatory/Legislative Non IT Related Highlights
Family Educational Rights to Privacy Act
Health Insurance Portability and Accountability
Digital Millennium Copyright Act
Internet Tax Moratorium
Non IT Related
CALEA: The FCC has initiated a rulemaking addressing the appropriate level of law enforcement access to broadband and VoIP-based networks. The FCC issued a NPRM in August 2004 that tentatively concludes that broadband and “managed” VoIP services should be subject to CALEA obligations. A coalition of education-based organizations has filed comments with the FCC. This coalition continues to negotiate a potential CALEA exemption for higher education institutions with the DOJ.
Gramm-Leach-Bliley Act: The F inancial Services Modernization Act (Gramm Leach Bliley Act) regulates the sharing of personal information about individuals who obtain financial products or services from financial institutions. Educational institutions fall within the definition of financial institutions under this law. The GLB Act requires financial institutions to take steps to ensure the security and confidentiality of customer records such as names, addresses, phone numbers, bank and credit card account numbers, income and credit histories, and Social Security numbers. Due to the efforts of higher education organizations including NACUBO, the FTC adopted regulations that deem colleges and universities to be in compliance with the privacy provisions of the GLB Act if they are in compliance with the Family Educational Rights and Privacy Act (FERPA). However, higher education institutions are subject to the provisions of the Act related to the administrative, technical, and physical safeguarding of customer information.
Non IT Related, continued
Family Educational Rights and Privacy Act: FERPA is a Federal law that protects the privacy of student education records. The law applies to all institutions that receive funds from the U.S. Department of Education. The Act provides students the right to inspect and review education records, the right to seek to amend those records, and to limit disclosure of information from the records. The same principles of confidentiality must be applied to electronic data as apply to paper documents. Institutional compliance requires the establishment of institution-wide policies, staff training, and policy enforcement.
Health Insurance Portability and Accountability: “HIPAA” is the federal “Health Insurance Portability and Accountability Act of 1996.” HIPAA and its regulations require healthcare providers to take certain measures to protect patient information from unauthorized use or disclosure. HIPAA imposes mandatory obligations on physicians, hospitals, and other healthcare providers, including those in university owned and/or operated facilities. Computer hardware and software must be capable of sending and receiving transactions in the standard HIPAA format. Policies and procedures to safeguard the confidentiality of records must be established and enforced, and ongoing staff training must be conducted.
Digital Millennium Copyright Act: The DMCA establishes responsibilities of universities as online service providers with respect to copyrighted materials, and provides some exemption from liability for service providers who comply with the requirements. In order to qualify for the exemptions provided in the DMCA, the institution must establish internal mechanisms for compliance and monitor these activities. Congress is expected to address proposals to reform the DMCA in 2005.
Non IT Related, continued
Sarbanes-Oxley: The American Competitiveness and Corporate Accountability Act of 2002, also known as the Sarbanes-Oxley Act, is primarily applicable to publicly traded companies that are regulated by the Securities and Exchange Commission (SEC). Two provisions apply to non-profits at this time: 1) having a formal records retention policy and 2) having a mechanism for confidential reporting of violations of law by the organization that ensures non-retaliation against whistle-blowing. In addition to compliance with these requirements, institutions and should monitor new developments at the state and federal levels that may impose new corporate accountability requirements.
Internet Tax Moratorium: In Dec. 2004, President Bush signed into law a 3-year moratorium on Internet access taxes. The law extends a ban on Internet taxes that expired on Nov.1, 2003. The original version of the Internet Tax Nondiscrimination Act would have permanently extended a five-year congressional moratorium on taxes unique to the Internet, including taxes access and bandwidth. But the bill was held up in the Senate over concerns that it would allow telecommunications carriers to avoid taxes on traditional telephone service as they move traffic to voice over Internet Protocol services. A compromise version crafted in the Senate and approved by the House will allow states and cities to continue to collect taxes on telephone services, even if the calls are made over the Internet. The compromise version of the bill also allows states already collecting taxes on Internet access to continue that for up to four years.