INTERIM DRAFT FOR COMMUNITY REVIEW AND COMMENT

[N.B. The material in this draft report is not in final form and may be subject to error and omission.]

REPORT OF THE U.S. UCAN CAI TASK FORCE ON ECONOMIC MODELS

June 17, 2011
Task Force Members
Robert Bocher Joanne Hovis John Branson David Kirby Marianne Chitwood George Laskaris William Clebsch Tom Rolfes Ray Ford Denise Atkinson-Shorey Michael Roberts, Chair Linda Roos, Staff

PLEASE NOTE: This Interim Draft Report is being posted for community review and comment from June 17 through June 30, 2011. Comments should be addressed to CAI-TF-Report-comments@usucan.org Comments will be responded to on the usucan.org site in early July and incorporated into the Final Report of the Task Force where helpful. Appendices and other reference material are not included in this draft. This Interim Draft is only available in electronic form, but may be copied freely for any non-commercial use.

I. INTRODUCTION & SUMMARY Harnessing the energies of two hundred thousand community organizations and dozens of state and regional networks to achieve a comprehensive broadband environment for millions of constituents across a continent is a daunting task. But it is one for which the nation's research and education networks have accumulated considerable experience through their work in creating advanced Internet capacity over the past twenty-five years for over one hundred research university campuses, and for tens of thousands of additional research, education and public service sites. Building on that record of success, and with an eye on a rapidly evolving future for advanced networks, the purpose of this report is to document the work of the U.S. UCAN CAI Task Force and to outline, in the form of a series of issue statements and recommendations, the conclusions of the group on the most effective way to create an operational nationwide United States Unified Community Anchor Network (U.S. UCAN) program that builds on the goals of the National Broadband Plan and the billion dollar investments in advanced network infrastructure made possible by federal Broadband Technology Opportunity Program (BTOP) grants. (Because of broadening missions, the nomenclature Advanced Regional Networks (ARNs) has recently come into use to supplant the term Research and Education networks. It is used generally in this report, especially in the context of forward looking changes needed to embrace BTOP infrastructure and encourage wider participation by Community Anchor Institutions (CAIs) in the U.S. UCAN program. More detail is available in the report from the ENVISIONING THE FUTURE OF ADVANCED REGIONAL & STATE NETWORKS IN THE BROADBAND ERA WORKSHOP.) Following the award of BTOP grants to many R&E networks in mid-2010, discussion among ARN managers indicated a need for a comprehensive look at the challenges of creating U.S. UCAN. The U.S. UCAN CAI Task Force on Economic Models was tasked at the beginning of 2011, recruited in February, and conducted its work in a series of nine meetings between March and June, 2011. In order to develop recommendations for a U.S. UCAN economic model or models, the Task Force has interpreted its charge liberally, and has sought advice widely throughout the ARN and CAI communities. Following a public request, ten White Papers dealing with various aspects of U.S. UCAN were submitted and important points in several of them are reflected in this report. Since the emphasis in the task force work has been to develop a framework for an operational U.S. UCAN, the issues and recommendations presented here are intended primarily for executive Boards and managers charged with implementing decisions and recommendations on U.S. UCAN at the local, regional and national level. The task force cautions readers of this report that, although its recommendations comprise a basic framework within which to establish a strong U.S. UCAN program, there are a multitude of risks and uncertainties in moving forward. U.S. UCAN success will require a higher and more sustained level of working partnership among Internet2, ARNs, and CAIs than has existed in the past, along with good will and hard work.

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Summary of Recommendations The task force makes eighteen recommendations in five major issue areas: (a) Partnership, Collaboration and Management; (b) Membership; (c) Services; (d) U.S. UCAN National Program Office budget; and (e) Cost Recovery. Among the recommendations having special significance are the following: The primary mission of U.S. UCAN should be to assist CAIs in connecting to broadband ARN networks. Internet2 should take responsibility for creating and hosting a U.S. UCAN national program office. A U.S. UCAN Council should be created to advise all elements of the overall U.S. UCAN program.

The initial staffing level for the U.S. UCAN National Program Office should include seven professional positions, which will require an expense budget, in the first year of full operation, estimated at $2.65 million. The task force presents three possible cost recovery models for the expenses of the national program office, and recommends one, as containing the best balance of cushioning the impact on ARNs and CAIs of creating the national program office, and preparing for a CAI broadband future.

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II. BACKGROUND American research universities have long realized the substantial contributions of computer networks to their teaching, research and public service missions. Going back to the creation of NSFnet in the 1980's and before, campus networking executives have been instrumental in partnering with federal agencies and with industry to jointly develop and deploy successive generations of advanced networks. The creation of Internet2 in 1996, and the introduction of its Abilene high performance backbone network in 1998, brought broadband to many research-oriented campuses. But this progress did not serve the needs of students and faculty not located on campuses served by advanced networks, nor did it reflect an emerging university emphasis on reaching students with learning opportunities wherever they worked and studied. The Network Policy Council, co-sponsored by EDUCAUSE and Internet2, concluded a multiyear study in 2007 with a brochure, "Broadband America - Realizing the Vision," and posed the issue thus:
As leaders in developing advanced networks and the powerful applications that they support, higher education has a vital stake in broadband networking... Yet more than half of the students in U.S. colleges and universities live off campus, as do students in primary, secondary, and continuing education programs. Reaching these millions of Americans for e-learning and a host of emerging applications in health care and other areas requires a national commitment to a truly broadband Internet. This commitment will bring the benefits of advanced applications in teaching, research and science to all Americans, including millions currently isolated in rural and other underserved areas.

Subsequently, the Federal Communications Commission directed the preparation of a National Broadband Plan to address the many issues surrounding the lack of progress in the use of broadband technology in the United States as compared to other nations. The plan, released in March, 2010, recognizes past contributions of R&E networks to community organizations and supports future expansion of those efforts in its recommendation 8.22:
The federal government and state governments should develop an institutional framework that will help Americas anchor institutions obtain broadband connectivity, training, applications and services... One approach to ensure connectivity for facilities that serve public purposes is to give a non-profit institution the mission and capability to focus on serving the broadband needs of public institutions, including health clinics, community colleges, schools, community centers, libraries, museums, and other public access points. In the past, the connectivity needs of research institutions have been met by non-profit research and education (R&E) networks such as Internet2 and National LambdaRail. R&E networks played a central role in the development and growth of the Internet itself through ARPANET and later NSFNET. Today, similar R&E networks provide high-speed (10 Mbps-1 Gbps) connectivity to 66,000 community anchor institutions. But more can be doneit is estimated that only one-third of anchor institutions have access to an R&E network today. This model should be expanded to other community institutions. A group of R&E networks, including Internet2 and the National LambdaRail, with the support of the National Association of Telecommunications Officers and Advisors and the Schools, Health and Libraries Broadband Coalition, have proposed that the federal government and state governments create a non-profit coordinating entity, the Unified Community Anchor Network, that would support and assist anchor institutions in obtaining and utilizing broadband connectivity.

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Contemporaneously with development of the National Broadband Plan, Congress appropriated $4.7 billion in February, 2009, for the Commerce Department's Broadband Technology Opportunities Program (BTOP), as part of the American Recovery and Reinvestment Act (ARRA) economic stimulus effort. The University Corporation for Advanced Internet Development (UCAID)/Internet2 and its partners, along with endorsements from over thirty state and regional R&E networks, responded to the infrastructure component of the BTOP program with a proposal totaling $93 million, of which $63 million would be federal BTOP funding. A project summary states:
As part of a longstanding project to connect essential community anchor institutions across the country, and facilitate closer collaboration and long-term benefits for education, research, healthcare, public safety, and government services, the University Corporation for Advanced Internet Development (UCAID) proposes a comprehensive 50-state network benefitting approximately 121,000 community anchors. The project proposes a large-scale, public-private partnership to interconnect more than 30 existing research and education networks, creating a dedicated 100-200 Gbps nationwide fiber backbone with 3.2 terabits per second (TBps) total capacity that would enable advanced networking features such as IPv6 and video multicasting. The project plans to connect community anchors across all disciplines into virtual communities with shared goals and objectives, including colleges, universities, libraries, major veterans and other health care facilities, and public safety entities, with additional benefits to tribes, vulnerable populations, and government entities.

Following receipt of the BTOP award in July, 2010, Internet2 CEO David Lambert established a senior management coordinating group to oversee the construction and activation of the 100 gigabit network funded by the grant and began consultations with the state and regional network partners who would be involved with the creation of U.S. UCAN. Many of these partners also have received BTOP infrastructure awards. In the aggregate, nearly $1.5 billion in BTOP infrastructure awards have been made to ARN networking organizations. Early in 2011, Internet2 announced the appointment of Mark Johnson as interim Director of the U.S. UCAN project. Johnson is on loan from his position as Chief Technology Officer and Vice President for Operations and Infrastructure at MCNC the regional research and education network serving the State of North Carolinas K-20 Public and Private Education Institutions. At the same time, Lambert announced the creation of a Task Force to investigate sustainable economic and business models for U.S. UCAN. Despite substantial grant awards from the federal government, the ARNs associated with U.S. UCAN are restricted to using their BTOP funds solely for capital investment in network facilities. As a result, the issue of identifying both projected operating costs and new funding sources is a pressing matter for U.S. UCAN. The Task Force is chaired by Mike Roberts, former CEO of ICANN and one of the founders of Internet2. Background information on Task Force members, who represent a diverse range of experienced ARN and CAI executives, is here. Its charge is here. U.S. UCAN, as a program, is a Research and Education community-wide effort to bring as many CAIs as possible into a shared broadband universe driven by a common commitment to using advanced network services. This will require education for such uninitiated sectors as public safety and health care and evangelism for those unfulfilled sectors such as K-12, community colleges and libraries. Scalable highbandwidth fiber is an enabling technology that can advance CAI missions and provide critical

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interconnections with other entities across the U.S., as well as contribute to mission fulfillment for the colleges and universities that are the core sponsors of Internet2. At the working level, U.S. UCAN is a partnership of the many organizations participating in the U.S. UCAN program, each contributing and benefiting according to its individual mission and role in the overall effort. There are approximately 66,600 Community Anchor Institutions (CAIs) currently attached to ARN networks across the U.S., distributed among the following sectors [see Appendix ?to be included in final report]: K-12 Education (including schools, school districts, intermediate service agencies) 2-year Colleges and Universities (including public and private nonprofit institutions) 4-year Colleges and Universities (including public and private nonprofit institutions) Libraries (including library centers and branch facilities) Museums (including museums, zoos, aquariums, science centers) Health Care (including hospitals and clinics) Public Safety (including public safety answering points) Local Government (including municipal and county governments) In order to reach the potential number of 150,000 additional connected CAIs across eight vertical communities from all 50 states, a deliberate and concerted effort of outreach will be initiated. The task force has named this goal 8 wide by 50 tall denoting eight full sectors of CAIs connected to U.S. UCAN infrastructure in all 50 states. Sponsored Education Group Participation (SEGP) Internet2 created the SEGP program in 2001 in recognition of the thousands of non-University, education-related entities that could benefit from Internet2 connectivity and utilization. A SEGP is defined as an aggregate of educational and education-related organizations (museums, libraries, etc.) inter-connected by one or more networks within a state that is approved for participation in the Internet2 network services infrastructure and K20 program initiative. To become a SEGP, the group of organizations must be sponsored by one (or more) Internet2 university member(s) that is an Internet2 network services primary participant. The SEGP and the university must be located in the same state, and must attach to the Internet2 Network via the same connector. Potential Sponsored Educational Group Participants are expected to be engaged in activities that make use of advanced network services and be able to document a commitment to deploying advanced networking capabilities. (See also http://www.internet2.edu/network/participants/sponsored_faq.html ) Internet2 K20 Initiative The National Internet2 K20 Initiative brings together Internet2 member institutions and innovators from primary and secondary schools, colleges and universities, libraries, and museums to extend new technologies, applications, middleware, and content to all educational sectors, as quickly and connectedly as possible. (See http://www.internet2.edu/k20/)

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III.

PARTNERSHIP, COLLABORATION AND MANAGEMENT

The organizations receiving awards under the BTOP program have a common interest in working together to realize the commitments they made in their proposals to the NTIA. Many of them have previously worked together in national, state and local efforts to bring advanced networks to research, education and public service entities. However, the nature of the application process for BTOP did not favor advance coordination of operational plans. The task force found few concrete plans in place for implementation of a U.S. UCAN program at national and regional levels. This section of the report, therefore, deals with a series of issues related to U.S. UCAN organization and management. From among many possible choices in establishing a primary mission for U.S. UCAN, the task force has chosen to emphasize broadband connections to ARN networks. This is the community within which collaborative efforts can most quickly realize benefits for individual CAIs and their constituents. Getting connected should be a first priority. In addition to gaining access to work already done in previous years by members of Internet2/ARN networks, e.g. SEGP, the new broadband connections will increase the critical mass of CAIs within the eight vertical communities, thereby adding to the potential for sharing. The task force also considered a number of approaches to structuring the U.S. UCAN program, bearing in mind activities at the local (CAI), regional (ARN), and national (Internet2) levels. In the aggregate, many thousands of individual organizations must work in partnership in order to achieve a successful U.S. UCAN program. The conclusion was that a national program office should be created and hosted by the UCAID/Internet2 organization. In a parallel fashion, U.S. UCAN affiliate programs should be established at the state and regional levels so that assistance can be brought as close as possible to local CAI organizations and their respective ARNs. The greatest reservoir of knowledge about ways and means of using broadband technology and applications to increase mission effectiveness lies in the CAIs themselves. They should have a voice in the operation of U.S. UCAN and the task force recommends that they be represented on a U.S. UCAN Council that would be charged with advising U.S. UCAN program managers, including the development of a set of goals and milestones for U.S. UCAN. Many existing CAI communities have professional organizations and alliances, and typically these organizations are already involved in technology and broadband coordination and advocacy efforts. Considering the lack of state and federal support for U.S. UCAN operational costs at both program and connections levels, the potential for assistance from these vertical organizations should be incorporated into the U.S. UCAN program. Since 2001, Internet2 has sustained a K20 Initiative, and a Special Educational Group Participant (SEGP) program, whose good work has resulted in the connection of 66,000 educational and related CAIs to the ARN/Internet2 network infrastructure. The previous work accomplished in these programs is a foundation from which U.S. UCAN can benefit and the two efforts should be integrated to maximize synergy and realize economies of scale where possible.

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ISSUE III-1: What is the mission of an operational U.S. UCAN program? RECOMMENDATION III-1: The Internet2 Board should formally establish an operational U.S. UCAN program with the primary mission of facilitating and enabling the connection of additional community anchor institutions (CAIs) to broadband public service networks. The Board should recommend to the Boards of its ARN partners that they do likewise if they have not already done so. ISSUE III-2: How should the U.S. UCAN program be structured? RECOMMENDATION III-2: A U.S. UCAN national program office should be established by Internet2 to direct the program at the national level and coordinate with state and regional U.S. UCAN efforts. ISSUE III-3: How should connected community anchor organizations provide advice and counsel to the U.S. UCAN program? RECOMMENDATION III-3: A U.S. UCAN Council should be established, on which CAIs have at least equal representation with U.S. UCAN network services providers, including statenets, regional nets, the U.S. UCAN national program office and the Internet2 national 100 gigabit backbone infrastructure. An initial Council should be chosen from among willing and knowledgeable volunteers and chaired by the Director of the U.S. UCAN national program office. A high priority for the Council should be development of a statement of program goals and milestones for U.S. UCAN. ISSUE III-4: What role should regional and national organizations of specialized CAI communities play in U.S. UCAN? RECOMMENDATION III-4: U.S. UCAN should actively solicit and encourage the participation in U.S. UCAN of all associations supporting the public service programs of community anchor organizations, including, for example, K12, Healthcare, Libraries & Public Safety. ISSUE III-5: How should Internet2, U.S. UCAN and the ARNs deal with the existing SEGP program, which connects over 66,000 CAIs? RECOMMENDATION III-5: The strengths of SEGP should be incorporated into the national U.S. UCAN program on a phased basis which emphasizes extending SEGP successes to the broader community of CAIs for which U.S. UCAN is being established.

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IV.

MEMBERSHIP

A membership program is essential to the overall success of U.S. UCAN. The task force discussed at length the best ways to create and structure a membership program that would serve the needs of the CAIs. Because community organizations are themselves diverse and operate in a variety of local, state and national environments, no single membership form is likely to be perceived by CAIs as advantageous to their needs for broadband network support. Approximately one fourth of an estimated total number of U.S. CAIs of 200,000 are currently connected to a dedicated ARN network, although almost all others can be assumed to have narrowband access to the public Internet, either through a commercial ISP or through a connection to an ARN network. (Estimates of the total number of CAIs in the United States vary depending on how many very small organizations are counted. The number 200,000 could more than double if organizations as small as a village medical practice were included.) Within this population, therefore, we have some community organizations already benefiting from a broadband ARN connection, more who are connected to and participate in an ARN network at less than broadband, and a large number who are not connected and in some cases not currently planning to connect to a broadband network. Because cost and usage maturity of networked applications are major inhibiting factors for CAIs seeking broadband connectivity, the task force concluded that the U.S. UCAN membership program, at a minimum, should have categories for CAIs who are already connected to an ARN, and for those who are not connected. The U.S. UCAN program should present a logical and supportive path for CAIs who are not yet connected to acquire an appropriate broadband connection. U.S. UCAN education and outreach services, discussed in the following section of the report, should be differentiated along connected - not connected lines, as well as along the lines of CAI vertical community affiliations. The emphasis in the membership component for not-connected CAIs should be on helping them to progress toward obtaining and making good use of full broadband services, since many of the U.S. UCAN program goals are enabled and shaped by full use of broadband services and applications. The fee for not-connected membership should be as low as possible. The primary goal should be to register these early stage organizations (directly or through their community vertical organizations), rather than to raise funds for program support. The membership lists and associated contacts provide U.S. UCAN with the basis for communication and data collection critical to gaining long term support and providing value to these members. To ensure the maximum flexibility in meeting the needs of CAIs, and to avoid the appearance of quasimonopoly services situations, the task force believes that U.S. UCAN membership should be separate from the connection services provided to CAIs by ARN networks. A CAI should be able to be a UCAN member irrespective of the provider of its network services. In the most likely scenario, the ARN providing the network connection will be a participating U.S. UCAN affiliate and will bundle U.S. UCAN membership with the connection fee. However, this should not be a hard and fast requirement.

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Several white papers submitted to the task force commented on the need for a distributed approach to implementing the U.S. UCAN program, leveraging the success of Internet2's ARN partners in already connecting a large number of CAIs. In particular, WiscNet proposed the creation of state level U.S. UCAN coordinators, a suggestion which has been adopted by the task force in the recommendation below. ISSUE IV-1: What kind of CAI memberships should be offered by the U.S. UCAN national program? RECOMMENDATION IV-1: U.S. UCAN should create a multi-tiered Membership program for CAIs, with differentiated educational and outreach services available to CAIs in different stages of broadband network acquisition and usage. As part of becoming members, CAIs should endorse U.S. UCAN program and connectivity goals and pay a modest program fee. ISSUE IV-2: Should aggregation of CAI U.S. UCAN memberships be encouraged? RECOMMENDATION IV-2: Consistent with recommendation III-4, U.S. UCAN should encourage aggregation of U.S. UCAN memberships and related fees for both connected and notconnected CAIs, with details to be determined by the U.S. UCAN Council. U.S. UCAN should encourage CAIs, ARNs, and other related member organizations to work together and with the U.S. UCAN Council to address aggregation and connectivity issues. ISSUE IV-3: How should Advanced Regional Networks (ARNs) relate to the U.S. UCAN program? RECOMMENDATION IV-3: Wherever possible, U.S. UCAN and its ARN partners should create state and/or regional level UCAN affiliate programs within the framework of the ARN whenever possible. Affiliates commit to U.S. UCAN program and connectivity goals and contribute equitably to the costs of the U.S. UCAN National Program Office, in return for which they receive enhanced access to the U.S. UCAN CAI community and any national-level resources supported by the national U.S. UCAN office. To promote efficiency and minimize overhead costs, U.S. UCAN affiliates should include CAI U.S. UCAN membership fees in their connection fees where possible.

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V. SERVICES In selecting services to be offered to the CAIs, U.S. UCAN will have the benefit of the experience and successful track record of the ARNs in providing services to the full range of CAI sectors. It is important that U.S. UCAN take the time and resources to learn what the additional needs of these segments are, and how U.S. UCAN might help to meet those needs. Important expertise can be provided by the ARNs and U.S. UCAN should work closely with the ARNs, as much as is feasible, to benefit from their experience. In addition, there is an opportunity for U.S. UCAN to gather information across all of the ARNs to help each of them with best practices in reaching out to CAI segments. U.S. UCAN will be building on the successful track record of the ARN networks in addressing the primary, initial needs for connectivity and the services that are necessary to ensure that CAIs can obtain and utilize high-speed, reliable connectivity. U.S. UCAN will also be building on the ARNs' experience in making available to more CAIs costeffective, high-performance IP service on a nation-wide dedicated intranet and access to the consumer Internet. Provision of these key services will enable U.S. UCAN to serve CAIs at higher bandwidth and with greater reliability than they can find or afford in the current market. Currently, much of the CAI focus is on connectivity to the commercial Internet, particularly within the education sector. At the same time, however, the CAIs can, over time, make use of services that would be greatly enhanced on an Intranet with the capabilities of the new bandwidth and reliability made available through the Internet2/ARN BTOP infrastructure improvements. Connectivity to the high-speed, dedicated, national Intranet will enable CAIs to migrate low-bandwidth assets to this high bandwidth reliable infrastructure over time, to deploy new and more sophisticated applications, and to take advantage of enhanced services specific to their sectors and of common interest across sectors. Among the additional, value-added services U.S. UCAN can offer CAIs are connectivity-related services such as IPv6, IP multicast, etc. These are network services that could enhance the capability of CAIs to deliver applications and services that were not possible before. A further set of value-added services include network-based services such as voice conferencing, video conferencing, telepresence, etc., that will enable regional, state, and national communications. In addition, U.S. UCAN can potentially offer enhanced services that are specific to particular CAI sectors. These services are often applications that are programmatically driven by the CAIs, where the advantage of U.S. UCAN is the combination of the high speed intranet along with commercial Internet offerings. With respect to such services as telemedicine, distance learning, and so on, U.S. UCAN may serve to be more of an enabler than a provider of services. While these services will come later on, this role will be critical to the success of U.S. UCAN, and ongoing dialog with each CAI segment will be important. Internet2 and the ARNs have separate and joint track records of offering significant, differentiated services to their members; services and benefits that also will be available to newly connected CAIs. The ARNs offer important, value-adding service attributes that will now be available to the CAIs through U.S.

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UCAN. These service attributes differentiate the ARNs and Internet2 from commercial providers and range from reliability and responsiveness to performance metrics and network transparency. For example, the ARN model offers collaborative partnerships between users and network that enable solving common problems in a cooperative manner. The model also offers transparency, which leads to confidence in services and pricing--transparency enables immediate trouble-shooting of application-crippling problems across networks. The model also offers unique reliability, a valuable attribute for CAIs. ISSUE V-1: What services should U.S. UCAN offer to CAIs? RECOMMENDATION V-1: U.S. UCAN should build on the successful track record of Internet2/ARN networks in providing services to CAIs and make available to more CAIs costeffective, high-performance IP service on a nation-wide dedicated intranet and access to the consumer Internet. ISSUE V-2: What broadband connection service attributes should U.S. UCAN offer to CAIs? RECOMMENDATION V-2: Internet2 and the ARNs offer important, value-adding service attributes that should be extended to the CAIs through the U.S. UCAN program. These key, differentiating service attributes include reliability, performance metrics, and network transparency. ISSUE V-3: What additional, value-added services should U.S. UCAN offer to CAIs? RECOMMENDATION V-3: As described in the successful proposal to NTIA, U.S. UCAN should ensure that CAIs can connect with each other nationwide, rather than just locally, with respect to advanced broadband applications, including telepresence, distance education, telemedicine, and job training. The overall U.S. UCAN infrastructure will be uniquely optimized for advanced broadband applications for CAIs like telepresence and telemedicine. U.S. UCAN will provide next generation Internet technologies like IPv6 and IP multicast, which are critical to certain applications. ISSUE V-4: What data collection and analysis services should U.S. UCAN offer? RECOMMENDATION V-4: A deliberate data collection and analysis effort is needed to document the depth and breadth of CAI use of services, to feed impact studies, to enable measurement of the goals of the National Broadband Plan, to serve as a status and prospects clearinghouse, and to provide data and feedback to U.S. UCAN itself in calibrating its efforts to meet the needs of CAIs. This effort is appropriate for a national entity with national membership such as U.S. UCAN because it enables consistent and standardized data collection across the country. In addition, U.S. UCAN is well positioned to undertake this task because it will be a trusted, independent agent in collecting and analyzing data, rather than self-interested.

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ISSUE V-5: What resources will the national U.S. UCAN program office require to offer these services? RECOMMENDATION V-5: The national program office will require adequate resources to meet the goals of the program and serve as many CAIs as possible with the services described above. The Task Force estimates that this effort will require a professional staffing level equivalent to seven full time employees, as follows: a Director; five sector-specific project officers tasked with assisting CAIs in their respective areas of vertical expertise to join and benefit from UCAN; and one project officer tasked with working with ARNs and other service providers who will be key partners in meeting CAI needs.

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VI.

U.S. UCAN NATIONAL PROGRAM OFFICE BUDGET

The initial startup budget for the U.S. UCAN National Program Office is under development by the interim U.S. UCAN Director, Mark Johnson, and by Internet2 management, and is still a work in progress. Many policy and financial decisions remain to be made, a number of which are dependent on the outcome of recommendations contained in this task force report. Concurrence of U.S. UCAN's ARN partners in the recommended cost recovery strategy for the National Program Office will obviously be a key element in the final budget decisions. Most of these partners have BTOP infrastructure awards and are in the midst of their own budget development for incremental operational costs. Austere fiscal conditions at state and federal levels make the search for these necessary funds especially difficult at this time. The task force debated at length the size and scope of the startup and ongoing budget for U.S. UCAN. Options ranging from a one-person office to a ten-person office were explored. The final conclusion on the initial budget, shown below in Table VI-1 and accompanying notes, reflects a strong feeling by the members of the task force that critical mass is important to the success of the U.S. UCAN program. Although effective partnership with ARNs and with CAI vertical community associations will be a vital part of the overall effort, nonetheless the national program must have the capacity to deal with affiliate programs in fifty states and with a large number of CAI special community interests and potentials. In addition, the national program office will have the lead on the data collection and analysis efforts recommended in the previous section. It is important to note that the national program office budget does not include network infrastructure costs. CAIs contribute to local, regional and national network infrastructure expense through their connection fees. National program costs, as recommended in the following section of the report, are recovered through a small additional fee which is included in the cost of the CAI network connection. ISSUE VI-1: What should be the size and scope of the U.S. UCAN National Program Office budget? RECOMMENDATION VI-1: U.S. UCAN should have an expense budget, including seven professional staff positions, totaling $2.65 million in the first full year of operation.

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TABLE VI-1

CAI TASK FORCE - U.S. UCAN BUDGET SUMMARY

Year 1 Personnel (7 professional FTE) including benefits, payroll taxes, insurance Administrative support Meeting support Travel Occupancy including office space and related costs Communications Miscellaneous including legal and contracted services TOTAL $1,299,282 Year 2 $1,325,268 Year 3 $1,351,773

$164,056 $355,000 $121,800 $226,807

$167,337 $362,100 $124,236 $231,343

$170,684 $369,342 $126,721 $235,970

$62,500 $415,285

$63,750 $423,590

$65,025 $432,062

$2,644,730

$2,697,624

$2,751,577

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VII. COST RECOVERY Cost recovery poses one of the greatest challenges associated with a program of the magnitude of U.S. UCAN. Establishing a fair and equitable cost recovery model is critical to the ultimate success and sustainability of the network. Members of the Task Force recognize that adding substantial new costs to the ARN networks, and to existing connected CAIs, mainly SEGP participants, could prove detrimental to the success of the project. Cost control and new revenue generation, therefore, are key elements of an overall U.S. UCAN financial strategy. Efforts to limit costs have been described in the previous section of this report on the national program office budget. New revenue generation potential for U.S. UCAN ARN partners should be substantial, since only about a quarter of CAIs are currently connected. However, the task force is aware that previous patterns of subsidy to support introduction of Internet services into CAI communities have resulted in many CAI budgets not bearing a significant fraction of the actual cost of providing service. This situation is discussed further below in the narrative on models. It also should be noted that the nearly $1.5 billion in BTOP funding for network infrastructure enhancement is creating a substantial capacity increase for Internet2 and the ARNs with BTOP grants. There are opportunities for utilization of this capacity beyond the CAI community, such as specialized research facilities, with corresponding revenue increases that will, in the aggregate, reduce unit costs of broadband service, benefiting all users of the infrastructure. In the previous section, Recommendation VI-1 proposes an initial budget for the U.S. UCAN national program office of $2.65 million per year. This amount is thus the basic annual cost recovery target. Against an estimated total annual budget for Internet2 and ARN network infrastructure and services in excess of $150 million, it is in the range of 2-3%, not a large number, especially given the upside potential of connecting thousands of new CAIs over the next several years. However, current fiscal constraints and prior patterns of sponsorship and subsidy make even small percentages a difficult challenge. The Special Case of SEGP Fees Elsewhere in the report, it is recommended that the Internet2 K-20 Initiative and its SEGP program (see Background section for description), because they are part of the CAI community, be integrated into the U.S. UCAN program. This raises the question of the future of the approximately $2 million per year in SEGP fees which are currently paid to the Internet2 network services budget by participating ARNs. Due to historical anomaly and good intentions by all concerned, the SEGP fees are neither fish nor fowl, financially. There is no apparent relationship between the fee structure and network utilization. Nor is there a specific relationship to K20/SEGP program costs. The fee revenue is, in effect, "all of the above."

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However the rationale for SEGP fees was arrived at in 2001, the creation of U.S. UCAN and the prospect of a large increase in CAI connections to ARNs, largely from non-educational community organizations, require a more straightforward and transparent structure for cost recovery. Therefore, all of the models discussed below assume that the current SEGP fee structure becomes the U.S. UCAN national program fee structure, with the changes and options for implementation noted. The re-designation of SEGP fees as U.S. UCAN fees and their allocation to support of the U.S. UCAN national program budget creates a gap in the revenue base for Internet2's network infrastructure costs. After consideration of the issues involved, including benefits to the entire Internet2/ARN community from the creation of U.S. UCAN, and the extension of broadband services and applications to a much larger base of public service-oriented community organizations, the task force believes that the most appropriate way to close the revenue gap, to the extent it is necessary to do so after other changes to Internet2 network infrastructure revenue and expense, is through a general increase in the Internet2 schedule of ARN connection fees. UCAN Cost Recovery Models One feature of the existing SEGP fee structure is that, on a per CAI basis, it significantly advantages large populous states over small states. One might debate whether this was desirable or not at the beginning of K20/SEGP, but it introduces considerable difficulty into the construction of U.S. UCAN program fee models. Constructing a new model which supports CAI evolution toward full broadband connectivity, in addition to a substantial increase in the CAI base in terms of numbers of participating states and of vertical communities, is likely to lead to pressure for "equal treatment." The task force discussed two possible end points that would meet the perceived need for equal treatment. In one scenario, a statewide organization, perhaps not dissimilar to the present SEGP program of state holders, would be responsible for the state level total fee, based on a nationally applicable formula, with the freedom to distribute the costs internal to the state and the supported CAIs according to local preference, as is commonly the case today. In the other scenario, the program fee calculation would be based on the number of individual CAI broadband connection sites. Models A and C presented below conform to the two scenarios above. Model B is a hybrid combining elements of Models A and C. Each of the three models represents a possible pathway toward recovering the expenses associated with the U.S. UCAN national program. Advantages and disadvantages for each model are described. In addition to the respective merits of the two scenarios described, there are several other model considerations. One is the need to bias whichever model is selected in favor of incentives to connect additional CAIs to the Internet2/ARN network infrastructure. A second is that, as a practical matter, there will be financial winners and losers whichever model is selected, and to the extent that higher assessments on individual ARNs are material, it is unreasonable not to create a grandfathering or transition provision for them. The task force discussed the issue of what transition mechanisms might be appropriate to limit the short term impact of a new financial model for the U.S. UCAN national program costs. This is an inherently contentious area, as are all discussions of fairness when funding formulas are revised. The task force observes that the increase in Year 1 U.S. UCAN program expense over the present SEGP fees is $2.65M over $1.98M, or 34%. If U.S. UCAN were to adopt an upper limit on annual fee increases for individual ARNs of 10% per year for three years, the cumulative increase would be 33%, or nearly parity.

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The gap in the U.S. UCAN budget produced by this particular transition arrangement would be on the order of $900K over three years, which would have to be dealt with by cost control or revenue enhancement measures. Because there are innumerable variations on possible transition arrangements, the task force makes no recommendation on this issue, believing it is a matter best left to the respective U.S. UCAN and ARN managers. The current SEGP funding formula, for reference, is a $30,000 per state network base rate, coupled with a proportional population rate calculated as $2,000 times the number of Representatives that each state has in Congress [e.g. The Nebraska SEGP fee is $36,000 = $30,000 + ($2,000 x 3)]. The SEGP funding formula would generate $2.4 million per year if every state had at least one statewide network. Table VII-1 presents the financial results of the three models, based on currently available information. Some assumptions are common to all three models. First, the program costs to be recovered are increased at the rate of 2% annually to reflect inflation and additional numbers of U.S. UCAN CAI members to be supported. Second, the number of states participating in U.S. UCAN rises each year. Model A: U.S. UCAN funding would be recovered through a state level, SEGP-like formula, with revenue raised to cover costs each year, if necessary, as a result of adjustments to the base rate and/or population rate Advantages: This is a model with which the ARN networks are familiar. It should have little impact on their business models and should affect each U.S. UCAN affiliate network proportionally. This model provides the greatest flexibility for the current SEGP holder to evolve to U.S. UCAN affiliate status and determine how to best meet the increased costs of an expanding program. Model A offers the greatest incentive for the U.S. UCAN affiliate to connect additional CAIs. Disadvantages: This model would produce an approximate 34% increase in ARN program fees as a result of transitioning from a solely SEGP program fee to the UCAN national program fee. This could prove problematic for some SEGP holders and their constituents. Model A is not aligned to CAI membership growth. Therefore, it does not provide an engine for increasing the cost recovery sum to offset expanding program costs other than through adjustments to either the base rate, population rate, or both. Model B: U.S. UCAN funding would be recovered through a state level, SEGP-like formula, coupled with a new revenue component based on the number of individual CAI-connected sites, thus providing the wherewithal to meet increased costs of an expanding CAI program. This model assumes that participating ARNs will cover the aggregated state level fee to U.S. UCAN, performing their own cost recovery as they see fit. Advantages: Model B represents a hybrid model that provides the stability of a state level formula along with cost recovery that is tied directly to growth in CAI membership. This model provides revenue to support growth in U.S. UCAN services, while incorporating a business model that is familiar to CAIs currently connected via SEGP.

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Disadvantages: Since Model B is tied to growth in membership, it reduces the amount of retained revenue for the UCAN affiliate generated by each additional CAI. This, in turn, reduces the incentive for the affiliate to solicit new members from the CAI community. This model could also have an adverse financial effect on current SEGP holders with large CAI membership. Model C: U.S. UCAN funding is recovered by costs assessed on all CAI-connected sites, with the total number of CAIs and cost recovery revenue increasing each year. The per-CAI charge would be adjusted lower if the revenue impact of new membership exceeds the U.S. UCAN program budget need. This model also assumes state level affiliates take responsibility for the aggregated state level fee. Advantages: Model C has the greatest potential to generate a growth related increase in cost recovery for the U.S. UCAN national program. Since it is directly related to CAI membership, it is the most logical of the three options. Disadvantages: Model C presents the most radical departure from the current SEGP model. To the extent that ARN affiliates set CAI connection fee schedules that do not recover full costs, or the pro-rata program fee, there would be less incentive for the affiliate to spend time recruiting new CAI members, since they would have an increasing fee obligation without the connection revenue to offset it. The effect of Model C on existing SEGPs could vary substantially. Those SEGPs that have been most successful in attracting CAIs to their networks with below cost fee schedules could actually suffer the most adverse effects. ISSUE VII-1: How should the existing Internet2 SEGP fee be treated in the future under the U.S. UCAN National Program Office? RECOMMENDATION VII-1: SEGP fees should be re-designated U.S. UCAN National Program Office support fees, with changes made as a result of adoption of one of the models in Recommendation VII-3. ISSUE VII-2: How should any net revenue gap in the Internet2 network services budget resulting from transfer of current SEGP fees be dealt with? RECOMMENDATION VII-2: After consideration of the issues involved, including benefits to the entire Internet2/ARN community from the creation of U.S. UCAN, and the extension of broadband services and applications to a much larger base of public service-oriented community organizations, the task force believes that the most appropriate way to close the revenue gap, to the extent it is necessary to do so after other changes to Internet2 network infrastructure revenue and expense, is through a general increase in the Internet2 schedule of ARN connection fees. ISSUE VII-3: What is the most appropriate initial cost recovery model for U.S. UCAN national program expenses? RECOMMENDATION VII-3: The task force has developed and presented three possible models for U.S. UCAN cost recovery, of which it recommends Model B as the best balance between cushioning the impact of the creation of U.S. UCAN, and preparing for a CAI broadband future.

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TABLE VII-1

COST RECOVERY MODELS FOR U.S. UCAN

MODEL A
MODEL A: Use SEGP-like formula to recover $2.65 million per year plus 2% growth End of End of Year 1 Year 2 $2,650,000 $2,703,000 Total Number of State Networks connected to U.S. UCAN (including D.C.) Base Cost per State Network per year (N x $XX,000) Subtotal Total Number of House Representatives represented by U.S. UCAN networks Population Cost per Representative per year Subtotal Total Examples California (Largest SEGP Program Fee--53 Representatives) 53 (Compare: 2011 Annual SEGP fee of $136,000) Connecticut (Median SEGP Program Fee--5 Representatives) 5

End of Year 3 $2,757,060

39

42

45

$40,000 $1,560,000

$40,000 $1,680,000

$40,000 $1,800,000

403 $2,705 $1,090,115 $2,650,115

411 $2,490 $1,023,390 $2,703,390

419 $2,285 $957,415 $2,757,415

$40,000 $143,365

$40,000 $131,970

$40,000 $121,105

Annual U.S. UCAN Fee

$183,365

$171,970

$161,105

$40,000 $13,525

$40,000 $12,450

$40,000 $11,425

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(Compare: 2011 Annual SEGP fee of $40,000) North Dakota (Lowest SEGP Program Fee--1 Representative)

Annual U.S. UCAN Fee

$53,525

$52,450

$51,425

1 (Compare: 2011 Annual SEGP fee of $32,000)

$40,000 $2,705

$40,000 $2,490

$40,000 $2,285

Annual U.S. UCAN Fee

$42,705

$42,490

$42,285

MODEL B
MODEL B: Use Hybrid Model to recover $2.65 million per year plus 2% growth End of End of Year 1 Year 2 $2,650,000 $2,703,000 Total Number of State Networks connected to U.S. UCAN (including D.C.) Base Cost per State Network per year (N x $30,000) Subtotal Total Number of Representatives in the House of Representatives Population Cost per Representative per year Subtotal Total Number of CAIs connected to U.S. UCAN, including school buildings Cost per CAI per year Subtotal Total

End of Year 3 $2,757,060

39

42

45

$30,000 $1,170,000

$30,000 $1,260,000

$30,000 $1,350,000

403 $2,000 $806,000

411 $2,000 $822,000

419 $2,000 $838,000

66,776 $12.50 $834,700 $2,810,700

78,128 $9.95 $777,373 $2,859,373

91,410 $7.95 $726,707 $2,914,707

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Examples California (Largest Number of CAIs--58% penetration of 18,513) Annual U.S. UCAN Base Fee Annual U.S. UCAN Population Fee Annual U.S. UCAN Membership Fee (Compare: 2011 Annual SEGP fee of $136,000) Massachusetts (Median Number of CAIs--16% penetration of 4,557) Annual U.S. UCAN Base Fee Annual U.S. UCAN Population Fee Annual U.S. UCAN Membership Fee (Compare: 2011 Annual SEGP fee of $50,000) New Mexico (Smallest Number of CAIs--1% penetration of 1,739) Annual U.S. UCAN Base Fee Annual U.S. UCAN Population Fee Annual U.S. UCAN Membership Fee (Compare: 2011 Annual SEGP fee of $36,000)

10,883 $30,000 $106,000 $136,038

10,992 $30,000 $106,000 $109,369

11,102 $30,000 $106,000 $88,259

Annual U.S. UCAN Fee

$272,038

$245,369

$224,259

731 $30,000 $20,000 $9,138

1016 $30,000 $20,000 $10,110

1412 $30,000 $20,000 $11,228

Annual U.S. UCAN Fee

$59,138

$60,110

$61,228

23 $30,000 $6,000 $288

60 $30,000 $6,000 $595

155 $30,000 $6,000 $1,236

Annual U.S. UCAN Fee

$36,288

$36,595

$37,236

MODEL C
MODEL C: Use CAI Membership Fee model to recover $2.65 million per year plus 2% growth End of End of End of Year 1 Year 2 Year 3 $2,650,000 $2,703,000 $2,757,060

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Total Number of CAIs connected to U.S. UCAN, including school buildings Cost per CAI per year Examples California (Largest Number of CAIs--58% penetration of 18,513) (Compare: 2011 Annual SEGP fee of $136,000) Massachusetts (Median Number of CAIs--16% penetration of 4,557) (Compare: 2011 Annual SEGP fee of $50,000) New Mexico (Smallest Number of CAIs--1% penetration of 1,739) (Compare: 2011 Annual SEGP fee of $36,000)

66,776 $40

78,128 $35

91,410 $30

10,738

10,845

10,953

Annual U.S. UCAN Fee

$426,118

$375,203

$330,371

729

1013

1409

Annual U.S. UCAN Fee

$28,935

$35,063

$42,490

17

45

118

Annual U.S. UCAN Fee

$690

$1,564

$3,546

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