In December, the state legislature received detailed recommendations from two separate independent consultants on the contentious issue of how best to provide fast Internet at affordable prices to Arkansas’s public schools, many of which lack sufficient bandwidth. Over the past year, that question has fueled a fight between some of the most powerful players in Arkansas’s business community.
In one corner are private Internet service providers, including national telecom giants like AT&T, Windstream, Cox and CenturyLink. In the other is a group called FASTERArkansas, which includes executives of Axciom and Arvest Bank and is backed by the Walton Family Foundation.
The dispute ultimately comes down to a simple matter of profit. Private providers want school districts to buy Internet access from them alone, while the Arkansas Department of Education (ADE) and its allies in FASTERArkansas would like to wrangle the companies into a public-private partnership that would use the purchasing power of the state to secure better prices from the providers.
But the issue has been muddled by endlessly competing claims from the two sides about the facts on the ground — how bad the current broadband deficit is, how much schools currently pay and how much it would cost to build that public-private network. With each of the state’s 260 districts an independent entity, such questions have proved surprisingly tough to answer.
That’s why the state hired the two consultants, CT&T (a firm based in North Little Rock) and EducationSuperHighway (a new nonprofit funded in part by Facebook CEO Mark Zuckerberg) to get some clarity about the situation. One thing has indeed become clear: The Department of Information Systems (DIS), a state agency that provides Internet service and IT support to other public entities, has been charging schools outrageous prices for connectivity. However, the larger question — how to deliver enough bandwidth to all schools — is still an open one. Although the two reports show that building a public-private network is entirely feasible for Arkansas, whether it seems like an attractive option depends on whether one feels more sympathy for schools or for telecoms.
The mess at DIS
State public schools currently get connectivity from two sources: private providers, which sell bandwidth to districts just as they do to homes and businesses, and an antiquated state-run network named the Arkansas Public School Computer Network (APSCN), which is managed by DIS and paid for by the Education Department. APSCN was state-of-the-art when it was built in 1992, but the network’s old copper connections are now hopelessly outdated; as a result, APSCN provides only about 5 percent of Arkansas schools’ current connectivity. Districts must meet the rest of their Internet needs — the other 95 percent — through contracts with private providers, which rely on fiber optic networks vastly superior to copper wires.
The providers deliver about 54 gigabits per second (Gbps) to Arkansas school districts. APSCN only provides about 3 Gbps. However, while districts collectively pay about $8 million to providers each year, APSCN costs the state almost $12 million annually. That means APSCN costs nearly $4 million more each year to deliver about 1/18th the amount of connectivity.
The CT&T report says the state should, “take immediate action to cancel the redundant APSCN connections to the districts.” A company representative told the legislature at a December meeting that if APSCN were phased out today and schools instead purchased Internet service only through private providers, the effective savings to the state would total $8.5 million annually. The report from the other consultant, EducationSuperHighway, concurs. “Redeploy ADE’s $11 million Internet access budget … [to] provide subsidies to all districts with continuing direct Internet access contracts,” it recommends.
It gets worse. The report also says DIS has consistently failed to obtain matching funds via a crucial Federal Communications Commission program called E-rate, which provides generous grants to reimburse schools and libraries that invest in building Internet capacity. Because of our state’s high poverty rate, the FCC gives Arkansas schools and institutions matching rates that range as high as 5-to-1, depending on the demographics of the district applying for help. DIS is supposed to both help districts apply for E-rate and make its own requests to the FCC, but CT&T says that the agency’s track record in recent years shows it has been doing something wrong. School districts that applied for E-rate on their own received about 95 percent of their requests in 2013, yet the FCC funded only around 34 percent of DIS requests from this year. The consultants say they’re not sure why DIS so badly failed to secure E-rate money — they didn’t have access to the FCC’s information — but it amounts to tens of millions of dollars left on the table.
The first question that comes to mind from all this is why one state agency has been allowed to gouge another at the cost of millions to taxpayers. Why did no one sound the alarm sooner? (The problems at DIS also extend well beyond public schools, by the way: An audit last month of DIS found underbilling problems that cost the state millions, as well as excessive travel reimbursement claims.) Incoming Speaker of the House Jeremy Gillam (R-Judsonia) said “there will be lots of questions being asked [about DIS] moving forward” but that the legislature’s focus right now was on getting schools the connectivity they need. Education Commissioner Tony Wood, who took the helm at ADE earlier this year, said he believed legislation probably would not be required to move the department away from using APSCN.
At first glance, the debacle at DIS would seem to vindicate the viewpoint that public agencies tend towards inefficiency and waste while private enterprise delivers innovation and quality. Yet the fact is that the private providers themselves are the ultimate beneficiaries of DIS’s grossly inefficient use of funds. That’s because the majority of the old copper wires that comprise APSCN are owned by them: DIS leases much of APSCN infrastructure from vendors, primarily AT&T, CenturyLink, Windstream and Cox. Over the past five years alone, DIS has paid private providers about $49 million on the trickle of Internet service that keeps APSCN limping along. The telecoms have been all too happy to quietly benefit from the state’s negligence in watching its own purse.
Lack of backbone
Nearly everyone can agree that continuing to pay for APSCN in the future would be a waste of money. That’s also about where the agreement stops.
It’s clear that the current APSCN funding would be better used if it were simply given to districts to buy Internet service directly from the private providers. But there’s also reason to hesitate. For one thing, having 260 districts negotiate 260 separate contracts is inefficient. It makes intuitive sense that schools could get a better price by aggregating their purchasing on the state level. Second, as residents of small town Arkansas know, the price of broadband varies tremendously depending on where you live. A megabit (Mb) of bandwidth costs the median Arkansas school about $22, but in some places it can run upward of $200, according to a 2013 survey of districts by ADE. Providers charge much higher rates to customers in rural areas to recoup the initial cost of building fiber out to those towns, though whether those markups are in proper proportion to the investment is a matter of debate. It’s certainly cost-prohibitive to many small districts to buy as much Internet as they need, especially in places where connecting fiber infrastructure has yet to be built. Providers will be glad to invest in extending fiber to any and all rural communities in the state, true, but often at a heavy price.
This is where the recommendations of the two consultants diverge. CT&T says the state should simply help districts buy Internet from private providers, a business-as-usual scenario that would still save the state significant money given the level of waste at DIS. But EducationSuperHighway recommends Arkansas pursue a different route — a “statewide Internet access aggregation network” in which ADE buys connectivity for districts en masse, via regional contracts with providers to build out their fiber networks to underserved districts. Everything would be connected with a dedicated fiber “backbone” statewide.
“A well executed state network maximizes the opportunity to use economies of scale to deliver Internet access at the lowest cost,” according to the report. That’s a diplomatic way of saying that it’s a lot easier for state government to play hardball with a big telecom over a single aggregated contract than it is for the Jasper, Mulberry or Marvell school district to do so on its own terms. (CT&T disputes that, saying the potential cost savings of aggregation are overstated and possibly outweighed by the cost of maintaining a big, statewide network.)
The EducationSuperHighway report also wades into the subject that frightens providers the most: allowing the statewide bidding process to include a publicly funded fiber optic network, a sort of APSCN with 21st century technology. It turns out, actually, that Arkansas has already built such infrastructure over the last decade for use by its colleges, universities and hospitals. It’s called ARE-ON, the Arkansas Research Education Optical Network. Most states have built a similar public fiber backbone for university use, and many, such as North Carolina and Oklahoma, use theirs to provide Internet to K-12 schools. Arkansas is the only state with such a network that has a law explicitly prohibiting K-12 from using it.
That law, Act 1050 of 2011, passed the Arkansas legislature with little attention from anyone besides the people who forwarded it in the first place — the private providers. The bill was a cunning preemptive move on the part of providers to protect their interests. In its original form, it said that ARE-ON could not compete with providers by selling broadband service to households and businesses, a fairly uncontroversial proposition. But a last-minute amendment to the bill also prohibits K-12 schools from attaching onto the public network. Gov. Mike Beebe has said the amendment “was sneaked in at the end of the  session without any knowledge or notice to the K-12 education community.”
Providers see ARE-ON as a profound threat. They look to places like Chattanooga, Tenn., where a public utility recently has begun selling faster Internet service at cheaper prices than private companies. They look overseas as well: In many European countries, cheap public broadband is the norm, and often at connection speeds rarely found in U.S. households. Allowing ARE-ON to compete with private enterprise for public school contracts, they fear, is the beginning of a slippery slope toward allowing wider public competition in Arkansas’s broadband marketplace.
The providers point out that the EducationSuperHighway report commends the Internet access they deliver in much of the state. It’s true — surprisingly, 58 percent of Arkansas school districts currently meet national connectivity standards, which is significantly higher than the U.S. as a whole. The CT&T report places the figure even higher, at 65 percent. The telecoms say competition from ARE-ON would be unfair. Earlier this year, a spokesman from the industry told this reporter that “the telecommunications industry made an investment in Arkansas under the assumption that the government would not be a competitor in the market.” (Again, though, they’ve been happy to receive the inflated rates that DIS offered for APSCN.)
FASTERArkansas is using the report as ammunition in its push for repeal of Act 1050. That would allow ARE-ON to enter the bidding process if the state does indeed decide to pursue an aggregated network. That doesn’t necessarily mean ARE-ON would win the bid, but its presence would drive down prices offered by the private providers. They’re right to fear their profit margins may shrink.
“While it is unclear whether ARE-ON will be the most cost-effective option for these network components,” says the EducationSuperHighway report, “it is highly likely that if ARE-ON is allowed to participate in the RFP, its availability of low-cost Internet access will undoubtedly lower the overall cost of the aggregated network and Internet access for ADE and Arkansas taxpayers.”
So the legislature faces a choice in 2015. Will it change Act 1050 to allow a public entity to compete with private providers? Walton money isn’t easily ignored and the Department of Education is eager to move ahead, but the providers still seem to have the upper hand in the legislature. Gillam, the incoming speaker, said he felt repeal of the law was unlikely. “There doesn’t seem to be an appetite to pursue that option any longer,” he said. “I think we’ve been shown there are other ways to deliver broadband in a more cost-effective manner.”