In 1996, the U.S. government decided the United States would be a better place if every school, public library and rural health-care facility had access to the Internet (and the telephone equipment to support it). Some opposed the idea because it meant an additional tax on the public. Among other groups, the Computer Technology Industry Association (CompTIA) lobbied for it. Bruce Hahn, director of public policy for CompTIA in Washington, D.C., says there is a digital divide between the schools and libraries in poor areas and those in more affluent areas, putting disadvantaged kids at a greater disadvantage,growing up computer illiterate. Congress felt the same.
As a result, every American with phone service now pays an E-Rate tax. Look at your next phone bill and you'll see it listed. Schools apply for the federal funding,which includes money for telephone systems, computer networking and even assistance with phone bills,and are allocated a discount based on their level of need (as determined by the number of free or reduced-cost lunches they provide).
Notwithstanding the debate about an additional tax, there is one problem with E-Rate. There isn't enough money to go around. "By the time you fund all the schools with Internet access and telecommunications, the pot that's left for internal connections,which is what VARs are most interested in,has been limited to the poorest schools," explains Keith Krueger, executive director of The Consortium for School Networking (CoSN) in Washington, D.C. Krueger says VARs need a two-pronged strategy: Befriend less affluent schools when you're looking for work in internal connections, but approach all schools for telecommunications and Internet services.
Annese and Associates, a systems integrator in Herkimer, N.Y., has been providing networking services for the Erie 1 Board of Cooperative Education Services (BOCES) in West Seneca, N.Y., since the beginning of the E-Rate program (see "Erie 1 BOCES," page 28). The margin for VARs like Annese on
E-Rate projects ranges from 6 percent to 10 percent, according to Domenick Petucci, vice president of operations for Annese. Petucci says E-Rate presents an ongoing opportunity for VARs because funding is being approved for a longer period of time than originally expected.
Initially, E-Rate was projected to be a five-year project. But the government has released instructions for years six through eight, leading proponents of the program to believe it will continue as long as the funds are available. To give you an idea of the scope of the project, $2.25 billion is distributed per year. In year three, $1.2 billion was allocated to hardware, with the remainder going to phone bills and ISP services. At press time, last year's numbers,year four,were expected to shape up similarly. Ron Sheps, the education market manager at distributor Westcon Group in Tarrytown, N.Y., says the good thing about E-Rate funds is that they are not distributed in a block-grant program. In other words, the money moves from government to VAR, not from federal government to state government to local government to school to VAR, as in previous programs. "In E-Rate, the federal government cuts a check to the reseller, and the reseller gets paid in a timely fashion," Sheps says. While phase one of this year's application process has already passed, Sheps says Westcon spends all year training VARs on the intricacies of E-Rate work. "This year, we saw the city of New York receive a $210 million E-Rate award for hardware. El Paso, Texas, received $60 million," Sheps says. "With those kinds of numbers being thrown around, it behooves a reseller to spend some time doing his homework."