Funding Strategies for the Campus Network

Hello. I would like to spend some time talking with you about funding strategies for the campus network. We're going to spend a little bit of time looking at the history of how network costs have been recovered. We're going to talk a little bit about the level that one is likely to have to invest in building a campus network, and then we're going to spend some time talking about alternative funding models, comparing the advantages and disadvantages and spending some time talking about what might be the appropriate approach on your campus.

First, I would like to talk about the historical perspective. Now, the very interesting thing is that the networks we build on campuses --the academic network, the administrative network, and our telephone network -- have nearly always across our campuses been built with completely different funding models. In most cases, the academic computing network has been funded very much like academic computing in general, and that is, funding has been provided through central campus allocation. In the case of administrative networks, we often find ourselves in a sort of a mixed model, with a good portion of the infrastructure being paid for at the same time that we launch major administration system design projects, and in many cases we find that monthly rates are then charged to provide for maintenance and upgrades. And in the case of telephone services, as we look across virtually all campuses from the mid 1980s, when post-divestiture, we began to build campus telephone networks, with very few exceptions, these telephone networks are predominantly cost-recovered, with charges very much resembling the traditional telephone model that was used for networks prior to the time campuses built theirs, when they were outsourced or provided by the local telephone company.

Now, before we move on to talking about funding models, I think it might be useful for us if we began to frame what the basic costs of providing communication services on campus are. Rather than express these costs in terms of one-time investment dollars or costs for equipment, what I have tried to do in some research work that we've done is to try to turn these charges into sort of monthly fees on a per-user basis. And in general, in terms of deploying the current generation networks that is in place on many college campuses, we see the cost for data networks roughly $15 to $20 a month; costs for voice networks, $25 to $30 a month; cost for the traditional analog video connectivity, which is mostly into classrooms, approximately $40 a month. Why do we see these costs varying? Well, quite frankly, it depends a lot on what technologies a campus has used. It depends a lot on whether the campus has deployed a wire plant, that the costs have been paid for from some other project. But roughly, I think, this is the amount on a per-user basis that one needs to invest in order to achieve the level of network connectivity that we have on many of our college campuses right now. And then there is sort of what I would call the integrated services goal for campus networking, where I feel quite honestly we're going to be able to significantly achieve our campus missions more effectively, to be able to figure out how to pull this together into a monthly fee that is no more than $45 to $55 a month.

Why is it important that we put some real serious thought into the way we fund campus networks? Well, quite honestly, there is a lot at stake. What's at stake? Well, what has happened over the period of the last three to five years is that we have seen networks in effect become the new infrastructure for higher education, for supporting research, for information access, for teaching, for enabling distance learning and in effect, for providing cost-effective administrative services as well. We have also seen universities, with their early investment in network infrastructure particularly around the Internet, begin to gain competitive advantages in terms of being able to be significant information providers across the network. If we don't think effectively about how we build these networks, we run a real risk of establishing a new generation of disenfranchised users; where we have good quality network capabilities in the hands of our researchers, who are well-funded by grants, but our humanities faculty on our campuses quite simply don't have access to the kind of network capability they need to work effectively. And, quite honestly, this major new investment in a time of very limited funds in our universities mean that we have to be very careful about the way we plan our investments in building the next generation network.

Now, as you think about building the network on your campus, there are several factors that are going to influence your required levels of investment. Very clearly, the first one is what is happening in terms of the way your faculty and your staff and your students are using and building applications. In many cases, you're going to find that your current generation network infrastructure will support the work of many people. If you happen to have a lot of high-end scientists on your campus, if you have ambitious objectives in the area of distance learning, you are likely to have to make investments in your new network infrastructure sooner or later. Another important factor, of course, is the status of your current copper or fiber plant for distribution of your network. If you have invested in a modern plant that includes significant amounts of fiber running between buildings, fiber in risers in buildings, and good quality, up-to-date copper to the desktop, your need to invest in a short-term time frame in replacing that infrastructure will be less than if you don't have an up- to-date wiring infrastructure. Another important dimension is this issue of how far that infrastructure reaches. Does it get to your classrooms? Does it get to your faculty desktops? Because if it doesn't, again, since the characteristic of this network has become the ubiquitous network, reaching everyone, you're going to have to look at some significant costs for doing that. Another important issue is the workstation environment. Is it current? Is there some level of heterogeneity, or is everyone using very old computers that are not capable of working in modern networks? And do you have so many computers out there, different types of computers, that it drives your costs up? The age of the telephone PBX is also an important consideration. If you purchased your telephone PBX, as was the case at many campuses in the mid-1980s, then you are running very much up against sort of the life cycle of that kind of equipment. If, on the other hand, your investment in PBXs is no more than three to four years old, the probability that you'll be able to nurse that PBX along to the date of integrated networking is much higher. Obviously, there's an enormous amount that centers around how effectively you've integrated the services across that network. Are your telephone and data organizations separate organizations? If they are, I would submit that it's going to be much more difficult for you to plan that next generation network, and there are going to be much more complicated factors involved in how you finance it. And as we have talked about in the past, the issue of how effectively we're able to integrate switching technologies will drive much of your decisions about your required investments.

Now, setting aside those issues, having done all the technical work necessary to build that next generation network, what are the options you have for financing that infrastructure? Really, these options are linked from the past, and generally reflect the same kind of opportunities, stealing a little bit from what we might have done with data networking, a little bit from what we might have done with voice and video networking. One option available to you is the appropriated model. This usually involves using central funding, often called "the library model." There is also an opportunity in the case of the network infrastructure that has been used very effectively by many universities for establishing cost-recovered enterprises. And of course, there is what I would call the mixed model. And there are really two variations of the mixed model; one in which the capital expenditures tend to be centrally funded and often rates are put in place to finance the ongoing maintenance support. Another sort of mixed model that has been implemented at a number of universities is an approach where you focus on funding the ubiquitous portion, the portion that everybody uses, through central funding -- not only the capital, but the maintenance -- and that the rates are then applied to specialized services.

Let's talk a bit about the advantages and disadvantage of each of those models. In the case of the appropriated model, one clear advantage is that it really recognizes the strategic value of the network, putting it on the same plane as the library, and if you can achieve a solid flow of funding through the appropriated model, it really is an indication of strategic buy-in across the campus. The cost distribution mirrors other "public goods," and quite frankly, it's a very simple model. It doesn't require an enormous amount of billing and rebilling, for example, as is the case with the enterprise model. But it also has some serious disadvantages, and that is, in any environment where light users tend to subsidize heavy users, there is often a frustration on the part of those users who don't use as much and quite often behaviors on the part of those users who use a lot that, in an environment where they don't pay, where it's appropriated often, there is nothing driving their choice to be cautious about the amount of the network they use. It is also the case that we see, in many networks that are funded through appropriated models, that capital funds are much easier to get than maintenance funds. And what we see in these kinds of environments where the appropriated model is used is that we often get big upgrades in the network, we'll build good quality networks, and then they'll begin to wither on the vine because, quite frankly, trying to survive the political environment and assuring that once the big, heavy initial investment is made, sufficient money is available for maintenance and service becomes a real challenge that, quite frankly, is not often achieved in universities.

Now as we look at the enterprise model, we see some clear advantages to it. Those who use, pay. Monthly rates foster a budget discipline that allows the on-going fund flow for maintenance to be something that gets built quite nicely into a university budget infrastructure. But, of course, there are some disadvantages with this enterprise model. It's often terribly costly to account and bill. We have a changing audit environment. I know at Cornell University, we have traditionally run an enterprise, cost-recovered telephony environment, and in fact, a data environment as well; and as we look at the revisions that are being defined in the Office of Management and Budget's A21 circular that apply to universities that have significant amount of research fundings, they are making it harder and harder for so-called "service centers" to operate in terms of limiting their flexibility and requiring advanced approval of nearly any change in that rate structure.

Now let's look at the advantages and disadvantages of the mixed model. In terms of advantages, everyone pays for the ubiquitous services; and that creates, I think, a real solid link between the availability of the service and those who participate in paying for it. The "boutique" services, then, become charged to those who benefit; again, creating a sort of a justice around the way these charges are paid. In the one case of the mixed model I talked about, then, when one is able to provide some marginal costing for new and strategic services where perhaps a portion of it is charged and covered in the ubiquitous base, and another portion is in fact cost-recovered, it creates a very interesting environment in which one can invent the use of new and strategic services by introducing them at lower costs and then, as they become more and more popular, as they move towards ubiquity, you then probably begin to remove the cost and to just simply build them into the funds base. That, of course, creates one of the major disadvantages as well; and that is when you get in a situation where you are marginally costing, you have to constantly be monitoring any reduction in revenues that are coming, either through allocation or from the basic cost-recovered service that is driving and providing the base costing for that marginal service you're providing. It's also the case that, in this model, audit can become very complex. And quite frankly, you can find yourself spending more time with your auditors, talking about financing, that you do with your users talking about technology. And in particular, in this mixed model, users -- particularly those who are out there in the departments and colleges, paying the bills -- get especially concerned about whether they're being double-charged, whether they are in effect paying through allocation and at the same time paying a specific charge for a service. It becomes very difficult to keep that straightened out and not just in terms of basic accounting, but particularly in terms of the way you describe it to users. And certainly there are more costs in supporting two cost-recovery models.

Now the real question becomes, which of these models is most appropriate for your university? And I'll be very honest and say that there is no clear answer here. You've got to look at a number of factors. I would say, first of all, that not only may there not be any one model that's the best model for a university, but you may in fact discover that you want to use different strategies for different services. And in point of fact, nearly all of us will find ourselves, for an array of reasons that I'll talk about, moving more actively toward what I have defined as the mixed model over time. But what kinds of things do you need to think about when you think about an approach on the campus? In the first place, you need to understand the campus financing model. If, in fact, service centers are not well-developed within your campus environment, the possibility of building one to support communications, when there aren't other preexisting examples of service centers and enterprises, is probably not going to work. If, on the other hand, there is a strong history and culture for building service centers within your university, you may in fact discover the process for allocating funding within the university is so weak that in effect it does not fit very well the kind and level of ongoing investment that it is necessary to make in building a solid network infrastructure. You've also got to take a real look at the campus culture. What does it support? What are the political forces that push against each other? What are the things that are competing with technology infrastructure for support? What are the big costs the university's going to have to face in the next four or five years? How do the decisions get made? If in effect you work very hard to influence the president or the provost to invest in the campus infrastructure, and in point of fact those types of decisions tend to be made through a process that means every dean has to agree to the investment before it's made, then you might as well just go play to the deans to begin with. And so it's very important, as you build this strategy, that you understand the way decisions are made in your institution; you understand the culture; you understand the way things are financed; and you understand the political winds and forces within your institution. Another factor that will increasingly drive your choice is in effect in the arena of audit. As we move into an era where there is significantly more aggressive approach on the part of the federal agencies and state agencies in holding universities accountable to the way we spend money, we're going to see an increasing impact in terms of the choices we make about how we fund critical infrastructure. The impact of the new OMB A21 circular certainly makes it much more difficult, for example, to document the fees charged through service centers. The cognizant agency that you have-- whether it is the NSF, whether it is NEH, whether it is ONR -- will impact greatly your choice, and I would strongly suggest that you spend some time talking with your audit staff before you make the final choices about what sort of model you're going to use. What I've done here is take a look at the funding alternatives for networking infrastructure on a campus. We've looked a bit at the history, we've talked about some different models for financing it, their advantages, their disadvantages, and have spent some time talking about the approach you might want to use on your campus, what factors you might want to take into account as you work with your administrative team to make this choice.

Thank you very much.

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