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Projecting Internet2 Membership Fees

December 2018

(This note directly addresses Higher Education Sustaining Contributions, but the detail regarding the current operational context and future fees applies to all Internet2 membership categories.)

Members' position regarding fee changes

Internet2’s higher education members have made the following points clearly and consistently regarding membership fees:

  • Fees should support the members’ priorities for Internet2’s efforts.
  • Internet2 should be transparent regarding its uses of membership fees.
  • Ideally, fee increases should be avoided. But when they are necessary, members prefer that they occur in modest increments year to year to ease budgeting. Specifically, members prefer that Internet2 not hold fees flat for several years and then increase them materially all at once.
  • Members prefer knowing about any trends in Internet2 fees with as much advance notice as possible.

Internet2 manages its membership fees and uses of funds carefully

Internet2 has worked hard over the years to control its membership fees for higher education (and other) members. For higher education members, these fees (dues and network participation fees, now collectively called Sustaining Contributions (SC)) have increased three times since 2010 (no change in fees 2010-2015):

  • 5.0 percent increase in 2016.1 
  • 2.2 percent increase in 2017.
  • 2.6 percent increase for 2019.2

Cumulatively, the 10-year change has been 10.1 percent. The nine-year Consumer Price Index change from 2010 through 2018 was 16 percent, so the fees increases have been well below the rate of inflation as Internet2 has worked to manage its overall costs, and to fund its operations from multiple sources. Additionally, the change to a scale-based SC model was made during this interval and many members experienced declining SCs as a result.

From 2015-2018, Internet2 realigned its internal resource commitments toward members’ highest programmatic needs and priorities, refocusing $4.2 million (~8.4 percent of total recurring expense). In doing so, Internet2 reduced the need for increased funding from members in spite of materially rising costs from suppliers and for employee health care.  

Factors affecting membership fee changes looking forward

Looking forward to the next several years, Internet2 is aware of the convergence of several factors that will increase the likelihood of need for future fees increases. Internet2 is committed to its upcoming network upgrade, and to its continuing efforts in identity and access management services and research support. (The Internet2 NET+ program and other specific services are self-supporting within their own budget frames). While Internet2 always has managed through the usual volatility in revenues from various sources supporting its work, the organization now knows of two factors of volatility that are occurring at the same time, and both are material. One of these factors is upcoming changes to the network operating cost share from ESnet. The other is a decline of free cash flow generated by the Internet2 NET+ program due to evolution of the service portfolio and the maturing cloud services marketplace. Both of these have been inevitable and anticipated, but neither was entirely predictable as to timing until now.

For the last three years (2016-2019), at the recommendation of two higher education member task groups, Internet2 also has moved through a multi-step transition from an SC model based on Carnegie Classifications to one based on institutional scale factors: Total Annual Expenditures (AX), and Total Annual R&D Expenditures (RDX). 2019 will be the first time that Internet2 has updated the institutional scale data on which the new fee model is based. (The member advisory groups recommended a three-year cycle of updates.) Over the three-year update period, members’ AX increased nine percent on average, and RDX increased six percent. However, the member-to-member variation was quite high, with some members’ AX and RDX increasing more than 20 percent and some declining. As a result, and cognizant of the messages from members regarding fee changes, Internet2 imposed a five percent cap on any member’s model-based SC increases from 2018 to 2019. Internet2 also managed the overall 2019 fees changes so that total 2019 SC revenues would be unchanged from 2018.

Projecting membership fees in 2020 and following years

Internet2’s modeling of the coming few years indicates that it may anticipate being able to manage through the known worst-case volatility with annual SC increases on the order of 3 percent. As a matter of member equity, the SCs may increase more for those institutions whose growth exceeded 5% over the 3-year scale-data update period. As always, Internet2 will continuously assess its financial position and projections. However, in order to get out ahead of this likely need and facilitate members’ forward budgeting, Internet2 alerts members that they should anticipate annual SC increases in the 3 percent range beginning in 2020. 

Internet2 fiscal year and invoicing cycles

Internet2’s fiscal year is the calendar year. Most invoices for membership fees (dues in particular, and across all membership categories) are issued in November and due on 1 January of the following year. Invoices for network participation fees (NPF, or the NPF component of the SC) are due on the anniversary date of a member’s network participation agreement, which may differ from 1 January (although the majority are due 1 January). Nearly all of Internet2’s higher education members operate on fiscal years beginning on 1 July. As a result, Internet2’s budget cycle and any resulting fees changes generally fall into the middle of the members’ current fiscal year, which was, for the member, budgeted about the same time Internet2 was issuing the prior year’s invoices. This is a key driver in members requesting that fees changes be projected as far in advance as practical.

1The 2016 fee increase was earmarked entirely and ongoing to support identity and access management software development work.

2The  2019 fee increase experienced by many members actually held total membership fee revenue constant at 2018 levels while taking the final step in the multi-year transition to the new scale-based fee model, over which many smaller and mid-scale institutional members experienced declining fees.