The SLD has posted revised guidance on the Priority 1 status of on-premise equipment. The new document is available in the Reference Section of the SLD web site.
The new guidance further clarifies the general proposition that, with limited exceptions, equipment located on an applicant’s premise is eligible for E-rate discounts only as Priority 2 (i.e., Internal Connections). To be treated as Priority 1 (i.e., Telecommunications or Internet Access), the equipment must meet a series of strict criteria (the so-called “Tennessee” test). The SLD has again tightened these criteria.
Earlier this year, the exclusive use criteria was expanded beyond contractual limitations to read: “There is no contractual, technical, or other limitation that would prevent the service provider from using its network equipment in part for other customers.”
With the latest revision, the SLD has focused on the requirement that there be a single dividing line between local area (Priority 2) and wide area (Priority 1) network equipment. In particular:
(1) “…on-premise components such as network hubs and network switches that are used to distribute transmissions to multiple locations within a local area network would not meet [the Priority 1] requirement, because if they were removed then the communication paths among the various network points would be broken. Similarly, a PBX that routes calls within a school or library would not be eligible for support as Priority 1 on-premise equipment.”
(2) Priority 1 service must have a “specific demarcation” point for connection to an applicant’s internal network. Wiring or equipment “…that connects multiple locations within a school or library is inherently a part of the local network.”
(3) The demarcation point rule explicitly recognizes that “…Priority 1 service charges may include the cost of leasing a single basic terminating component, such as a CSU/DSU” (or cable modem). It is important to recognize that each word in the phrase “single basic terminating component” is intended to be taken literally.
One interesting implication of the tightened Priority 1 criteria is that it may help define the minimum hardware requirement needed to avoid having a fiber optic WAN be considered a “dark fiber” system (which, under new FCC rules, is E-rate ineligible as of FY 2004). If most of the on-premise switching equipment in a fiber system is to be considered non-telecommunications Priority 2, then the critical telecommunications component should be the “TX to FX Converter,” the modulating component that converts electronic cable signals to optical fiber signals, and vice versa. These basic terminating fiber optic components (called “Gigabit Interface Converters,” or “GBICs,” in the Cisco lexicon) are relatively inexpensive devices. Additional guidance on this specific issue is expected from the SLD or FCC shortly.
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