News of the Week

The FY 2014 application window opened January 9, 2014, and will close on Wednesday, March 26, 2014 at 11:59 p.m. EDT.

Wave 38 for FY 2013 will be released on Thursday, February 13, 2014, for $36.4 million.  Funding is currently being provided for Priority 1 services only.  Cumulative funding for FY 2013 will be $1.83 billion.

On Friday, at a special meeting of the USAC Board’s Schools and Libraries Committee, a recommendation was made to the FCC to deny all Priority 2 funding requests for FY 2013.  The Committee had earlier recommended denying at 89% and below, so technically last week’s recommendation was to begin denying at 90% as well.  While the FCC did not act on USAC’s first recommendation, we expect it to approve denying all Priority 2 funding for FY 2013 shortly.

Last week produced some interesting E-rate-related sound bites.  On Tuesday, expanding upon a small portion of the previous week’s State of the Union address, President Obama gave a speech reaffirming his ConnectED pledge to connect 99% of America’s students to high-speed broadband within five years.  As the President put it: “In a Nation where we expect free WiFi with our coffee, why shouldn’t we have it in our schools?”

Both in his speech, and in an associated summary, the President pointed to $750 million in new private-sector commitments to schools for non-E-rate goods and services from Apple, Autodesk, Microsoft, O’Reilly Media, and cellular carriers AT&T, Sprint, and Verizon.

On the E-rate front, the President outlined a new FCC “plan to direct $2 billion over the next two years to dramatically expand its investment in high-speed connectivity for America’s schools and libraries. That investment will begin flowing to schools in 2014, and will focus specifically on the broadband connection and Wi-Fi that too many schools lack, and will be the foundation of the ConnectED transformation of schools.” 

On Wednesday, FCC Chairman Wheeler made a presentation emphasizing his personal commitment to ConnectED’s goals, stating: “During my tenure as Chairman of the FCC there may be no bigger and more significant issue than making sure our schools and libraries are connected to high-speed broadband networks.”  He went on to indicate that the FCC would be “applying a business-like approach” to E-rate “allowing us to double, to $2 billion, the money to be spent on high-speed connections beginning this year.”

The promise to double E-rate funding on broadband, starting this year, garnered a lot of press.  But what did the Chairman mean by “this year?”  And what do the Chairman’s remarks really mean for E-rate applicants?  Our answer — at least in the short-term — is “not much.”

The first half of “this year” — if that means calendar 2014 — is the second half of FY 2013.  The Chairman’s talk didn’t mention FY 2013 at all, and we expect no changes.  E-rate is already on track to fund all valid Priority 1 requests, including broadband, in the current funding year.  As indicated above, we expect the FCC to shortly approve the denial of all FY 2013 Priority 2 requests.

FY 2014 begins in the second half of calendar 2014.  The Chairman promised to “fund all Priority 1 services in 2014.”  With the roll-over we expect to be available for FY 2014 (see below), we were already projecting full Priority 1 funding.  The Chairman said nothing about Priority 2 for FY 2014 which, if Priority 1 continues to increase, will be difficult to fund at any level.

The one concrete change for FY 2014 that the Chairman did mention was a plan to prioritize the review and approval of “consortia and other joint applications” to “accelerate” funding so as “to get cash that is already in the program working to support broadband projects more quickly.”  Taking the position that “time is money,” the Chairman appears to mean that “more money” for broadband, at least this year, really means the same “money more quickly.”

The one reference the Chairman made to “more money” was the following single sentence:  “Should it be necessary to increase the permanent funding levels for the E-Rate program, we will do what is appropriate” — in other words, no new funding for now.

So much for the short-term; but what about the long-term?  The best way to interpret the promise to double E-rate funding on broadband, beginning this year, is to focus on the word “beginning.”

Most importantly, what the Chairman indicated was that the FCC would “release a Public Notice in the coming weeks seeking comment on a targeted set of issues.”  The apparent goal is to fast track a restructuring of E-rate, effective for FY 2015, to re-prioritize existing E-rate funding to broadband.  Without providing details, the Chairman indicated that this would include:

1. Phasing out “legacy services, including low-bandwidth connections.”
2. Targeting “high capacity connections” to ensure “high-speed WiFi” to all classrooms and libraries.

Reading between the lines, this suggests an end to Priority 1 and Priority 2, as we know them today.  In the future, the highest priority will be on broadband services all the way to the classroom, with a focus on end-user wireless access in schools and libraries.

From an applicant perspective, our bottom line view on last week’s speeches is that there was no “ado” about FY 2013, little “ado” about FY 2014, and much “ado” about FY 2015 and beyond.  What comes next is the release of the FCC’s Public Notice, probably by March.

Reported Fund Size Projections for 2Q14:

USAC released its quarterly Fund Size Projections for the Second Quarter 2014 last week showing an accumulated $600 million available for roll-over into FY 2014 as of the end of calendar 2013.  (Note: The “second quarter” in the report’s title refers to the government’s 2014 fiscal year which corresponds to E-rate’s 2013 funding year.)

Normally, the FCC will wait until after USAC releases its third quarter report before announcing the roll-over amount for the next funding year.  By that time this year, it is reasonable to expect the total amount available for roll-over into FY 2014 to grow to $700-800 million or so.  That would be better than the $450 million rolled over last year, a large portion of which was needed to fully fund Priority 1.  Assuming that the demand for Priority 1 continues to grow this year, all or much of the roll-over will be needed to fully fund Priority 1 again for FY 2014 (as indicated in the FCC Chairman’s speech discussed above).  All indications are that whatever might be left over after funding Priority 1 will be far less than the amount needed to fund Priority 2 requests, even at just the 90% level.

Web Hosting Eligibility:

We have recently seen a number of providers of Internet-based application services promoting their products as being E-rate eligible, or at least largely eligible, as web hosting services.  This may be an opportune time for a review.

Web hosting first became eligible back in 2003.  At the time, we suspect the thought was that since many schools were using basic websites to provide community information on their schools, upcoming events, bus schedules, luncheon menus, etc., and because web hosting fees for such sites were modest, that E-rate could and should encourage this use of the Internet.

Fast forward a decade and we find many schools spending thousands of dollars a month on online application services.  Since these services are hosted on the Web, the obvious question is how much of any such services is E-rate eligible as web hosting?  For the most part, USAC requires applicants to cost-allocate the application portion of these services out from the E-rate eligible web hosting component.  Usually, the ineligible percentage allocation involves negotiations between USAC and the service providers, and results in a high percentage — 80-90% or more — being deemed eligible.  As a result, Web hosting’s share of E-rate funding has clearly grown beyond the initial indications of 2003.

In an attempt to return (at least to some degree) to the initial concept of web hosting eligibility, USAC is currently limiting applicant web hosting discounts to a single provider.  As stated in the Eligible Services List for FY 2014: “Applicants may not request funding for web hosting from multiple providers.”  The apparent premise is that, if an applicant is using different Internet-based services, only one would be associated with the applicant’s basic website as originally contemplated.  Applicants applying for web hosting discounts for FY 2014 should bear the following in mind:

1. Logically, the one-provider restriction would apply on a school-by-school basis.  District or consortium applicants applying for web hosting discounts from different providers should be prepared to demonstrate that there is no duplication.
2. Applicants should also be prepared to show that the services being discounted actually host those applicants’ basic websites.
3. In addition to the one-provider requirement, applicants should pay particular attention to the list of “Ineligible charges related to web hosting” provided in the Eligible Services List referenced above (see pp. 7-8).

Form 470 Deadline:

Technically, this year’s deadline for filing a valid FY 2014 Form 470 and/or RFP is February 26, 2014.  However, waiting until the deadline leaves no room for error.  Because a Form 470 must be posted for 28 days, a February 26th filing would mean that on March 26th the applicant would have to:

• Select vendors
• Sign contracts, if required
• File a Form 471 — the final day of the FY 2014 application window!

Form 486 Deadlines:

Typically, a Form 486 must be filed no later than 120 days from FCDL issuance or the start of service, whichever is later.  Assuming services started July 1, 2013, the deadlines for FY 2013 funding waves 1-21 have already passed.  The remaining Form 486 deadlines for February are:

                                          Wave 22                02/13/2014
                                          Wave 23                02/20/2014
                                          Wave 24                02/27/2014

Priority 1 vs. Priority 2 Applications:

The SLD website includes a small section on FY 2014 Filing Window Statistics Updated Daily, which details the number of certified Form 471 applications filed to date (and compares them to the final totals for FY 2013).  The table includes a breakdown by dollar amount of applications filed for Priority 1 (P1), Priority 2 (P2), and a third category somewhat confusingly labeled as “Total P1/P2.”  What the P1/P2 total references is filed applications that include both Priority 1 and Priority 2 funding requests.  This is a terrible way to file applications, long discouraged by USAC and state E-rate trainers.  Because decision on P2 funding is often in doubt well into the funding year, any applications containing P2 requests are held pending review until determinations are made on P2 funding availability.  To avoid having P1 decisions held up until P2 funding is resolved, applicants applying for both P1 and P2 services should do so on separate applications. 

The SLD News Brief for February 7, 2014, reviews a number of aspects of the Form 470 and over-all competitive bidding process.  The review is in an FAQ format addressing the following questions:

• What is the purpose of the Form 470?
• Why is Thursday, February 26, the deadline for filing an FY 2014 Form 470?
• Am I required to issue a Request for Proposal (“RFP”) or similar document?
• If I issue an RFP, how long must it be available?
• What is an “open and fair” competitive bidding process?
• How much detail should I provide about the services sought?
• Am I required to respond to every e-mail or phone call from a service provider?
• Why is the category of service I choose in Items 8, 10, and 11 important?
• How do I evaluate the bids I receive?
• Do I have to sign a contract?
• Can a consultant help me with the competitive bidding process?
• Where can I get more information?

One important aspect of the competitive bidding process, not discussed in this News Brief, is that USAC is taking an expansive view of what constitutes an “RFP.”  This is critical because the Form 470 must indicate when an RFP is available.  We suggest that all applicants review the “Definition of RFP” in our newsletter of November 25, 2013 (including links to earlier discussions).

The February 7th News Brief also reminds applicants and service providers filing on paper to use the revised versions of E-rate forms.  Revised forms are designated by 2013 dates in the lower right-hand corner of each page.  Revised type-in PDF versions of these forms are available in E-Rate Central’s Forms Rack.