News of the Week

Funding Status

Wave 6 for FY 2012 will be released on Monday, August 13, 2012, for $81.1 million. This will be the first wave of Priority 2 funding (approximately $660 thousand) at the 90% level. Now that the threshold has been finalized, this wave will likely include a large number of Priority 2 denials at 89% and below. Cumulative funding for FY 2012 is $945 million.

Wave 56 for FY 2011 will be released on Wednesday, August 15, 2012, for $11.5 million. Priority 2 requests are being funded at 88% and above, and denied at 87% and below. Cumulative funding for FY 2011 is $2.34 billion.

No funding wave for FY 2010 is scheduled this week.

Initial Outlook for FY 2013 Priority 2 Funding

The imbalance between the supply and demand for E-rate funds has now reached the stage whereby, without fundamental changes to the program, Priority 1 funding will subsume all, if not more, of the authorized annual funding. If Priority 1 demand for FY 2013 exceeds that experienced for FY 2012, the key determinant for meeting that demand will be the amount of funds deemed available for roll-over. In this regard, FY 2012 funding is an ominous omen.

The recent decision by the FCC to roll-over $1.05 billion of previously unused funds into FY 2012 came as a welcome surprise to Priority 2 applicants at the 90% level, albeit a disappointment to those at 89% and below. Part of the surprise was that USAC "identified" $650 million more in available funds in its fourth fiscal quarter projection. This is in addition to the $400 million in available funds accumulated during the first three quarters. Planning ahead, it is worth considering the likelihood of another large carry-forward for FY 2013. If that is not likely, next year's roll-over may be needed largely to meet the continuing growth in demand for Priority 1, leaving little for Priority 2.

A closer look at the FCC's FY 2012 roll-over decision can be gleaned from an analysis of USAC's Fund Size Projections for Fourth Quarter 2012 (see the Schools & Libraries True-Up section, pp. 41-54). The key information is in the true-up table for each funding year. As indicated in the three right hand columns of the table shown below, the $1.05 billion carried forward into FY 2012 equaled the sum of Estimated Remaining Balance for each year, ranging from $5 million to $300 million for FYs 1998–2010. (A balance for FY 2011 should become available next year.)

The balance for any given year is determined by the following factors:

1. The Amount Authorized and Actually Collected. This is a fixed amount, traditionally set at $2.25 billion, augmented since FY 2010 with a small Amount Authorized by FCC Inflation Increment.
2. The Amount Carried Forward from previous funding years, offset by the Amount Carried Forward to future funding years. These amounts are determined by the FCC's annual roll-over decisions.
3. Administrative Expenses.
4. The Amount Authorized for Disbursement. In the absence of a large successful appeal or long-delayed funding decision, this amount remains relatively stable after a few years.
5. Three types of "reserves," namely:
   1. Potential Additional Disbursements on Committed FRNs.
   2. Remaining Uncommitted Requests.
   3. Contingency Amount for Pending Appeals and Invoice Deadline Extensions.

The reserve amounts are the key variables in the quarter-by-quarter changes in the available funds calculation. These amounts can be somewhat subjective, depending upon how aggressive or conservative USAC and the FCC want to be. As can be seen in the table above, almost all of the additional $650 million found in the fourth quarter can be attributed to reductions (down 37% from the third quarter) of the Contingency Amounts for appeals and extensions.

Total reserve amounts in the most recent years tend to depend heavily on related funding decisions, but it is clear from this table that it was the cuts in the Contingency Amounts for FYs 1998–2007 which accounted for the majority (61%) of the additional $650 million in available funds that USAC identified in the last quarter. Most importantly, it should be noted that there is no room to slash these reserves further. A roll-over miracle, if there is to be one for Priority 2 funding in FY 2013, will have to come from elsewhere.

Comments on the FCC's Draft ESL for FY 2013

Last Thursday was the initial deadline for submitting comments on the FCC's draft Eligible Services List ("ESL") for FY 2013. Compared with previous years, relatively few comments were received. We would expect a few more filings by the August 29th reply comment deadline.

Two of the most important sets of comments were submitted well before the deadline by the State E-Rate Coordinators' Alliance ("SECA"), drawing support from a few of the other responders. As discussed in our previous newsletters, SECA's comments:

1. Proposed eliminating the distinction between Telecommunications and Internet Access service categories on the Form 470 and Form 471. SECA argued that the line between the two categories has blurred, and that the distinction is a source of both confusion and funding denials for applicants.
2. Asked the FCC to clarify its rules regarding the bundling of "free" phones and other end-user equipment. The rule, initially designed to permit cellular carriers to include basic voice phones in its Priority 1 service offerings without allocating out the cost of the phones, has been cited by certain vendors as the basis for bundling more complex wireless devices (e.g., netbooks) or VoIP phones.

Other filed comments are summarized briefly below.
AT&T provided a few minor comments on the reorganization of the ESL, and suggested eliminating redundant references to "fiber" and including more standardized language to describe the eligible installation costs for transmission services.
Edline sought confirmation that the data input and retrieval associated with applicant-created forms and templates is eligible as part of Web hosting.
E-Rate Provider Services expressed concern with the growing demand for discounts for cellular data plans for end-user devices, and urged that such services be deemed ineligible. It also encouraged the FCC to adjudicate the Priority 1 bundling of "free" end-user devices.
Funds for Learning supported SECA's proposal to combine the two Priority 1 service categories into one. It also (a) proposed adding Uninterruptible Internet Service ("UIS") as an eligible service, (b) called on the FCC to issue a Notice of Inquiry on the eligibility rules regarding basic maintenance, (c) argued that all telecom surcharges and fees should be eligible, and (d) suggested the elimination of several unnecessary application review practices.
Jive Communications, a provider of managed VoIP services, took a contrary view on the provision of bundled end-user equipment, arguing that, within limits, VoIP providers should be able to provide handsets as a part of their service packages without cost allocation.
Kellogg & Sovereign also supported SECA's proposal to combine the Priority 1 service categories. They encouraged the FCC to otherwise retain the ESL format of prior years, and to provide greater clarity on regulatory fees and surcharges, two-way radio services, customer premise equipment ("CPE"), "ancillary use," "educational purpose" for wireless access, broadcast "blast" messaging, eligible users and locations, and certain telephone system components.
NetDiverse also asked the FCC to provide clarification on the inclusion of ineligible equipment at "no charge" in Priority 1 services.

Based on the comments received to date, we would hope that the FCC will give serious consideration to SECA's proposal to simplify the E-rate application process by combining the Priority 1 service categories, and will provide clarification on its free services advisory.

E-Rate Updates and Reminders

FCC Appeal Decisions Watch:

The FCC issued two appeal decisions last week, both involving filing deadlines for appeals and petitions for reconsideration. DA 12-1261 denied thirteen appeals and one petition for reconsideration for late-filed USAC appeals. Although the FCC may waive the 60-day appeal deadline, it typically does so only when it wants to affirmatively address a USAC decision. On the other hand, failing to waive the deadline is a simple way to uphold USAC decisions without addressing the merits of the appeals. DA 12-1283 denied an applicant's petition for reconsideration because it was filed two days after the deadline (which is 30 days for petitions for reconsideration). Again, this is a deadline the FCC can waive (and often does when the applicant misses the deadline by only a few days), but in this case the FCC noted that the petition failed "to identify any material error, omission, or reason warranting reconsideration…"  To be successful, a petition for reconsideration of an earlier FCC decision must advance new and convincing arguments.

Updated Sample Survey Letter:

E-Rate Central has updated its Sample Survey Letter for determining student eligibility to clarify that respondents need to list the names of all school children who live in their homes, together with the names of the schools they attend, regardless of whether they answer "Yes" or "No" to any of the eligibility questions. The Spanish version of the Sample Survey Letter has been similarly updated.

Schools and Libraries News Brief Dated August 10 – Online Form 486

The SLD News Brief for August 10, 2012, provides the following tips for filing an online Form 486:

1. Use the information from your FCDL to file your form.
2. Include FRNs from different FY 2012 FCC Form 471s on one Form 486 (assuming services have started for all the FRNs and the Billed Entity Number is the same).
3. In Item 5, identify the contact person that should get program letters.
4. Complete Item 8 appropriately (remembering that technology plans are now required only for Priority 2 services).
5. Follow these online filing navigation tips:
   1. Clear your Internet cache and temporary Internet files.
   2. Allow pop-ups.
   3. Enable cookies.
   4. Use the "Tab" key to move from one field to the next on a page.
   5. Don't use your browser's "Forward" and "Back" buttons.
   6. Don't open multiple tabs in the browser window you are using to file your form.
   7. Enter your Block 4 certifications before you enter your Block 3 FRN information.
6. Try the expert version of the online Form 486 if you have trouble with the interview version.
7. Pay attention to any pop-ups or warning messages that occur.

Applicants preferring to file their Form 486s on paper can use the PDF type-in version available in E-Rate Central's Forms Rack.