News of the Week

Funding Status

Wave 7 for FY 2012 will be released on Tuesday, August 21, 2012, for $51.5 million. Priority 2 funding is being provided at 90%, and is being denied at 89% and below. Cumulative funding for FY 2012 is $996 million.

Wave 57 for FY 2011 will be released on Wednesday, August 22, 2012, for $7.0 million. Priority 2 requests are being funded at 88% and above, and denied at 87% and below. Cumulative funding for FY 2011 is $2.35 billion.

Wave 99 for FY 2010 will be released on Thursday, August 23, 2012. Priority 2 requests are being funded at all discount levels. Cumulative funding for FY 2010 is $3.05 billion.

FCC Requests Comments on Bundled End-User Equipment

Last month, as a part of the FY 2013 draft Eligible Services List comment process, the State E-Rate Coordinators' Alliance ("SECA") filed a petition for clarification regarding the eligibility of free VoIP handsets and other end-user equipment. Although the ESL clearly states that end-user equipment is not eligible, Footnote 25 of the FCC's Clarification Order (DA 10-2355) provides a limited exception for cell phones provided free to the general public in cellular telephone contracts. Certain suppliers have been citing that exemption to support the eligibility of bundled services including more sophisticated "free" wireless devices or handsets. SECA asked the FCC to more carefully define the free phone exemption. Several other parties submitting ESL comments raised similar questions on bundled services.

Last week, the FCC released a Public Notice (DA 12-1325) requesting comments on the SECA petition. In addition to addressing the general issue of bundling ineligible end-user equipment, the FCC's Public Notice specifically highlighted SECA's suggested conditions under which the bundling of free equipment, without requiring cost allocation, might be permitted. SECA proposed the following four conditions:

1. "The cost of any end-user equipment provided as a part of a bundled service must be considered ‘ancillary' relative to the cost of the bundle as a whole."  This condition would be consistent with existing ancillary service rules. Presumably, it would require cost allocation for end-user type equipment such as iPads or notebooks, and for services such as Web-based applications.
2. "The bundled service offering must be deemed a commercially common practice within the industry, not a unique offering of an individual service provider."  This condition would tend to discourage new bundling of "free" services by aggressive service providers.
3. "The arrangement must be currently available to the public and not just to a designated class of subscribers."  This condition would mitigate attempts to creatively define unique classes of subscribers.
4. "The service provider [does not] offer a package or packages of equivalent eligible services, without bundled end-user equipment, at a lower price."  If a service provider does provide such a lower-priced service, without an ineligible component, then the maximum discount on a bundled service should be no more than the discount on the lower-priced service.

Comments on the SECA petition are due on September 10th; reply comments are due on September 24th. The issue may also be addressed in additional comments to be submitted on the  FY 2013 draft ESL which are due August 29th.

E-Rate Updates and Reminders

FCC Appeal Decisions Watch:

The FCC released two appeal decisions last week, namely:

1. Assumption-All Saints School, et al (DA 12-1323):  Denied an appeal by ten New Jersey applicants and their service provider dealing with competitive bidding violations. The FCC upheld a USAC finding that the applicants had all improperly included the e-mail address of their selected service provider (with instructions to other bidders to contact that supplier) on their Form 470s.
2. Ed Tec Solutions (DA 12-1328):  Granted a request for review by Ed Tec on behalf of 22 applicants whose funding had been denied or COMADed. The issue in all cases was the use of a payment plan under which the applicants were to pay Ed Tech for Internal Connections equipment on a deferred payment schedule (25% upon project completion, and 25% in each of the following three quarters). USAC had ruled that this payment schedule violated the requirement that applicants have all necessary resources to meet their payment obligations.

The FCC's decision in this case is a bit confusing. On the one hand, the FCC noted that these instances occurred in FY 2001 and FY 2002, and it was not until the  Fifth Report & Order in 2004 that the FCC set a deadline, after service delivery (nominally 90 days), for payment of an applicant's non-discounted portion.
On the other hand, several explicit FCC findings in this case suggest that there would have been no violation even if the events had taken place under today's rules. In particular, the FCC noted that:

• "[T]he contracts at issue provided a very specific time table for payment. Therefore…the contracts…did not violate the commission's rules requiring beneficiaries to pay their share…"
• "[T]he FCC Form 473 certifications do not require that the service provider seek payment from USAC at the approximate time it receives reimbursement from the E-rate applicants."
• The deferred payment aspects of "…the Ed Tec contract is not in conflict with the program's necessary resources rule."
• "[N]either our rules nor USAC's procedures require that the applicant pay the service provider the [un]discounted portion during the funding year."
• "Finally, at this time, there is no evidence of waste, fraud or abuse in the record."

SLD Fall Training:

The SLD indicated that seven of the eight training sessions scheduled for this fall are "filled to capacity."  Registrations are still being accepted for Minneapolis.

Schools and Libraries News Brief Dated August 17 – Non-Recurring Services & Contracts

The SLD News Brief for August 17, 2012, defines non-recurring services and discusses a number of contract and service delivery issues. The most important points for applicants and service providers to understand are as follows:

1. The nominal deadline for the delivery of non-recurring services is September 30th of the following funding year (i.e., an additional 3 month grace period).
2. The service delivery deadline for non-recurring FRNs funded or modified (e.g., SPIN changes or service substitutions) after March 1st of the funding year, is September 30th of the following year.
3. A request to extend a non-recurring service delivery deadline must be filed on or before the existing deadline date.
4. Invoices for non-recurring services will be paid only for services received up until the delivery deadline and/or the contract expiration date (whichever is earlier). If a service delivery deadline is extended, the related contract must often be extended as well. If the contract is extended, the SLD must be notified via a Form 500. Note: Filing a Form 500 does not extend the contract — the applicant and service provider must do this themselves — it merely notifies the SLD that the contract has been extended.