Funding Status
Wave 17 for FY 2012 will be released on Tuesday, October 30, 2012, for $54.7 million. Priority 2 funding is being provided at 90%, and is being denied at 89% and below. Cumulative funding for FY 2012 is $1.46 billion.
Wave 67 for FY 2011 will be released on Wednesday, October 31, 2012, for $11.4 million. Priority 2 requests are being funded at 88% and above, and denied at 87% and below. Cumulative funding for FY 2011 is $2.43 billion.
No funding wave for FY 2010 is scheduled this week.
SLD Fall Training – Audits
The SLD's presentation on Audit Readiness & Success during its fall training focuses on the two primary types of E-rate audits, namely the:
- Beneficiary and Contributor Audit Program ("BCAP"). These are detailed audits, dealing with specific funding years and funding requests. The audits typically take several weeks to complete, often with auditors on-site for up to a week (or more). Applicant BCAP audits cover: entity eligibility; discount rates; competitive bidding; technology planning and CIPA (if applicable); delivery, installation, and effective use of services; and invoicing and disbursements. In most cases, these audits are random, taking into account size, complexity, and geography.
- Payment Quality Assurance ("PQA"). These are described by USAC as "assessments," not "audits," but should be treated by applicants as mini-audits. PQA audits are meant to comply with the federal Improper Payments Elimination and Recovery Act ("IPERA"). To do so, USAC randomly selects current invoices it has recently paid (of any size), and asks applicants to demonstrate compliance with all E-rate rules and procedures leading up to that payment. Generally, the PQA process is handled entirely by phone and e-mail, and requires minimal applicant effort.
The SLD's audit presentation provides a series of common sense "success tips," specifically stressing the importance of document retention. By way of warning, it highlights the following common audit findings:
- Missing documentation
- Invoicing errors (including over-billing, ineligible or unapproved services, and bills submitted before services are delivered)
- Competitive bidding violations
- Invalid contracts
- Ineligible entities
- Incorrect or unsupported discount rate calculations
USTA/CTIA Renew Objections to USAC Guidance on LCP
The United States Telecom Association ("USTA") and CTIA – The Wireless Association filed a Notice of Ex Parte with the FCC last week renewing their concern with USAC guidance being provided regarding the requirement for vendors to provide products and services to E-rate applicants at their Lowest Corresponding Price ("LCP"). Key milestones in the LCP debate are as follows:
- The basic LCP requirement was set forth in the earliest E-rate orders, starting with the initial Federal-State Joint Board recommendations in 1996 (FCC 96J-3) and the first major Report and Order in 1997 (FCC 97-157).
- In March, 2010, USTA/CTIA filed a joint petition with the FCC seeking a declaratory ruling clarifying certain aspects of LCP. The FCC sought public comment on the petition, but never publicly provided any clarification.
- Earlier this year, following the publication of an online article entitled "AT&T, Feds Ignore Low-Price Mandate Designed to Help Schools," the SLD included LCP information in its spring service provider training workshops reiterating the basic requirements.
- In July, USTA and CTIA met with FCC staff to express concern with the SLD presentation, to reiterate their position as set forth in the 2010 joint petition, and to call upon the FCC "to refresh the record and act on the petition on a prospective basis."
- More recently, the SLD provided additional guidance in its News Brief for September 21 and in its fall applicant training workshops (see presentation on Program Compliance).
Last week's USTA/CTIA filing takes specific issue with the SLD's suggestion that "LCP applies outside the context of competitive bids…and that it imposes a continuing obligation…to a constantly recalculated lowest corresponding price during the term of a contract." More broadly, USTA/CTIA accuses USAC of "attempting, in excess of its authority, to ‘make policy' or ‘interpret unclear provisions of statute or rules.'"
On the surface, USTA and CTIA have a point. The information that the SLD is providing does go beyond the limited LCP language in the FCC orders. The underlying question, however, is whether the SLD clarifications and interpretations represent rogue policy-making by USAC? More likely, given that most USAC material is reviewed and pre-approved by the FCC before public release, the SLD may be simply acting as a conduit for guidance, albeit informal, being provided by FCC staff. We suspect that the FCC is quite willing to support the underlying objectives of LCP, as expressed by the SLD, but is not yet ready to formally address the specific issues of LCP compliance. Until the FCC does so, LCP will remain a bit of an E-rate gray area.
This being the case, what are applicants and service providers to do? First and foremost, both parties should recognize that the basic objective of the LCP requirement is that E-rate products and services be provided to schools and libraries at their most attractive, commercially-available prices. This is particularly important because, since the services are being discounted by up to 90%, price-sensitivity may not be as strong an incentive as in an undiscounted market.
As a practical matter:
- While the LCP rules have been in effect since the program's inception, and may not be more fully clarified until sometime in the future, service providers need to protect themselves from adverse, retroactive, LCP funding decisions. This is one way to read the USTA/CTIA filings in 2010 and 2012. The filings lay the groundwork for arguing that LCP, as written, is unclear, and that any future clarifications be implemented "on a prospective basis."
- Although most of the LCP controversy has focused on service providers, applicants should be proactive in seeking the best pricing available. Suggestions for doing so are covered in our newsletter article entitled LCP from an Applicant's Perspective published earlier this month.
E-Rate Updates and Reminders
October Deadlines:
The invoicing deadline for recurring FY 2011 services is today, Monday, October 29, 2012. Associated SPIN changes, if required, should also be made by this date. Invoice deadline extension requests, if required, will generally be granted if filed within the next few months. Additional information is provided in the SLD News Brief for September 28, 2012.
Normally, the Form 486 deadline for early funding waves would also have been on October 29th. However, since the first two waves for FY 2012 were not issued until July 10th (Wave 1) and July 11th (Wave 2) this year, those Form 486 deadlines will be November 7th and November 8th, respectively.
FCC Appeal Decisions Watch:
The FCC released four appeal decisions last week, all decided "Consistent with precedent." The most interesting involved the denial of four appeals by a Pennsylvania school district for competitive bidding violations (DA 12-1678). The key paragraph of the decision clearly explains the problem and the FCC's decision, reading:
The record shows that Conestoga received five inquiries from representatives of service providers interested in submitting bids in response to Conestoga's FCC Form 470 posting. Rather than addressing the representatives' inquiries, Conestoga discouraged them from submitting bids for the funding requests at issue. Specifically, Conestoga informed the representatives that it was not planning to change service providers for funding year 2010 or that it preferred to meet with them over the summer in 2010, before the beginning of the next funding year, to discuss new service offerings. Thus, by Conestoga's own admission, it did not intend to evaluate any proposals for its underlying funding year 2010 funding requests and, instead, continued with its current service provider, despite having initiated a competitive bidding process by posting its FCC Form 470. We are deeply concerned about practices such as these that undermine the framework of the competitive bidding process. When an applicant discourages prospective service providers from participating in a competitive bidding process, the applicant suppresses fair and open competitive bidding and ultimately damages the integrity of the program. Conestoga has not provided sufficient evidence demonstrating that USAC erred in its decision and has not demonstrated compliance with the Commission's competitive bidding requirements. We therefore affirm USAC's decisions to rescind funding committed to Conestoga for the funding requests at issue.
The other three decisions were straight-forward involving a finding in favor of two service providers that their customers had paid their non-discounted share (DA 12-1668), granting requests for four applicants which had improperly submitted incorrect service start dates on their Form 486s (DA 12-1669), and denying a petition for reconsideration for a service provider which missed the 30-day filing deadline for such petitions and failed to provide any new arguments not already considered and rejected (DA 12-1716).
Warning on "Free" VoIP Handsets:
When the FCC released the Eligible Services List ("ESL") for FY 2013, the accompanying Report and Order (DA 12-1553) explicitly left outstanding the issue of the eligibility of certain end-user equipment — particularly VoIP handsets — provided "free" as a part of a bundled Priority 1 service. Effectively, the FCC was warning applicants signing such VoIP contracts that they were doing so at their own risk. What the FCC did not say was that FY 2012 funding requests involving bundled handsets may be delayed until the FCC makes a final decision on the issue.
This is apparently what is occurring. Jive Communications, an early proponent of the free VoIP handset position, met with the FCC staff earlier this month to continue its argument. More specifically, as indicated in Jive's ex parte letter covering the meeting, Jive stated that "USAC is holding all Jive funding requests without action, even those that do not include free handsets" (emphasis added). Clearly, the FY 2013 ESL warning applies to both applicants and service providers. Applicants apply for such services should do so using a separate application.
Schools and Libraries News Brief Dated October 26 – Entity Numbers, cont.
The SLD News Brief for October 26, 2012 continues the discussion on entity numbers begun with the SLD News Brief for October 19, 2012. This week's edition discusses:
- Buildings located on the same campus
- School or library buildings under construction
- Non-instructional facilities ("NIFs") with, or without, classrooms