E-Rate Central News for the Week
April 29, 2013
The E-Rate Central News for the Week is prepared by E-Rate Central. E-Rate Central specializes in providing consulting, compliance, and forms processing services to E-rate applicants. To learn more about our services, please contact us by phone (516-801-7804), fax (516-801-7814), or through our Contact Us Web form. Additional E-rate information is located on the E-Rate Central Web site.
The FY 2013 Form 471 application filing window closed March 14, 2013. USAC released its preliminary estimate of FY 2013 demand showing an overall decrease from FY 2012 of 5%, but an increase of 17% in the critical components of Priority 1 and the 90% level for Priority 2 (see analysis below). The USAC Board approved an SLD recommendation to begin funding Priority 1 applications at all discount levels and denying Priority 2 requests at 80% and below, but the release of Wave 1 will require FCC approval.
Wave 41 for FY 2012 will be released on Tuesday, April 30, 2013, for $42.7 million. Priority 2 funding is being provided at 90%, and is being denied at 89% and below. Cumulative funding for FY 2012 will be $2.16 billion.
Wave 90 for FY 2011 will be released on Wednesday, May 1, 2013, for $2.1 million. Priority 2 requests are being funded at 88% and above, and denied at 87% and below. Cumulative funding for FY 2011 will be $2.56 billion.
Priority 2 Funding Outlook for FY 2013
For the past several years, the E-rate community has been concerned with the availability of funding for Priority 2 services and, ultimately, if demand trends continue, with full funding for Priority 1 services.
USAC’s preliminary estimate of demand for FY 2012, released at this time last year, showed total requests over $5.2 billion, up 21.5% from the comparable total for FY 2011. Total Priority 1 demand rose 12.5% to over $2.4 billion — slightly above the inflation-adjusted cap for the year. Despite the roll-over of $1.05 billion, Priority 2 funding was, for the first time ever, available only at 90%.
The underlying problem was discussed in our newsletter of December 17, 2012, entitled “E-Rate and the Fiscal Cliff.” The article pointed to two basic issues, namely:
- The continued and growing demand for Priority 1 funding. This is believed to be driven primarily by the trend towards higher bandwidth connections as schools across the country move towards online assessments. It may also reflect the bundling of end-user equipment in wireless services and the high eligibility percentage allocations to Web hosting in online services — both issues addressed in the FCC’s request for comments discussed in the Updates section below.
- The continued demand for Priority 2 funding, particularly at the 90% level.
At first glance, the preliminary demand numbers for FY 2013 look encouraging. Priority 1 demand continues to grow, up 10.9% over FY 2012. But total demand is down 4.8% as the result of an 18.5% drop in aggregate Priority 2 demand.
At second glance, however, the picture is bleaker. In particular:
- At $2.71 billion, the aggregate demand for Priority 1 is almost 14% above next year’s inflation-adjusted cap of $2.38 billion. Over the past six years, actual commitments, as a percent of preliminary demand, have ranged from 80-90%, averaging 84%. At the high 90% level, this would mean that USAC would require $50 million in roll-over funding to fully fund Priority 1. Although USAC has indicated that it is ready to start funding Priority 1 applications, the FCC may delay Wave 1 until it makes a decision on roll-over funding for FY 2013 — a decision it may not reach for a few months.
- As indicated above, the aggregate demand for Priority 2 funding dropped sharply. But the critical demand for Priority 2 at the 90% level rose over 27% to $1.76 billion. Interestingly, Priority 2 demand in the 80-89% band dropped 63%. We suspect that the shift from 80-89% to 90% was due in large part to districts with average discount rates below 90% choosing to apply separately for Priority 2 for their 90% schools rather than applying for all their schools at the lower average rate.
- With Priority 1 requests likely to require almost all, if not more, of the annual cap, Priority 2 requests, even at 90%, will have to be funded entirely with whatever funds the FCC is able to roll-over from previous years. This may not be enough, particularly if a decision on Priority 2 funding is to be made without first carefully reviewing all applications. Historically, Priority 2 commitments are less than, but over 50% of, the initial demand estimates. For FY 2010, the most recent year for which most commitments have already been made, awards reached 65% of the preliminary demand estimate. If the same percentage were to hold for FY 2013, the FCC would have to find roll-over funds of at least $1.2 billion — or more. This would be a higher roll-over amount than has ever been provided, and would have to come one year after the FCC apparently stretched to provide $1.05 billion for FY 2012.
Based on what we know now, our conclusion is that full Priority 2 funding at the 90% level for FY 2013 is going to be difficult. Unless additional funding can be found, we may see extended delays in Priority 2 funding commitments as USAC reviews all 90% level applications and/or the FCC develops a partial funding strategy (e.g., proration).
E-Rate Updates and Reminders
Final FY 2013 Application Deadlines:
As reported in the SLD News Brief for April 19, 2013, USAC issued two types of letters last week — Notification of FCC Form 471 With No Certification letters and Item 21 Attachment Urgent Reminder Letters — to applicants who may not have fully completed their Form 471 applications for FY 2013. To avoid application denials, all missing certifications and Item 21 attachments must be submitted by May 15, 2013.
Comment Period Set on Bundled Component FCC Public Notice:
As discussed in our newsletter of April 15, 2013, the FCC has requested comments (DA 13-592) on the eligibility of otherwise ineligible components bundled, without cost allocation, with other eligible services. Examples include cellphones, wireless tablets, and VoIP phones. The FCC proposes to clarify, effective FY 2013, that such end-user equipment is fully ineligible. It also requested comments on the cost allocation procedures and on the definition of “ancillary.”
The due dates for comments, based on publication of the Public Notice in the Federal Register, are now official. The initial comments are due on or before May 23, 2013: reply comments are due on June 7, 2013.
New USAC Board Appointees:
FCC Chairman Julius Genachowski appointed (DA 13-608) thirteen new USAC Board members to fill expired terms or vacancies. Most importantly for E-rate purposes are the following three individuals chosen to represent schools:
- Daniel A. Domenech, Ph.D. — Executive Director, American Association of School Administrators
- Brian L. Talbott, Ph.D. — Past Executive Director, American Association of Educational Service Agencies (reappointment)
- Julie Tritt Schell — State E-Rate Coordinator for the State of Pennsylvania
FCC Appeal Decisions Watch:
The FCC released two appeal decisions last week, all straight-forward and based on past precedent. In particular:
- Cathedral Home for Children, et al (DA 13-855): Granted nine requests for review or waiver involving the late filing of Form 486s.
- Chamberlin SD 7-1, et al (DA 13-856): Denied fourteen requests for review or waiver for failure to justify special circumstances supporting the waiver of applicable deadlines, most frequently the 60-day appeal deadline.
Schools and Libraries News Brief Dated April 26 – Missing Item 21 Attachments
The SLD News Brief for April 26, 2013, discusses an Excel file that the SLD has posted on its Website showing a List of FY 2013 FRNs which are potentially missing Item 21 attachments. Note that the Excel workbook is organized alphabetically by state, split into four tabs. The posted file and the associated News Brief is a follow up to the previous SLD News Brief for April 19, 2013, which announced the mailing of approximately 3,980 Item 21 Attachment Urgent Reminder Letters. Affected applicants have until May 15th to submit their attachments.
Because timely filing of Item 21 attachments is important, we recommend that all applicants check the posted listing of missing attachments, whether or not they received Item 21 Attachment Urgent Reminder Letters.
Please note that the Excel file may include FRNs associated with Form 471 applications begun, but not completed, online before the window deadline. If these applications are correctly classified as Incomplete, no further action is required. In all other cases, applicants should make sure that the Item 21 attachments are submitted following the instructions in:
- The recent News Brief;
- The instruction tab of the Excel file; and/or
- The Item 21 Attachment Urgent Reminder Letters.