The first part of this certification, if checked, indicates a serious problem. Applicants are always responsible for paying the non-discounted portion of any discounted E-rate product and service. The non-discounted portion can neither be waived nor paid by the service provider. Applicant payment of the non-discounted portion is one of the first things USAC checks in any invoice review — normally requiring the showing of copies of canceled checks or bank statements.
The reason for this rule is straight-forward. Consider this example: A vendor provides a service to a 90% discount applicant. Although the market price is normally $50,000, the vendor marks it up to $100,000 for the E-rate, promising not to collect the applicant’s 10% (or $10,000) share. The vendor then invoices USAC for the remaining $90,000. This is a classic win-win-lose situation. The vendor makes an extra $40,000. The applicant, who has no incentive to be price conscious, gets the service for free. And the Universal Service Fund ends up paying an extra $45,000.
Think this couldn’t happen? In the early days of E-rate, it did as certain vendors targeted high-discount applicants and waived (or were lax in collecting) the applicants’ share.
An analogous allegation was reported by the New York Times earlier this month in an article entitled “Drug Maker’s Donations to Co-Pay Charity Face Scrutiny.” In this case, the charity, the Chronic Disease Fund, raises money to help poor patients pay steep out-of-pocket co-payments for expensive drugs. As indicated in the report, the bulk of the Fund’s donations come from pharmaceutical companies looking to boost sales and profits. The reasoning goes as follows: “[If] a patient cannot afford out-of-pocket costs of $5,000 for a $100,000-a-year, the drug company gets nothing. But if the manufacturer or charity pays the $5,000, the patient gets the drug and the company receives $95,000 from the patient’s insurance company.” If the drug company had donated the $5,000 co-pay, it would still net $90,000 — or 90%. Charge $100,000, but settle for $90,000 net. The math is identical to the E-rate example above!
This is a useful analogy because it gets to the second part of the certification above dealing with a vendor who assists in locating the applicant’s non-discounted share. Technically, such assistance is permitted, if it is truly an arms-length transaction, but not if it is simply a subterfuge for waiving the applicant’s share through a vendor-controlled charity.
Regardless of the situation, an applicant checking the “Gotcha” box is going to get some serious questions from USAC. This is just one more reason to carefully read E-rate form certifications.
Form 470 Deadline:
Applicants, who have not already done so, should do themselves a favor and file their Form 470s for FY 2014 as early as possible in the New Year.
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. Since a Form 470 must be posted for 28 days, a February 26th filing would mean that on March 26th the applicant would have to:
Applicants filing Form 470s on paper are reminded to use the revised version indicated by the “December 2013” date in the bottom right-hand corner. A type-in PDF version of the revised form is available in E-Rate Central’s Forms Rack.
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 1-15 have already passed. The Form 486 deadlines for January are:
Wave 16 01/03/2014
More Congressional Support to Modernize E-Rate:
A bipartisan group of 26 representatives (22-D, 4-R), led by Jared Polis (D-CO), have written the FCC to urge a concerted effort and greater broadband funding to modernize the E-rate program. The group’s recommendations mirror the three goals of the FCC’s E-Rate 2.0 NPRM (FCC 13-100), with the added recommendation to: “Create an upgrade fund within the E-rate program to connect every school and library, particularly those in rural areas, to high-speed broadband.”
In light of the President’s ConnectED initiative, the FCC’s massive E-Rate 2.0 proceeding, and strong support from the Senate Commerce Committee, the House group’s letter is another indication of the growing support for a more modern E-rate program — and, in the House’s case, a specific call for increased funding.
SLD News Brief:
No SLD News Brief was published last Friday.
Disclaimer: This newsletter may contain unofficial information on prospective E-rate developments and/or may reflect our own interpretations of E-rate practices and regulations. Such information is provided for planning and guidance purposes only. It is not meant, in any way, to supplant official announcements and instructions provided by either the SLD or the FCC.