News of the Week

Last Monday’s Wave 20 for FY 2016 totaled $49.0 million.  Cumulative national funding through Wave 20 is $972 million.  Wave 21 is scheduled for release this Monday, November 14th.

President-elect Trump’s vision on education makes no mention of E-rate.  Trump’s primary educational focus appears to be on “reprioritizing” federal funding for school choice (with greater input from the states).  There is no indication that this “federal funding” includes the E-rate portion of the Universal Service Fund (“USF”).  Any changes involving E-rate are most likely to occur through the FCC.

A change in the Administration, and more importantly a change in the controlling party as will be the case next year, typically means a change in the lineup of FCC Commissioners and staff.  Over the next few months, we expect to see:

• The resignation of Tom Wheeler, the current FCC Chairman; and
• The rebalancing of the Commissioners from a 3:2 Democrat to Republican ratio to a 3:2 Republican to Democrat ratio.

Clues to how a reconstituted FCC may affect E-rate can be discerned in the comments of the current Republican Commissioners regarding the two 2014 E-rate Modernization Orders (FCC 14-99 and FCC 14-189).  Commissioners Michael O’Rielly and Ajit Pai, both issued dissenting statements on the Orders.

The good news is that both dissenting Commissioners support E-rate.  Where they differed with the three-member Democratic majority is on specific E-rate rules and regulations.  Most broadly, both Commissioners have been concerned with possibly excessive E-rate funding and its negative impact on consumers via higher USF surcharges.  Neither Commissioner supported the additional $1.5 billion increase — so far, not needed — in the annual E-rate cap.  Although there was support for greater rural funding (up to a 50% “bump”), the dissenting statements spoke to:

• The need to “leverage existing investment rather than overbuilding” with new capacity.
• The “inequitable funding approach that gives large, urban districts 90 percent discounts without limit.”
• The inappropriate overturning of a “bipartisan decision that E-rate would not support wide area networks constructed by applicants.”

Most significantly, both dissenting Commissioners spoke to the need to reduce — not increase (as the Second Modernization Order did by instituting the extra 10% discount matching state grant provision) — maximum discount rates.  Commissioner O’Rielly commented that applicants should be required to have more “skin in the game…for all discount levels so we can stretch E-Rate dollars further.”

Other dissenting Republican statements worth noting are as follows:

1. Commissioner Pai called for a greatly simplified program including a one-page application and a one-week commitment process.  Although we agree that E-rate has become increasingly complex, particularly in FY 2016, such a simple application hardly seems feasible for a federally funded program unless coupled with a much more detailed invoice review on the backend (after applicant funds have already been paid).  Some degree of simplification, however, is consistent with Trump’s more general call for a roll-back of regulation on small businesses.
2. Neither Commissioner thought much of the Category 2 square-foot budgeting mechanism for libraries.
3. Other comments supported greater flexibility to permit schools and libraries to set their own technology funding, criticized competitive bidding rules over and above state and local requirements, expressed concern with regard to “hopelessly flawed” cost-effectiveness reviews.

As a strategic response to the election, high discount urban applicants with large infrastructure requirements may want to accelerate E-rate funding plans into FY 2017.

Many close readers of USAC’s Schools and Libraries News Brief of October 28th, were surprised to learn that the 5-year Category 2 budget cycle for a school district or a library system is determined by the first year of funding for any of its schools or libraries.  With all the attention focused on “5-year budget” caps for individual schools and libraries, it was not illogical to have erroneously assumed, absent guidance to the contrary, that each such entity had its own 5-year cycle.  The Category 2 budgeting language in the FCC’s two E-rate Modernizations Orders does little to clarify the 5-year budget cycle rule, sometimes referring to individual schools or libraries and other times referring to applicants (the latter reference encompassing school districts and library systems).

To see what this means, consider an example of a school district with a high school, a middle school, and an elementary school.  Suppose that the district is working under a three-year plan to begin upgrading upgrade Category 2 equipment in all three schools starting with the high school in 2015-2016, the middle school in 2016-2017, and the elementary school in 2017-2018.  If the district applied and was approved for E-rate funding in FY 2015, that would have been the first year of its 5-year budget cycle.  To the extent that the district did not fully utilize its high school’s full $150/student budget in FY 2015, it would have until FY 2019 to use the excess — the full five years.  Under USAC’s interpretation of the 5-year budget cycle — which we assume was confirmed by the FCC — this would mean that its middle school will have four years to use its budget, and that its elementary school will have three years.

This is not necessarily bad news (although it is new news to many of us).  The positive aspect in this example is that all of the district’s schools would become eligible for a Category 2 budget reset in FY 2020.  Note the following two points on budget resets:

1. Applicants, whose first Category 2 funding is in FY 2016, don’t get to reset their budgets until FY 2021.  Similarly, waiting for funding until FY 2017 delays a reset until FY 2022.  There is a real advantage to starting Category 2 funding as early as possible — even for a small amount and even for a single school or library.
2. The FCC has not yet determined how Category 2 funding will be allocated beyond any applicant’s initial reset date.  If the FCC does not act, the default will be a return to the pre-2015 “2-in-5” rule without budget caps.

With the 5-year budget cycles depending upon the first year of funding of any of a district’s schools or system’s libraries, it would be nice if USAC had a tool that would easily show all of an applicant’s Category 2 funding.  This information is available, but difficult to synthesize.  Currently there are two Category 2 funding search tools, one for FY 2015 and one for FY 2016, each independent of the other, and neither supporting consolidated searches by a school district or library system BEN.

To use the Category Two Budget Tool for FY 2015, you must search by entity number(s).  The trick for checking the budget status for a district or system is to enter all associated entity numbers (separated by commas) in the search box.  The example shown below is for a school district with three schools, two of which received Category 2 funding last year.

Note (as per the red numbered circles in this example):

1. All three entity numbers were listed in the initial search box.
2. There was no budget found for the one school not receiving FY 2015 funding.
3. The tool specifically warns that no budget information will be found for school districts and certain other types of applicants or entities.
4. Budget summaries are provided for those entities receiving Category 2 funding for FY 2015.

Searching for Category 2 funding for FY 2016, done within EPC, is more limiting.  It must be performed entity-by-entity.  For a district, this means first obtaining the list of “Related Entities” using the “Additional Information” feature.

For each entity, you can use the “Category Two Budget” feature to see that entity’s budget status for FY 2016 only.  In other words, even if the entity received Category 2 funding in FY 2015, last year’s funding will not be reflected in EPC’s FY 2016 budget tool.

Going forward, we expect to see an integrated Category 2 tool listing all funding from FY 2015 forward.  Hopefully, the integrated tool would permit searches for multiple entities (even better, searches by BEN), and would indicate the 5-year cycle period.

IDER Dismissals and Denials:

A number of applicants and service providers panicked last week after receiving denial notices on FY 2015 Invoice Deadline Extension Requests (“IDERs”).  As long as the IDERs had been timely filed before the October 31st deadline, the panic was probably misplaced.  More likely, these IDERs had actually been “dismissed,” rather than “denied,” because of duplicate requests.  This could have happened either because both the applicants and the service providers filed IDERs, or because the applicants filed duplicate IDERs (one via “Submit a Question,” and one using the new IDER tool in the online BEAR system.  If duplicate IDERs had been properly, but mistakenly filed, the first one processed would have been approved and the second would have been denied.

Extended invoice deadlines for a specific FY 2015 FRN can be confirmed in three ways by checking:

1. The “Last Date to Invoice” in the Data Retrieval Tool (“DRT”).
2. The list of FRNs in the View FRNs with Extended Deadlines tool.
3. The “Last Date to Invoice” in the IDER section of the Online Bear system.

Interim SPINs on FCDLs:

Applicants who submitted Form 471s for FY 2016 before one or more of their service providers had obtained their SPIN(s) were able to complete their applications using the “interim” SPIN, 143666666.  Normally, applicants using the interim SPIN would have been asked to update those FRNs to actual SPINs during PIA.  Nevertheless, we’re seeing Funding Commitment Decision Letters (“FCDLs”) being issued with interim SPINs.  USAC will even accept and process Form 486s with interim SPINs.  Applicants in this situation should file corrective SPIN changes as soon as possible.  USAC will not process invoices without updated SPINs.

Multi-FRN Form 486s:

When preparing a Form 486 in EPC, an applicant is given an opportunity to select one or more FRNs from a list of approved applications.  FRNs are displayed up to a maximum of ten per page.  For more than ten, be careful.

The following example shows the first page of a three-page listing of 33 FRNs.  As with many online check-off lists, there is a check box in the upper left-hand corner that can be used as a shortcut, eliminating the need to check each individual line item.  Within EPC, it is important to note that checking the shortcut box only selects the items on that particular page, not all the FRNs (i.e., FRNs # 1-10 on p.1, not FRNs # 11-33 on pp. 2-3).  To select FRNs on subsequent pages, you need to go to each separate page.

Upcoming 2016 E-Rate Deadlines:

November 14     Form 486 deadline for FY 2016 funding committed in Wave 4.  More generally, the Form 486 deadline is 120 days from the FCDL date or the service start date (often July 1st), whichever is later.  This means that Form 486 deadlines for funding commitments received in later waves will follow at roughly one week intervals, including the remaining November deadlines:

                        Wave 5             11/21/2016
                        Wave 6             11/28/2016

Applicants missing this deadline should watch carefully for “Form 486 Urgent Reminder Letters” (actually emails directing the applicants to EPC News Feed items).  The Reminders will afford the applicants 15-day extensions from the date of the emails to submit their Form 486s without penalty (see USAC News Brief of November 4th).  The first batch of Reminders is expected to be released later this month.

Major Forfeiture for a Service Provider:

In 2014, the FCC announced the creation of a Universal Service Fund (“USF”) “Strike Force” to combat waste, fraud, and abuse.  One result of that action became clear last week when the FCC issued a Notice of Apparent Liability (“NAL”) for Forfeiture and Order (FCC 16-158) proposing fines and repayments of over $25 million as the result of an investigation of Network Services Solutions (“NSS”), one of the largest recipients of USF funding in the Rural Healthcare (“RHC”) program.  Because of similarities in procurement and funding rules between the RHC and E-rate programs, and because NSS is also an E-rate provider (SPIN 143029752), the NAL should send a highly cautionary signal to all E-rate participants.

The NAL charged NSS with the following violations:

1. NSS received commitments from RHC applicants (healthcare providers designated “HCPs”) prior to the completion of the 28-day competitive bidding period — the same posting period required by E-rate.  In some cases, orders were place before competitive bidding even began, and/or newly dated agreements were created to give the appearance of compliance.
2. When subsequently questioned by USAC, NSS and its HCP clients created and used Post Facto bid matrices, constructed up to eight months after contract awards, to justify the selection of NSS.
3. In one case, NSS violated the gift rules by providing a $10,000 server as an enticement to an HCP to extend a contract.
4. NSS used confidential and/or proprietary information from AT&T and others to gain a competitive advantage.  NSS is a non-facility-based provider of services, often using AT&T as the underlying provider.
5. Working through an AT&T agent (AT&T AM-1, an account manager focused on healthcare), NSS inflated rural rated charges with markups of 600% - 1100% on services previously — or, in some cases, still — under AT&T contract.
6. NSS apparently forged or falsified documentation of urban rates to HCPs and to USAC.
7. NSS apparently committed wire fraud (for electronic transmission of fraudulent documents).

In addition to a refund of $3.5 million in improper payments, the FCC is seeking $21.7 million in fines based on (a) base forfeitures for each improperly filed Form 466 (the equivalent of an E-rate Form 471), (b) forfeitures equal to three times the amount NSS improperly received in payments, and (c) wire fraud forfeitures for the transmission of forged documents.

Although the FCC acknowledged participation in the schemes by certain HCPs and at least one AT&T agent, the FCC — in its “discretion” — proposed forfeitures only from NSS and its owner.  Based on the Order, published with liberal redactions, we suspect that the other parties not subject to forfeitures were exempted as a result of their cooperation with the investigation.

USAC Fall Training Schedule:

The locations and dates for USAC’s two remaining regional trainings are listed below.  Registration for both sessions is now closed (see Trainings & Outreach).

Slides for the Seattle training have been posted on the USAC website.

USAC’s Schools and Libraries News Brief of November 11, 2016, discussed how to handle an incorrectly filed Form 486.  Most frequently, a Form 486 may be incorrect because (a) the wrong service start date(s) was specified, or (b) errors were made in the CIPA certifications.  Once a Form 486 is certified, it can no longer be modified.  To file a correct Form 486, the incorrect one must first be canceled either by creating a customer service case within EPC or by calling the Client Service Bureau (“CSB”) at 888-203-8100.

Last week’s News Brief also announced the resumption of the Payment Quality Assurance (“PQA”) program that requires the assessment of randomly selected invoices paid over the preceding 12 months.