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March 9, 2015


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 (516-801-7810), or through our Contact Us web form. Additional E-rate information is located on the E-Rate Central website.

Wave 44 for FY 2014 will be released on Wednesday, March 11th. Funding for FY 2014 is available for Priority 1 services only. Priority 2 funding is being denied at all discount levels. Cumulative funding for FY 2014 is $2.14 billion.

Wave 84 for FY 2013 will be released Thursday, March 12th. Funding for FY 2013 is available for Priority 1 services only. Priority 2 funding is being denied at all discount levels. Cumulative funding for FY 2013 is $2.14 billion.

Our newsletter of January 26, 2015 (the fifth in a series on Category Two Budget Strategies) reviewed potential difficulties in applying for E-rate discounts on the maintenance of eligible Internal Connections equipment.   The difficulties lay, not only in the amount of specificity required in the Item 21 details of each funding request, but in the uncertainty as to how approved maintenance expenses will be administered during the invoicing process. While we still hope to get guidance from USAC and/or the FCC on how to deal with these problems, only three weeks remain before the FY 2015 filing deadline.

The basic problem is that it is impossible to know in advance which pieces of equipment will require maintenance during the next funding year. As of FY 2010, E-rate rules prohibited fixed priced maintenance contracts (also known as “bundled warranty” arrangements). A few ongoing services such as software fixes and upgrades were permitted on a fixed price basis, but major repairs were covered only on a “break-fix” basis as the need arose. The trick was to estimate a probable and reasonable level of break/fix expenses for the coming year. Although such an estimate might be calculated based on a percentage cost of the various pieces of equipment being maintained, there was no expectation that actual expenses would actually track with those percentages. Typically, some pieces of equipment would require repairs at a much higher cost and other pieces would require no repairs at all. Hopefully, within reason, total E-rate funding for maintenance would average out with actual expenditures.

The added unknown in FY 2015 is that the new Form 471 requires an applicant to assign maintenance costs to specific equipment listed in Item 21 of the funding request(s). For a school district or library system, each line item must be further allocated by school or library. Although the total amount of maintenance requested may be reasonable, there is no reason to believe — indeed, every reason to disbelieve — that actual maintenance expenses will track with the line item detail and entity allocations of the application itself.

The great unknown at the moment is whether or not USAC invoicing procedures will permit an applicant to recover discounts on actual maintenance expenses up to the approved funding cap on a given FRN, or whether funding can be recovered only on a line-by-line basis. If the latter, only a small portion of actual maintenance expenses are likely to be discounted, while other approved maintenance funding goes unused.

How will this work?  The hope is that the FCC recognizes the basic nature of maintenance and gives USAC the freedom to develop invoicing flexibility based on a total approved FRN funding cap rather than on line-by-line mini-caps. To the extent that maintenance funding is initially allocated and approved on a site-by-site basis, such freedom would permit reallocations based on actual expenditures.

For those unwilling to assume such funding flexibility, we offer the following comments and suggestions:

  1. As an initial filing approach, Item 21 descriptions of equipment to be maintained can be broadly listed as illustrated below. Additional detail may ultimately be requested by PIA and/or can be provided up front in the FRN Narrative box.

  2. As indicated above, certain warranty expenses — albeit limited — can be purchased on a fully-eligible fixed price basis. For example, although Cisco SMARTnet warranties are ineligible as a whole, Cisco does offer an eligible fixed-price Cisco Base service for most of its equipment. A Cisco product worksheet showing the various Cisco Base SKUs (and the equivalent SMARTnet eligibility percentages) is available on the Cisco E-rate site. (Note that the link to the worksheet appears to require a login, but can be skipped by clicking “Cancel”.)  Other manufactures may provide E-rate eligibility information on similar services.
  3. Certain maintenance services — not yet fully defined — may be included in the new Managed Internal Broadband Services (“MIBS”) category (see the last bullet on slide 16 of USAC’s eligible services presentation at last fall’s training). FRNs for MIBS require only a single Item 21 line. Note that MIBS services must have been included in the applicant’s Form 470 under the combined Internal Connections category, not under the Basic Maintenance of Internal Connections category.

FY 2015 Form 471 Application Window:

The FCC Form 471 application filing window for FY 2015 opened on Wednesday, January 14, 2015. It will close at 11:59 pm EDT on Thursday, March 26, 2015. Based on last Friday’s count, the number of FY 2015 applications filed to date is roughly 28% below the comparable FY 2014 filings at this time last year.

Multi-Year License Clarification:

The previous S&L News Brief of February 27, 2015 included the following update on the eligibility of multi-year licenses for Category 2 equipment:

Applicants purchasing a piece of eligible Internal Connections equipment may also be required to purchase a license of a year or more to have the right to use eligible software that is essential to make the equipment operate. Such multi-year licenses can be eligible if they are supporting eligible components used to distribute high-speed broadband throughout school buildings and libraries. While there is no cap on the number of years such a license can cover, remember that Category Two funding is subject to the Category Two five-year budget.

While indicating that such licenses were eligible, the reference to the five-year Category 2 budget led some readers to believe that the costs of multi-year licenses would have to be spread over the multiple funding years in the budget cycle. Last week, USAC clarified that multi-year licenses could be fully discounted in the year that the equipment was purchased.

USAC also stressed that this guidance applied to multi-year operating licenses for the underlying equipment (e.g., as is often the case with wireless access points that may be offered with licenses of one, three, five years or more). By way of contrast, warranties of up to three years, bundled with the purchase of equipment, are also eligible without cost allocation in the year of purchase. 

The S&L News Brief of March 6, 2015, reviews the basic information required in a Form 471 focusing on the following information:

  • Billed Entity information
  • Category of service and service type
  • Discount Calculation section
    • Urban or rural status
  • Funding Request(s) section
    • Establishing Form 470
    • Service and contract information
  • Certifications & Signature section
    • Applicant financial resources
    • Certifying your form