News of the Week

FY 2019:

USAC released Wave 39 for FY 2019 on Friday, December 27th.  Funding totaled $16.8 million.  Cumulative commitments through December 27th are $2.06 billion.

FY 2020:

The Form 471 application window will open at noon on Wednesday, January 15th, and will close at 11:59 p.m. EDT on Wednesday, March 25th.

The FY 2020 administrative window, which is currently open, will close shortly before the application window opens.  At that point EPC entity profiles will be locked for the duration of the Form 471 application window.

At the New Year, it is worthwhile to look back on the past year and to plan for the new one.  Here’s our E-rate review of 2019 and a preview of 2020.  Additional details on 2019 developments can be found in our E-Rate Weekly News Archive.

Key E-Rate Milestones in 2019:

Anticipated E-Rate Developments in 2020:

2020 is shaping up to be an interesting year.  At the forefront of the developments will be the FCC’s recent Category 2 Order (FCC 19-117) adding a sixth year in FY 2020 — and an additional 20% in funding — to the “trial” 5-year budgeting process established in FY 2015, and resetting all 5-year budgets under revised “permanent” rules for FY 2021 forward.

As we indicated in our newsletter of December 23rd, applicants who have not yet used Category 2 funding have a unique opportunity in FY 2020.  Their budgets for this one year will be higher — 17% higher for schools and 45% higher for urban libraries — than their total budgets for the next five years when Category 2 budgets are reset for FY 2021-2025.  By our estimate, there are roughly $5 billion in unused Category 2 discounts available for use, otherwise set to expire, in FY 2020.  Although we do not expect demand to reach this level in FY 2020, we do anticipate robust Category 2 activity.  This may be a challenging year for USAC to update its IT and PIA reviewer systems to reflect the Category 2 changes for FY 2020 and to recast them again for FY 2021.  The FCC also has a role to play since it needs to clarify certain aspects of the new rules to, for example, address new schools in expanding charter school “districts”, decide how to treat half-day programs for educational service centers (“ESCs”), and transfer the reporting requirements for equipment installed pre-FY 2021.

Two other FCC orders and or notices of proposed rulemakings (“NPRMs”) will come into play for 2020.  Specifically:

1. The FCC’s new Universal Service Fund (“USF”) national security rules (FCC 19-121) will become effective following their publication in the Federal Register (see our newsletter of December 2nd).  The rules bar the use of USF funding to purchase equipment from Huawei and ZTE for E-rate purposes as of FY 2020.  Neither of these Chinese companies have historically served as E-rate service providers, but a small amount of their equipment has been sourced by other suppliers.  Applicants are advised to seek vendor certifications that their equipment is neither manufactured by, nor contains components from, either Huawei or ZTE.

A companion NPRM to the national security order would require the removal and replacement of previously installed Huawei and ZTE equipment by telecommunication carriers.  The NPRM proposes to exempt E-rate applicants from the requirement.

2. Also discussed in our December 2nd newsletter is the FCC’s NPRM (FCC 19-120) to adopt new, broader, and more flexible suspension and debarment procedures for all USF programs.  From an E-rate perspective, this would require a higher “primary” level of disclosures and certifications by applicants and service providers and a potentially “lower” level by subcontractors and consultants.  Depending upon how the new rules are implemented, this could either aggravate or provide much needed transparency to so-called “black hole” situations whereby E-rate applications and/or invoices are held for extended periods without explanation.

The two main procedural matters we’re tracking for 2020 are revised dropdown menus for the online Form 470 for FY 2021 and the implementation of dual factor authentication for system logins.  In particular:

1. As of November, the FCC had received numerous comments and reply comments with regard to the drop-down service type menus in the Form 470 — a source of considerable confusion over the past four years.  A major revision to the Form 470 menus is expected when the FY 2021 version becomes available in EPC in July.
2. Multi-factor authentication (“MFA”) is a process whereby login access to an online system requires more than a username and password.  Once the username and password are entered, additional authentication is required typically involving either entering a one-time code transmitted by text or email or answering one or more predefined security questions.  USAC’s Special Edition News Brief on December 2nd indicated that dual-factor authentication was being added immediately for service provider logins to the E-file system, but that MFA security would not be required for EPC access until later this spring after the close of the Form 471 application window.

The FCC is apparently ready to move forward and permanently remove the requirement to amortize special construction charges of $500,000 or more.  In a March order and NPRM (FCC 19-5), the FCC extended the non-amortization exemption to cover FY 2019 and proposed making the exemption permanent.  An order to do away completely with special construction amortization is currently being circulated within the Commission and is expected to be adopted shortly.

Other factors worth tracking for 2020 include:

1. Additional guidance from USAC on the best way to handle the transition of service from existing circuits to new circuits when the exact timing of the cutover(s) cannot be precisely determined.
2. Guidance from USAC on product demos — hopefully resolving an issue raised in 2019 training suggesting that equipment provided to applicants for demonstration purposes could be considered illegal “gifts.”
3. Possible moves by the FCC to set a cap on total USF funding and/or to limit the construction of new fiber networks in areas covered by existing carriers previously built with USF support.
4. More extensive enforcement actions by USAC or the FCC with regard to the Lowest Corresponding Price (“LCP”) requirements for both Category 1 and Category 2 suppliers.
5. International tariff uncertainties particularly affecting the cost of Chinese products and components.

Two developments we would like to see in 2020 — but unfortunately may not — are FCC support for (a) the eligibility of cybersecurity devices and service and (b) off-campus Internet services to provide WiFi on school buses and/or residential services to help eliminate the Homework Gap.

We wish you all the best for the New Year and a successful FY 2020.

Upcoming E-Rate Dates:

FCC Decision Watch:

The FCC approved a waiver request by the Missouri Research and Education Network (“MOREnet”) rescinding USAC COMADs on selected FRNs in consortium applications from FY 2013 and FY 2014 (see DA 19-1320).  For a consortium of nearly 600 members, MOREnet had filed a series of applications at different average discount rates grouping its member entities into “bands” or ranges of discounts so that schools and libraries participated in applications that would reflect the discount they would have received if they applied on their own.

E-rate applications have long included a certification that states:  “I acknowledge that the discount level used for shared services is conditional, for future years, upon ensuring that the most disadvantaged schools and libraries that are treated as sharing in the service, receive an appropriate share of benefits from those services.”  Although this certification does not specifically mention E-rate consortia, it is the distribution of consortium discounts that is affected the most.

MOREnet’s banded approach to its application filings was an attempt to meet the spirit of this certification.  Following a PQA review in 2017, however, USAC determined that MOREnet’s bands did not provide adequate precision noting that not all the members in a particular application were represented in each FRN of that application.  USAC then recalculated discounts on an FRN-by-FRN basis; reduced funding on those FRNs deemed to have used improperly high — albeit only marginally so — discount rates; and sought repayment of the “excess” discounts.

In approving the waiver, the FCC took a more practical approach.  It found that:

[T]he manner in which MOREnet calculated the Consortium’s discounts is reasonable and consistent with Commission rules and overall policy that encourages consortia purchasing.  In particular, we find relevant that the Commission’s rules or orders do not squarely require that consortia applicants calculate their discounts at the FRN level…Because MOREnet demonstrated its efforts to group applicants based on both services sought by and the discount levels of the applicants, we find MOREnet’s methodology to be reasonable under the circumstances presented and consistent with the Commission’s expectation that the consortium lead try to adjust the discount rate received by each applicant to more accurately reflect what the discount rates would be outside of the consortium.

For additional information on the proper method for distributing E-rate discounts among consortium members with different individual discount rates, see our newsletter of September 29, 2014.

USAC did not issue a Schools and Libraries Program News Brief on Friday, December 27th.