Last week’s newsletter of April 17th discussed a series of questions sent to applicants who filed for special construction of lit, dark, or self-provisioned fiber. Our concerns remain. USAC, presumably at the direction of the FCC, is stating that the questions being asked are consistent with both the FCC’s 2nd E-rate Modernization Order and USAC training/outreach. USAC’s outreach template focuses on the statement, “E-rate funding is only available for eligible schools, libraries and consortia made up of eligible schools and libraries, to purchase eligible services that will be used for an eligible educational purpose.”
USAC is seeking to discover all entities that may utilize the fiber. However, USAC appears to be conflating issues as it relates to special construction. The answer to this question is drastically different when comparing self-provisioned fiber to leased lit or leased dark fiber. Applicants seeking self-provisioned fiber will likely be able to answer this question easily. As the owner of the fiber, the applicant is in full control over who is or is not receiving the benefit of the fiber being installed.
On the other hand, for leased lit fiber or leased dark fiber, the service provider retains ownership of the infrastructure. Applicants do not know, nor care, who the service provider may or may not serve if they add non E-rate funded connections off of a fiber run (laterals). Applicants have been able to seek one-time charges for special construction (prior to the coining of the term special construction) since the beginning of the program. Clarification has been requested to determine if USAC is requiring cost-allocations limited to just the excess strands and any costs for the connections for laterals or if USAC is expecting a pro-rata cost-allocation for the special construction charges themselves. In 1999, the FCC officially recognized that service providers include facility costs in their rates to customers as part of their business practice which the FCC deemed acceptable. The FCC Order DA 99-216 commonly called the “Tennessee Order” cites:
“We recognize that all service providers include within their prices to customers some amount of the cost of building facilities to provide the service. Indeed, by way of analogy, we have allowed common carriers to include within their rates to customers, some amount of the cost of the facilities used to provide such services to customers. Similarly, we would expect ENA to include at least some portion of the cost of the facilities used to provide Internet access service in its rates to Tennessee. Therefore, because we expect Internet access service providers to include some portion of the cost of facilities used to provide Internet access service within the charges for providing Internet access service, and because our rules do not otherwise specifically prohibit support to Internet access service as provided by ENA (as explained below), we cannot, at this time, find that the costs of the underlying facilities to be built by ENA to provide Internet access service to Tennessee should be excluded from ENA's charges for providing Internet access service.”
Requiring applicants to itemize potential vendor customers is a major change in policy. Applicants have little to no control over facilities that they do not own, even if they are paying installation/special construction costs. USAC’s outreach template states these additional questions are asked to help the reviewers understand applicant’s specific situation, however the tone and content of the questions foreshadow at a minimum cost allocations of not just the fibers but also of the special construction.
Additionally, USAC appears to be seeking the cost of any fibers not lit in the funding year in which special construction was requested. As a frame of reference, the typical applicant is likely to only light one or two pair of fiber strands to serve their needs but will often install the industry standard of 12-strands. It is more challenging and in some cases more expensive for applicants to procure 2-strand fiber because 2-strand fiber generally requires custom production since requests for 2-strand fiber deviates from the industry’s norm. USAC previously gave unofficial guidance that because 12 strands of fiber are less expensive than two strands of fiber that no cost allocation is necessary since the most cost-effective solution was chosen. This latest inquiry sent seems to indicate otherwise.
Vested stakeholders appear to share the same concern especially with USAC’s current implementation of issuing these questions. While stakeholders may not like the new rules going forward, applying new rules and/or procedures retroactively is troublesome. It is especially problematical when applied to projects USAC has previously approved.