News of the Week

Wave 33 for FY 2016 was released last Thursday, February 9th, for a total of $61.1 million. Approximately 170 FCDLs were issued in Wave 33. Cumulative national funding through Wave 33 is $2.15 billion. Overall, 6.8% of all applications, representing about a third of the year’s potential funding, remain pending. Wave 34 is scheduled to be released on Wednesday or Thursday, February 15-16.

The FY 2017 application window will open on Monday, February 27th, at 12:00 noon EST and is scheduled to close on Thursday, May 11th, at 11:59 p.m. EDT. School and school district applicants needing to update their EPC entity profiles for FY 2017 application purposes must complete that process by Sunday, February 26th at 11:59 p.m. EDT (see our newsletter of February 6th). 

On its own motion, the FCC granted two limited and related waivers to the category of service classifications established in the FY 2017 Eligible Services List (“ESL”). The FCC’s Order (DA 17-151) addresses two problems arising from new guidance included in the latest ESL that changed, or “clarified,” how connections between schools and libraries on the same property, or even in the same building, would be classified as Category 1 or Category 2. As a result of these changes, applicants were finding that services, previously considered Category 2, were now to be treated as Category 1. The switch raised two possible procurement issues that the FCC has now addressed with its waivers.

1. Connections between two contiguous school buildings, covered by an existing multi-year maintenance contract, would presumably have been procured originally as Category 2 on the applicant’s Form 470. If that service is now considered Category 1 for FY 2017, there would be a category mismatch between how the service was procured in the original Form 470 and the service’s new classification. To fix problems of this nature, the FCC agreed to waive mismatch violations for pre-existing multi-year contracts executed before the release of the FY 2017 ESL on September 12, 2016.

Note that the FCC did not extend the same waiver flexibility to voluntary extensions of existing multi-year contracts. Extensions will have to be rebid as a Category 1 service.

2. Under the FY 2017 ESL, connections between schools located in the same building — which could be as simple as a patch cable — were to be treated as Category 1. In one sense that could be an advantage because the cost of service/equipment would not have to come out of the schools’ Category 2 budgets. From a procurement standpoint, however, the Category 1 classification seemed silly. Presumably, the connection would be — to use Category 1 language — “self-provisioned.”  As such, the connection would have to be bid against a third-party provided service. To avoid this complication, the Order permits an applicant to elect to treat the connection as Category 2. This solves the procurement service problem at the expense of what should be a minor hit to the schools’ Category 2 budgets. Note:
   1. The Category 2 election applies only within a single building. Connections between different schools or libraries on the same property remain Category 1.
   2. The election provision applies only to FY 2017. The FCC indicates that it will address the eligibility category of inside wiring between schools and libraries for future years in the public comment period for next year’s ESL.

Form 470 and RFP Fiber Language:

Applicants considering new broadband services potentially involving dark fiber and/or self-provisioned networks need to be extremely careful on their choices of Form 470 category drop down options and on the language used in Form 470 Narratives and/or associated RFPs. The latest USAC guidance provided in presentations to several user groups included the slide shown on the following page.

The key points to note, together with our interpretations, are the following:

1. Applicants seeking only a leased lit fiber service need not worry about other options. A “lit fiber” service, as defined for E-rate purposes, means that the carrier is providing a complete end-to-end circuit, including the terminating equipment on both ends to physically light the fiber. There is no requirement for the applicant to seek bids for alternative dark or self-provisioned fiber.
2. Applicants seeking bids for leased lit or dark fiber service — but not for self-provisioned fiber — should use those specific dropdown options only.
   
   

    

3. Use of the “Transport Only – No ISP Service” should be used only in connection with requests for self-provisioned services or if seeking transport only using anything but fiber e.g., copper and microwave.
4. When considering self-provisioned options we also recommend the following:
   1. To provide additional flexibility in evaluating procurement options, in addition to “Transport Only-No ISP Service” bid for “Lit Fiber Service” and “Dark Fiber” as well. If a dark fiber provider bids on the “Transport Only-No ISP” it is unclear whether USAC would require the total cost of ownership comparison to “Lit Fiber Service”. Therefore we recommend posting for all four service types (lit fiber service, dark fiber, self-provisoining, and transport only - no ISP service.)
   2. Remember that self-provisioned services, particularly in remote areas, must evaluate non-fiber solutions such as broadband wireless (if such a provider bids). Be sure to include information in your RFP about the evaluation of these other transport-only solutions.

Applicants seriously considering new, non-lit, fiber systems should note FCC Commissioner Michael O’Rielly’s letter to USAC last week questioning E-rate “funding to overbuild existing broadband networks.”  The letter comes close on the heels of his appointment as Chair of the Federal-State Joint Board on Universal Service, giving him a lead role on E-rate and the other Universal Service programs. Specifically, Commissioner O’Rielly expressed concern in the following two areas:

1. Permitting self-construction in areas where broadband is already commercially available, particularly when those existing networks may have been subsidized by other federal funding (e.g., the Universal Service high-cost program).
2. Funding for “backup” (or “duplicative”) networks.

As we have discussed in recent newsletters, both Commissioner O’Rielly and now-Chairman Pai cast dissenting votes on the FCC’s 2014 E-rate Modernization Orders. Tighter rules and funding restrictions may be forthcoming by FY 2018. In the interim, under current rules, the FCC might push USAC to exercise greater scrutiny of FY 2016 invoices and FY 2017 applications.

New Form 471 Applications for FY 2016:

Over the past few weeks, we’ve noticed 45-50 new Form 471s being added to the list of valid FY 2016 applications being reviewed by USAC. At least one reason for the new applications is a procedure developed by USAC — much to USAC’s credit — to facilitate funding requests for otherwise eligible equipment falling into the FY 2016 ESL’s gray zone between Category 1 and Category 2. Here is the PIA explanation of the problem:

If the applicant happens to have a Category 2 application still pending, the solution might be to switch the FRN from the applicant’s Category 1 application. At this stage in the FY 2016 application review cycle, however, this is unlikely. USAC’s creative solution is to allow the applicant to file a new Category 2 application, effectively waiving the Out of Window condition.

The PIA inquiry goes on to ask and explain the following:

This is a clever and fair solution to an otherwise difficult problem.

Service Delivery Date Extension Reminder:

USAC’s News Brief of February 4th and our newsletter of February 6th both discuss the use of EPC’s Form 500 to request a 12-month extension of the June 30th lighting deadline for new FY 2016 fiber construction. As we noted, June 30th is a potentially confusing deadline because it conflicts with the traditional September 30th service delivery deadline for all other non-recurring services.

At the moment, this important June 30th vs. September 30th distinction is not reflected in EPC. The same feature of the Form 500, by which an applicant can request an extension of either type of service delivery deadline, reads only as follows:

The follow-on questions, as well, are structured around the existing September 30th extension rules. Our advice: remember that special construction fiber projects have their own deadline. Be careful.

Upcoming 2017 E-Rate Deadlines:

USAC’s Schools and Libraries News Brief of February 10, 2017, provides the following application filing tips and reminders for FY 2017:

• Update school and district entity profiles by February 26th
• Add new contract information as available
• Add and/or update entity connectivity data

The News Brief also reminds applicants and service providers who requested invoice extensions for FY 2015 recurring services that the new deadline is February 27th.

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