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July 14, 2014


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 (516-801-7814), or through our Contact Us web form. Additional E-rate information is located on the E-Rate Central website.

Wave 10 for FY 2014 will be released on Wednesday, July 16th. Funding for FY 2014 is currently available for Priority 1 services only. Cumulative funding for FY 2014 is $1.38 billion.

Wave 57 for FY 2013 will be released on Thursday, July 17th. 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 $2.08 billion.

On Friday, following a politically-charged week, the FCC approved the first of what is likely to be several E-rate modernization orders. The approval was not unanimous and was split along party lines. The three Democratic-appointed Commissioners (Wheeler, Clyburn, and Rosenworcel) voted for approval (albeit with some reservations), and the two Republican-appointed Commissioners (Pai and O’Rielly) voted against.

Following the vote, the FCC released a two-page overview. The actual Order, together with a Further Notice of Proposed Rulemaking, is expected to be released, hopefully next week, following final edits and the addition of supporting and dissenting statements by each of the Commissioners. Based on the overview, as well as statements made during the public meeting and in a following press conference, the Order reflects compromises from the earlier proposals publicized by FCC Chairman Wheeler as discussed in our last two newsletters dated June 30th and July 7th. Those compromises, as well as some apparent details not indicated in the overview, are discussed below.

Dissension among the Commissioners initially focused on whether or not E-rate funding should be increased. The argument to increase funding, championed by Commissioner Rosenworcel, was strengthened last week by a letter from Senators Jay Rockefeller (D-WV) and Edward Markey (D-MA), two of the early E-rate proponents in Congress. The Order, as approved, did not include additional funding yet was ultimately supported as a necessary first step by Commissioner Rosenworcel. Interestingly, a dissenting statement by Commissioner Pai gave voice to a rumor that “promised a post-election increase in the E-Rate budget.”

Lacking additional funding, the primary point of dissension shifted to the Chairman’s original proposal to commit $1 billion a year to Category 2 Wi-Fi equipment and services. This raised concerns, also discussed in the Rockefeller/Markey letter, that this commitment would place full funding for broadband connectivity services (now to be designated “Category 1”) in jeopardy. As a compromise on this issue, the Order will now refer to the $1 billion per year for Wi-Fi as a “target,” and will include a “safety net” provision assuring that any shortfall in Category 1 funding will be covered with the targeted Category 2 funds.

Other concerns with the Chairman’s original proposals — there were well over 400 filings with the FCC on E-rate modernization in the July 1-7 period — led to a few other compromises or were rejected altogether in the approved Order. Although we may have to see the final Order to be sure, the following is a brief outline of how a number of other issues were resolved:

  1. The dollars per student allocation for school Wi-Fi funding, and the similar dollars per square foot allocation for libraries, were adopted only for the first two years and will have to be revisited for FY 2017. The library allocation mechanism was raised from $1.00 to $2.30 per square foot. The Wi-Fi budget floor for small schools and libraries was also apparently raised.

Note:    Square foot data for libraries is reported to the Institute of Museum and library Services as a part of their routine data collection and reporting requirements. Extracted square foot data from the latest 2012 Public Library Outlet Data file is available on the E-Rate Central website.

  1. The maximum Category 2 discount, initially proposed to drop from 90% to 80%, will drop only to 85%.
  2. The early proposals to eliminate the eligibility for certain Category 1 services such as webhosting in FY 2015, and to begin to phase out the eligibility of voice services (POTS, cellular voice, and VoIP), remain in the Order.
  3. Other proposals remaining in the Order include elimination of the technology plan requirement, districtwide discount rates, electronic-only filings, and new enforcement measures on the service provider Lowest Corresponding Price (“LCP”) requirement.
  4. Two other provisions in the Order — one favorable for applicants, one unfavorable — not mentioned in recent discussions of the Chairman’s proposals, but tracing back to the 2013 NPRM, include:
    1. Direct applicant invoicing, presumably meaning that BEAR reimbursement payments will be made directly to applicants rather than flowing through the service providers.
    2. An increase in the record retention requirement period from five to ten years to be consistent with other USF programs.

Accompanying the Order will be a Further Notice of Proposed Rulemaking (“FNPRM”) reportedly focusing on long-term funding needs, consortium-based purchasing, and alternative methods for allocating library Wi-Fi funding. The comment period for the FNPRM is expected to be 30 days.

Additional information will become available once the Order and FNPRM is formally released. Details on changes to the eligibility of “legacy” services may not be fully available until we see the Draft Eligible Services List for FY 2015, expected to be released separately for public comment later this month.

USAC Fall Applicant Training:

USAC has scheduled its annual fall applicant workshops for the following locations and dates. With the expectation of major changes to the E-rate program for FY 2015, these workshops — as well as those to be scheduled by many states — are going to be an important source of information for applicants and service providers this year. Note that four USAC sessions are already fully booked and are available only on a waiting list basis.

  • Washington, DC - Monday, September 29th (waiting list)
  • Philadelphia - Tuesday, October 7th (waiting list)
  • Minneapolis - Monday, October 13th
  • New Orleans - Thursday, October 16th (waiting list)
  • Portland - Tuesday, October 28th
  • Los Angeles - Thursday, October 30th (waiting list)
  • St. Louis - Tuesday, November 4th
  • Orlando - Tuesday, November 11th

E-Rate Funding and the FCA:

An interesting issue over the years has been the status of E-rate funding as “federal funds” — a definitional question whose answer appears to vary by context. A decision last week by the U.S. Court of Appeals for the Fifth Circuit, reversing an earlier lower court decision, determined that E-rate did not fall under a definition of “federal funds” as applied to the False Claims Act (“FCA”). Effectively, this decision barred an FCA recovery action by an E-rate whistleblower.

The Fifth Circuit’s reasoning in this case rested on the premise that the U.S Government did not provide funds to the Universal Service Fund (“USF”). Although recognizing that “USAC came about through the actions of Congress and the FCC, and the FCC retains some oversight and regulation,” the Court stated that the funds themselves were raised by “a private corporation [i.e., USAC] owned by an industry trade group [the National Exchange Carriers Association (“NECA”)]. As such, the Court concluded “that the Government did not provide the funds to USF to subject claims to it to FCA liability.”

Note that this is a narrow interpretation of federal funds. The Court explicitly “recognized in other contexts that ‘the Congressional Budget Office has treated universal service fund contribution as federal revenues,’.”

FCC Appeal Decisions Watch:

The FCC issued the following two denial orders on appeals filed by two service providers:

  1. RECtec Technology and Communications (DA 14-966):  The FCC denied a request for relief on behalf of itself and its school district client. The case involved FY 2003 funding that had been rescinded when USAC found that funding awarded for a wireless network had been used instead for servers and fiber optic cabling connecting two schools. The FCC found that this was not an allowable service substitution (an after-the-fact argument), and that the vendor and the district had filed false certifications and invoices.
  2. Premio Computer (DA 14-967):  The FCC denied a request by the vendor to void a repayment demand of over $1.5 million for E-rate payments made for servers that were never delivered. The vendor argued that “recovery would contravene the Commission’s policy directive that USAC finish its investigations and seek recovery within five years…”  In rejecting this argument, the FCC found: (a) that the vendor had miscalculated the five year period, but (b) in any event, the five years was “a policy preference, not an absolute bar to recovery.”

A side issue, noted only in a footnote referencing an earlier appeal decision, indicated that recovery is also not barred by dint of a lapse of the five-year document retention period — a rule that, as discussed above, is about to be extended to ten years.