Both the E-rate modernization Order (FCC 14-99) and the draft of the Eligible Services List (“ESL”) for FY 2015 indicated that cellular data plans would remain eligible only if the applicant could show that the service was the most cost-effective means of providing on-campus broadband connectivity. USAC and the FCC made it clear that the cost-effectiveness test would be a difficult one to pass except in special circumstances (a library bookmobile being the only example cited). More specifically, a footnote in the Public Notice (DA 14-1130) accompanying the draft ESL, stated that “E-rate funding for individual data plans or air cards for individual users is not cost effective when users of those services can already access the Internet through internal wireless broadband networks.”
By all initial indications, this change in policy on cellular data was to apply to FY 2015 and beyond. But recently we have seen a number of instances in which USAC — apparently with the full blessing of, if not instigation by, the FCC — is beginning to apply the same cost-effectiveness test to certain large multi-user cellular data plans for FY 2014 and earlier.
The following is an example (with applicant-identifying data removed) of an extensive cellular data audit letter that USAC recently issued. Note that, although the letter references the E-Rate 2.0 modernization Order, it bases many of its questions on the long-standing requirement for cost-effectiveness and prohibition of duplicative services.
We are currently in the process of reviewing your FY2014 application for E-Rate support and have some questions about your Priority One funding requests for wireless data services.
Applicants are required to select cost-effective solutions when seeking E-rate support. The above-referenced funding request(s) seeks substantial financial support for individual cellular data plans. In the recent E-rate Order, the FCC explained that individual data plans are generally not a cost-effective means for applicants to purchase on-campus Internet connectivity.
Furthermore, you have also requested E-rate funding for separate high-capacity connections to your schools, which appears to make the individual data plans a duplicative service. Duplicative services are services that deliver the same functionality to the same population in the same location during the same time. In the Second Report and Order, the FCC determined that the use of duplicative services contravenes the requirement that discounts be awarded to meet the “reasonable needs and resources” of applicants.
In order for us to reach a funding decision regarding your funding request for (XXX monthly service plans for wireless mobile Internet access service (air card, MIFI or data plans for mobile devices such as tablets) used for educational purposes) request on application XXXXXX, please provide answers to the following questions:
A. Preliminary eligibility of services
For all FYs:
- Please provide an explanation of why you are requesting funding to purchase a large number of cellular data connections rather than building out your Local Area Network (LAN)/Wireless Local Area Network (WLAN).
- Please describe who used/will be using the individual data plans and how the connections were used/are to be used. Are the connections for students, teachers, or staff? Please provide a breakdown of the number of data plans for students/teachers/other staff. Where are the services used?
- Do any of the individual data plans come with free or reduced prices for mobile devices? If so, because E-rate does not support the cost of mobile devices, have you deducted any cost attributable to the device from the cost of the service plan? If so, what is the cost allocation? If not, why not? Note, your cost-allocation must be based on tangible criteria and reach a realistic result.
- Are students/teachers/staff that use the individual data plans able to take the devices associated with those data plans off campus? Can some or all of the students/teachers/other staff use the data services off campus?
- If so, how many students/teachers/other staff can use the data services off campus and what is the breakdown?
- If so, because E-rate only supports on campus use, not off-campus use, have you deducted a portion of the cost of the service based on off-campus use? If so, how did you allocate costs and what, if any, records of off-campus traffic usage did you base it on, and can you provide them? If not, why not?
(c) If not, what safeguards do you have to prevent off-campus use?
B. Duplicative services and cost-effectiveness
Please answer questions 5-8 for each building used by the students, teachers, or other staff with access to the individual data plans for which you have sought support.
- For each funding year at issue, how much bandwidth did you or do you need to meet the on-campus educational needs of your students? For example, for each elementary school you may have determined that in funding year 2013, you needed 100 Mbps connectivity.
- How much bandwidth do the individual wireless data plans for which you are seeking support provide for the students, teachers, and staff in in the school?
- What other broadband connections do you have to that building and how much bandwidth do such connections provide?
- How much bandwidth do the individual wireless data plans for which you are seeking?
- If the total of 6) and 7) exceeds the total for 5), please explain why your request does not represent a request for duplicative services?
- For each building, did you investigate the cost of providing the same wireless data access by expanding the capacity of your existing wired or wireless LANs to handle any additional bandwidth required (or purchasing it if you did not have any prior access (including purchasing any necessary wireless access points (WAPs)))? If not, why not?
- If you did, a) what was the cost for such upgrades and b) explain why purchasing such upgrades was not more cost effective than purchasing the wireless data plans? Please provide supporting documentation. Did you use anything in addition to the FCC Form 470, such as a Request for Proposal, to provide potential bidders with a more detailed description of the service you sought, i.e., to provide connections to the mobile devices at issue here? If so, please provide such materials. If your description narrowed your request to only wireless priority one solutions or individual data plans, why did you do so?
- If you compared the cost of cellular data plans to the cost of upgrading your broadband capacity to handle the wireless devices, did you compare the prices of the options in the marketplace BEFORE considering any E-rate discounts or only AFTER reducing the prices by the expected E-rate discounts?
Note that while this inquiry begins by citing the applicant’s FY 2014 application (still pending), it requests information on earlier funding years as well. This raises the specter, not only of a funding denial for FY 2014, but of COMADs for the previous year(s).
Editorial: The retroactive nature of audits such as this is, in our view, unprecedented. Although we understand the basis for the guidance on cellular data eligibility expressed in both the E-rate modernization Order and the ESL for FY 2015, this is entirely new guidance that had not been provided to applicants in the past. We hope that the FCC will reconsider the retroactive application of this new guidance to funding years 2014 and earlier.