News of the Week

Funding Status

Wave 33 for FY 2014 will be released on Wednesday, December 24th. Funding for FY 2014 is available for Priority 1 services only. Priority 2 funding is being denied at all discount levels. Cumulative funding for FY 2014 is $2.10 billion.

Wave 78 for FY 2013 will be released Tuesday, December 23rd. 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 $2.13 billion.

FY 2015 E-Rate Filing Window: January 14 – March 26, 2015

Last Friday, USAC issued the following announcement establishing the Form 471 application window for FY 2015:

The FCC Form 471 application filing window for Funding Year 2015 will open at noon EST on Wednesday, January 14, 2015 and will close at 11:59 pm EDT on Thursday, March 26, 2015. The filing window will be open for 72 days.

Be sure to review the FY2015 Eligible Services List for details on products and services that are eligible for E-rate discounts in FY2015.

We will issue the customary Letter to the Field around the time that the FCC Form 471 application filing window opens to provide filing information and deadline reminders related to the window.

Meanwhile, keep the following in mind:

• You can file an FCC Form 470 now if you are ready to do so; you don't need to wait for the window to open. To file an FCC Form 470 online, go to the Apply Online page and click on the "Create Form 470" button.
• You must wait 28 days after the FCC Form 470 is POSTED to the USAC website before you can select a service provider, sign a contract (if applicable), and submit an FCC Form 471. If you issue an RFP after the FCC Form 470 is posted, you must wait 28 days from the release of the RFP to select a service provider.
• Thursday, February 26, 2015 is the last day to post an FCC Form 470 to the USAC website or issue an RFP and still complete all of these actions before the window closes.

You can find additional program guidance documents in the Reference Area of the USAC website.

Warning: We strongly urge applicants to file their Form 470s well in advance of the February 26th date noted in the USAC announcement — particularly this year. Waiting until this last day means that the 28-day Form 470 posting period will not end until March 26th, the closing day of the Form 471 filing window. At that point, the applicant would have to select vendors, sign contracts, and file their FY 2015 application(s) online all on the last day of the window. Online filings during the last few days of the filing window have traditionally stressed USAC’s system and have led to filing problems for a number of applicants. This year, applicants will be dealing not only with a completely new USAC IT system, but with a revised version of the Form 471 that requires substantially more data. Most specifically, Item 21 data, which previously was submitted in separate attachments, must now be completed on an entity-by-entity basis in the applications themselves. The new online Form 471 is not one that can be easily started and completed during the final days of the window.

E-Rate Modernization – The New E-Rate 2.1 Order Released

The new E-Rate 2.1 Order (FCC 14-189) — formally entitled “Second Report and Order and Order on Reconsideration” — was formally released late last Friday. The following is an outline of the Order’s major changes to the E-rate program rules together with the more important details of the new provisions.

Maximizing Support Options for New Broadband Connections:

One of the two most important goals of the new Order is to provide schools and libraries with additional flexibility to support new and/or higher capacity broadband connections, particularly with regard to funding of upfront installation charges. To accomplish this goal, the Order makes the following changes:

1. Temporarily suspends the previous requirement to amortize installation payments of $500,000 or more over at least three years. This change, effective beginning FY 2015, will allow E-rate discounts on one-time installation charges of any magnitude in a single year rather than requiring the costs to be spread out over multiple years.

Suspending (for 4 years), rather than eliminating, amortization of installation costs, reflects a concern that this, combined with the other changes listed below, could result in insufficient funds being available for other E-rate services. The change, therefore, is accompanied by instructions to USAC to notify the FCC if the installation portion of funding commitments exceeds 10% of the total E-rate funding cap in any given year.

The remaining broadband support changes, discussed below, do not take effect until FY 2016 (or later) in large part because they require procurement and/or contract provisions deemed too late to apply to FY 2015.

2. Permits applicants to pay the non-discounted portion of installation charges over up to four years. To take advantage of this option, applicants must include this request in their bids on their Form 470s (and presumably in any associated RFPs). Similarly, service providers supporting this option — which they are not required to do — must specify all installment payment terms (including interest rates, if applicable) in their bids. (Note: finance charges are not E-rate eligible).
3. Equalizes the treatment of lit and dark fiber. Currently, special construction charges for dark fiber — covering the cost of installing fiber from an applicant’s property line to the carrier’s existing distribution network — are not eligible. As of FY 2016, such special construction charges will become eligible. Additionally, to further equalize the two services, Category 1 support will be provided to cover the modulating electronics necessary to light leased dark fiber. (Presumably the modulating electronics may be leased separately as part of the Category 1 dark fiber service or may be purchased as an eligible internal broadband connection as part of Category 2).
   
   Note that “dark” fiber is defined under E-rate rules as fiber that is in use, but is being lit by the applicant, not the carrier. The Order clarifies that “to prevent warehousing of excess fiber capacity, applicants cannot receive E-rate funding for recurring costs associated with dark fiber until it is lit, and applicants may only receive funding for special construction charges for dark fiber if it is lit within the same funding year.”
   
   The new Order also codifies an earlier E-rate provision permitting network construction beginning as early as January 1st of the preceding funding year, as long as actual service does not begin until the July 1st start of the funding year itself.
   
   To ensure that an applicant fairly compares dark fiber with other options, the new Order requires that proposals be solicited for lit fiber solutions as well.

4. Under “limited circumstances,” permits applicants to “self-construct” (i.e., build and own) their own fiber systems (or portions thereof). In order to ensure that such solutions are cost effective, the self-construction provision includes several “safeguards” including requirements for (a) including both requests for a services-based solution and a self-construction solution on the same Form 470 or posting a separate Form 470 for self-construction only after receiving no bids on a services-only posting,  (b) building and use within the same funding year, and (c) securing “all of the resources necessary to make effective use of the services.”
5. Provides an additional discount of up to 10% on installation charges if matched by the applicant’s state (or Tribal governments or a federal agency that funds broadband construction in the case of Tribal applicants). Since the extra matching discount applies only to installation charges, applications utilizing the match must include separate FRNs for the recurring and non-recurring portions. Apparently, this matching provision is available only to applicants in “rural, Tribal, and other unserved areas.”  The additional discount is available only for broadband systems meeting the long-term bandwidth connectivity targets.
6. Requires carriers receiving high-cost Universal Service funding in rural areas to provide service to schools and libraries in those areas at prices reasonably comparable to urban broadband prices. This provision is contingent upon the FCC’s development of national benchmarks, and will apply to carriers no earlier than FY 2016 or, more generally, in the first E-rate funding year after high-cost support is authorized.

Increased E-Rate Funding:

The second most important goal of the new Order is to provide sufficient funding for both Category 1 and Category 2 services. To do so, the new Order increases the annual funding cap to $3.9 billion (roughly a $1.5 billion increase) as of FY 2015, with continued inflationary adjustments thereafter. In addition to the increase in the annual funding cap, the FCC continues to project the availability of at least $1 billion in additional roll-over funding for both FY 2015 and FY 2016 — a figure that may grow somewhat with the changes in the E-rate reserve procedures discussed in the FCC Decision Watch article below.

The new Order expresses more confidence than we have that the new funding will be more than sufficient to meet the immediate need for full funding of both Category 1 and Category 2. But with many of the Category 1 changes not becoming effective until FY 2016, much of the additional $1.5 billion should accrue to Category 2, lowering the threshold for which Category 2 funding is made available.

Two other changes contained in the new Order affect Category 2 funding, namely:

1. The new Category 2 budgeting process, as enacted in the initial E-rate modernization order issued last July was limited to FY 2015 and FY 2016. The new Order extends the process, and the related Eligible Services List provisions, through FY 2019. There is also an indication that the FCC will “index the category two budget target and the applicant budgets to inflation.”
2. The Category 2 budget for libraries, initially set at $2.30 per square foot, has been increased to $5.00 per square foot for libraries in more urbanized areas defined as principal cities with a population over 100,000 and those areas outside of a principal city, but within an urbanized area with a population of over 250,000 (more specifically, those libraries identified by the Institute of Museum and Library Services (“IMLS”) locale codes of 11, 12, and 21). The change appears to benefit approximately 8,000 libraries.

Other Changes and Clarifications:

The new Order requires USAC to establish a “Performance Management System” and expands the FCC’s oversight of USAC’s administrative performance. The objectives of the new USAC management system include:

1. An ongoing analysis of the impact E-rate rules are having on reaching the new program goals.
2. An ongoing evaluation of USAC’s IT system upgrades.
3. A system “to enable applicants to more easily manage the discount calculation process in advance of the application filing window.”
4. The provision of “online tools to improve the competitive bidding process.”
5. Improvements to the “end-to-end administrative experience of program participants, including applications, appeals, invoices, and audits.”
6. An analysis of how USAC’s administration can maximize “the cost-effectiveness of E-rate supported purchases.”
7. Exploration of ways to assist applicants “in receiving access to neutral, expert technical assistance.”
8. A review of USAC’s “data tracking and reporting capabilities...to measure progress towards E-rate program goals.”
9. A review of “pre- and post-commitment procedures” and identification of “additional opportunities for data analysis, improved compliance oversight, and realization of increased efficiency and streamlining of processes for the review of applications and the commitment and disbursement of funds.”
10. An update of USAC’s “processes for evaluating and recommending the amounts that should be reserved to fund pending appeals, pending applications, and undisbursed funding commitments.”

In response to several Petitions for Reconsideration of the original E-rate modernization Order, the new Order approved one important request, and denied a few others, as follows:

1. Approved a change in the urban/rural definition to make “urban clusters” with populations under 25,000 “rural.”
2. Rejected other requests to:
   1. Revert the document retention requirement back to a five-year standard.
   2. Eliminate the immediate ineligibility of telephone components.
   3. Eliminate the phase-out of voice service eligibility.

The new Order also provides the following two clarifications on the first E-rate modernization Order:

1. On determining the cost-effectiveness of a cellular data plan vs. a presumably more efficient wireless LAN system, an applicant:
   1. Should “compare the cost of all components necessary to deliver connectivity to the end user device, including the costs of Internet access and connectivity to the school or library.”
   2. May “not consider whether it is likely to receive category two E-rate support when analyzing the cost-effectiveness of data plans or air cards for mobile devices.”
2. As a general rule when filing for a bundled voice and data service over a single circuit, the voice portion must be cost allocated and requested as a separate FRN subject to the voice services discount rate phase down. More specifically:
   1. “For circuits dedicated solely to voice service, including PRIs, SIP trunks, and VoIP provider circuits, the full cost of the dedicated circuit is subject to the voice services phase down.”
   2. “For services that dedicate a portion of a data circuit to voice service, (e.g., voice channels on a T-1 circuit or dedicated bandwidth for VoIP traffic using a virtual local area network) the cost of the dedicated portion of the circuit must be cost allocated and subject to the voice services phase down.”
   3. “For voice applications that run over a data circuit but do not require any dedicated circuit capacity, the applicant is not required to cost allocate any portion of the data circuit cost for voice services.”

Additional and more detailed analyses of the changes embedded in the new E-Rate 2.1 Order will be provided in future newsletters.

E-Rate Updates and Reminders

FCC Decision Watch:

The FCC issued E-rate reserve funding instructions to USAC last week designed to more tightly limit reserves for pending applications, undisbursed funds, and appeals. By reducing reserve amounts, the changes should increase the amount of funds available for roll-over into FY 2015 and FY 2016. Specifically, the new guidelines will affect three categories of reserves, namely:

1. Reserves for pending applications (and appeals) will be limited to the amount estimated by USAC to cover the funding needs of as yet unfunded applications for the most recent “rolling three-year period” (currently FY 2012 through FY 2014).
2. No reserves will normally be set aside for pending applications from earlier funding years or for outstanding appeals. Barring special circumstances, the presumption is that potential funding requirements in these cases would be negligible and/or, at worst, could be covered using “funds from subsequent funding years” (perhaps with a small nod to the ongoing renewal of E-rate’s exemption from the Anti-Deficiency Act (“ADA”)).
3. Reserves for funds that have been committed, but not disbursed, will be based on the required amounts estimated by USAC (based on historical averages). The guidelines indicate that, once USAC’s invoice deadline extensions have passed, USAC will know “with certainty” the amount of undisbursed funding reserves required. Under the FCC’s new rules, this suggests that invoice extension waiver requests to the FCC will be granted only under “extraordinary” conditions.

The FCC also issued another set of precedent-based appeal decisions (DA 14-1873). The E-rate decisions in this release included:

1. Appeal approvals for:
   1. Four applicants for untimely responses to USAC requests for information.
   2. Two applicants for no signed contracts when their applications were filed.
2. Denied appeals for:
   1. Two applicants for late-filed Form 471 applications.
   2. Five applicants for untimely filed requests for review.

Additionally, the FCC issued E-rate program Debarment Notices to three individuals convicted of conspiring “to obstruct the competitive bidding process and defraud the E-Rate program” of a total of almost $1 million (see Case No.s EB-IHD-14-00013502, EB-IHD-14-00015659, and EB-IHD-14-00015686).

USAC E-Rate Webinars:

USAC has scheduled a series of six instructional webinars on E-rate topics over five weeks beginning December 9th. The schedule and registration links are shown below. All live webinars will be at 3:00 p.m. EST. A link is provided to the recording of one of the webinars that have already been held.

Schools and Libraries News Brief Dated December 18 – Winter Contact Procedures

The S&L News Brief for December 18, 2014 reviews the PIA review procedures that are currently in effect during the winter holidays. The winter contact period began last Friday, December 19th and will end on January 2nd, the Friday after New Year’s Day.