News of the Week

FY 2016:

USAC released Wave 6, totaling $37.7 million, on Friday, July 29th.   Cumulative national funding through Wave 6 is $150 million.

FY 2015:

USAC will release a very small Wave 59 for FY 2015 on Tuesday, August 2nd. Cumulative funding through Wave 58 is $3.31 billion.

Special Construction Charges – Not So Fast:

Under the Second E-rate Modernization Order (FCC 14-189), the FCC modified and/or created a number rules to provide greater flexibility for the special construction of broadband services. The changes included expanding the eligibility of dark fiber construction, providing additional discounts for projects with state matching funds, and creating amortization options for the applicants’ non-discounted shares. Presumably these changes were made to encourage applicants (and their states) to invest more heavily in new fiber/broadband construction. These changes became effective in FY 2016.

Unfortunately, the FCC also approved PIA procedures which, at least as implemented, require applicants to explain special construction plans in excruciating detail. The PIA special construction inquiries we’ve seen, even for lit fiber, require responses at three levels.

At the first level, the questions appear straight-forward and simple enough.

The “Sample Document” link, however, provides the first clue that this is just the beginning. The sample document is an Excel worksheet (as shown below) requesting information on all network nodes (fair enough, but with lattitude and longitude coordinates), plant mix (including average costs per mile), electronic cost details, breakdown of remote nodes by speed, and core/host node details. Hopefully, applicants have well qualified technical suppliers that are willing to provide the required information in a timely manner.

But this, apparently, is just the second level of detail required as additional questions are likely to follow. Each of the “Average Cost Per Foot” answers, for example, may generate the following types of request for further data:

Interestingly, at least for lit fiber services, and maybe for dark fiber services, applicants simply applying for one-time installation costs, not requiring any of the special construction options, may avoid inquiries at these levels of detail. The new special construction rules, while beneficial, subject applicants to a highly bureaucratic review process.

FY 2016 BEARs and SPIs Delayed:

As USAC noted in last week’s News Brief (referenced below) there has been a slight delay in the legacy-based processing system for processing invoices — both service provider SPIs, and applicant BEARs — for FY 2016 services. USAC intends to begin processing the current year invoices, and issuing payments, next week. Although USAC has not cited the cause of the delay, we expect that it is the result of interface problems between the legacy-based invoicing system and the availability of funding data from the EPC system. Because funding data for FY 2015 and earlier years does not reside in EPC, invoicing for services provided in these funding years is not affected.

The FCC announced plans to fine and recover funding totaling $170,185 from AT&T for alleged violations of the E-rate program’s Lowest Corresponding Price (“LCP”) rule. This is the first major action that the FCC has taken to enforce LCP. It is also unlikely to be the last, and is certain to raise the awareness of LCP requirements by both service providers and applicants.

The LCP rules require service providers, bidding on services and/or charging E-rate customers, to offer and maintain pricing not to exceed the rates being charged to any other “similarly situated” non-residential customers. This rule has been in existence since E-rate began, but has been the source of industry controversy as service providers sought, and the FCC ducked, clarification. Background on LCP can be found in our newsletter of May 7, 2012, perhaps not coincidentally citing a ProPublica article entitled “AT&T, Feds Ignore Low-Price Mandate Designed to Help Schools."  In this case, covering funding years 2012–2014, the FCC found what it believes to be an aggravated example of a carrier, AT&T’s subsidiary BellSouth Telecommunications, overcharging two Florida school districts, in some cases several-fold, compared to the FCC’s determination of LCP pricing for two types of telecommunications services.

Details of the FCC’s actions were publicly released in a heavily redacted Notice of Apparent Liability for Forfeiture (FCC 16-98). Several interesting aspects of the case are the following:

1. Both districts were being charged month-to-month prices, although they requested service for the entire E-rate funding year in their Form 470s, for services that had recently been deregulated by Florida. Over the three year span, these prices rose by 30-50%.
2. The monthly charges, apparently high for Florida in general, were in some cases “400% to 500% higher” than the rates available to the districts under a Florida State E-rate contract (which AT&T did not consider to be LCP-applicable).
3. The FCC defined the “geographic service area,” with regard to the “similarly situated” requirement, to include (at least) BellSouth’s Florida territory. By contrast, the FCC characterized AT&T’s definition of “similarly situated” to essentially treat every customer individually.
4. The FCC acknowledged the districts’ “own duty to be cost-effective,” but noted that LCP compliance is a service provider responsibility.
5. The FCC’s proposed actions in this case included:
   1. A base forfeiture of $60,000 for two Form 472s and one Form 473 filed in FY 2014 misstating AT&T’s compliance with the E-rate rules.
   2. An additional base forfeiture of $46,425 calculated as three times the overcharges in FY 2014 (i.e., trebled-damages for one year).
   3. The recovery of the discounted portion of the overcharges over the three-year period ($63,760). No mention is made of the non-discounted portion of the alleged over-charges that may be due to the districts.
   4. The requirement that a report be prepared identifying other “similar-situated” customers and describing the actions AT&T will take to ensure proper sales offers.
6. The two Republican Commissioners dissented on the proposed actions on procedural statute of limitations grounds, not because they disagreed with the LCP findings.

Craig Davis to Lead E-Rate at USAC:

USAC announced that Craig Davis will assume the position of Vice President of the Schools and Libraries (“E-rate”) Program effective today, August 1st. Mel Blackwell, retiring from that position, will remain as an advisor for the remainder of the year. Mr. Davis was USAC’s Vice President of the Rural Health Care Program “RHC”). Before heading RHC, Mr. Davis had worked for several telecommunications companies and had served as the Senior Director responsible for the High Cost Program.

Form 486 Deadlines for August:

The Form 486 deadline for certifying the start of service (and CIPA compliance, if applicable) is 120 days from the later of the FCDL approval date or the start of service date. The deadlines for approved FY 2015 applications for August (adjusted for weekends and holidays) are:

                      Wave 44                08/05/2016
                      Wave 45                08/12/2016
                      Wave 46                08/19/2016
                      Wave 47                08/26/2016

The first Form 486 deadline for FY 2016 (Wave 1) will be October 31, 2016.

The S&L News Brief of July 29, 2016, discusses current procedures for requesting SPIN changes and service substitutions in FY 2016. USAC indicated that requests for these changes will ultimately be made through EPC, but that capability is not yet available. In the interim, USAC advises that FY 2016 related changes should be made by opening Customer Services cases in EPC. Alternatively, and for all cases related to FY 2015 or earlier, applicants can initiate these requests via the Submit a Question process. However, while the Submit a Question process will work for FY 2016 requests, it may delay the approval process.

The News Brief also reviews the process for filing FCC waiver requests for applicants who missed the FY 2016 filing window. Such requests are likely to be approved successfully for applicants filing within two weeks of the initial window deadline. Beyond that, special circumstances must be carefully documented.

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