News of the Week

Funding Status

The FY 2012 Form 471 filing window is closed and application reviews are underway.  As discussed in our newsletter of April 30th, USAC's preliminary estimate of FY 2012 demand showed a total increase of 21.5% over the comparable figure for FY 2011.  At this level, funding for Priority 2 may not be fully available even at 90%.  The first funding wave for FY 2012 is expected towards the end of the month and will include Priority 1 services only.

For the second week in a row, no regular funding waves are scheduled.  As reported by USAC, certain system "glitches," which have also affected BEAR and SPI invoice notifications, are expected to be resolved shortly.

The "Lowest Corresponding Price" Issue Resurfaces

ProPublica published an online article last week entitled "AT&T, Feds Ignore Low-Price Mandate Designed to Help Schools."  The article discusses the little-publicized E-rate rule requiring service providers to provide products and services to their E-rate customers on the basis of "lowest corresponding price" — often referred to as "most favored nation" pricing.  The basic gist of the article is that neither telecom carriers nor E-rate program administrators have been paying much attention to this pricing requirement and, as a result, schools are being overcharged to the detriment of both the schools and the E-rate fund.  ProPublica, which describes itself as an independent non-profit newsroom that produces investigative journalism in the public interest, has apparently been working on this report for some time.  The story has already been picked up by other press sources (e.g., Education Week).

The history of the lowest corresponding price ("LCP") requirement traces back to the earliest E-rate orders, starting with the initial Federal-State Joint Board recommendations in 1996 (FCC 96J-3) and the first major Report and Order in 1997 (FCC 97-157).

The rule defined LCP as "the lowest price that a service provider charges to non-residential customers who are similarly situated to a particular school, library, or library consortium for similar services."  The requirement was initially applicable to telecommunications carriers, but was subsequently generalized to "service providers" in the FCC's Fourth Report and Order (FCC 97-420).

Enforcement of the LCP requirement has been virtually non-existent — one of the points stressed in the ProPublica article.  Indeed, one element of the initial order, requiring service providers to certify that their prices are no more than the LCPs, has effectively been ignored.  None of the service provider forms — Forms 473, 474, 498, or even the service provider sign-off on Form 472 (the applicant BEAR form) — include an LCP certification.

The LCP issue last surfaced in March 2010 when the United States Telecom Association ("USTA") and CTIA filed a joint petition with the FCC seeking a declaratory ruling clarifying certain aspects of LCP.  The petition acknowledged the lack of information that had been made available on LCP, noting: "Although these rules were adopted twelve years ago with the implementation of the E-Rate program, they have been the subject of little regulatory or administrative development. Issues are now arising regarding the scope and meaning of the lowest corresponding price rules that have never been addressed by the Commission or the E-Rate program administrator, the Universal Service Administrative Company."

The issues "now arising" were apparently a reference to certain E-rate audits in which independent auditors had begun testing for LCP-like compliance.  The ProPublica reporter, Jeff Gerth, who had filed FOIA requests for this information, cites nine audits (most heavily redacted) finding instances of inflated pricing and over billing.

The USTA/CTIA petition is discussed more fully in our newsletter of April 19, 2010.  Basically, the petition seeks to limit the definition of LCP and the manner in which it can be enforced.  Less than a month after the petition was filed, the FCC requested public comment (DA 10-627) on the proposed clarifications.  Submitted comments were limited in number, but provided two divergent views.  Specifically:

• Carriers filed three sets of comments supporting the petition.  AT&T's comments proffered the additional view that "E-Rate applicants are now sophisticated purchasers of discounted services," concluding that "increased competition and sophistication of applicants obviates the need for, and weigh against, the LCP rules."
• A law firm (Shepherd, Finkelman, Miller & Shah, LLP) filed blistering comments arguing that the LCP rules are quite clear and that the petition had been filed "in an effort to avoid responsibility for filing false Form 473 certifications by suggesting that some ‘clarification' of the LCP requirement is suddenly needed."  Perhaps not surprisingly, although there was no indication in the law firm's FCC comments as to its LCP interests, the firm was subsequently listed as the attorneys for Todd Heath who filed a False Claims Act complaint against Wisconsin Bell alleging LCP violations.

So far the FCC has not formally responded to the USTA/CTIA petition and comments, although there is some indication that the FCC Enforcement Bureau is looking at various carrier pricing issues.  The ProPublica article may cast a spotlight on the entire process.  In addition, perhaps just coincidentally, USAC has included a section on LCP in this month's service provider training (see slides # 21-32 of the Program Compliance presentation).

From an E-rate applicant standpoint, we would note the following:

• Although none of the E-rate service provider forms include an LCP certification, there is no reason applicants cannot cite the requirement and request compliance certifications in their own Form 470s (in Item 13) and/or RFPs.
• Despite carrier comments to the contrary, applicants with large and complicated telecom systems may not have enough expertise to thoroughly review services and invoices without the outside assistance of telephone auditing firms.  As we have discussed in the past (see our newsletter of May 26, 2008), and as discussed anew at the end of the ProPublica article, telephone audits must be handled carefully for E-rate purposes.  To the extent that audits uncover excessive billing, the discounted portion of any resulting refunds may have to be remitted back to USAC.

E-Rate Updates and Reminders                       

Digital Literacy NPRM:

Last week was the deadline for submitting reply comments on the FCC's proposals (FCC 12-11) to establish a digital literacy training initiative, funded through the Low Income Fund, but administered through the E-rate program.  For an overview of the proposals, see our newsletter of February 13th.

Reply comments from school and library organizations universally argued against a proposal to administer a digital literacy program, even if financed through Lifeline, through E-rate.  E-Rate Central's comments took a somewhat broader view.  It questioned whether or not the Universal Service Fund as a whole was in a financial condition to support any new initiative at this time, and argued that expanding the definition of universal service "access" to include training is a dangerous form of "mission creep."  Other interesting reply comments are noted below:

• American Library Association ("ALA")
• Council of the Great City Schools ("CGCS")
• Education and Libraries Networks Coalition ("EdLiNC")

• Schools, Health and Libraries Broadband Coalition ("SHLB Coalition")
• State Educational Technology Directors Association ("SETDA")
• State E-Rate Coordinators' Alliance ("SECA")
• Other individual state school and library organization filings including Idaho, Kentucky, Nebraska, North Carolina, Pennsylvania, Washington, West Virginia, and Wisconsin

Last Week's FCC Appeal Decisions:

After skipping a week, the FCC resumed its release of E-rate appeal decisions with four orders affecting 22 applicants.  Specifically:

1. The FCC denied a request by one applicant seeking to waive the Priority 2 classification of a leased PBX system (DA 12-629).  The applicant argued that it had entered into a seven-year lease for a PBX in 2001 on the basis of Priority 1 funding which was being approved by USAC at the time, and that it should continue to qualify for Priority 1 funding for the duration of the lease.  The FCC acknowledged that USAC did not post a "correction" classifying such equipment leases as Priority 2 until 2003 (first affecting FY 2004).  However, the FCC ruled that a "multi-year contract does not insulate applicants and service providers from changes in program rules, or, as in the specific case here, from changes in the eligibility category for certain services, and an applicant has no guarantee that a multi-year contract will continue to be funded for the duration of the contract."
2. The FCC granted seven requests (one in part) and denied three others involving the provision of Telecommunications services by eligible or ineligible carriers (DA 12-691).  Most of the approved appeals involved filing errors by the service providers affecting their carrier status.
3. The FCC granted a waiver request by one applicant seeking to change the billed entity designation on a Form 471 from a state consortium to itself (DA 12-693).  Although this waiver is case-specific (involving an EDU2011 pilot program applicant), this may prove a useful precedent.  We occasionally encounter other situations in which "BEN Changes," much like SPIN Changes, would simplify invoicing problems within the spirit of the E-rate rules.
4. The FCC denied out-of-hand ten appeals by applicants who had previously missed USAC's 60-day appeal deadlines (DA 12-711).

SLD E-Rate Training for 2012:

The agenda and presentation slides for the SLD's service provider training in Atlanta (May 10th) and Los Angeles (May 15th) have been posted online.  Many of the presentations will be useful for E-rate applicants as well.

The SLD also announced the following dates and locations for this fall's applicant training.  Registration and hotel reservation information will be available within the next few weeks.

Schools and Libraries News Brief Dated May 4 – Form 471 Reminder Letter Deadline

As discussed in our newsletter of April 23rd, USAC mailed out over 8,500 urgent reminder letters to applicants who may not have already certified their FY 2012 Form 471 applications and/or submitted the associated Item 21 attachments.  The deadline for completing these final steps is Wednesday, May 9th.

Last week's SLD News Brief for May 4, 2012, reviews the process for submitting the required certifications and Item 21 attachments.