News of the Week

Funding Status

The FY 2013 Form 471 application window will open at noon (EST) on Wednesday, December 12, 2012, and will close at 11:59 p.m. (EDT) on Thursday, March 14, 2013.

Wave 20 for FY 2012 will be released on Tuesday, December 4, 2012, for $15.9 million.  Priority 2 funding is being provided at 90%, and is being denied at 89% and below.  Cumulative funding for FY 2012 is $1.57 billion.

Wave 71 for FY 2011 will be released on Wednesday, December 5, 2012, for $8.81 million.  Priority 2 requests are being funded at 88% and above, and denied at 87% and below.  Cumulative funding for FY 2011 is $2.47 billion.

Wave 104 for FY 2010 will be released on Wednesday, December 5, 2012, for $8.94 million.  Priority 2 requests are being funded at all discount levels.  Cumulative funding for FY 2010 is $3.05 billion.

New Round of PQA Audits

Applicants are reporting a new round of requests for information involving the Payment Quality Assessment ("PQA") program.  The PQA program is designed to measure the percentage of improper E-rate payments made during the current calendar year — a process required by the federal Improper Payments Elimination and Recovery Act ("IPERA").  The program involves a statistical sampling of invoices paid — regardless of size — and a determination as to whether those payments were properly made.  Specifically, the process seeks to confirm:

• The eligibility of the program beneficiary;
• The calculation of the support performed by USAC; and
• The beneficiary documentation supporting the disbursed funding.

Although USAC insists that these are "assessments," applicants should treat them as "audits."  The good news is that PQA audits do not involve extensive on-site visits by auditors.  They are all handled remotely.  The bad news is that this year's series appear more intensive, including a check on CIPA compliance.  A typical request for documents asks applicants to provide:

1. Evidence of an applicant's non-profit status.
2. Evidence of primary/secondary school or LSTA library status.
3. Budget for the related funding year.
4. List of all entities receiving service (with physical addresses).
5. Service provider bill for the identified invoice.
6. Evidence of discount provided or reimbursement received.
7. Technology plan approval letter, as required.
8. Letters of agency for consortia.
9. Completed and signed letter confirming document submission.
10. Service provider selection documentation including bid evaluation matrix and contract.
11. Proof of payment for the relevant service provider bill.
12. Description of CIPA compliance, if required, including information on the technology protection measure (filter) utilized.

Update on "Free" VoIP Phones

The FCC and Jive Communications appear to have reached a temporary understanding, if not agreement, on the handling of funding requests for managed VoIP services involving "free" telephone handsets.  Here is a brief review of the issue's history:

1. During last year's FY 2012 application cycle, Jive initiated an aggressive marketing effort to sell hosted VoIP telephone services.  A key element of the proposals was the provision of bundled, or "free," handsets.  Arguing that bundled handsets for VoIP services were no different than bundled phones for cellular service, Jive contended that such handsets could be included in fully eligible, monthly VoIP service plans without cost allocating out the costs of ineligible end-user handsets.  At the time, there was some confusion as to the positions taken on this issue by both USAC and the FCC.
2. Last summer, in response to the release of the draft Eligible Services List ("ESL") for FY 2013, which did not address the issue, the State E-Rate Coordinators' Alliance ("SECA") submitted a request to the FCC to clarify the eligibility of bundled end-user equipment.  The FCC requested and received comments on SECA's Petition for Clarification.
3. When the FCC released the final ESL for FY 2013, the accompanying Report and Order (DA 12-1553) explicitly left outstanding the issue of the eligibility of certain end-user equipment — particularly VoIP handsets — provided "free" as a part of a bundled Priority 1 service.  Effectively, the FCC was warning applicants signing such VoIP contracts that they were doing so at their own risk.
4. In October, Jive Communications met with the FCC staff to continue arguing its position.  More specifically, as indicated in Jive's ex parte letter covering the meeting, Jive stated that "USAC is holding all Jive funding requests without action, even those that do not include free handsets" (emphasis added).  Jive asked the FCC to direct USAC to act on pending funding requests involving Jive's hosted VoIP services, presumably at least on those requests not involving bundled handsets.
5. Last month in Wave 18, USAC did just that — at least with respect to FY 2012 applications — approving 57 of the pending 154 funding requests for Jive services.

Interestingly, on the same day that Wave 18 was released, Jive was back in conversations with FCC staff.  Its ex parte filing on that meeting indicates that the "discussion was consistent with the previous advocacy of Jive Communications."  But while Jive may be sticking to its position, recent correspondence with Jive clients indicates that, if only to get funding moving quickly, Jive may move its clients to a phone rental program, with both purchase and trade-in options.  Additionally, Jive indicated that it would not be promoting free phones in its FY 2013 proposals.

As far as Jive is concerned, the eligibility of "free" VoIP phones is still an issue.  It has stated that as details or guidelines are released by the FCC, it will notify clients and adjust its offerings accordingly.  In the meantime, at least some of the Jive funding — as well as other service provider funding associated with the same applications — has begun to flow.

The funding history in this case should serve as a cautionary tale for both applicants and service providers pursuing discounts on services which are not clearly eligible.  In the Jive case, holds were placed on applications for at least two funding years.  No Jive-related applications for FY 2012 were approved until Wave 18 (November 13, 2012).  The last Jive approvals for FY 2011, which have not yet been resumed, were in Wave 30 on January 18, 2012.  The current status of Jive funding is shown in the following table:

                                    Number of Applicants                                    
                   Funded     Not Funded    Pending           Total
FY 2011          36                15                 23                  74
FY 2012          50                  7                 79                136
                                                
Note:      A number of the applications "Not Funded" were                                        
                canceled by the applicants, perhaps to speed                                                
                funding of other services on those applications.                                

E-Rate Updates and Reminders

FCC Appeal Decisions Watch:

The FCC released an appeal decision (DA 12-1878) last week granting three appeals on technology plan requirements, granting one additional appeal in part, and denying four others.  In all cases, the appeals dealt with funding years prior to FY 2011 when technology plans were required for all services other than "basic" telephone service.  (As of FY 2011, technology plans are required only for Priority 2 services.)

The successful appeals were based on good faith technology plan efforts (or, in one case, a clerical error in reporting an approved technology plan) leading to FCC waivers of the requirement.  "By contrast, the four petitioners…did not provide documentation that they created technology plans, nor did they demonstrate special circumstances meriting a waiver of the Commission's technology plan requirements."

Upfront Consortium Discounts:

A small article in Oregon's Statesman Journal reported that the Willamette Educational Services District (Salem, OR) was considering a proposal to discontinue giving E-rate discounts up front to its consortium members prior to funding, and would instead reimburse districts when E-rate discounts were awarded.  Given that the larger consortium applications are generally not funded until well into the funding year, a consortium decision not to finance unrealized discounts for its members is not particularly surprising.  To put Willamette's decision in perspective, the following table shows the consortium's funding history over the past five years:

                                                                               FCDL Release Date:
                                                                                 Number of Months
                         Funding Year                          After Start of Funding Year
                             FY 2008                                                    5
                             FY 2009                                                    6
                             FY 2010                                                   14
                             FY 2011                                                   11
                             FY 2012                                        Not Yet Funded

Schools and Libraries News Brief Dated November 30 – Eligible Services

The SLD News Brief for November 30, 2012 reviews the basic categories of service.  Traditionally, eligible services are placed in one of four categories, but the News Brief lists five categories to distinguish between "Telecommunications," which covers only lit and dark fiber, and "Telecommunications Services," which includes all other telecom services.  The News Brief also notes that the ESL for FY 2013 has been reorganized so that all three Priority 1 categories appear in the same section, and that there will no longer be a penalty for citing any Priority 1 service in the wrong category on a Form 470.

The News Brief also includes a short list of other eligibility issues to consider, namely:

• Partial eligibility
• Conditional eligibility
• Ancillary use
• On-premise Priority 1 equipment
• Wide area networks
• Educational purpose