News of the Week

Funding Status

Wave 9 for FY 2011 will be released on Tuesday, August 16th.  Cumulative funding for FY 2011 is currently $661 million.  Only Priority 1 applications are being funded at this time.

The FCC announced that the E-rate program funding cap for FY 2011 has been adjusted upwards by 0.9% for inflation — the same percentage adjustment as last year.  This establishes the new cap at $2,290,682,250.  As discussed last week, there is an additional $1.1 billion in available funds that is expected to be rolled over, in whole or in large part, for FY 2011 funding.

Wave 62 for FY 2010 will be released on Wednesday, August 17th.  Cumulative funding for FY 2010 is $2.55 billion.  Priority 2 funding is still being awarded at 81% and above, and denied at 79% and below.

FCC Updates CIPA Rules

 The FCC released its long-awaited CIPA rule revisions incorporating the E-rate provisions of the Protecting Children in the 21st Century Act enacted in 2008.  The most important aspect of the new Order (FCC 11-125) is that Internet Safety Policies — required of all applicants applying for discounts on anything more than telecommunications services — must "…include monitoring the online activities of minors and must provide for educating minors about appropriate online behavior, including interacting with other individuals on social networking websites and in chat rooms and cyberbullying awareness and response."

Other aspects of the Order include the following:

1. The new Internet Safety Policy requirement becomes effective for FY 2012, the E-rate funding year beginning July 1, 2012.
2. Applicants, who have existing and properly adopted Internet Safety Policies, will not be required to hold new public hearings to amend their policies.  New applicants, adopting an Internet Safety Policy for the first time, remain bound by the public notice and forum requirements.
3. The Order clarifies that the determination of what matter is considered inappropriate for minors is a local decision to be made by the school board, local educational agency, library, or other authority.  Most specifically, the FCC found that social network Websites (e.g., Facebook and MySpace) do not fall into one of the categories that must be blocked.
4. Applicants must retain Internet Safety Policy documentation — including both the Policy itself and the adoption records — for a period of five years after the end of the funding year that relied on that Policy.  Although five years is the standard record retention rule, the FCC was careful to note that this may mean the retention of Policy documentation for far longer than five years.  If, for example, a Policy adopted in 2005 was used as the basis for a Form 486 certification for 2011-2012, the documentation must be retained until at least June 30, 2017.  Special dispensation on record retention is provided for applicants who had adopted their policies prior to August 2004, the date the FCC initially established the five-year retention rule.
5. The FCC clarified "…that selecting a telecommunications carrier as a service provider does not absolve schools and libraries of their obligation to adhere to the Children's Internet Protection Act (CIPA) requirements when they use USF funding to obtain discounted Internet access service."  Conversely, it would follow that an applicant receiving discounts on telecommunications services, but not on Internet service itself carried over the telecommunications facility, would not have to be CIPA compliant.  This provision is particularly important for many libraries receiving telecom discounts, but forgoing Internet discounts, for policy reasons.
6. The Order codifies much of the statutory language of the original Children's Internet Protection Act including definitions of "minor," "obscene," "child pornography," "harmful to minors," "sexual act," "sexual contact," and "technology protection measure…"  For CIPA purposes, a "minor" means "any individual who has not attained the age of 17 years."
7. The FCC concluded that the new rules will not require revisions to either the Form 486 or Form 479, but that changes have to be made to the instructions for those forms to list revised restrictions (and, presumably, the revised technology plan requirements adopted last year).
8. Although CIPA requirements mandate filtering school or library computers used to access the Internet, the FCC acknowledged that there was confusion as to CIPA requirements pertaining to the on-site use of portable devices owned by students and library patrons.  The FCC indicated that it intended to seek public comment on these issues in a separate proceeding.

Gates Foundation's "Fiber Lateral Builds" Proposal

 The Bill & Melinda Gates Foundation submitted ex parte comments to the FCC last week suggesting new fiber optic funding for schools and libraries.  Most interestingly, the proposed new funding would be outside of, and in addition to, the regular E-rate program.

The Gates proposal was in response to the FCC's February Notice of Proposed Rulemaking (FCC 11-13) regarding reform of the High Cost program of the Universal Service Fund and the creation of a new Connect America Fund program to support an ubiquitous broadband infrastructure nationwide.  The proposal makes the following two primary recommendations:

1. That the "High Cost and Connect America Fund investments in broadband be designed to provide ‘an acceptable quality of service for most interactive applications' for community anchor institutions such as schools and libraries who are meeting the diverse application needs of multiple simultaneous users."
2. The "creation of a dedicated fund within the Connect America Fund to cover construction costs for Fiber Lateral Builds (FLB) for schools and libraries."

Gates argues that providing high-speed access for community hubs at schools and libraries is critical.  It notes, for example, that libraries are the only source of no-fee public Internet access in over 64% of communities.  To be effective, to serve multiple users and to support emerging high bandwidth applications, high quality service on the order of at least 1 Gbps will be required at these community locations.  Application needs were illustrated in the following graph:

The Gates Foundation, whose primary interest in broadband has been for libraries, notes "…that more than 60 percent of all public libraries and almost 80 percent of rural libraries do not have a fiber connection."  Moreover, even if a commercial provider has fiber running down a nearby street, the deployment of "fiber to an individual school or library can be cost-prohibitive."  "For example, according to one study issued by the American Library Association, deploying fiber laterals [i.e., fiber connections from the main runs to the actual buildings] can cost from $10,000 to $100,000 or more."

As a result, Gates urges the FCC to set a portion of the Connect America Fund, "on the order of $450 million" per year, to be "allocated to fund lateral builds to schools and libraries."  From an E-rate perspective, the following points are important:

1. The proposed FLB funding "would be separate from the E-rate program and would not be ‘counted' against the ‘cap' on the existing E-rate Fund."
2. Referencing the 6th Report and Order, the proposal notes that such funding is needed because the FCC declined "to extend [E-rate] support to cover special construction charges that may be incurred to build out connections from the applicants' facilities to an off-premise fiber network," leaving the applicant responsible for those costs.  This is only partially correct.  Special construction costs are ineligible for dark fiber, but may be included in the full service cost for lit fiber.
3. FLB funding would be made available "upon application to any eligible E-rate provider," not directly to E-rate applicants.  Presumably, however, this would lower the costs of fiber service to be borne by E-rate applicants and discounted under the regular E-rate program.
4. Under current E-rate rules, schools are permitted to provide community access to their Internet facilities, but are not required to do so.  Since the primary purpose of this proposal is to support broadband community access to school and library hubs, we would expect that funding for any FLB connection would be conditional on a community usage provision.
5. Finally, it should be stressed that the FLB is just a proposal.  Coming from the Gates Foundation, however, it is likely to be taken seriously.  If the FCC is so inclined, we would expect the next step to be the release of an FCC Notice of Proposed Rulemaking.

E-Rate Updates and Reminders

New FCC Appeal Decisions:

The FCC issued three appeal decisions last week granting requests by five applicants, all dealing with the FCC's competitive bidding rules.  The following points should be noted:

Baltimore City and Cobb County School Districts (DA 11-1368):  The issue in both of these cases was the applicants' use of a two-tiered competitive bid process to select their vendors.  Stage 1 involved an assessment of technical capability and/or bid responsiveness; bids meeting these requirements were evaluated in Stage 2.  Only at this point was price the most heavily weighted factor.  Funding was denied, however, because current USAC procedures require that price be the most important selection factor at each stage in a multi-tiered evaluation.  The FCC found that, since price was ultimately the primary factor, its competitive bidding rules were not violated.  More importantly, the FCC directed "USAC to apply this ruling to all of the pending appeals and applications concerning the underlying issue addressed…"

Coahoma County School District (DA 11-1369):  The issue in this case was the proper use of a multi-vendor award state master contract.  USAC had denied the district's FY 2005 funding request on the basis that the district had referenced the state's Form 470 and had simply selected one of the contract vendors.  As a "best practice," at the time, the state encouraged contract users to request best and final bids from at least two of the vendors.  Since the district had not done so, USAC considered this to be a violation of state procurement rules.  In approving Coahoma's appeal, the FCC determined that the two-bid process was only a suggestion, not a requirement.

There are two important points to be taken from this decision.  The first is that E-rate rules require applicants to comply with both FCC and state bidding rules.  This puts USAC, and ultimately the FCC, in the position of having to interpret state bidding rules.  We have seen a number of funding denials for failure to comply with state rules, even in cases where the states have made no such findings of violations.  Appeals of these denials, not surprisingly, often argue that USAC's interpretations of state rules are incorrect.  Although a strong argument can be made that USAC and the FCC should not presume to penalize applicants over state procurement issues, applicants should be aware that this process is going on and should take appropriate care.

The second point to note is that this decision should not be taken as precedent for utilizing state master contracts for E-rate purposes.  Although there were no USAC guidelines on multi-award contracts in 2005, there are now.  If an applicant seeks to use a state multi-award contract now, USAC expects the applicant to proactively invite all listed vendors to submit bids – a procedure often referred to as a "mini-bid" process – even if the state requires bids from a lesser number of vendors.  Most importantly, the FCC's decision in this case did not address this issue.  Until tested, therefore, USAC's requirements for utilizing multi-award state master contracts remain in effect.

Riverdale Unified and Cherokee County School Districts (DA 11-1370):  The issue in this decision was the districts' use of the RFP/non-RFP check boxes on their Form 470s.  One applicant had indicated an RFP, but did not use one; the other applicant had indicated no RFP, but had issued one.  Since the Form 470 and its instructions clearly require an accurate RFP representation, USAC had little choice other than to deny the associated funding requests.  Upon appeal, both districts argued that the check box errors were administrative in nature and did not unfairly influence the bidding process.  The FCC agreed and, consistent with past precedent, approved the appeals.  The moral of this decision is that applicants should pay close attention to the RFP/non-RFP checkboxes, or risk having to file FCC appeals to overturn funding denials.

SLD Fall Training Status:

The schedule for the SLD's annual applicant workshops is shown below.  Registration for these workshops has been open since May.  All but two are either filled or available only on a waiting list basis.  Many state-sponsored E-rate workshops are also typically available each fall.

*    Closed
**  Waiting list only

Schools and Libraries News Brief dated August 12 – Update on HATS

The SLD's News Brief for August 12, 2011, discussed the SLD's five-year old outreach initiative known as "HATS" — or "Helping Applicants to Succeed."  This program is designed to provide individualized assistance to applicants who have been experiencing program problems.  The service is offered — not mandated — to applicants identified by the SLD (or upon applicant request).

As indicated in the News Brief, the most common topics covered during HATS sessions (either on-site or by teleconference) include:

• Form requirements and deadlines
• Competitive bidding
• Technology planning
• Calculating discount levels
• Understanding USAC's decision letters
• Children's Internet Protection Act (CIPA) compliance
• Documenting receipt of services
• Invoicing
• Retaining required program documentation

In our experience, the HATS program has been well received by participating applicants.