The funding threshold for Internal Connections remains at 85%. No Internal Connections funding will be available below 70%. The availability of funding for applicants in the 70-84% range is still uncertain, although funding requests in this range are currently being reviewed by the SLD. As indicated below, a recent FCC Order will provide additional monies for FY 2003 which should lower the Internal Connections funding threshold.

The following is a brief list of the key issues addressed in the new FCC Order.

• Except for maintenance, Internal Connections discounts for any given site will be limited to twice in five years (beginning FY 2005).
• The definition of eligible “basic” maintenance has been tightened. On-site Help Desk costs are not eligible if the service includes any ineligible services.
• Transfers of equipment purchased with E-rate support are prohibited for three years.
• The rules for allocating eligible and ineligible costs have been codified.
• A more formal process is being established for annual updates of the Eligible Services List.
• The prohibition on the provision for free services has been clarified.
• The service substitution rules have been amended to permit higher pre-discount costs.
• The conditions under which on-premise equipment can be treated as Priority One have been tightened. Telephone PBXs (and, hence, key systems) are specifically classified as Priority Two.
• Unused E-rate funds will be rolled over into FY 2003 and future funding years.
• The ineligibility of dark fiber systems was confirmed beginning FY 2004, but the FCC requested comments on dark fiber’s future eligibility.

Although a more complete analysis is planned for next week’s newsletter (when more applicants may be paying attention), here are three important points affecting FY 2003 and FY 2004.

(1) As indicated in our last newsletter, the roll-over of unused funds into FY 2003 was unexpected. This is likely to permit the SLD to fund Internal Connections services down to 70% this year. To some extent, however, this will reduce the amount of unused funds that we had previously expected to be rolled-over into FY 2004.

(2) The limitation of Internal Connections funding to two of five years, beginning FY 2005, could dramatically reduce incentives for leasing equipment (including PBXs). Applicants planning to sign new equipment leasing contracts for FY 2004 may want to include early buyout provisions.

(3) The new FCC Order includes several paragraphs and footnotes that partially address issues concerning the conversion of ineligible dark fiber systems to eligible lit fiber systems. Next week’s newsletter will contain a FAQ on this subject.

The SLD’s notice specifically notes that all telecom carriers are required to file an annual Form 499A with the FCC to indicate their status as a common carrier, and warns that false “…representations may be referred to the FCC for appropriate enforcement.”

Applicants, concerned about the potential ETP status of a specific service provider, should ask to see a copy of the carrier’s Form 499A. A list of carriers that had filed Form 499As as of November 2002 is available on the FCC web site.

On December 23, 2003, the FCC formally disbarred the three individuals for three years. This is the first formal use of FCC’s new E-rate debarment procedures. The disbarment prohibits the individuals “…from activities ‘associated with or related to the schools and libraries support mechanism,’ including ‘the receipt of funds or discounted services through the schools and libraries support mechanism, or consulting with, assisting, or advising applicants or service providers regarding the schools and libraries support mechanism.’” Except for one request to clarify that the FCC’s debarment actions applied only to the named individuals (presumably not to their companies), the debarments were not opposed by the three persons involved. The following are copies of the debarment orders, together with the original suspension letters:

• DA 03-4087
• DA 03-4088
• DA 03-4089