In This Week's Issue
»	FY 2008 and 2007 Funding Status
»	Internal Connections Maintenance as a Recurring Service
»	E-Rate Updates and Reminders
»	Schools and Libraries News Brief for May 2nd

E-Rate Central News for the Week
May 5, 2008

The E-Rate Central News for the Week is prepared by E-Rate Central. E-Rate Central specializes in providing consulting, compliance, and forms processing services to E-rate applicants. To learn more about our services, please contact us by phone (516-832-2880) or by e-mail. Additional E-rate information is located on the E-Rate Central Web site.

FY 2008 and FY 2007 Funding Status
Wave 2 for FY 2008 is scheduled to be released on Tuesday, May 6th. Funding in this wave is expected to be about $29 million. The cumulative national FY 2008 funding total is $381 million. No Internal Connections requests are being funded yet for this year.

Wave 49 for FY 2007 is scheduled to be released on Wednesday, May 7th. Funding in this wave is estimated to be about $15 million. The cumulative national FY 2007 funding total is $2.31 billion. The final Internal Connections funding threshold for this year is 81%.

Internal Connections Maintenance as a Recurring Service
Beginning with the FY 2006 Eligible Services List ("ESL"), the SLD clarified that all requests for Basic Maintenance of Internal Connections "...will be treated as recurring services with services to be delivered within the July 1 to June 30 funding year." For maintenance services provided on an ongoing monthly, or time and materials, basis, this is not usually a problem (unless an applicant cannot afford the service without E-rate discounts and does not get funded until late in the year).

A number of maintenance contracts (or warranty arrangements such as Cisco SmartNet), however, are provided and priced on an annual, one-time charge, basis. This can be problematic for applicants seeking E-rate discounts under contracts that are not aligned with the funding year. Situations of this type arise most often when the warranty or maintenance agreements commence with equipment installation and/or E-rate funding is not awarded until well into the funding year. In such cases, only a portion of the one-time charges can be discounted within the current funding year; the remainder would have to be applied for, funded, and discounted in the following year.

For equipment warranty arrangements, in particular, the funding year restriction appears nonsensical. Several suggestions have been made to the FCC to correct this problem. In comments on the FY 2008 ESL, for example, E-Rate Central recommended in part that: "A standard one- to three-year warranty purchased in connection with new equipment should be treated as an eligible portion of the equipment purchase, rather than as basic maintenance."

Unless and until the FCC changes the rules for basic maintenance, applicants should carefully consider the E-rate consequences of agreeing to and initiating one- (or multi-) year maintenance or warranty agreements. When such arrangements are used, applicants should remember to check multi-year and extendable contracts on the Form 470s, and to apply for basic maintenance in their Form 471s each year.

As an alternative, any applicant using a third-party maintenance firm might consider not purchasing one- to three-year warranties, but instead plan to cover any equipment failures through an additional time and material agreement with their maintenance vendor. Though possibly more expensive on a twelve-month basis, such an arrangement might be much more economic for the applicable portion of a funding year.

E-Rate Updates and Reminders
Applicants funded in Wave 1 (or in other FY 2008 funding waves that will be released before July 1st) can file early Form 486s before the FY 2008 services actually begin. However, the following cautions should be noted:

1. The FRNs listed can only be for services that will be received starting between July 1st and July 31st.
2. To certify that services will start no later than July 31st, the Item 6a box (on page 2 of the paper form) must be checked.
3. Unless the Form 486 is for basic telephone service only, the applicant must have an approved technology plan covering all of FY 2008 before the Form 486 is filed. The Item 8 technology plan certification affirmatively states that a plan has been approved (not, like some other forms, that it will be approved by the start of service).
4. If filing online, the applicant must make sure to specify the correct funding year (FY 2008 is 7/1/2008 - 6/30/2009). The Funding Year pull-down list for the SLD's online Form 486 is expected to be updated early this week to include the FY 2008 option.

Out-of-Window Letters for applicants who missed the FY 2008 application window are expected to be released in the middle of this week. The only real option for applicants caught in this situation is to request an FCC waiver to have their applications accepted out-of-window.

The U.S. Department of Agriculture has released updated Income Eligibility Guidelines for the National School Lunch Program ("NSLP") for 2008-2009. The revised guidelines are available on the E-Rate Central Web site at Discount Rate Optimization.

The FCC has adopted an interim cap on High Cost Fund payments to competitive eligible telecommunications carriers. High Cost is one — indeed the largest — of the four Universal Service programs. Unlike the E-rate program, however, the High Cost Fund has been growing and has been putting pressure on the entire Universal Service Fund ("USF"). According to the FCC's press release, the interim cap is "...intended to stem the explosive growth of the USF while the Commission pursues comprehensive reform of the program." By helping to stabilize the entire Universal Service Fund, this is a positive development for the E-rate program.

USAC provided an update last week on the status of the 2008 FCC OIG audits. As of April 18th, 86% of the applicants to be audited had been notified; 71% had already had entrance conferences; and 48% of the field work had been completed. The target date for all auditors to issue reports to the FCC OIG on these audits is July 31, 2008.

Schools and Libraries News Brief for May 2nd
As promised in an earlier News Brief on Corrective SPIN Changes, the May 2nd edition focuses on Operational SPIN Changes — the type that is required if an applicant actually wishes to change its service provider for a specific service (rather than to just correct the SPIN used by an existing vendor).

Such a change is permitted under E-rate rules, subject to the applicant's ability to certify the following:

• The change of service providers is allowed under the applicable state and local procurement rules.
• The change of service providers is allowed under the terms of the contract between the applicant and the original service provider (i.e., the change will not result in a breach of contract).
• The applicant has notified the original service provider of its intent to change service providers. (Note: In some recent audits, applicants have been asked to document that this notification was made.)

The News Brief also makes the following three points regarding Operational SPIN Changes:

• For a service provider change made in the midst of a multi-year contract, the contract with the new vendor cannot have an expiration date extending beyond that of the original contract.
• The change of service provider, in and of itself, cannot involve a service substitution. If the service to be provided by the new vendor is different, the applicant must also request, and meet the conditions for, a service substitution.
• With one exception involving a required change to an Eligible Telecommunications Provider, a change cannot be requested before the date of the funding commitment nor after the last date to invoice for the associated service.

Further information on SPIN changes, both corrective and operational, is available in the Reference Section of the SLD Web site (see SPIN Change Guidance).