E-Rate Central News for the Week
May 21, 2012
Introduction
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 (516-801-7804), fax (516-801-7814), or through our Contact Us Web form. Additional E-rate information is located on the E-Rate Central Web site.
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 next week and will include Priority 1 services only.
Wave 46 for FY 2011 will be released on Wednesday, May 23rd, for $2.7 million. Cumulative funding for FY 2011 will be $2.17 billion. Priority 2 funding for FY 2011 is currently being provided only at the 90% level and is being denied at 79% and below.
No funding wave for FY 2010 is scheduled this week.
USAC Training Updates
Earlier this month, USAC conducted two one-day training sessions for E-rate service providers, one in Atlanta and one in Los Angeles. Although much of the material presented was familiar, a few new topics and clarifications should be noted.
Priority 2 Funding Outlook for FY 2012:
Mel Blackwell's "State of E-rate" presentation focused primarily on the significant increase in the preliminary demand estimate for FY 2012. As discussed in detail in our newsletter of April 30th, the basic problem is as follows:
- Total demand for Priority 1 services was estimated at $2.44 billion. Although USAC expects that figure to shrink below $2.19 billion during PIA review, this still means that Priority 1 funding will subsume almost all of FY 2012's nominal funding cap — $2.31 billion, including this year's inflation adjustment. Note that this funding must also cover USAC's E-rate administrative expenses.
- This means that Priority 2 funding will be almost entirely dependent on roll-over funds. At the moment, $400 million has been identified as available for roll-over. Although this may increase by the time (usually late June) the FCC sets the final roll-over amount, available Priority 2 funding looks to fall well short of the requests — $1.38 billion for 90% applicants alone. For the first time ever, this would mean that 90% applicants will not be able to receive full Priority 2 funding.
If full Priority 2 funding at 90% is not available for FY 2012, what will happen? USAC indicated that, as far as the FCC is concerned, "every option is on the table." Possible options discussed included:
- Don't fund any Priority 2 for FY 2012, rolling over any available funding to FY 2013.
- Prorate Priority 2 funding so that 90% applicants would get a portion of their requested funding. Note that this option is currently covered by FCC rules, but has never been used. Detailed procedures for proration have not been developed.
- Institute rule changes — difficult to accomplish for FY 2012 at this point — to modify the discount matrix or to limit product/service eligibility (e.g., fund Basic Maintenance of Internal Connections, but not Internal Connections equipment itself).
USAC warned attendees not to expect an early decision.
Lowest Corresponding Price:
USAC's "Program Compliance" presentation included an extensive section (slides #21-32) on a long-standing, but little understood or publicized, rule requiring service providers to offer products and services to E-rate applicants based on lowest corresponding price ("LCP"). LCP is defined 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."
As discussed in our newsletter of May 7th, the LCP requirement had recently come to the forefront following the publication of an article entitled "AT&T, Feds Ignore Low-Price Mandate Designed to Help Schools by ProPublica. Two years ago, two major carrier associations had filed an FCC petition seeking clarification of the rule and suggesting a number of provisions to limit their responsibilities. Although the FCC solicited comments on the petition, there was never a formal ruling. However, based on the USAC presentation (presumably vetted by the FCC), it appears that many of the carrier positions have been rejected.
Most specifically, the USAC presentation clearly indicates that service providers, not applicants, are responsible for ensuring that LCP is provided. The responsibility applies to all service providers — not just telecom carriers — "regardless of the size of the company!" And the "applicant is not obligated to ask for the LCP, but must receive it!"
As this rule receives more publicity, we expect applicants to begin to seek confirmation from their suppliers that they are, in fact, receiving the best possible prices.
Charitable Contributions:
The same "Program Compliance" presentation included a section on gifts and donations. The distinction between unallowable gifts and allowable donations has been a difficult one. The FCC has indicated that the "gift rules are not intended to discourage charitable donations as long as the donations:
- "Are not directly or indirectly related to E-rate procurement activities or decisions", and
- "Are not given with the intention of circumventing competitive bidding or other FCC rules."
Since "intent" can be difficult to judge, many applicants and service providers have become concerned about charitable contributions. The USAC presentation provided a little more guidance on two aspects of the issue, namely:
- "Paid-for-exchange services at market rates, such as the purchase of advertising space, is neither a gift nor a charitable donation…" As explained, this is just a "business transaction." "For example, service providers purchasing advertising space on the high school football score board, for which they pay market rates, would not cause any violations."
- As potentially allowable charitable contributions, USAC noted that "Cash, equipment, including sporting, musical or playground equipment, may be permissible if they benefit the school or library as a whole and broadly serve an educational purpose." "For example, a donation of books for a literacy campaign, given to a school by an E-rate service provider, would be [an] acceptable donation that benefits the school and broadly serves an educational purpose."
By way of additional guidance, we will repeat a suggestion we have made several times in the past. Sunshine is the best preventative medicine. In particular:
- Any donation should be formally accepted by the school or library board, and publicly disclosed. Formal acceptance should include a clear statement that there is no explicit or implicit advantage to be gained by the donor as to future business.
- A donor should be asked to formally certify that the donation: (i) is being made without any explicit or implicit expectations of being awarded business; and (ii) is consistent with a company-sponsored program of donations to educational institutions independent of customer status.
Open Issues in Eligibility:
The final slide of the "Eligible Services" presentation openly acknowledges two open issues that have concerned both applicants and service providers. In particular:
- "Is the receipt of multiple forms of a service duplicative?" As an example, "a school receives funding for T-1 service for Internet access and a teacher in a room that has access to the T-1 service uses an air card to access the Internet." Given the growing use of mobile devices for e-learning applications, we do not believe wired and wireless Internet services are duplicative. But more broadly, duplicative services can be problematic.
- "Are free VoIP handsets permissible if provided to all customers?" This particular issue arose during the FY 2012 application cycle when at least one provider of hosted VoIP services began providing "free" handsets as part of a Priority 1 telephone service. The rationale was that free VoIP handsets are no different than free or discounted cell phones provided as a part of cellular contract. For additional information on this issue see our article on "Priority 1 Eligibility Creep" in our newsletter of February 13th.
E-Rate Updates and Reminders
Tech Plan and CIPA Deadline Reminders:
With less than a month and a half remaining before the start of FY 2012, school applicants for services other than pure telecommunications are reminded that their Internet safety policies must be updated to include a component regarding the education of minors about appropriate online behavior (including cyberbullying). Priority 2 applicants with technology plan approvals expiring June 30, 2012, need to have updated plans approved for the coming year. Additional information on these deadlines is available in our newsletter of April 23rd.
As an interesting sidelight to the new CIPA requirements, it should be noted that the SLD's Web site, which was recently overhauled, is (or at least was, as of last week) providing outdated CIPA information. The CIPA Reference section makes no reference to the new educational component requirement, and the Form 486 and Form 479 instructions posted are those dated 2007. The updated 2011 versions of those form instructions, referencing the new CIPA requirements, are available in the E-Rate Central Forms Rack.
FCC Appeal Decisions Watch:
The FCC continues to address its backlog of E-rate appeals. Last week's decisions are summarized below.
- In a decision involving Academy of Excellence et al. (DA 12-753), the FCC approved 15 waivers of the E-rate technology plan rules on the basis of "special circumstances." In several cases in which USAC had revised service start dates based on late approvals of technology plans, the FCC directed USAC to reset the service start dates back to the beginning of the funding year.
- The FCC granted the appeal (DA 12-754) of a service provider regarding a rejected invoice. Under a time and materials maintenance contract, the service provider had replaced several 3Com Layer 2 switches with an Avaya Layer 3 network switch. USAC had rejected the invoice on the basis that the service was not covered by the applicant's Form 471, presumably reflecting the belief that the replacement was an equipment upgrade, not maintenance. The supplier argued — and the FCC accepted — that the maintenance contract permitted it to "fix or replace components" and was, therefore, covered by the Form 471. Given the new emphasis on time and material aspects of eligible maintenance contracts, the inclusion of "fix or replace" language in such contracts may provide useful flexibility.
- The FCC issued an erratum granting an additional appeal under a decision (DA 12-732) from the previous week.
Schools and Libraries News Brief Dated May 18 – SLD Fall Training
The SLD's News Brief for May 18, 2012, provides additional information on the SLD's fall training sessions for applicants. Registration for the eight full-day sessions shown below will be available online later this week (see Trainings & Outreach).
| City |
Date |
| Washington DC |
Monday, October 1 |
| Dallas, Texas |
Tuesday, October 9 |
| Saint Louis, Missouri |
Tuesday, October 16 |
| Atlanta, Georgia |
Thursday, October 18 |
| Newark, New Jersey |
Tuesday, October 23 |
| Minneapolis, Minnesota |
Tuesday, October 30 |
| Portland, Oregon |
Thursday, November 1 |
| Los Angeles, California |
Tuesday, November 6 |
