Internal Connections funding in this Wave is still limited to 90%.

The SLD’s existing version of the online Form 470 has now been enabled to specifically reflect FY 2005 as the default option. Special funding year language is no longer required in Item 13. (Note, however, that Item 13 must still be used to indicate multi-year contract options or other bidding plans.)

Applicants filing paper Form 470s by mail can also use the existing Form (the May 2003 version, not the earlier April 2002 version) without any Item 13 funding year language. Such applicants should be careful, however, to correctly enter the FY 2005 dates in Item 2. The correct dates are July 1, 2005, to June 30, 2006.

Whether filing online or on paper, applicants planning to use the current version of the Form 470 should recognize that the new version is forthcoming, hopefully by early fall. When the new version is approved, it will contain additional certifications that may be required for FY 2005. If so, applicants who filed the early version may be required to submit additional certifications in order to validate their earlier Form 470s. While we hope that the SLD and FCC will be able to avoid this recertification step, current Form 470 filers should know that it is a possibility and should watch closely for further instructions.

At the time of the decision, certain service providers had argued to no avail that such a requirement would be unduly costly to implement. This concern was expressed most often by telecom carriers saddled with older, usage-based, billing systems. The FCC rejected these arguments, reiterating “…that it is consistent with section 254 to provide applicants with the right to choose their payment method,” but it delayed the effective date of the decision until FY 2004 to give those carriers additional time to update their billing systems. Now that FY 2004 is here, some of these carriers are still pushing back on applicant requests for discounted billing.

AT&T, one of the more vocal critics of the new rule, has been trying to convince the FCC that its innovative online AT&T Reimbursement Form (“ARF”) system (see ARF) makes the reimbursement process so quick and easy that applicants do not need discounted billing. Last July, AT&T filed a petition/waiver asking the FCC to “…clarify that AT&T’s on-line reimbursement process complies with the Commission’s rules or, to the extent necessary, grant AT&T a waiver to allow it to rely on this process to fulfill its obligation to provide schools and libraries applicants the option of electing to pay the non-discounted amount.” Applicants, who have asked AT&T for discounted bills, have reportedly been refused on the basis of this pending FCC waiver request (see AT&T Waiver). Short of complaining to the FCC (which is unlikely to consider the complaint any faster than the waiver itself) or taking their business elsewhere, we see no short-term solution for an AT&T customer seeking discounted billing.

Other recalcitrant carriers are reportedly responding to requests for discount billing by imposing additional charges for the option. Such charges have been neither explicitly approved nor disapproved by the FCC. If the FCC decides to allow billing surcharges, we would expect such charges to be E-rate eligible (but this too is an open question). Our best advice to any applicant faced with a demand for additional charges is to negotiate — starting with a demand to see the applicable tariff or contract provision — or change suppliers.

Until now, when the SLD found that funds had been disbursed in error, the standard procedure was to request the funds back from the service provider. It was then up to the service provider to recover the funds from their customer, if appropriate. The initial rational for this COMAD process was that the funds had been disbursed by the USAC through the service provider, hence repayment should be made through the service provider as well. A more practical (i.e., political) rational may have been that a federal entity would much prefer to request repayment from a vendor than from a school or library.

In response to pressure from the service providers (including vendors acting as Good Samaritans to channel funds back to applicants when the original service providers went out of business), the FCC has now ruled that the repayment request be “…directed at whichever party or parties has committed the statutory or rule violation.” Theoretically, the option of collecting directly from an applicant if the situation involved “…an issue over which the service provider had no knowledge or control,” has always been available, but such an action would have had to be approved by the FCC on a case-by-case basis. The new Order standardizes the applicant recovery option. Specifically, the Order states:

“We direct USAC to make the determination, in the first instance, to whom recovery should be directed in individual cases. In determining to which party recovery should be directed, USAC shall consider which party was in a better position to prevent the statutory or rule violation, and which party committed the act or omission that forms the basis for the statutory or rule violation. For instance, the school or library is likely to be the entity that commits an act or omission that violates our competitive bidding requirements, our requirement to have necessary resources to make use of the supported services, the obligation to calculate properly the discount rate, and the obligation to pay the appropriate non-discounted share. On the other hand, the service provider is likely to be the entity that fails to deliver supported services within the relevant funding year, fails to properly bill for supported services, or delivers services that were not approved for funding under the governing FCC Form 471. We recognize that in some instances, both the beneficiary and the service provider may share responsibility for a statutory or rule violation. In such situations, USAC may initiate recovery action against both parties, and shall pursue such claims until the amount is satisfied by one of the parties.”

Two points about this Order should be noted.

(1) The Order takes effect “…on a going forward basis to all matters for which USAC has not yet issued a demand letter as of the effective date of this order, and to all recovery actions currently under appeal…” Unless appealed, therefore, outstanding COMAD orders resulting from non-complaint findings in last year’s KPMG audits are not covered by the new rules.

(2) As with all administrative actions, decisions by USAC to recover funds from either applicants or service providers can be appealed. We suspect that many appeals in such cases will argue that the other party was at fault. Let the finger pointing begin!

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