Monthly Archives: September 2013

E-Rate 2.0 and Possible Changes

NPRM Challenges This is the seventh in a series of articles discussing the FCC’s Notice of Proposed Rule making for Modernizing the E-rate Program for Schools and Libraries (FCC 13-100), the “E Rate 2.0 NPRM,” which was formally released on July 23rd. This article discusses a number of challenges implicit in the NPRM.

Scope of NPRM:

The first challenge faced by anyone seeking to file comprehensive comments on the E-Rate 2.0 NPRM is its scale and scope. The entire document is 175 pages long including 96 pages of specific requests for comments, questions, and proposals. Almost every one of the 329 paragraphs contains one or more issues subject to comment. Since it’s easier to raise an issue than to address it fully, a filing commenting on every issue could easily be longer than the NPRM itself.

Based on draft comments we’ve seen to date, we expect most responses to comment in detail on just a few selected issues, or more generally on the broader range of issues. A third filing strategy, focusing only on actual proposals, is discussed in the final subsection.

Funding vs. Demand:

One overriding problem faced currently by the E-rate program is a lack of funding. The demand for Priority 1 service now exceeds the annual E-rate funding cap. Although no final decision has been made, it appears that FY 2013 will be the first year in which no Priority 2 funding will be available for applicants, even at the 90% discount level. Without program changes, this problem will get worse, even to the extent of adversely affecting Priority 1 funding within the next few years. This could become an even worse problem for other services if additional funds are to be funneled to broadband. Ideas for solving this problem include: (a) making less services eligible (or available only at lower discount rates); (b) lowering discount rate levels (or capping funding for individual applicants); and/or (c) providing more funding. Because these ideas appear in different sections of the NPRM, there is a risk that they will be addressed in isolation, rather than in the context of an integrated solution. Further, ideas in the (a) and (b) categories are not win-win solutions for everyone, and are likely to create political issues for the FCC.

Conflicting Objectives:

Section V of the NPRM addresses one of the FCC’s three most important objectives in this process, streamlining the administration of the E-rate program. Ideas presented include better electronic filing, speeding the review, invoicing, and disbursement processes, permitting the approval of multi-year contracts, and streamlining the appeals process — all good ideas, at least at the conceptual level.

Unfortunately, ideas in other areas would, if adopted, make E-rate more complex for both applicants and USAC alike. The most complicated ideas are found in the applicant transparency and competitive bidding parts of Section IV, dealing with the goal of maximizing the cost effectiveness of E-rate funds, and the waste, fraud, and abuse part of Section VI. Ideas in these sections include additional data requirements, disclosure of all bids and contracts, extended record retention periods, and third-party independent audits.

Ideas vs. Proposals:

In large part, the E-Rate 2.0 NPRM represents a collection of ideas developed over the years for changing or “fixing” the E-rate program, rather than a set of concrete proposals. In competitive bidding terms, it’s more akin to an RFI than an RFP. As with most regulatory ideas, the devil is in the details of implementation. Although we expect that the FCC is loathe to admit it, the major outcome of the current NPRM effort may be the development of more detailed proposals to be put forth in a subsequent NPRM.

Generally, proposals are in a more advanced stage of development, perhaps to the point that the FCC is prepared to adopt them as rules, absent any convincing arguments to the contrary. In the case of this NPRM, at least one of the “proposals,” dealing with funds distribution, is little more than a decision to adopt one of six alternative ideas.

The presence of some proposals suggests a third strategy for responding to the NPRM by commenting in more detail on the specific proposals, i.e., those more likely to be adopted or rejected in a near term FCC order. In our view, some of those proposals would be beneficial and could be implemented quickly; others will hopefully be rejected.