Changes Begin On eRate Modernization

On July 11th, following a politically-charged week, the FCC approved the first of what is likely to be several E-rate modernization orders.  The approval was not unanimous and was split along party lines.  The three Democratic-appointed Commissioners (Wheeler, Clyburn, and Rosenworcel) voted for approval (albeit with some reservations), and the two Republican-appointed Commissioners (Pai and O’Rielly) voted against.

Following the vote, the FCC released a two-page overview.  The actual Order, together with a Further Notice of Proposed Rulemaking, is expected to be released, hopefully next week, following final edits and the addition of supporting and dissenting statements by each of the Commissioners.  Based on the overview, as well as statements made during the public meeting and in a following press conference, the Order reflects compromises from earlier proposals.

Dissension among the Commissioners initially focused on whether or not E-rate funding should be increased.  The argument to increase funding, championed by Commissioner Rosenworcel, was strengthened last week by a letter from Senators Jay Rockefeller (D-WV) and Edward Markey (D-MA), two of the early E-rate proponents in Congress.  The Order, as approved, did not include additional funding yet was ultimately supported as a necessary first step by Commissioner Rosenworcel.  Interestingly, a dissenting statement by Commissioner Pai gave voice to a rumor that “promised a post-election increase in the E-Rate budget.”

Lacking additional funding, the primary point of dissension shifted to the Chairman’s original proposal to commit $1 billion a year to Category 2 Wi-Fi equipment and services.  This raised concerns, also discussed in the Rockefeller/Markey letter, that this commitment would place full funding for broadband connectivity services (now to be designated “Category 1”) in jeopardy.  As a compromise on this issue, the Order will now refer to the $1 billion per year for Wi-Fi as a “target,” and will include a “safety net” provision assuring that any shortfall in Category 1 funding will be covered with the targeted Category 2 funds.

Other concerns with the Chairman’s original proposals — there were well over 400 filings with the FCC on E-rate modernization in the July 1-7 period — led to a few other compromises or were rejected altogether in the approved Order.  Although we may have to see the final Order to be sure, the following is a brief outline of how a number of other issues were resolved:

  1. The dollars per student allocation for school Wi-Fi funding, and the similar dollars per square foot allocation for libraries, were adopted only for the first two years and will have to be revisited for FY 2017.  The library allocation mechanism was raised from $1.00 to $2.30 per square foot.  The Wi-Fi budget floor for small schools and libraries was also apparently raised.
  1. The maximum Category 2 discount, will drop to 85%.
  2. The early proposals to eliminate the eligibility for certain Category 1 services such as webhosting in FY 2015, and to begin to phase out the eligibility of voice services (POTS, cellular voice, and VoIP), remain in the Order.
  3. Other proposals remaining in the Order include elimination of the technology plan requirement, districtwide discount rates, electronic-only filings, and new enforcement measures on the service provider Lowest Corresponding Price (“LCP”) requirement.
  4. Two other provisions in the Order — one favorable for applicants, one unfavorable — not mentioned in recent discussions of the Chairman’s proposals, but tracing back to the 2013 NPRM, include:
  1. Direct applicant invoicing, presumably meaning that BEAR reimbursement payments will be made directly to applicants rather than flowing through the service providers.
  2. An increase in the record retention requirement period from five to ten years to be consistent with other USF programs.

Accompanying the Order will be a Further Notice of Proposed Rulemaking (“FNPRM”) reportedly focusing on long-term funding needs, consortium-based purchasing, and alternative methods for allocating library Wi-Fi funding.  The comment period for the FNPRM is expected to be 30 days.

Additional information will become available once the Order and FNPRM is formally released.  Details on changes to the eligibility of “legacy” services may not be fully available until we see the Draft Eligible Services List for FY 2015, expected to be released separately for public comment later this month.