Update on eRate and ConnectEd… the future changing


Recently, President Obama gave a speech reaffirming his ConnectED pledge to connect 99% of America’s students to high-speed broadband within five years.  As the President put it: “In a Nation where we expect free WiFi with our coffee, why shouldn’t we have it in our schools?”

The President pointed to $750 million in new private-sector commitments to schools for non-E-rate goods and services from Apple, Autodesk, Microsoft, O’Reilly Media, and cellular carriers AT&T, Sprint, and Verizon. (Items not listed as eligible for eRate discount)

On the E-rate front, the President outlined a new FCC “plan to direct $2 billion over the next two years to dramatically expand its investment in high-speed connectivity for America’s schools and libraries. That investment will begin flowing to schools in 2014, and will focus specifically on the broadband connection and Wi-Fi that too many schools lack, and will be the foundation of the ConnectED transformation of schools.”

On Wednesday, FCC Chairman Wheeler made a presentation (see article: “Tom Wheeler; FCC Chairman on eRate and Education Issues)  emphasizing his personal commitment to ConnectED’s goals, stating: “During my tenure as Chairman of the FCC there may be no bigger and more significant issue than making sure our schools and libraries are connected to high-speed broadband networks.”  He went on to indicate that the FCC would be “applying a business-like approach” to E-rate “allowing us to double, to $2 billion, the money to be spent on high-speed connections beginning this year.”

The promise to double E-rate funding on broadband, starting this year, garnered a lot of press.  But what did the Chairman mean by “this year?”  And what do the Chairman’s remarks really mean for E-rate applicants?  Our answer — at least in the short-term — is “not much.”

The first half of “this year” — if that means calendar 2014 — is the second half of FY 2013.  The Chairman’s talk didn’t mention FY 2013 at all, and we expect no changes.  E-rate is already on track to fund all valid Priority 1 requests, including broadband, in the current funding year.  As indicated above, we expect the FCC to shortly approve the denial of all FY 2013 Priority 2 requests.

FY 2014 begins in the second half of calendar 2014.  The Chairman promised to “fund all Priority 1 services in 2014.”  With the roll-over we expect to be available for FY 2014 (see below), we were already projecting full Priority 1 funding.  The Chairman said nothing about Priority 2 for FY 2014 which, if Priority 1 continues to increase, will be difficult to fund at any level.

The one concrete change for FY 2014 that the Chairman did mention was a plan to prioritize the review and approval of “consortia and other joint applications” to “accelerate” funding so as “to get cash that is already in the program working to support broadband projects more quickly.”  Taking the position that “time is money,” the Chairman appears to mean that “more money” for broadband, at least this year, really means the same “money more quickly.”

The one reference the Chairman made to “more money” was the following single sentence:  “Should it be necessary to increase the permanent funding levels for the E-Rate program, we will do what is appropriate” — in other words, no new funding for now.

So much for the short-term; but what about the long-term?  The best way to interpret the promise to double E-rate funding on broadband, beginning this year, is to focus on the word “beginning.”

Most importantly, what the Chairman indicated was that the FCC would “release a Public Notice in the coming weeks seeking comment on a targeted set of issues.”  The apparent goal is to fast track a restructuring of E-rate, effective for FY 2015, to re-prioritize existing E-rate funding to broadband.  Without providing details, the Chairman indicated that this would include:

  1. Phasing out “legacy services, including low-bandwidth connections.”
  2. Targeting “high capacity connections” to ensure “high-speed WiFi” to all classrooms and libraries.

Reading between the lines, this suggests an end to Priority 1 and Priority 2, as we know them today.  In the future, the highest priority will be on broadband services all the way to the classroom, with a focus on end-user wireless access in schools and libraries.

From an applicant perspective, our bottom line view on last week’s speeches is that there was no “ado” about FY 2013, little “ado” about FY 2014, and much “ado” about FY 2015 and beyond.  What comes next is the release of the FCC’s Public Notice, probably by March.

ConnectED and Additional Broadband Funding

On Wednesday, February 5th, FCC Chairman Wheeler is scheduled to make an E-rate presentation at Digital Learning Day.  There is a growing sense of anticipation that the Chairman’s remarks will provide some substance to the recent hints of additional and/or redirected E-rate funding.

As reported the Official FCC Blog carried an article by Chairman Wheeler entitled “Helping American Students Compete in a Digital World.”  The article stressed the FCC’s commitment to President Obama’s ConnectED initiative to connect 99% of America’s students to high-speed broadband within five years, suggesting that the FCC could “use existing funds to immediately begin to expand E-Rate funding targeted to high-speed connectivity to students in schools and libraries.”

President Obama’s State of the Union speech last Tuesday, while not addressing E-rate directly, renewed his commitment to ConnectED, stating:

“Last year, I also pledged to connect 99 percent of our students to high-speed broadband over the next four years. Tonight, I can announce that with the support of the FCC and companies like Apple, Microsoft, Sprint, and Verizon, we’ve got a down payment to start connecting more than 15,000 schools and twenty million students over the next two years, without adding a dime to the deficit.”

The reference to corporate support, together with a separate White House indication that the President will announce additional philanthropic partnerships in the coming weeks, suggests that this is part of a ConnectED goal to build on private-sector innovation, rather than to increase Erate funding.

Commenting on the President’s address, however, FCC Chairman Wheeler did stress the importance of E-rate funding and forthcoming changes, stating:

“Harnessing the power of digital technology is central to improving our education system and our global competitiveness. In the Internet age, every student in America should have access to state-of-the-art educational tools, which are increasingly interactive, individualized and bandwidth-intensive. The Federal Communications Commission shares the President’s commitment to seizing the opportunities of digital learning, which is why we’ve already launched an effort to modernize our successful E-Rate program – the nation’s largest education technology program. By applying business-like management practices to E-Rate, we can take steps this year that will make existing funds go farther to significantly increase our investment in high-speed broadband connectivity for schools and libraries for the benefit of our students and teachers. Together, with my fellow Commissioners, Congress, educators and other stakeholders, we can ensure that all of America’s students get a 21st-century education.”

There are two basic ways to increase E-rate funding for broadband connectivity.  One is to increase, at least on a temporary basis, industry contributions into the Universal Service Fund (“USF”).  This could be done either by increasing the contribution rate or by expanding the base of contributors.  The former approach was suggested by the White House last year following President Obama’s initial ConnectED speech.  Last week, however, Republican leaders of the House Energy and Commerce Committee and the Senate Commerce, Science and Transportation Committee sent a letter to the FCC expressing concern at the recently ballooning cost of the USF program, and urging the Chairman to refer any proposed expansion of the program to the Federal-State Joint Board on Universal Service.

The other approach to increasing broadband funding, which would not require additional USF contributions, would be to shift dollars around within the Fund itself.  There are several ways to do this, including:

  1. Change the eligibility or priorities of E-rate services to favor broadband deployment.  This is the gist of an article appearing in yesterday’s New York Times, based on an anonymous FCC official, reporting on a plan to double spending on broadband using roll-over funds and by eliminating discounts on “outdated technologies.”
  2. Rebalance funding between the four separate USF funds to provide more money for Erate and less money for one or more of the other three programs.
  3. Take advantage of the ADA (Anti-Deficiency Act) exemption, temporarily granted only through 2015, to commit E-rate funds over and above the existing annual cap.

Based on what we learn from Chairman Wheeler’s presentation later this week, we may discuss one or more funding options in more detail in a later newsletter.  For now, stay tuned — or, more specifically, tune into the Chairman’s presentation.

Funding Status For Current Funding Years


The FY 2014 application window opened January 9, 2014, and will close on Wednesday, March 26, 2014 at 11:59 p.m. EDT.

Wave 37 for FY 2013 will be released on Wednesday, February 5, 2014, for $26.3 million.  Funding is currently being provided for Priority 1 services only.  Cumulative funding for FY 2013 will be $1.77 billion.

Wave 120 for FY 2010 and Wave 76 for FY 2012 will be released on Thursday, February 6th.  Wave 108 for FY 2011 is scheduled for Friday, February 7th.

Schools and Libraries News Brief Dated December 6 – Form 470 Process

Schools and Libraries News Brief Dated December 6 – Form 470 Process The SLD News Brief for December 6, 2013, reviews the process for filing a Form 470. The article covers the following topics: • Reasons to file a Form 470 • Do’s and don’ts for completing a Form 470 • The 28-day posting requirement • Conditions to be met when issuing an RFP • Form 470s and existing contracts Note, under the second bullet, that the News Brief indicates that a Form 470 must not “Specify vendors, manufacturers, or model numbers.”

This is an overly broad statement. The actual rule states that when such a product or service is identified by name, it must also be accompanied by the phrase “or equivalent” or “compatible with.”

FY 2014 Eligible Services List Approved

The FCC released the FY 2014 Eligible Services List (“ESL”) last week.  With minor changes, primarily related to the eligibility of interactive communications features provided as a part of web hosting, the final ESL tracks closely with the draft version released for comment last July.

The accompanying FY 2014 ESL order (DA 13-2037) highlighted the two following changes from the FY 2013 ESL:

Lit and Dark Fiber Clarifications:

Additional language was added to clarify that that special construction charges for leased dark fiber are eligible only on the applicant’s property.  Special construction charges for dark fiber from the applicant’s property line out to a carrier’s fiber network are not eligible (see diagram).  For leased lit fiber, all service charges are eligible, implicitly including charges associated with the off-campus construction.

Although not mentioned in the ESL order, two points should be noted:

  1. Since the only necessary distinction between lit and dark fiber is the ownership of the fiber lighting electronics (i.e., at least the relatively inexpensive GBICs), applicants may prefer a lit fiber solution if off-campus construction charges are significant.
  2. Based on changes proposed in the current E-Rate 2.0 NPRM, the different treatment of special construction charges for lit and dark fiber may be eliminated, possibly as early as FY 2015.

    Dark Fiber Eligibility

Carrier fiber network

Web Hosting and E-Mail:

Web hosting has become a contentious issue since it was first added to the ESL in 2003.  We believe that the FCC first viewed web hosting as a minor expense associated with basic school websites providing luncheon menus, bus schedules, etc.  However, as more and more services have migrated online, applicants and vendors have increasingly pushed for greater E-rate support for the “hosting” portion of these services.

The FY 2014 ESL draft proposed the following limitations:

  1. Interactive communication web hosting features such as blogging and web mail are not considered eligible for E-rate support as standalone services; and
  2. Applicants may seek web hosting services from a single provider and may not request funding for multiple web hosting providers (i.e., there can be only one host of a school’s basic website).

With one exception, the final version retains both limitations.  The one change was that the “web mail” feature was eliminated from the prohibition of standalone services.  Blackboard Engage successfully argued that web mail is the equivalent of e-mail, and thus should be eligible as a standalone service.  The FCC agreed, but warned that requests for discounts on both traditional and web-based e-mail services would be considered duplicative.

E-Rate Updates and Reminders

October Deadlines:

Technically, the invoicing deadline for recurring FY 2012 services is Monday, October 28, 2013.  Associated SPIN changes, if required, should also be made by this date.  This year, for the first time, the FCC has instructed USAC to issue automatic one-year invoice deadline extensions to any applicant or service provider missing this deadline.  Practically, therefore, the deadline will be one year hence.

The most common Form 486 deadline for early FY 2013 funding waves 1-6, issued before July 1, 2013, is October 29th.  The next few deadlines, based on the requirement to file Form 486s by the later of 120 days from FCDL issuance or the start of service, are:

Wave 7       10/30/2013
Wave 8       11/07/2013
Wave 9       11/13/2013
Wave 10     11/20/2013

FCC Appeal Decisions Watch:

The FCC issued one appeal decision last week granting a competitive bidding violation waiver under a Petition for Reconsideration for Fall River PSD (DA 13-2055).  The underlying issue in this case stemmed from a USAC finding that the district had selected a service provider without using price as the primary factor.  Consistent with precedent, the FCC has been waiving this rule, but only if applicants demonstrate that they had, in fact, chosen the lowest cost provider.  In this case, the FCC had initially rejected the district’s request for a waiver, finding that the district had not demonstrated this fact.

An important aspect of the FCC’s decision to reverse its initial Fall River decision is that it demonstrates what it takes to prevail in a Petition for Reconsideration.  The decision notes that the “Commission’s rules do not favor requests for reconsideration which rely on facts not previously presented” to the FCC.  The district’s success with this Petition is the result of having “previously argued that it had selected the lowest-cost vendor, and has now presented documentation which is responsive to the evidentiary shortcoming identified in the underlying order.”

Schools and Libraries News Brief Dated October 25 – Service Substitutions

Changing Service Providers Curing a Funding Cycle

A substitution is required whenever an applicant needs to apply committed funding to a product or service which no longer matches its description in the Item 21 attachment.  This might occur when:

  • The equipment manufacturer no longer offers the particular piece of equipment listed on the funding request.
  • The particular piece of equipment listed on the funding request may still be available but regular maintenance on that equipment is difficult or impossible to obtain.
  • The needs of the applicant, while still within the scope of the original request, have changed.
  • The applicant wants to change – or has already changed – service providers, and the new service provider offers a different product, service, or configuration than that described in the original request.

In some cases, when a manufacturer makes a product change, it will request a global service substitution, freeing all its customers from requesting individual substitutions.  Otherwise, it’s up to the individual applicants to request needed changes.  Normally, as long as the substitutions are for similar functionality, these requests can be approved (albeit not necessarily quickly).

Last week’s News Brief also discusses other limitations on service substitutions and how determinations are made on similar functionality.

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.

E-Rate 2.0 – Fallout from ConnectEd?

Political developments over the last week or so could derail additional funding for E-rate.  In early June, speaking at the Mooresville Middle School in North Carolina, President Obama laid out an educational technology plan dubbed “ConnectEd” (see our newsletter of June 10, 2013, and the Administration’s Fact Sheet). A key part of the plan set a five-year goal of connecting 99 percent of America’s students at broadband speeds of no less than 100 Mbps (and an actual target of 1 Gbps) per 1,000 students. Not surprisingly, the same broadband goal was embodied in the FCC’s July NPRM.

Although neither the speech itself nor the Fact Sheet mentioned additional funding for E-rate, post-speech indications from the Administration suggested that USF surcharges might be raised on the order of $5 per line per year to meet the five-year goal. This proposal received little attention until the President’s broadband initiative became the subject of a front page article in the Washington Post on August 14th.

When asked about this in a White House press briefing later that day, Principal Deputy Secretary Josh Ernest inadvertently politicized the ConnectEd proposal. He noted that this was a presidential recommendation to the FCC, and that such an action could be taken by the FCC without Congressional action. The next question was: “So the FCC will decide whether or not the tax is applied? You’re not making an end-run around Congress in this case?”

Given the political sensitivity of taxes, we would have hoped that the response could have clarified that USF surcharges are not taxes, but that was not mentioned at all. Instead, only adding fuel to the fire, the response was:

Well, “end-run” is not the word I would use. What I would say is that there has been – what we have seen from Congress is we’ve seen a lot of stagnation and dysfunction, and an inability to act on some rather obvious priorities of the American people. And so we have made pretty clear – and I think the President has demonstrated a willingness – to act on his own where he can and where necessary to make progress on those priorities. And that’s exactly what we’re doing in this case.

In the past week, we have seen some indication of Congressional agitation which might first surface in the confirmation process for the two new FCC Commissioners (including Tom Wheeler, the nominee for Chairman). Hopefully, this too shall pass and E-Rate 2.0 will move forward.

USAC Delays FY2012 Funding by Shutting Down Electronic BEAR Submission

ONLINE Version of the FCC 472-BEAR (Billed Entity Application Reimbursement Form)   Will be Temporarily Unavailable.

Traditionally after receiving a schools monthly cost for a Funding Year, our staff is able to go on USAC’s website and electronically post, check status and verify funding disbursements. However, because the FCC has instructed changes to this form, USAC had to remove the electronic version with implications that it would be up soon.  The most recent information is by the end of August rather than the end of July as previously reported.  Because of this delay, CTI staff are now filing any BEAR form by mail so there will be now additional delays in submitting however, we still have no way of checking if BEARs have been verified to disbursed to the service providers.  We are sorry for the possible delay in your reimbursement but we do our best to keep you informed with what the FCC and USAC are posting.  For the time, the website post shown below is the only information we have.