[Federal Register Volume 79, Number 160 (Tuesday, August 19, 2014)]
[Rules and Regulations]
[Pages 49160-49204]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-18937]
[[Page 49159]]
Vol. 79
Tuesday,
No. 160
August 19, 2014
Part II
Federal Communications Commission
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47 CFR Part 54
Modernization of the Schools and Libraries ``E-Rate'' Program; Final
Rule
Federal Register / Vol. 79 , No. 160 / Tuesday, August 19, 2014 /
Rules and Regulations
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket No. 13-184; FCC 14-99]
Modernization of the Schools and Libraries ``E-Rate'' Program
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) takes major steps to modernize the E-rate program (more
formally known as the schools and libraries universal service support
mechanism). Building on the comments the Commission received in
response to the E-rate Modernization NPRM, and the E-rate Modernization
Public Notice, as well as recommendations from the Government
Accountability Office (GAO), the program improvements the Commission
adopts as part of this document begin the process of reorienting the E-
rate program to focus on high-speed broadband for our nation's schools
and libraries.
DATES: Effective September 18, 2014, except for amendments in
Sec. Sec. 54.502(b)(2), (3), and (5), 54.503(c), 54.504(a) and (f),
54.507(d), 54.514(a), 54.516(a) through (c), and 54.720(a), which are
subject to the Paperwork Reduction Act and will become effective upon
announcement by the FCC in the Federal Register of OMB approval of the
subject information collection requirements; and except for amendments
in Sec. Sec. 54.500, 54.501(a)(1), 54.502(a), 54.507(a) through (c)
and (e) through (f), 54.516, and 54.570(b) and (c), which shall become
effective on July 1, 2015; and amendments in Sec. Sec. 54.504(f)(4)
and (5) and 54.514(c), which shall become effective on July 1, 2016.
FOR FURTHER INFORMATION CONTACT: James Bachtell or Kate Dumouchel,
Wireline Competition Bureau, Telecommunications Access Policy Division,
at (202) 418-7400 or TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report
and Order, in WC Docket No. 13-184; FCC 14-99, adopted on July 11, 2014
and released on July 23, 2014. The full text of this document is
available for public inspection during regular business hours in the
FCC Reference Center, Room CY-A257, 445 12th Street SW., Washington, DC
20554. Or at the following Internet address: http://www.fcc.gov/document/fcc-releases-e-rate-modernization-order. The Further Notice of
Proposed Rulemaking (FNPRM) that was adopted concurrently with the
Report and Order is published elsewhere in this issue of the Federal
Register.
I. Introduction
1. In this Report and Order we take major steps to modernize the E-
rate program. In so doing, we recognize E-rate's extraordinary success
as the federal government's largest education technology program. Over
the last 17 years, the E-rate program has helped to ensure that our
nation's schools and libraries are connected to the digital world. At
the same time, we acknowledge and embrace our responsibility to make
sure the program evolves as the needs of schools and libraries evolve.
In particular, the E-rate program must evolve to focus on providing
support for the high-speed broadband that schools need to take
advantage of bandwidth-intensive digital learning technologies and that
libraries need to provide their patrons with high-speed access to the
Internet on mobile devices as well as desktops. Access to high-speed
broadband is crucial to improving educational experiences and expanding
opportunities for all of our nation's students, teachers, parents and
communities. Building on the comments we received in response to the E-
rate Modernization NPRM, 78 FR 51597, August 20, 2013, and the E-rate
Modernization Public Notice, 79 FR 13300, March 10, 2014, as well as
recommendations from the GAO, the program improvements we adopt as part
of this Report and Order begin the process of reorienting the E-rate
program to focus on high-speed broadband for our nation's schools and
libraries.
2. The record clearly demonstrates the power of high-speed
broadband connectivity to transform learning. High-speed broadband, to
and within schools, connects students to cutting-edge learning tools in
the areas of science, technology, engineering and math (STEM)
education, necessary for preparing them to compete in the global
economy. High-speed broadband also creates opportunities for customized
learning, by giving our students and their teachers access to
interactive content, and to assessments and analytics that provide
students, their teachers, and their parents real-time information about
student performance while allowing for seamless engagement between home
and school. Finally, high-speed broadband expands the reach of our
schools and creates opportunities for collaborative distance learning,
providing all students access to expert instruction, no matter how
small the school they attend or how far they live from experts in their
field of study.
3. High-speed broadband is also a critical component of 21st
Century libraries. In many communities, libraries are the only source
of free, publicly available Internet access. As a result, high-speed
broadband at libraries provides library patrons, many of whom have no
other Internet access, the ability to participate in the digital world.
Broadband services at libraries are crucial for enabling and fostering
life-long learning, and they enable students at all stages of their
education to perform research and complete their homework. Broadband at
libraries is also crucial for students studying for and taking their
General Educational Development (GED) tests and allows students to take
and study for college and graduate-level courses. Broadband at
libraries enables patrons to seek and apply for jobs; learn new skills;
interact with federal, state, local, and Tribal government agencies;
search for health-care and other crucial information; make well-
informed purchasing decisions; and stay in touch with friends and
family.
4. In adopting this Report and Order, we recognize the critical
role the E-rate program plays in the lives of our students and
communities and the importance of ensuring that the program supports
sufficient, equitable, and predictable support for high-speed
connectivity to and within schools and libraries. It is a crucial part
of the Commission's broader mandate to further broadband deployment and
adoption across our nation. We therefore adopt a number of the
proposals made in the E-rate Modernization NPRM and begin the process
of re-focusing the E-rate program on providing the necessary support to
ensure our nation's schools and libraries have affordable access to
high-speed broadband.
5. To maximize the benefits of the E-rate program to our nation's
schools and libraries, we adopt the proposal made in the E-rate
Modernization NPRM to establish clear goals and measures for the
program. The three goals we adopt for the E-rate program are: (1)
Ensuring affordable access to high-speed broadband sufficient to
support digital learning in schools and robust connectivity for all
libraries; (2) maximizing the cost-effectiveness of spending for E-rate
supported purchases; and (3) making the E-rate application process and
other E-rate
[[Page 49161]]
processes fast, simple and efficient. We also adopt approaches for
measuring our success towards meeting those goals.
6. In addition, we adopt the following updates to the E-rate
program aimed at furthering each of those goals:
To ensure affordable access to high-speed broadband
sufficient to support digital learning in schools and robust
connectivity for all libraries, we:
[cir] Set an annual funding target of $1 billion for funding for
internal connections needed to support high-speed broadband within
schools and libraries;
[cir] test a more equitable approach to funding internal
connections for applicants who seek support in funding years 2015 and
2016; and
[cir] reorient the E-rate program to focus on supporting high-speed
broadband by phasing down support for voice services and eliminating
support for other legacy services.
To maximize the cost-effectiveness of spending for E-rate
supported purchases, we:
[cir] Adopt transparency measures to encourage sharing of cost and
connectivity data;
[cir] encourage consortia purchasing; and
[cir] emphasize that providers must offer the lowest corresponding
price.
To make the E-rate application process and other E-rate
processes fast, simple and efficient, we:
[cir] Streamline the application process by:
[ssquf] Simplifying the application process for multi-year
contracts;
[ssquf] exempting low-cost, high-speed business-class broadband
Internet access services from the competitive bidding requirements;
[ssquf] easing the signed contract requirement;
[ssquf] removing the technology plan requirement;
[ssquf] requiring electronic filings; and
[ssquf] enabling direct connections between schools and libraries.
[cir] Simplify discount rate calculations by:
[ssquf] Requiring a district-wide discount rate;
[ssquf] modifying the definition of urban and rural;
[ssquf] addressing changes to the national school lunch program
(NSLP); and
[ssquf] modifying the requirements for applicants using surveys.
[cir] Simplify the invoicing and disbursement process by:
[ssquf] Allowing direct invoicing by schools and libraries; and
[ssquf] adopting an invoicing deadline.
[cir] Create a Tribal consultation, training and outreach program.
[cir] require the filing of all universal service appeals initially
with USAC.
[cir] direct USAC to adopt additional measures to improve the
administration of the program by:
[ssquf] Speeding review of applications, commitment decisions and
disbursements;
[ssquf] modernizing USAC's information technology systems;
[ssquf] adopting open data policies;
[ssquf] improving communications with E-rate applicants and
providers.
[cir] Protect against waste, fraud, and abuse by:
[ssquf] Extending the document retention deadline; and
[ssquf] ensuring auditors and investigators access to an
applicant's premises upon request.
7. The most fundamental step we take today is to overhaul the
support system for internal connections, including the deployment of
high-speed Wi-Fi in classrooms and libraries nationwide. When the E-
rate program was created, the idea of wired connections to classrooms
was revolutionary. Today, students and teachers can and do take their
devices with them wherever they go, which means they need to have
Internet connectivity throughout their schools. Likewise, in 1997,
desktop computers offered state of the art connectivity in libraries.
Now, library patrons bring their own devices and use those that belong
to their libraries. By modernizing the E-rate program to expand schools
and libraries access to more predictable E-rate funding that is
sufficient to meet their needs for Wi-Fi connectivity, and other
internal broadband connections.
8. Of course, Wi-Fi in classrooms and libraries requires broadband
connectivity to schools and libraries. We therefore also take steps in
this Report and Order to ensure that all eligible schools and libraries
will continue to be able to receive E-rate support to purchase
broadband services to their buildings.
9. At the same time, we are mindful of the importance of continuing
to improve the E-rate program in order to achieve the goals we adopt
herein. In order to ensure the E-rate program evolves to meet the
connectivity needs of our nation's schools and libraries, we leave the
record open in this proceeding to allow us to address in the future
those issues raised in the E-rate Modernization NPRM that we do not
address today. We also issue an accompanying Further Notice of Proposed
Rulemaking (FNPRM) to seek comment on some additional issues.
II. Performance Goals and Measures
10. Based on overwhelming support in the record, and consistent
with the Congressional directives in sections 254(b) and (h) of the
Communications Act (the Act), we adopt three goals modeled on those
proposed in the E-rate Modernization NPRM: (1) Ensuring affordable
access to high-speed broadband sufficient to support digital learning
in schools and robust connectivity for all libraries; (2) maximizing
the cost-effectiveness of spending for E-rate supported purchases; and
(3) making the E-rate application process and other E-rate processes
fast, simple, and efficient. We also adopt associated performance
measures and targets to determine whether we are successfully achieving
these goals. Clearly articulating goals for the E-rate program, along
with specific performance measures and targets, will help us focus our
efforts as we modernize the E-rate program, monitor our progress over
time, and adjust course as needed. In choosing these goals, performance
measures, and targets, we also recognize the need to be sufficiently
flexible to accommodate the evolving technological and connectivity
needs of schools and libraries.
11. Establishing clear performance goals is also consistent with
the Government Performance and Results Act of 1993 (GPRA), which
requires federal agencies to engage in strategic planning and
performance measurement. In 2007, the Commission adopted measures to
safeguard the universal service fund (USF or Fund) from waste, fraud,
and abuse as well as measures to improve the management,
administration, and oversight of the USF generally. More recently, the
Commission has adopted goals in the other USF programs it has
modernized over the last few years. In the E-rate Modernization NPRM,
while the Commission recognized the importance of these measures, it
also acknowledged the subsequent finding by the GAO that the E-rate
program, specifically, lacked sufficient performance goals and
measures. In its 2009 report, the GAO emphasized that successful
performance measures should be tied to goals, address important aspects
of program performance, and provide useful information for decision
making. The goals, measures, and targets we adopt today respond
directly to the GAO's recommendations and place the E-rate program on a
clear strategic path, consistent with the GPRA.
12. Throughout this Report and Order, we use these three goals as
guideposts for our decisions about how to close the
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gap between the broadband needs of schools and libraries and their
ability to obtain those services. As part of the performance measures,
we set connectivity targets by which we will evaluate progress towards
meeting our goals. We also adopt reporting obligations for USAC and for
E-rate program participants that will enable us to measure progress
towards meeting the goals. While we identify specific reporting
obligations, we delegate authority to the Bureau, working with the
Office of the Managing Director (OMD), to finalize the format and
timing of those reporting obligations.
13. Using the adopted goals and measures, we will, consistent with
the GPRA, monitor the performance of the E-rate program over time, and
regularly reassess our rules and policies to ensure that they are
continuing to support our goals. If we find that the E-rate program is
not making progress towards meeting the performance goals, we will
consider corrective actions. Likewise, to the extent that the adopted
targets and performance measures do not help us assess program
performance, we will revisit them.
A. Ensuring Affordable Access to High-Speed Broadband Sufficient To
Support Digital Learning in Schools and Robust Connectivity for All
Libraries
1. Goal
14. We adopt as our first goal ensuring affordable access to high-
speed broadband sufficient to support digital learning in schools and
robust connectivity for all libraries. This goal is widely supported by
commenters and implements Congress's directive in section 254(h) of the
Act that the Commission ``enhance access to advanced telecommunications
and information services'' to schools and libraries ``to the extent
technically feasible and economically reasonable,'' and determine a
discount level for all E-rate funded services that is ``appropriate and
necessary to ensure affordable access to and use of such services.''
15. Our record demonstrates that high-speed broadband is essential
for students, teachers, and library patrons seeking to take advantage
of the rapidly expanding opportunities for interactive digital
learning. As the Commission observed in the E-rate Modernization NPRM,
the availability of high-speed broadband in schools transforms learning
opportunities and expands school boundaries by providing all students
access to high-quality courses and expert instruction. We also agree
with commenters that high-speed broadband connections should be
available to students and teachers throughout a school, enabling them
to utilize online materials and blended learning throughout the day and
as part of their curriculum.
16. High-speed broadband is also critical in libraries, where it
provides patrons with the ability to access the Internet, search for
and apply for jobs, engage with governmental entities, learn new
skills, and engage in life-long learning. High-speed broadband to and
within libraries is especially important in communities where many lack
home access to broadband, including minority and low-income
communities. Libraries in these communities provide broadband access
during non-school hours to students who do not have home access to
broadband.
17. The record demonstrates that schools and libraries, recognizing
the importance of high-speed broadband to utilize the variety of Wi-Fi-
enabled devices for educational purposes, are racing to deploy and
upgrade their networks. Specifically, schools and libraries are working
to upgrade local area networks (LANs) and wireless local area networks
(WLANs or Wi-Fi networks) to deliver high-speed broadband to every
student and patron device. School districts are increasingly
implementing one-to-one student to device initiatives and bring your
own device (BYOD) programs that require high-density Wi-Fi coverage in
every classroom and common area. The WLAN upgrades necessary to support
one-to-one digital learning may include upgraded switches, wireless
routers, Cat 6 or fiber cabling, and 802.11n (or better) wireless
access points (WAPs). Though the increasing number of Wi-Fi-enabled
devices in schools provides exciting educational possibilities, 57
percent of school districts responding to a recent survey by the
Consortium on School Networking do not believe that they have Wi-Fi
capacity capable of handling a one-to-one deployment.
18. Libraries are also seeing a rapid increase in bandwidth demand
driven by Wi-Fi-enabled devices and the public's need for broadband
access. The percentage of libraries providing free Wi-Fi to the public
grew from 37 percent in 2006 to 91 percent in 2012. Several commenters
note that the public library is sometimes the only place offering free
Internet access to the community. Many libraries report that patron-
owned devices connected to their network will soon surpass library-
provided devices. New technologies such as digital media labs,
interactive learning tools for adult education, and videoconferencing
services also contribute to increasing bandwidth demand in libraries.
19. Finally, it is also crucial that high-speed broadband to
schools and libraries be affordable, consistent with section 254(b)(1).
The record makes clear that, in some areas today, schools and libraries
are unable to afford high-speed broadband services or the services they
can afford provide insufficient bandwidth to support digital learning
or provide their patrons with robust Internet access. We have collected
voluminous data on the current state of connectivity to schools and
libraries, and the prices schools and applicants are paying for their
connectivity. The record reveals a wide variance in the speed and price
of connectivity at schools and libraries nationwide. Location, access
to fiber connections, financial resources, access to a research and
education network (REN), statewide or regional coordination, ISP
competition, and a well-informed IT staff are among the many factors
that can affect a school's or library's ability to procure high-speed
connectivity at a reasonable price.
2. Measures
20. We will evaluate progress towards our first goal by comparing
connectivity to and within schools and libraries with widely accepted
connectivity targets that are based on digital learning and library
needs. As illustrated in Figure 2, the connectivity needs of schools
can be divided into three components:
Internet Access--School districts and some library systems
purchase Internet access for the entire district or system at a single
point of aggregation. For the purposes of this measure, we refer to
``Internet access'' as the connection or connections that allow traffic
to flow from that aggregation point to the public Internet. As part of
the purchase of Internet access, the school district (or library
system) may purchase dedicated connectivity (e.g., dedicated transport)
from its point of aggregation to its Internet Service Provider's
(ISP's) point of presence. For schools and libraries that are not
connected to a district Wide Area Networking (WAN), Internet access
simply refers to the school's or library's direct connection to the
public Internet.
WAN/Last-Mile--As just described, school districts and
library systems frequently connect individual schools and libraries to
a central aggregation point, such as a district, county, or regional
data hub, that hosts the Internet demarcation point for the entire
district, county, regional, or library system. We refer to these
connections as WAN or last mile connections.
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Internal Connections--This category encompasses the
infrastructure necessary to deliver Internet access from the edge of a
school or library to the actual student, faculty, or patron end-user
device. Internal connections include Wi-Fi.
[GRAPHIC] [TIFF OMITTED] TR19AU14.000
21. For each of these three network components, we adopt separate
measures of progress, including distinct connectivity targets.
a. Internet Access
22. Connectivity Targets. We adopt the State Education Technology
Directors Association's (SETDA) target recommendation of Internet
access for schools of at least 100 Mbps per 1,000 students and staff
(users) in the short term and 1 Gbps Internet access per 1,000 users in
the longer term. We agree with those commenters who support both the
shorter and longer-term connectivity SETDA targets as reflecting
schools' bandwidth needs as they increasingly adopt digital learning
strategies and one-to-one device initiatives. SETDA's long-term targets
are also consistent with President Obama's initiative to connect 99
percent of students to high-speed broadband within five years.
23. We will measure Internet connectivity at the district level for
school districts and at the school level for schools that are not
members of a district (e.g., private schools). We recognize that the
SETDA target for Internet access connectivity may not be appropriate
for every school or school district, especially very large or very
small districts or individual schools, and will take that into account
when measuring success towards the targets we set today. Large school
districts often keep a significant amount of traffic on their internal
networks and are able to oversubscribe Internet connections, thereby
requiring less per-student Internet access bandwidth. For example, the
Los Angeles Unified School District's (LAUSD) network has approximately
750,000 total users and LAUSD is implementing a district-wide one-to-
one initiative. LAUSD anticipates that 90 Gbps Internet access
connectivity, or approximately 120 Mbps per 1,000 students, will
deliver sufficient bandwidth to every classroom and device with the
help of bandwidth optimization measures that compress data and
eliminate redundant traffic. We will continue to analyze data on
broadband demand.
24. This ongoing examination of our Internet connectivity targets
should include regular input from schools and libraries. We therefore
direct the Bureau to seek, as part of the application process, feedback
from schools and libraries on the sufficiency of their Internet access
bandwidth to meet their needs. The Bureau will consider all responses,
in conjunction with usage and demand data, when refining the Internet
connectivity targets.
25. With respect to libraries, we initially adopt as a bandwidth
target the American Library Association's recommendation that all
libraries that serve fewer than 50,000 people have broadband speeds of
at least 100 Mbps and all libraries that serve 50,000 people or more
have broadband speeds of at least 1 Gbps. We agree with commenters that
the size of the community served by a library must factor into the
library target.
26. Affordability. To measure affordability, we will track pricing
as a function of bandwidth. We direct the Bureau, working with OMD and
USAC, to regularly report normalized pricing (e.g., price per Mbps) for
Internet access connectivity and to identify any outliers.
b. WAN
27. Connectivity Targets. We adopt as a target for WAN connectivity
the total number of schools that have a connection capable of providing
a dedicated data service scalable to the SETDA long-term WAN target of
10 Gbps per 1,000 students. At this time, the vast majority of
districts and libraries that operate WANs do not have demand for, and
therefore do not purchase, 10 Gbps circuits. Indeed, schools and
districts have varying broadband needs that will increase at different
rates. For example, some elementary schools may not require the same
bandwidth per student as middle or high schools. Very small schools
with
[[Page 49164]]
fewer than 100 students, particularly those that are part of small
districts, may not require WAN connections scalable to 1 Gbps
(equivalent to 10 Gbps per 1,000 students). However, in some instances
small schools in small districts may require more bandwidth per student
because they may not be able to take advantage of high oversubscription
ratios or conserve bandwidth by using network optimization tools to the
same extent as larger schools and larger districts. Conversely, large
school districts may be able to optimize their networks to deliver very
high speed broadband to the classroom without having WAN connectivity
of 10 Gbps per 1,000 students. We therefore adopt a target that focuses
on the scalable capacity of school district WAN connections to 10 Gbps
per 1,000 students. In most cases, a 1 Gbps fiber connection can be
readily scaled to 10 Gbps with upgraded networking equipment.
28. The WAN connectivity target that we adopt today is the result
of careful analysis of the record and our programmatic experience.
Several commenters agree that the SETDA WAN targets accurately reflect
the rapidly increasing broadband demand in schools. Others argue that
the SETDA WAN targets are too low given the increasing bandwidth
demands of standardized testing, educational applications, streaming
video, and the growing number of Wi-Fi-enabled devices in schools. Many
school districts report that they have doubled their WAN bandwidth in
recent years and are planning for future increases. Commenters opposed
to adoption of the SETDA WAN targets express concerns about uniform
targets for all schools because districts have widely varying student
populations, broadband availability, and financial resources. Other
commenters recommend that the Commission conduct a comprehensive
analysis of schools' actual broadband needs before establishing
specific bandwidth targets.
29. We find that a WAN connectivity target measured by the capacity
of connections available to schools properly balances the concerns
identified by commenters opposed to the SETDA bandwidth targets with
the need to ensure that all schools have affordable access to high-
speed broadband that supports digital learning. Several factors are
driving the need to increase bandwidth to and within schools. School
districts across the country are implementing one-to-one and BYOD
programs that require more robust connectivity. Cisco notes that the
density of devices and demand on the network in many schools surpasses
the demand of other high-density environments such as hotels,
restaurants, and corporate offices. The peak bandwidth usage of media-
rich curriculum and streaming video applications far exceeds the usage
of basic web browsing and email. Online assessments will require high-
speed connections that are also highly reliable and secure. A target of
ensuring that all schools connected to WANs have a connection scalable
to 10 Gbps per 1,000 students will ensure that schools have access to
bandwidth sufficient to meet growing demand while maintaining the
flexibility to purchase the bandwidth that meets their needs.
30. We direct the Bureau to continue analyzing data on WAN
connectivity. As with the Internet connectivity targets, this ongoing
examination should consider input from schools and libraries. We
therefore direct the Bureau to seek feedback from schools and
libraries, as part of the E-rate application process, on its WAN
connectivity and whether its WAN provides sufficient bandwidth to meet
the schools' and libraries' needs.
31. For libraries, our record is not sufficiently developed to
establish a performance measure and a WAN connectivity target at this
time. However, to the extent that libraries are connected by a WAN,
similar to our approach with schools, we will measure the total number
of libraries that have a connection capable of providing a data service
scalable to at least 10 Gbps.
32. Affordability. As with Internet access, we will measure
affordability of WAN connections by tracking pricing as a function of
bandwidth. We also direct the Bureau, working with OMD and USAC, to
regularly report normalized pricing (e.g., price per Mbps) for WAN
connectivity and to identify any outliers.
c. Internal Connections
33. Connectivity Targets. Pending the development of a suitable
available bandwidth measure for internal connectivity, we find that a
survey of school districts and libraries is the best method to gauge
the sufficiency of internal connections at this time. Our record is not
sufficiently well developed at this time to allow us to identify the
appropriate level of bandwidth per device in either schools or
libraries. We are also concerned that schools and libraries would find
such a measure difficult to report, as the responsible individuals may
not have access to the necessary technical data. We therefore decline
to adopt such a measure at this time, but direct the Bureau to continue
to develop the record on this issue.
34. Several commenters emphasize that Wi-Fi performance is best
measured by throughput to the student or library patron device rather
than classroom or library coverage. Other commenters suggest that the
high-density Wi-Fi demands of schools require at least one high-
capacity wireless access point (WAP) per classroom. Library commenters
discuss increasing Wi-Fi demand, but generally did not endorse specific
Wi-Fi targets. At this time, we do not think counting the number of
WAPs is the right approach to measuring connectivity within schools and
libraries. Several unique considerations impact WLAN design. For
example, some school districts opt for very high-capacity WAPs that
deliver ample bandwidth to multiple classrooms, while others have
installed multiple lower-speed WAPs per classroom. Distribution of WAPs
in libraries depends on specific factors such as user density and
building design. Therefore, we agree with commenters that available
bandwidth per device is a more suitable measure to determine whether
internal connections are sufficient to support the needs of each
individual user at a school or library. However, we need further
information from schools and libraries before we adopt a specific
measure. We therefore direct the Bureau to seek feedback from schools
and libraries, as part of the survey, on the sufficiency of their LAN/
WLAN capacity and coverage to support the educational or library
activities conducted at their school or library site. The answer to
this question will help provide the Commission with insight on progress
towards the stated goal pending the development of a more technical
measure.
35. Affordability. Consistent with our decision to use a survey to
measure internal connections availability pending the development of a
more precise measure, we direct the Bureau, as part of the survey, to
also seek feedback from those schools and libraries that have
insufficient WLAN capacity and coverage to support the educational or
library activities conducted at their school or library site as to the
reason for the lack of sufficient capacity and coverage (e.g.,
affordability of equipment, or lack of demand for Wi-Fi).
3. Reporting and Further Development of Measures and Targets
36. We direct the Bureau to revise the information collections from
E-rate applicants and vendors to collect data regarding the specific
measures
[[Page 49165]]
adopted. The Bureau should analyze data collected from applicants to
track progress toward meeting program goals and to inform revisions to
the performance measures and E-rate program rules, and if necessary, to
the goals themselves. We also agree with commenters that data should be
publicly accessible so that applicants can make informed decisions
regarding broadband purchasing and network design.
37. In addition to the connectivity and affordability measures
adopted, we agree with commenters who recommend that the Commission
evaluate actual bandwidth usage and network performance statistics to
continually refine our connectivity targets over time. Digital
education and the technologies that deliver it are rapidly evolving. In
such a dynamic environment, it is important that we understand changes
in the bandwidth demands of school and library networks supported by E-
rate as well as the performance of those networks. We direct the Bureau
to work with school districts and libraries to develop network
measurement methods that gather data on network usage and performance.
B. Maximizing the Cost-Effectiveness of Spending for E-Rate Supported
Purchases
1. Goal
38. We adopt as our second goal maximizing the cost-effectiveness
of spending for E-rate supported purchases, thereby minimizing the
contribution burden on consumers and businesses and maximizing the
benefit of each dollar spent on services for schools and libraries. Our
rules require that applicants ``select the most cost-effective service
offering.'' Moreover, when evaluating bids, applicants ``may consider
relevant factors other than the pre-discount prices . . . , but price
should be the primary factor considered.'' Commenters broadly support
the Commission's proposal to adopt cost-effectiveness as a goal of the
E-rate program, in recognition of the limited amount of E-rate funds
available to meet the connectivity needs of all schools and libraries
throughout the nation. This goal is also consistent with section
254(h)(2)(A) of the Act, which requires that support to schools and
libraries be ``economically reasonable.'' As the Commission recognized
in the E-rate Modernization NPRM, we have a ``responsibility to be a
prudent guardian of the public's resources.''
2. Measures
39. We will focus our evaluation of progress towards this goal by
measuring the prices paid for the E-rate services delivered to schools
and libraries. We will separately measure and track the prices paid for
the E-rate services delivered to schools and libraries for connections
to and for connections within schools and libraries. Detailed pricing
information is essential to our goal of maximizing cost-effectiveness
as well as ``affordability'' under our first goal. We thus direct the
Bureau and OMD working with USAC, as necessary, to develop the process
by which we will measure, track, and report on the prices paid for E-
rate services. In addition, we will continue to monitor the results of
USAC's audits and other reports to track progress in reducing improper
payments and waste, fraud and abuse.
40. For connectivity to school and library locations, we will
measure and report on prices paid as a function of bandwidth (e.g.,
dollars per Mbps) and also as a function of number of users (or unique
devices). In addition, we will track pricing as a function of various
potential cost drivers, which may include physical layer type (e.g.,
fiber, copper, coax, fixed wireless), service type (e.g., DSL, cable
modem, metro Ethernet, Internet access), geography (e.g., rural,
urban), carrier, carrier type, and purchasing mechanism (e.g.,
individual school, district, regional consortium).
41. An equally important component of cost-effectiveness is the
matching of capacity purchased with need. We direct the Bureau, working
with USAC, to develop and maintain best practices and benchmarks
regarding network utilization, network architectures, network
performance, and network optimization and management.
42. For connectivity within schools and libraries, we will measure
and report pricing as a function of number of users or unique devices.
We will track pricing of eligible expenses associated with LANs and
WLANs (e.g., Wi-Fi), including pricing of eligible network components
(e.g., switches, routers, wireless access points, cabling), managed
services, and other eligible services associated with LANs and WLANs.
In addition to tracking the pricing and capacity, we will seek to track
utilization and performance of these internal connections to more fully
measure the value delivered with E-rate support. We will also track
replacement and upgrade cycles and LAN/WLAN architectures to accurately
measure cost-effectiveness.
C. Making the E-Rrate Application Process and Other E-Rate Processes
Fast, Simple and Efficient
1. Goal
43. We adopt as our third goal making the E-rate application
process and other E-rate processes fast, simple, and efficient. Each
year, USAC reviews tens of thousands of funding requests from schools
and libraries, and processes thousands of appeals, invoice requests,
deadline extension requests, and additional inquiries from schools,
libraries, and other parties requesting information. Simplifying and
improving these procedures will help applicants receive their funding
in a timely fashion, which will allow them to plan better and maximize
the impact of their support. Simplification of the E-rate application
process also eases the administrative burden on applicants--which is
particularly important for smaller schools and libraries that lack
extensive administrative support. Conversely, complexity and delay
discourage participation and ultimately result in fewer schools and
libraries fully investing in needed high-speed broadband connections.
44. Commenters overwhelmingly agree that making E-rate process
fast, simple, and efficient is critical to the overall success of E-
rate. Commenters specifically highlight, among other things, the
importance of simplicity and transparency in the application submission
and review process, and the need for timeliness in making funding
commitments and paying invoices, reclaiming unused funds, and
completion of the application and selective review processes. We
recognize that there are a number of considerations that compete with
our efforts to simplify the program for applicants, speed processing of
applications and appeals, and minimize overhead costs. For example, we
will need to appropriately balance our need for data to appropriately
monitor program performance, with our efforts to minimize the
application burden on applicants. Likewise, we must ensure that a
simplified E-rate program does not open the door to waste, fraud, or
abuse.
2. Measures
45. In 2007, the Commission adopted certain E-rate performance
measurements related to the application and invoicing processes and the
resolution of appeals submitted to USAC. Building on that work, in the
E-rate Modernization NPRM the Commission sought comment on what
additional measures we should adopt to
[[Page 49166]]
support the goal of making the E-rate application process and other E-
rate processes fast, simple and efficient. While commenters are very
supportive of streamlining and simplifying the administrative process,
few offer actual performance measures to support this goal.
46. Based on our experience with the E-rate program, as an initial
measure, we will evaluate progress towards our third goal by measuring
the timely processing of funding commitments to eligible schools and
libraries by USAC by tracking the processing time against an
established target. Working with OMD, USAC has dramatically improved
its rate of application processing for this funding year (funding year
2014). In both funding year 2013 and 2014, USAC received applications
requesting between $2.6 and $2.7 billion in priority one E-rate
support. By July 1, 2013, USAC had only committed approximately $181
million in support. By contrast, as of July 1, 2014, USAC has already
committed approximately $1.22 billion in support. In 2013, USAC did not
reach $1 billion in commitments until October.
47. We applaud the progress USAC and OMD have made in improving the
timeliness of processing of funding commitments to eligible schools and
libraries. In light of this progress, and to ensure continued progress
and further expedite the commitment process and increase the timeliness
of funding commitment decisions, we direct USAC to aim to issue funding
commitments or denials for all ``workable'' funding requests by
September 1st of each funding year. A September 1st deadline provides
USAC with approximately five months beyond the application filing
window deadline to review all timely filed and complete funding
requests and gives applicants certainty regarding a funding decision
for those timely filed and complete requests by the beginning of the
school year. ``Workable'' means that a funding request is filed timely
and is complete, with all necessary information, to enable a reviewer
to make the appropriate funding decision, and the applicant, provider,
and any consultants are not subject to investigation, audit, or other
similar reason for delay in a funding decision. Funding requests from
applicants that decline to respond to USAC inquiries over the summer
may be considered ``unworkable'' for purposes of this performance goal,
though USAC will process these applications as quickly as possible when
school staff return for the year. USAC shall continue to report at
least monthly on its progress toward this goal, based on the dollars of
requests processed and the total count of schools and libraries
represented in those requests, as well as any other specific metrics
OMD identifies, and on any obstacles to achieving the application
processing target.
48. In adopting this target, we recognize that even ``workable''
funding requests may be time consuming for USAC to process and may,
after initial review, require further input from the applicant before
USAC can issue a funding commitment. Our adoption of a specific
application processing target should not affect in any way USAC's
contacts with applicants to seek additional information concerning a
funding request and USAC's thorough review of each application. USAC
must continue to provide applicants with an opportunity to respond to
their questions. While we seek to expedite USAC's processing of
applications, we remain committed to guarding against waste, fraud, and
abuse in the E-rate program. We note that failure of an applicant to
timely respond to requested information could constitute an obstacle to
receiving a funding decision by the target date. Therefore, we strongly
encourage applicants to timely respond to USAC requests for
information.
49. We will also evaluate our progress towards the third goal by
having USAC survey applicants and service providers about their
experience with the program. A survey will provide useful and useable
information to USAC and to the Commission about what is working and
what needs to be improved.
50. These performance measurements, taken together, will help
provide greater certainty to applicants and providers, and will assist
applicants in more timely deployment of eligible services.
Additionally, these measures will help to ensure that the E-rate
program is operated as efficiently as possible by minimizing the need
for the submission and review of other requests, such as service
delivery deadline extensions, service substitutions, service provider
identification number (SPIN) changes and FCC Form 500 filings to change
contract expiration dates, which are often necessitated due to the
delay in the issuance of timely funding commitment decisions letters.
III. Ensuring Affordable Access to High-Speed Broadband Sufficient To
Support Digital Learning in Schools and Robust Connectivity for All
Libraries
51. Having set our goals for the E-rate program, we now turn to the
process of modernizing the program to meet each of those goals. In this
section, we begin to update the E-rate program to ensure that schools
and libraries have affordable access to the high-speed broadband
connections needed for digital learning. The record in this proceeding
and our own analysis of the program lead us to a particular focus on
the internal connections, including Wi-Fi, needed for robust broadband
connectivity in all classrooms and libraries.
52. Wi-Fi is a transformative technology for education, allowing
schools and libraries to transition from computer labs to one-to-one
digital learning. Yet, in most funding years, the E-rate program has
been able to provide priority two support for internal connections,
including Wi-Fi, only to schools and libraries entitled to the highest
discount levels. In funding year 2012, for instance, the program
committed approximately $800 million for internal connections and was
only able to fund applicants at the 90 percent discount level. As a
result, nearly 60 percent of that funding went to urban applicants--
almost double the share of students in urban schools nationwide. In
2013, for the first time ever, no E-rate support was available for
internal connections.
53. By contrast, the E-rate program has always been able to meet
demand for services that provide connectivity to schools and libraries.
However, only about half of the $2.4 billion E-rate budget is used to
support priority one funding requests focused on broadband connectivity
to schools and libraries.
54. In short, the E-rate program has become increasingly ill-
equipped to meet the demands of the modern classroom and library.
Therefore, we now act to modernize E-rate to ensure more equitable,
reliable support for Wi-Fi networks, and other internal connections
supporting broadband services, within schools and libraries. While we
focus in this Report and Order on providing funding for internal
connections, we remain committed to ensuring schools and libraries have
high-speed connections to their buildings. In order to help ensure E-
rate funding is available to support high-speed broadband to and within
schools and libraries, we also eliminate support for certain legacy,
non-broadband services to help free up funding for these internal
broadband connections. We begin, however, with a short review of our
legal authority to set the list of E-rate supported services and define
the mechanisms of E-rate support.
A. Legal Authority
55. Sections 254(c)(1), (c)(3), (h)(1)(B), and (h)(2) of the
Communications Act collectively grant the Commission broad and flexible
authority to set the list of
[[Page 49167]]
services that will be supported for eligible schools and libraries, as
well as to design the specific mechanisms of support. This authority
reflects Congress's recognition that technology needs are constantly
``evolving'' in light of ``advances in telecommunications and
information technologies and services.''
56. In creating the E-rate program in 1997, in the Universal
Service First Report and Order, 62 FR 32862, June 17, 1997, the
Commission designated all commercially available telecommunications
services as services eligible for support (or discounts) under the E-
rate program. At the same time, the Commission determined that it could
provide E-rate support for additional, non-telecommunications services,
particularly Internet access, email, and internal connections, provided
by both telecommunications carriers and non-telecommunications
carriers. The Commission reasoned that such services enhance access to
advanced telecommunications and information services for public and
non-profit elementary and secondary school classrooms and libraries.
57. We update this eligible services framework for today's needs.
Revisiting our approach to this issue is consistent with 254(c)(1)'s
definition of universal service as an ``evolving level'' of service,
which the Commission must revisit ``periodically,'' ``taking into
account advances in telecommunications and information technologies and
services.'' We are also guided by section 254(h)(2)(A)'s directive that
we ``enhance, to the extent technically feasible and economically
reasonable, access to advanced telecommunications and information
services'' for schools and libraries.
58. Taken together, and considered in light of the Commission's
``responsibility to be a prudent guardian of the public's resources,''
these provisions lead us to take a more focused approach to the
definition of E-rate eligible services today than was adopted in 1997.
In particular, based on the record of this E-rate modernization
proceeding, and as described in more detail, we find that E-rate
support should be transitioned to focus specifically on those
telecommunications and information services, including associated
inside wiring, necessary to support broadband to and within schools and
libraries. The Commission has long supported these types of services,
and we think it clear that the statute authorizes their support.
Section 254(c)(1) and (c)(3) each provide ample authority for the
support of broadband telecommunications services, and sections
254(c)(3), (h)(1)(B), and (h)(2) provide authority to support advanced
telecommunications and information services, including associated
inside wiring.
59. At the same time, in order to focus E-rate funding on these
services, we must redirect funding away from services that are less
essential to education, less directly tied to educational purposes,
and/or more likely to be affordable without E-rate support than when
the program began, including fixed and mobile voice service. The
statute also amply supports this decision. Even if the E-rate fund was
not capped at its current level, we have a responsibility to be prudent
stewards of universal service funds, knowing that that those funds are
ultimately paid for by consumers. Because the amount of available E-
rate funding is finite, we must make thoughtful decisions about what
services are not just permissible to support, but are the most
essential to support for schools and libraries. We have relied on the
record to inform these choices.
60. As we focus E-rate support on high-speed broadband, we
recognize that we will ultimately reach a point where E-rate no longer
supports voice service, which we have defined as the 254(c)(1)
supported service for purposes of the High Cost (Connect America Fund)
and Lifeline programs. But nothing in section 254(c)(1) or elsewhere
bars the Commission from establishing different supported services for
different elements of the overall Universal Service Fund.
61. Indeed, in establishing the definition of the
telecommunications services that are supported by the Federal universal
service support mechanisms, the Commission is charged with considering
the extent to which the telecommunications services meet the criteria
section 254(c)(1)(A) through (D). This list of criteria implies that
the definition of supported services can vary depending on the
particular universal service program at issue. For example, section
254(c)(1)(A) requires the Commission, in designating supported services
to consider the extent to which services ``are essential to education,
public health, or public safety.'' Congress recognized that
telecommunications services deemed essential for education (and by
extension the E-rate program) may well not be the same as
telecommunications services essential for health (or the Rural Health
Care program). Likewise, what is consistent with the public interest,
convenience and necessity in section 254(c)(1)(D) could vary depending
on the specific universal service program at issue.
62. Moreover, reading section 254(c)(1) to bar the Commission from
establishing different eligible services for different universal
service programs would place section 254(c)(1) in tension with section
254(b), which requires the Commission to ensure that rates charged to
consumers nationwide are ``just, reasonable, and affordable,'' and
therefore to keep universal service contributions, typically passed
through in customers' rates, as low as possible. We think the better
reading of 254(c)(1) provides the Commission authority to support
services in more granular ways, such as only in the specific USF
programs where the Commission concludes that such a definition of
supported services is warranted after considering the (c)(1) factors,
and thereby minimize the overall USF burden on consumers who pay into
the Fund.
63. Finally, in the sections that follow we change to some extent
the mechanisms by which E-rate support is allocated and the discount
levels provided under the program. Sections 254(c) and 254(h) give the
Commission broad authority to design these mechanisms and set discount
rates at the level ``appropriate and necessary to ensure affordable
access to and use of'' E-rate supported services. This authority amply
supports the changes we make here.
B. Providing More Equitable Funding for Broadband Within Schools and
Libraries
64. In this section, we focus on providing schools and libraries
more equitable access to funding for Wi-Fi networks and other internal
connections that allow high-speed connectivity within schools and
libraries. We begin by designating internal connections that support
broadband connectivity as ``category two'' services, rather than
``priority two'' services in recognition of the importance of Wi-Fi
networks in connecting students and library patrons. In the short term,
in order to provide schools and libraries more access to category two
funds over the next two funding years, we accept the recommendation of
commenters who suggest that we focus the additional E-rate funds
identified by the Bureau earlier this year on internal connections.
Consistent with this focus, and with the record in this proceeding on
the funding needs for Wi-Fi and other internal connections, we also set
an annual budget target of $1 billion for category two services. Next,
we increase the minimum contribution rate for these
[[Page 49168]]
category two services from 10 to 15 percent to encourage applicants to
pursue the most cost-effective options. For applicants that apply for
category two support during the next two funding years, we also test
reasonable maximum per-student and per-library pre-discount budgets for
category two services in order to ensure greater access to category two
funding sufficient to deploy robust LANs and WLANs. Finally, we update
our rules regarding eligible services to align with this new focus on
providing E-rate support to services necessary for broadband
connectivity and direct the Bureau to update the ESL accordingly.
1. Providing Support for Internal Connections
65. As an initial matter, we change the E-rate program's existing
priority funding nomenclature. We agree with commenters that schools
and libraries should take a ``whole network'' approach to planning
their purchase of E-rate eligible services that bring connectivity both
to the building and to devices. In place of the priority nomenclature,
we designate the services needed to support broadband connectivity to
schools and libraries as ``category one'' services, and those needed
for broadband connectivity within schools and libraries as ``category
two'' services because we recognize that deploying internal connections
is an important element in connecting schools and libraries to high-
speed broadband.
66. For category one services, we are confident that the changes we
make to the E-rate program in this Report and Order will ensure that we
can continue funding all eligible category one requests, as we continue
to evaluate the long-term, overall program needs. For category two
services, the additional funding announced by the Bureau earlier this
year will allow the Commission to make $1 billion available over each
of the next two years. Building on the use of the identified program
funds for the next two years, and to give applicants longer-term
visibility into our approach, we also set a funding target of $1
billion annually for category two services on an ongoing basis. In
contrast to the current system, providing a target of $1 billion a year
annually for category two services will ensure greater access to E-rate
support for the Wi-Fi networks needed to connect 10 million students a
year to 21st Century educational tools. We recognize the concern of
some commenters, however, that, in the absence of a full review of
long-term program needs, a hard funding allocation for category two
services could put at risk our ability to provide sufficient support
for category one requests. For that reason, the budget we adopt will
remain a target, rather than a fixed allocation, as we continue to
evaluate the long-term program needs, and we direct USAC to shift funds
targeted for category two services to meet all eligible requests for
category one services, in any funding year in which demand for category
one services exceeds available funds. Given the availability of funding
for the next two years, the need for continued analysis of longer-term
trends in category one demand, as well as savings from the reforms we
adopt today and future additional reforms, we do not increase the
overall cap at this time, but seek additional comment on that issue in
the accompanying FNPRM.
67. If demand for internal connections exceeds the available
funding for category two services, we will prioritize access to
internal connections funding based on concentrations of poverty. Those
schools and libraries entitled to a higher discount will receive
internal connections funding ahead of those entitled to a lower
discount rate. If there is insufficient funding available to meet the
need at a particular discount rate for category two, we will prioritize
funding within a discount rate based on the percentage of students that
are eligible for free and reduced school lunches within each
applicant's school district. Funding for libraries will be prioritized
based on the percentage of free and reduced lunch eligible students in
the school district that is used to calculate the library's discount
rate. Funding for individual schools that are not affiliated
financially or operationally with a school district, such as private or
charter schools that apply individually, will be prioritized based on
each school's individual free-and-reduced student lunch eligible
population.
68. This prioritization method maintains the core of the existing
system that E-rate applicants are familiar with, and gives applicants
serving the highest poverty populations first access to funds, while
allowing us to fund within a discount-band even where funding is not
sufficient to reach all schools in that band. As explained, however,
and unlike the existing system, we adopt additional measures in an
effort to provide the opportunity for a broader range of applicants to
obtain funding for category two services.
69. In the event that requests for category one services are less
than the available funding and demand for category two services is
higher than the $1 billion target for category two services at the
close of the funding year window, the Bureau, working with OMD and
USAC, may redirect the excess funding to category two services in the
same funding year. If USAC does not commit the entire category two
budget for a funding year, or committed funds are not used or returned,
such funds may be carried forward to be used in subsequent funding
years. Each year such funds are available, we direct the Bureau,
working with OMD and USAC, to determine the proportion of carry-forward
funds to be used for category one and category two services.
2. Increasing the Minimum Applicant Contribution Rate for Category Two
Services
70. In order to ensure more equitable access to limited internal
connections funds, we will increase the minimum contribution applicants
must make towards E-rate supported category two purchases from 10 to 15
percent. We agree with commenters that requiring applicants to pay a
larger share of the cost of E-rate supported category two purchases
will spread available universal service funds more widely and increase
the incentive for applicants to find the most cost-effective options
that meet their internal connection needs.
71. In deciding to reduce the top discount rate for internal
connections from 90 percent to 85 percent, as with other changes we are
making to the E-rate program, we remain mindful of the challenges faced
by our most vulnerable schools and libraries in areas with the highest
levels of poverty. Taken together, the changes we make in this Report
and Order should benefit all schools and libraries, including those
receiving the highest discount rate. At the same time, we have taken a
measured approach in making changes that could negatively impact
applicants entitled to the highest discount rates. For example, we
reduce the top discount rate only for category two services, and only
by five percent. Likewise, we phase down support for voice services
over several years, to give applicants time to adjust to the loss of
support for such services. We also seek to counterbalance potential
reductions in funding by adopting proposals aimed at driving down the
prices all applicants will pay for E-rate supports services, including
increased pricing transparency and encouraging consortia purchasing and
bulk buying.
72. We expect that requiring higher matches will lead applicants
that have been eligible for 90 percent discounts for priority two
services to pursue lower prices for eligible category two services
[[Page 49169]]
more aggressively. Commenters note that applicants in the highest
discount level spend more in pre-discount dollars than those that have
a larger required match. Consistent with this analysis, E-rate Central,
a member of USAC's 2003 Task Force on Waste, Fraud, and Abuse, observes
``many examples of excessive spending by applicants at the highest
discount levels, often driven by overly aggressive sales efforts by
vendors targeting the poorest schools and libraries.'' Thus, as the
Iowa Department of Education argues, requiring applicants to ``[h]av[e]
more `skin in the game' . . . will guard against waste, fraud, and
abuse.'' We therefore set the highest discount level for category two
services at 85 percent. Applicants that would have been eligible for
discounts of 86 to 90 percent will now be eligible for an 85 percent
discount, and those eligible for a discount of 85 percent or less will
see no change. This decision is consistent with a similar change to the
Rural Health Care program that requires recipients of the new
Healthcare Connect fund to contribute 35 percent of the costs of the
support services, which the Commission found ``appropriately balances
the objectives of enhancing access to advanced telecommunications and
information services with ensuring fiscal responsibility and maximizing
the efficiency of the program.''
73. Although some commenters recommend even higher minimum
applicant contribution rates--20, 25 or even 30 percent (80, 75 or 70
percent maximum discount rates, respectively)--we recognize the
concerns voiced by some stakeholders that we not raise the net cost to
the most disadvantaged schools and libraries above levels that they can
afford. Therefore, in order to minimize the impact of this change on
these schools and libraries, we reduce the maximum discount rate only
by five percent and only for category two services as a first step. We
note that the per-student and per square foot applicant budgets for
funding year 2015 and 2016 described below mitigate some of the
concerns about overspending at this time. Other commenters agree that
the discount level should be changed, but ask for it to be a temporary
change. We see no reason, however, why the greater incentives for cost-
effective purchasing introduced by a slightly higher applicant match
would be appropriate in the near term but less so in the future; to the
contrary, we believe such incentives will remain important over time,
whereas changing the discount rate from year-to-year could distort
efficient decision making. Finally, because we are only reducing the
maximum discount rate by five percentage points, and only for category
two services, we make this change fully effective for funding year 2015
rather than phasing it in over multiple years.
3. Setting Applicant Budgets
74. In order to provide broader and more equitable support for
category two services, we adopt budgets for applicants who apply for
category two discounts during the next two funding years, as we
continue to evaluate long term program needs. Under this approach,
schools in districts that seek category two funding during funding
years 2015 or 2016 will be eligible to request E-rate discounts on
purchases of up to $150 (pre-discount) per student for category two
services over a five-year period. Likewise, library systems and
libraries that seek category two funding in funding years 2015 or 2016
may request E-rate discounts on purchases of up to $2.30 (pre-discount)
per square foot over a five-year period. If an applicant receives
funding for category two services in funding year 2015 or 2016, the
five-year budget will apply in the subsequent five funding years, in
lieu of the existing ``two-in-five'' rule.
75. We agree with commenters that E-rate must maintain its historic
focus on poverty in distributing support. Therefore, as described, we
will continue to use the discount matrix to calculate applicants' E-
rate support on their eligible costs, and applicants that have a higher
percentage of students eligible for NSLP will continue to receive a
larger proportion of support. For example, over a five-year period,
schools or districts at the 80 percent level will be able to request up
to $120 in E-rate support per student (an 80 percent discount on $150
in services) and be required to pay 20 percent of the cost of eligible
category two services that they purchase. Districts at the 20 percent
level will be able to seek up to $30 per student over a five-year
period, and be required to pay 80 percent of the costs of the eligible
category two services that they purchase. Similarly, a library with
10,000 square feet would be eligible for discounts on purchases of up
to $23,000, so a library at the 80 percent discount level could request
up to $18,400 in E-rate funding, while a library at the 20 percent
discount level could request up to $4,600 over a five-year period.
76. We recognize that this approach represents an important change
to our handling of applicant requests, and we are committed to ensuring
that the new five-year budgets not in any way compromise the program's
fundamental commitments to providing sufficient support and to
permitting local flexibility to address localized conditions, even as
they expand access to program funds. Therefore we will consider funding
years 2015 and 2016 to be a two-year test period, subject to further
review by the Commission.
a. Methodology
77. It would be impossible to identify, building-by-building, the
precise amount of funding each eligible school and library will require
in a given year to deploy or upgrade LANs and WLANs necessary to
support broadband services within their buildings. As commenters note,
building size, construction characteristics, where applicants are in
their upgrade cycle, and other factors make each deployment unique. We
can, however, establish a multi-year budget for category two services
that will serve our goal of ensuring affordable access to high-speed
broadband for schools and libraries by ensuring that (a) eligible
schools and libraries have greater access to E-rate funding for
internal connections necessary to distribute high-speed broadband
within their buildings and (b) that category two budgets will be
sufficient to ensure that eligible schools and libraries will be able
to afford the deployment or upgrade of those internal connections. In
setting such a budget, and the related budget-cycle, to fund internal
connections, we find support from a broad array of cost data in our
record.
78. Budget Cycle. As an initial matter, for applicants that receive
support in funding years 2015 or 2016, we establish a five-year budget
cycle for category two services. The record demonstrates that most
category two equipment has a typical lifecycle of approximately five
years. After that point, schools and libraries likely will need
additional support to upgrade their networks. This five-year budget
cycle will give applicants the flexibility to determine when to make
upgrades or changes.
79. School Budget. We set a pre-discount budget of $150 per student
over five years for schools. The record demonstrates that $2,500 per
classroom, which is equal to just under $150 per student based on a
ratio of 17 students per classroom, should be a sufficient budget to
deploy LANs/WLANs to elementary and secondary school classrooms and
common areas across the nation. States and districts submitted into our
record specific cost data for recent upgrades to state-of-the-art
deployments that were largely under this per-classroom amount.
Likewise,
[[Page 49170]]
participants at the E-rate Modernization Workshop described spending
differing amounts per classroom below this $2,500 range, from $1,300 to
an average of $1,900 per classroom. North Carolina, which is in the
middle of a statewide upgrade to Wi-Fi in its schools and libraries,
originally estimated the upgrade cost at $2,200 per classroom, and has
found actual deployment costs below this initial estimate, ranging from
approximately $2,100 per classroom for a comprehensive high school
upgrade to $900 per classroom for a more limited high school upgrade.
In some parts of Mississippi, the $500 cost per classroom is well below
this budget.
80. Based on NCES data for average class sizes and other sources,
commenters estimate that there are 18 to 20 students per classroom in
the United States, an estimate supported by consultations with district
technology officials and equipment vendors. Data in the record from a
sample of states and districts suggests that the true number is
slightly lower, however. In particular, statewide data from three
states representing almost five million students (approximately 10
percent of all students in the country) give an average of 17.8
students per classroom, likely because not all classrooms are in use at
all times of the day. Several individual districts also submitted
classroom counts, both rural and urban, with an average of 19.6
students per classroom. Combined, the state and district data provide
information on schools serving over 5.6 million students, with an
average of 18 students per classroom. We believe it makes sense to use
a relatively conservative estimate to ensure support levels are
sufficient for schools with smaller class sizes, such as smaller rural
schools. Accordingly, in translating the various per-classroom cost
estimates in our record into per-student costs (and vice-versa), we use
an estimate of 17 students per classroom. Dividing $2,500 by 17 gives a
per-student budget of $147, which we round up to $150 for simplicity of
administration.
81. A pre-discount budget of $150 per student over five funding
years, or $30 per student annually, is also consistent with the market
rate for elementary and secondary school managed Wi-Fi solutions,
described. Because these costs include installation and maintenance, we
find them to be a strong, market-driven representation of all-
inclusive, per-student LAN/WLAN deployment costs. For example,
Education Networks of America (ENA) currently provides managed Wi-Fi to
82 percent of public and charter high schools in Idaho for $21 per
student and teacher per year, including installation, management,
maintenance, and content filtering. C-Spire Fiber has several
deployments in Mississippi that average an annual cost of $19 to $29
per student for the managed Wi-Fi product it is piloting. In Ohio,
several Information Technology Centers offer a managed Wi-Fi service to
member school districts for $9-15 per student per year plus vendor
installation charges.
82. Commenters also submitted three different Wi-Fi cost models
into our record: The EdSuperHighway/CoSN ConnectED Cost Model, the
EdSuperHighway/CoSN Ongoing Cost Model, and the Cisco Model. The first
of these, the EdSuperHighway/CoSN ConnectED Cost Model, produces the
lowest estimate of required costs, producing a nationwide, average cost
of approximately $21 per student per year, well below the budget we set
here. This model assumes substantial existing infrastructure however,
the extent of which will vary greatly between districts, so it is
poorly suited to setting reasonable, nationwide budgets that will be
sustainable on an ongoing basis. We thus do not rely on this model.
83. The remaining models confirm our conclusion based on the record
evidence discussed that a pre-discount $150 per student five-year
budget we adopt here is reasonable. In contrast to the EdSuperHighway/
CoSN ConnectED Cost Model, the EdSuperHighway/CoSN Ongoing Cost Model
and the Cisco Model each attempt to estimate the full, ongoing costs of
internal connections deployments, averaged over the lifecycle of the
equipment used. Both models consist of two basic components: An overall
framework for estimating costs and a set of inputs for various costs
and equipment lifecycles. Although they differ somewhat, the frameworks
of both models appear to provide generally reasonable approaches to
estimating Wi-Fi deployment costs. The deployment and maintenance cost
estimates generated by the EdSuperHighway/CoSN Ongoing Cost Model and
the Cisco Model differ, with EdSuperHighway/CoSN estimating an annual
average cost of $869 per classroom, or $44 per student, and Cisco
estimating an annual average of $1,081 per classroom, or $59 per
student. The staff's sensitivity analysis of the key cost drivers,
however, shows that the range of reasonable cost estimates that can be
produced by the basic model frameworks is quite a bit wider than shown
by these two data points. Specifically, with plausible changes to a
small number of inputs, the models could support annual cost estimates
ranging from approximately $22 all the way to $75 per student. The $150
per student five-year budget we adopt here falls comfortably within
this range, albeit toward the lower end. The EdSuperHighway/CoSN
Ongoing Cost Model and the Cisco Model thus help confirm the
conclusions we draw from the diverse data on real world deployment
costs and the market-driven costs of managed Wi-Fi services, and, based
on these data sets, we are comfortable choosing an estimate toward the
lower end of the range produced by the models.
84. In sum, the record suggests $150 per student is a reasonable
budget, with many schools able to complete Wi-Fi deployments or
upgrades for less than that amount. Some schools may still choose to
spend more than $150 per student on their wireless deployments based on
individual design decisions, and nothing in the approach we adopt
prevents these decisions. Because the evidence shows that $150 per
student has proven sufficient in numerous deployments over several
geographic areas, however, we limit E-rate discounts to this budget.
85. In finding that $150 per student over five years should provide
sufficient support for category two services, we acknowledge that some
cost variation exists across or even within LAN or Wi-Fi networks. For
example, different building construction materials and variations in
labor costs can affect upgrade costs. However, in contrast to some
other costs, such as the costs of digging trenches for fiber
deployment, the majority of the costs of LAN and Wi-Fi networks are
commodity equipment costs, and therefore cost variation for efficient
upgrades is far less than that for connectivity to schools and
libraries. For the same reason, schools' costs for LAN or Wi-Fi
networks generally should scale linearly by the number of classrooms
(and therefore the number of students). We therefore conclude that a
per-student system of setting budgets for category two funding
(combined with a poverty-based discount rate and subject to the funding
floor, as discussed below) reasonably suits the manner in which
category two costs are incurred.
86. Library Budget. We set a pre-discount budget of $2.30 per
square foot over five years for libraries. Square footage provides a
simple to calculate, predictable, and reasonably accurate method of
setting budgets. Some commenters suggest that we should use patron
counts, average daily users, peak hour users, or other metrics to help
set reasonable internal connections budgets for libraries. We decline
to adopt any of these other suggested metrics at this time because (a)
we have identified no
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available sources of data on these metrics for all libraries, and (b)
patron count, average daily users, and peak hour users may vary
dramatically and could be difficult to measure. As a result, using
these metrics at this time could reduce predictability, complicate the
application process, and slow down application reviews.
87. We choose $2.30 per square foot over five years as the budget
amount based on three data sets in our record. First, Vermont libraries
submitted state data showing the average equipment cost for deploying
wireless networks in 35 libraries in the state to be approximately
$0.81 per square foot. Second, the Urban Libraries Counsel (ULC) urged
the adoption of a budget of $4 per square foot for libraries, which was
supported by a number of libraries. Finally, the ALA filed an analysis
reporting per square foot costs for a variety of libraries in the range
of $1.79 to $2.29, which focused more specifically on E-rate eligible
costs.
88. Considering the range of all the cost data in the record and
recognizing that the $2.30 budget is a cap, not a grant, we find that
ALA's recommendation of $2.30 per square foot, taken with the $9,200
funding floor over five years as set below, is a reasonable budget
level. The ALA recommendation is based on a more thorough analysis and
specifically limited to E-rate eligible costs. While we note that a
number of libraries supported the ULC proposal, in general, these
commenters did not provide sufficiently detailed data for the
Commission to ensure that the estimates included only E-rate eligible
services. Further, four ULC member libraries that did provide more
specific cost data in response to requests from Commission staff
indicate a range of $0.82 to $3.08 per square foot. Even so, we
consider ULC's data in evaluating all the cost data in the record and
selecting the $2.30 per square foot funding budget.
89. Finally, we note that nationwide, schools have a median of
approximately 150-175 square feet per student. The $150 per-student
budget we adopt therefore equals about $0.86 to $1.00 per square foot
for schools. The budget we select for libraries today is substantially
above this amount. Therefore, we believe that $2.30 represents a
generous figure that will not unnecessarily restrict library funding.
Since our record suggests that usage density is unlikely to be
substantially higher in libraries than it is in schools, the school
costs in our record provide additional support for our finding that
ALA's proposed $2.30 per square foot funding budget will provide
sufficient support for library deployments.
90. Notwithstanding this analysis, we recognize that the library
data are less robust than that for schools. Accordingly, in the
accompanying FNPRM we seek additional comment on these issues.
91. Funding Floor. To ensure the category two budgets we set are
sufficient to meet the minimum demand that certain schools and
libraries might have regardless of size, we also establish a pre-
discount funding floor of $9,200 in category two support available for
each school or library. While WLAN costs tend to scale by classroom
size, schools and libraries will need the baseline funding to purchase
a router and/or switch, at least one small wireless access point, and
cabling necessary to deploy WLANs in even the smallest buildings. Our
record is not, however, as well developed on this point as we would
like, and so we take the conservative approach of adopting ALA's
recommended floor of $9,200, based on ALA's consultation with its
library members. Our record indicates that $9,200 should be sufficient
to cover the costs to purchase necessary equipment, cabling, and
installation for these libraries. We set the floor for schools at the
same level to ensure equity and because the costs of deployment in
small schools and libraries should be similar. Increasing the floor by
this amount has a minimal budget impact. Therefore, all schools and
libraries, including smaller schools and libraries, will be eligible to
request pre-discounted support for up to at least $9,200 for category
two services over any given five-year period.
92. Per-Entity Basis. Applicants will be required to seek support
for category two services on a school-by-school and library-by-library
basis, although school districts will use a single district-wide
discount rate for all of their schools, as will library systems for all
of their libraries. Under this approach, school districts, whether
public or made up of more than one independent school under central
control, will have the flexibility to request support for any school or
group of its schools each funding year, using the number of students in
any school getting LAN/WLAN upgrades to determine the maximum eligible
pre-discount amount in a given funding year for that school. This
flexibility will allow districts to decide how to sequence deployment
of LANs/WLANs based on their individual needs. For example, a large
district may choose to upgrade one fifth of its schools in each of the
five funding years, while a small district may request support to
upgrade all of its schools in one funding year. To the extent that a
district seeks or receives funding commitments for less than the
category two budget for E-rate support available to a school, it may
request additional category two E-rate support up to that budget in the
following four funding years. The costs for services shared by multiple
entities shall be divided between the entities for which support is
sought in that funding year. Likewise, library systems that include
multiple libraries will have the flexibility to request support for all
or a portion of their library branches each year, using the floor area
of the libraries being updated to determine the maximum budget
available each year.
93. Similarly, eligible schools that operate independently of a
public school district, such as a private or charter school, are
eligible for E-rate discounts on the purchase of eligible internal
connections services up to $150 per student (or a minimum of $9,200).
If an independently operated school seeks or receives less than the
maximum amount of internal connections E-rate support available to that
school in year one, it may request additional internal connections E-
rate support up to that maximum in the following four funding years.
Likewise, libraries that are not part of a library system may request
E-rate support for a pre-discount purchase of up to the greater of
$9,200 or $2.30 per square foot, and any amount less than that will be
available in the following four funding years. For example, a 10,000
square foot library may request support for a purchase of up to $23,000
over five years. If it seeks E-rate support for a purchase of $13,000
in the first funding year, it may request discounted support for
another $10,000 in eligible services over the next four years.
94. Application of Budgets to Funding Years 2015 and 2016 and Five-
Year Funding Cycle. The question of applicant budgets is closely linked
to the question of the long-term funding levels for category two
services. As described, at this time we set funding for category two as
a budget target rather than a firm allocation. In light of the funding
identified by the Bureau earlier this year, we are confident we can
meet this target for the next two funding years, and therefore we apply
the budget approach adopted here to those two funding years. We will
evaluate the longer-term application of this approach in conjunction
with our evaluation of the overall, longer-term program needs.
95. While the budget approach will only apply to applicants that
receive funding in funding years 2015 and 2016,
[[Page 49172]]
we clarify that the budget themselves are five-year budgets. In other
words, for schools in districts seeking funding in years 2015 and 2016,
we adopt a rolling funding cycle of five years for category two
services and remove the two-in-five rule that applied to priority two
internal connections. As explained, Wi-Fi equipment has a lifecycle of
approximately five years. Therefore, excluding any priority two support
received before funding year 2015, schools in districts that seek
category two support in funding years 2015 or 2016 will calculate their
available support budget as $150 per student, multiplied by their
discount, less any E-rate support received in the prior four years. In
the first funding year that an applicant requests category two support,
the full amount of the pre-discount $150 per student budget will be
available to request. In later years, applicants will calculate the
available budget based of $150 per student less any support received in
the prior four funding years. Applicants that receive support in
funding year 2015 will have $150 per student available divided over
funding years 2016, 2017, 2018, and 2019. Applicants that receive
support in funding year 2016, but not in funding year 2015, will have a
budget of $150 per student divided over funding years 2017, 2018, 2019,
and 2020. Likewise, libraries in library systems that receive support
in funding years 2015 or 2016 will calculate support over the five-year
funding cycle using the number of square feet less any support received
in the prior four funding years. This approach will allow schools and
libraries to plan for how best to upgrade their facilities, and plan
for future upgrades based on their own prior spending. In contrast,
adopting a shorter budget, such as a two-year budget, would create a
mismatch between the budget cycle and real equipment lifecycles, and
would likely encourage applicants to inefficiently front-load expenses
in the next two years.
b. Reasons for a Multi-Year Budget Approach
96. Our decision to limit applicants' total category two requests
based on a five-year budget reflects broad consensus in the record that
some reasonable limits on requests are necessary to spread support more
broadly than under the current system. In the E-rate Modernization
Public Notice, the Bureau outlined three options for such limits, and
invited comments on alternatives. The five-year budget that we adopt
here is a middle course between two of these options--an annual per-
student allocation and a one-in-five rotating funding schedule. After
carefully evaluating the arguments for these and other options, we
conclude that the approach we adopt today will bring several important
benefits to applicants and the program.
97. First, the approach we take to distribute category two funding
provides greater predictability. Since funding year 1999, applicants
have had no certainty from year-to-year that category two services
would be supported. As such, administrators, budget managers, and
technology planners have been discouraged from planning for E-rate
support for Wi-Fi in their schools and libraries because annual funding
was far from assured. Some commenters express concern regarding the
predictability of other approaches, such as a rotating approach or a
one-in-five approach. On the other hand, some commenters support an
allocation approach in order to provide needed certainty. Unlike in
previous years, when there was no funding for internal connections, or
funding went to connect a small percentage of the nation's students and
library patrons, the approach we adopt today provides greater
predictability and will be able to provide support for 10 million
students and thousands of libraries each year.
98. Second, the approach we adopt today maintains the E-rate
program's priority for the highest poverty schools and libraries. We
continue to use poverty measures when distributing support under this
approach. Applicants with the highest percentage of students eligible
for free and reduced lunch will receive a greater proportion of E-rate
support and be eligible earlier in the five-year cycle if demand
exceeds the annual budget for category two services.
99. At the same time, this approach guarantees a broader
distribution of funding for internal connections--adjusted as
appropriate to reflect greatest levels of poverty--by setting
reasonable limits on category two requests in order to deploy Wi-Fi
networks to a far greater number of eligible applicants. Many
applicants debate the costs and benefits of different distribution
approaches, but focus on a core principle that distribution must be
made more equitable. As we noted earlier, the existing priority two
methodology has resulted in E-rate funding for priority two services
being distributed only to schools and libraries with the highest
discount levels. Additionally, a disproportionate amount of available
funding has gone to urban schools. Commenters point out that some
proposals, like a one-in-five limitation, would not help to achieve a
more equitable distribution of support. Similarly, an increase in the
cap without these additional measures to encourage efficient purchasing
would not achieve more equitable distribution. This five-year budget
approach should provide sufficient support per student or per square
foot for far more schools and libraries to access needed funding, but
places a limit on less cost-efficient spending requests.
100. Importantly, this approach to funding category two
connectivity also provides flexibility to districts, schools, and
libraries to deploy and maintain Wi-Fi as best suits their own
circumstances. Many commenters argue that flexibility is essential for
setting reasonable budgets each year, and this five-year budget
approach allows applicants to decide the rate at which school networks
are updated. This approach allows applicants to plan how to deploy
their networks over five years, whether by requesting support for all
or just a portion of entities each year, or by purchasing a managed Wi-
Fi service through which a third party provider installs and manages
the necessary LAN and WLAN.
101. Finally, the approach we take today promotes cost-effective
purchasing by applicants while providing support that the record
demonstrates should be sufficient to support these badly needed
deployments. In the past, applicants at the top discount levels had an
incentive to overbuy or use less cost-effective network design. A limit
on category two support will encourage more cost-efficient purchasing.
102. In contrast to the approach we adopt here, we find the
alternative approaches that commenters suggest as well as those
outlined by the Bureau in the E-rate Modernization Public Notice--such
as maintaining the existing system but temporarily eliminating support
for applicants that have recently received support, a rotating schedule
of funding for different discount bands, or single-year budgets,
implemented with or without the existing discount matrix--would each be
less effective at solving the structural problems with how the E-rate
program has historically funded internal connections. For instance, as
pointed out by commenters, both the rotating eligibility approach and
the one-in-five approach outlined by the Bureau in the E-rate
Modernization Public Notice lack certainty for schools and libraries
absent incentives for more cost-efficient purchasing in the highest
discount bands, and would likely fail to distribute support more
broadly than is the case today. In contrast, providing
[[Page 49173]]
applicants with a constant, single-year budget would fail to account
for the reality that individual applicants will have different needs in
different years, depending on where they are in their upgrade cycle.
c. Other Applicant Budget Issues
103. Student Count. We move to a district-wide calculation of
applicants' discount rates. In order to determine the budget available
each funding year, districts should calculate the number of students
per school at the time that they calculate their district-wide discount
rate annually. We recognize that there will be some instances, such as
the construction of a new school, that will make calculating the number
of students more difficult for districts. We will permit schools and
school districts to provide a reasonable estimate of the number of
students who will be attending a school under construction during a
particular funding year and seek support for the estimated number of
students. However, if an applicant overestimates the number of students
who enroll in that school, it must return to USAC by the end of the
next funding year any funding in excess of that to which it was
entitled based on the actual number of enrolled students. This means a
school at the 80 percent discount level, which estimates that it will
have 1,000 students, may request E-rate support of up to $120,000. If,
however, enrollment after the school opens is only 750 students, the
school will have to return any committed support exceeding $90,000. We
note, however, that there may be funding years in which an entity loses
students and therefore spent more than its available budget in the
prior four funding years. In these instances, we will not require
repayment of any E-rate support, but there will be no available funding
for that funding year. Students who attend multiple schools, such as
those that attend educational service agencies (ESAs) part-time, may be
counted by both schools in order to ensure appropriate LAN/WLAN
deployment for both buildings.
104. Cost-Effective Purchasing. Our goal in setting a per-student
limit is to ensure schools and libraries can purchase the internal
connections they need while discouraging them from purchasing
unnecessary equipment or using an inefficient network design. At the
same time, we emphasize that the pre-discount $150 budget per student
is not a block grant. Applicants may only request funding for discounts
on eligible category two services, and schools must continue to pay the
non-discounted portion of the supported services. These requirements
remain in place. We will not, however, second guess schools' and
libraries' decisions to purchase additional equipment or services with
other sources of funding if they determine that it is the most cost-
effective service offering for what they have decided they need.
105. Rural Remote Applicants. We decline to adopt the request made
by some commenters that we provide additional category two funding or a
rebuttable presumption allowing USAC or the Bureau to waive the budget
for applicants in rural remote areas at this time. As described, we
find that LAN/WLAN costs are largely based on the costs of equipment,
and therefore tend to have consistent prices nationwide. To the extent
there are price variations, it is often the case that internal
connections upgrades are less expensive in rural areas because labor
costs are lower, permitting is easier, and buildings are newer and/or
easier to renovate. Therefore, we conclude that the benefits of
additional funding for rural remote areas are outweighed by the added
administrative burden and the additional costs to the Fund of providing
such additional support.
4. Setting an Annual Funding Target for Internal Connections
106. Based on the five-year school and library budgets we find
sufficient above, total category two pre-discount requests over the
next five-years will amount to no more than $8.8 billion to deploy LANs
and WLANs in schools and libraries throughout the country. After
accounting for the non-discounted share paid by applicants, with a 15
percent minimum applicant contribution, we estimate that E-rate
discounts will support approximately 67 percent of the total pre-
discount cost of $8.8 billion for eligible category two services. In
addition, we estimate that there will be schools and libraries that do
not seek funding or request less than the full budgeted amount to
upgrade and maintain their LANs/WLANs over time. We therefore reduce
the five-year budget by approximately 15 percent to avoid over-
budgeting and set the five-year budget at $5 billion, plus annual
inflation adjustments. We adopt an annual target of $1 billion, plus
any annual inflationary changes, for category two services, which is
equal to one-fifth of the five-year estimate of E-rate support. In
addition to this annual budget, the Bureau may allocate any available
carry forward funding to meet category two demand.
5. Focusing Support on Broadband
a. Core Components of Broadband Internal Connections
107. In order to help deploy LANs/WLANs necessary to permit digital
learning in schools and libraries throughout the nation, we focus the
category two ESL on broadband. With one narrow exception, we limit
internal connections support to those broadband distribution services
and equipment needed to deliver broadband to students and library
patrons: Routers, switches, wireless access points, internal cabling,
racks, wireless controller systems, firewall services, uninterruptable
power supply, and the software supporting each of these components used
to distribute high-speed broadband throughout school buildings and
libraries. Some form of each of these services has previously been
designated as eligible for E-rate support, and we find they are
necessary to ensure delivery of high-speed broadband services to
students and library patrons via LANs/WLANs. We do not limit these
eligible services by form, and therefore agree that equipment that
combines functionality, like routing and switching, is also eligible.
Similarly, we recognize that some functionalities can be virtualized in
the cloud, such as cloud wireless controllers, and therefore will
permit such services to be eligible for purchase by schools and
libraries.
108. To focus support on only those internal connections necessary
to enable high-speed broadband connectivity, beginning in funding year
2015, we eliminate E-rate support for the priority two components that
had been in the following ESL entries: Circuit Cards/Components;
Interfaces, Gateways, Antennas; Servers; Software; Storage Devices;
Telephone Components, Video Components, as well as voice over IP or
video over IP components, and the components, such as virtual private
networks, that are listed under Data Protection other than firewalls
and uninterruptible power supply/battery backup. In recognition of our
need to be a ``prudent guardian of the public's resources,'' we find
that eliminating these priority two components from the ESL ensures
that there is more E-rate support available to deploy the LANs/WLANs
needed to improve digital learning in schools and libraries. It is also
consistent with section 254(h)(2)(A) of the Act, which requires that
support to schools and libraries improve access to advanced services in
a manner that is ``technically feasible'' and ``economically
reasonable.'' We direct the Bureau to release for comment a draft ESL
for funding year 2015
[[Page 49174]]
consistent with this Report and Order, and encourage applicants to
carefully review the eligible components included in the modernized
category two section in that draft ESL. Some components that had been
listed in the ESL as priority two may be relocated or described in
updated or more generic terminology.
109. Also, despite support from some commenters, we decline at this
time to designate further network security services and other proposed
services in order to ensure internal connections support is targeted
efficiently at the equipment that is necessary for LANs/WLANs. Many
commenters agreed that a limited list of eligible services would help
ensure available funds are targeted and therefore available to more
applicants. As we noted, we leave the record open on these services to
allow for further comment as we evaluate the changes in the first
funding year.
b. Basic Maintenance, Managed Wi-Fi, and Caching
110. Basic Maintenance. For funding years 2015 and 2016, we will
continue to provide support for basic maintenance services subject to
each school or library's overall budget on E-rate eligible category two
services. In the E-rate Modernization NPRM, the Commission proposed
phasing out support for basic maintenance because the same high-
discount school districts received ample funding, while most school
districts received none. Commenters point out however, that basic
maintenance is needed to ensure networks operate properly, particularly
as networks become more complicated. We believe that we can achieve the
stated goal of broader funding distribution through other means,
including a reasonable and equitable limit on the total amount of E-
rate support available per student and per square foot which will
discipline districts and libraries in basic maintenance purchasing
decisions. In particular, applicants are unlikely to seek support for
unnecessary basic maintenance given these limits on the total amount
available, but providing support to ensure these networks function
effectively may aid those districts with limited resources. Support
will only be available for maintenance on equipment and services on the
ESL and not for any of the legacy services phased out in this Report
and Order.
111. Managed Wi-Fi. In light of the applicant budgets for funding
years 2015 and 2016, we are persuaded by commenters who argue that
managed Wi-Fi, which we call managed internal broadband services in the
rules to cover the operation, management, or monitoring of a LAN or
WLAN, should be eligible for internal connections support. In the past,
applicants could seek internal connections support only for the
purchase of internal connections and basic maintenance. Unlike the
traditional approach to internal connections, for managed Wi-Fi service
contracts, schools and libraries obtain LANs/WLANs as a service for a
period of three to five years from a third party who manages the entire
system, providing operations and maintenance for the life of the
contract. In other cases, the school or library may own the equipment,
but have a third party manage it for them.
112. The record demonstrates that applicants would benefit from
greater flexibility to choose among managed Wi-Fi options. In
particular, the variations of managed Wi-Fi services can provide
substantial benefits and cost savings to many schools and libraries,
particularly small districts and libraries without a dedicated
technology director available to deploy and manage advanced LANs/WLANs
quickly and efficiently. Therefore, pursuant to our authority under
section 254 of the Act, we find that providing support for managed
internal broadband services, including managed Wi-Fi, will ``enhance .
. . access to advanced telecommunications and information services''
for schools and libraries, and we direct the Bureau to include managed
internal broadband services on the ESL for funding years 2015 and 2016.
113. Under the five-year applicant budget approach we adopt, a
district, school, or library will be able to seek annual support for a
managed Wi-Fi service, up to an average pre-discount rate cost of $30
per student per year or one-fifth of the budget available to libraries
based on floor area. This is consistent with the price of managed Wi-Fi
services in the market today and limits the likelihood of waste or
abuse in these managed Wi-Fi contracts. As noted below, we will allow
districts and libraries to sign multi-year contracts, but we will not
make multi-year commitments. Our short-term budget will be sufficient
to fund these smaller multi-year contracts and we will continue to
evaluate whether additional changes are needed in the long-term, but
emphasize that there is no guarantee of funding.
114. We disagree with commenters who argue that managed Wi-Fi
should be a category one service. Despite our recognition that
virtualization and management may send some amount of information
beyond the walls of the school or library building in order to manage
the internal networks, we find that services used to distribute
bandwidth throughout the school are internal connections services. We
therefore remove the presumption in our rules that such a service is
not an internal connection.
115. Competitive bidding rules still apply to procurement of
managed Wi-Fi services. We encourage districts to request bids in
technologically neutral ways and compare the cost-effectiveness of bids
for self-provisioned networks with those for managed Wi-Fi contracts.
We also encourage schools and libraries considering managed Wi-Fi to
evaluate the value of joining a consortium of schools and libraries to
increase their buying power and drive down costs.
116. We also clarify that E-rate support for managed Wi-Fi is
limited to those expenses or portions of expenses that directly support
and are necessary for the broadband connectivity within schools and
libraries. Eligible managed Wi-Fi expenses include the management and
operation of the LAN/WLAN, including installation, activation, and
initial configuration of eligible components, and on-site training on
the use of eligible equipment. Eligible managed Wi-Fi expenses do not
include a managed voice service, for example. For bundled pricing that
includes eligible and ineligible expenses, applicants are required to
cost allocate eligible from ineligible services to ensure only eligible
services are supported.
117. Finally, we delegate to the Bureau the authority to determine
how best to interpret managed services for the purposes of the ESL as
we gain experience with funding of these services through the E-rate
program. Wireless access as a managed service is a market that is still
being developed, and we believe it will facilitate the efficient and
effective support of these services to provide the Bureau flexibility
to adjust our approach as this market develops. As always, parties may
appeal any Bureau decision to the full Commission.
118. Caching. Due in part to the applicant budgets for funding
years 2015 and 2016 limiting waste or abuse, we agree with commenters
who argue that caching functionality should be eligible for internal
connections support. Caching functionality enables the local storage of
information so that the information is accessible more quickly than if
it is transmitted across a network from a distant server. By placing
previously requested information in temporary storage, caching
functionality can, in certain
[[Page 49175]]
circumstances, optimize network performance, and potentially result in
more efficient use of E-rate funding. The record indicates that caching
functionality can be an integral component of some LANs and WLANs. As
commenters point out, caching can provide a more affordable way to
achieve bandwidth goals. This is consistent with the goal we adopt in
this Report and Order, as well as the Commission's authority to ensure
affordable access to E-rate supported services. As such, we disagree
with commenters who argue that caching functionality should not be
supported by E-rate funds. Instead, we designate caching functionality
as an eligible service that ``enhance(s), to the extent technically
feasible and economically reasonable, access to advanced
telecommunications and information services'' for schools and
libraries. As with the core components of broadband internal
connections, we agree that equipment that combines caching
functionality with other functionalities is also eligible. However,
equipment that combines caching functionality with an ineligible
functionality must be cost allocated. We therefore delegate to the
Bureau the authority to define caching functionality, as well as the
necessary software or equipment, such as caching servers, for the
purposes of the funding years 2015 and 2016 Eligible Services List. As
always, parties may appeal any Bureau decision to the full Commission.
119. Eligibility After Funding Years 2015 and 2016. We make these
determinations about eligibility in light of the applicant budgets we
set out that mitigate some of our concerns about waste or abuse. We
therefore direct the Bureau to include basic maintenance, managed
internal broadband services, and caching functionality on the ESL for
funding years 2015 and 2016. The Commission will evaluate the benefits
and drawbacks of these eligibility determinations in future funding
years as it continues its work modernizing the program. Absent
Commission action, in funding year 2017 and in subsequent funding
years, support for basic maintenance, managed internal broadband
services, and caching functionality, as an internal connection, will be
available only to those applicants that received support in funding
years 2015 and 2016 and are operating under a five-year applicant
budget.
6. Other Issues
120. Category Two Installation Can Begin on April 1. We also amend
our rules for category two non-recurring services to permit applicants
to seek support for category two eligible services purchased on or
after April 1, three months prior to the start of funding year on July
1. This will provide schools with the flexibility to purchase equipment
in preparation for the summer recess and provide the maximum amount of
time during the summer to install these critical networks. We agree
with commenters who note that the last day of school is often in May or
June and schools need to be able to use the entire summer recess to
ensure the networks are ready when students return to school. This is
consistent with our previous decision to allow advance installation and
construction under certain conditions.
121. Administration. In accordance with this section, we make
necessary changes to Sec. Sec. 54.500, 54.502, 54.505, and 54.507 of
our rules. We recognize that these represent major changes to the
structure and distribution of support for internal connections. Because
unanticipated technical or operational issues may arise that require
prompt action, we reaffirm the delegation of authority to the Bureau to
interpret our rules ``as necessary to ensure that support for services
provided to schools and libraries . . . operate to further our
universal service goals.''
C. Phasing Down and Ending Support for Legacy and Other Non-Broadband
Services
122. In funding year 2013, approximately 50 percent of priority one
E-rate funding was committed to high-speed broadband services, while
approximately one third went to fixed voice and mobile services.
Phasing down support for voice services and eliminating support for
certain legacy services will allow us to focus E-rate program funding
on the high-speed broadband needed by schools to enable digital
learning and by all libraries to meet the broadband needs of their
patrons. After the first two years of the phase down, the Bureau will
issue a report evaluating the impact of the reduction in support for
voice services. If the Commission takes no further action, the voice
services phase down will continue.
1. Phasing Down Support for Voice Services
123. Many commenters support reducing E-rate support for voice
services to focus the E-rate program on broadband. We agree that voice
services, while important for schools and libraries, are not as
essential as high-speed broadband is for meeting the educational needs
of students and library patrons. Instead of immediately eliminating
support for voice services, we will reduce voice support each funding
year by subtracting the discount rate applicants receive for voice
services by 20 percentage points every funding year. In funding year
2015, the discounts applicants receive for voice services will be
reduced by 20 percentage points from their discount rates for other
eligible services, and in funding year 2016, the discounts applicants
receive for voice services will be 40 percentage points lower than
their discount rates for other eligible services. In each subsequent
funding year, the discounts applicants receive for voice services will
be reduced by an additional 20 percentage points. Over the first two
years of the phase down for voice services support, we direct the
Bureau to evaluate the impact of the phase down on eligible schools and
libraries and study the transition of eligible schools and libraries to
VoIP services and issue a report to the Commission as we continue to
reduce voice support by 20 percentage points each year. If, by the
opening of the funding year window for funding year 2018, the
Commission takes no further action, the voice phase down will continue.
124. Voice services have been eligible for E-rate program funding
since the Commission determined that the E-rate program should support
all commercially available telecommunications services in the Universal
Service First Report and Order. When the Commission established the E-
rate program in 1997, the goal was to provide schools and libraries
discounts on the broadest class of telecommunications services and
advanced services available at that time, and to provide schools and
libraries the flexibility to purchase new technologies as they became
available. However, the options for Internet access then were generally
limited to dial up modem services offered over POTS lines, and the data
links provided by T-1 and T-3 lines.
125. Today, a much broader array of high-speed broadband services
are available to and needed by schools and libraries to support modern
digital learning initiatives. Moreover, support for voice services
today consumes approximately one third of E-rate commitments while many
schools and libraries are unable to access the funding they need for
internal connections to provide high-speed broadband throughout schools
and libraries. In order to meet our goal of funding high-speed
broadband services to support digital learning in schools
[[Page 49176]]
and robust connectivity for all libraries, we conclude that we can no
longer continue to fund voice services at the same discounts rates as
applied to other eligible services that provide broadband access.
Instead, we will gradually reduce E-rate funding for voice services and
shift these funds to support those services that provide high-speed
broadband. Accordingly, we remove the reference to E-rate supporting
``all commercially available telecommunications services'' in Sec.
54.502(a) of our rules so that it is clear to applicants that the
telecommunications services that are supported by E-rate are listed in
the ESL, rather than potentially sending a confusing message that any
telecommunications service available on the market is eligible for E-
rate discounts. This is important now that we are phasing down support
for voice services and eliminating support for some of the services
associated with telephone service as explained herein. We also add to
the rules our schedule for phasing down support for voice services.
126. We recognize that many schools and libraries consider E-rate
support for voice services an important part of their overall budgets.
However, several factors should help ameliorate the impacts of
gradually phasing down support for these services. First, voice is now
a competitive offering in many areas, and the availability of VoIP
services, particularly for those with broadband, provides a cost-
effective option for many schools and libraries. This expansion of
competition, particularly from VoIP offerings, represents a substantial
shift since the E-rate program was created in 1997. Whereas changes in
the voice market are reducing the costs of voice service over time, the
shortage of funding for broadband services has increasingly become an
impediment to balancing all of the Commission's requirements under
section 254(h). Second, because we will initially reduce the maximum
discount available for voice services to 70 percent in 2015, and 50
percent in 2016, our approach strikes a balance between those
commenters supporting elimination of discounts for voice services with
those school and library commenters that stressed the importance of
retaining some level of support over a defined period of time. Third,
as a result of the other measures we take in this Report and Order, the
applicants affected by this change will have opportunities to seek
funding for broadband infrastructure that may not have been available
to them previously. To some degree, this may offset changes in their
overall budgets. Finally, our decision does not alter the Commission's
requirement that providers of eligible services must provide supported
services at a lowest corresponding price (LCP). While voice service
remains a supported service, the Commission's LCP rule serves as a
safeguard for affordability because service providers cannot submit
bids for or charge E-rate applicants a price above the LCP for E-rate
services; E-rate discounts are then applied to a service provider's
LCP.
127. Several stakeholders suggest that in lieu of gradual
transition, we give schools one or two years more of full support for
voice service, but then eliminate support for voice altogether in
funding years 2016 or 2017. While that approach might benefit
recipients seeking voice support for the next one or two funding years,
it would eliminate funding for voice services altogether before the
Commission has had a chance to study the impact of the gradual phase
down of support for voice services on eligible schools and libraries.
The approach we take today is more gradual while allowing us to begin
redirecting E-rate funding to broadband next year. We agree that our
revised interpretation of section 254 requires us to redefine eligible
services and shift support away from voice services and towards
broadband services, but eliminating support in 2016 or 2017 would cause
a more abrupt change in schools and library budgets in those funding
years, which we believe many applicants would find difficult to
absorb--particularly those serving the highest poverty communities.
Phasing down support for voice services over several funding years
preserves some funding for applicants at least for the next several
funding years, with the most economically disadvantaged schools and
libraries receiving the highest discounts as they consider alternatives
in the marketplace.
128. In the E-rate Modernization Public Notice, the Bureau sought
comment on phasing out support for voice services by 15 percentage
points per funding year. We now conclude that a per-year reduction of
20 percentage points is appropriate because we find a more
straightforward percentage point decrease should be easier for
applicants to calculate, and will help ensure that sufficient funding
for is available for supported services. Beginning in funding year
2015, when the maximum discount rate for category one services will be
90 percent, eligible applicants shall receive a maximum discount rate
of 70 percent for voice services. We disagree with those commenters who
argue that reductions will be difficult for applicants to understand
and for USAC to administer. The discount rate for voice services will
be based on an applicant's already established discount rate and will
require only a simple 20 percentage point subtraction from the discount
rate any applicant would otherwise be required to calculate to receive
support from the program. We change the FCC Form 471 to enable
applicants to seek support for voice services using a separate funding
request number (FRN) from other eligible services starting in funding
year 2015. Combining voice and non-voice services in a single FRN would
cause delays in processing if USAC had to separate out the services
during the application review process.
129. The reduced discount rates for voice services will apply to
all applicants and all costs incurred for the provision of telephone
services and circuit capacity dedicated to providing voice services
including: Local phone service, long distance service, plain old
telephone service (POTS), radio loop, 800 service, satellite telephone,
shared telephone service, Centrex, wireless telephone service such as
cellular, and interconnected VoIP. Although there was some support in
the record for excluding VoIP from the voice services phase down, we
agree with those commenters that assert that retaining a higher level
of funding for VoIP services while reducing the discount rate only for
non-IP voice services would provide VoIP providers a competitive
advantage in serving schools and libraries. Because the marginal cost
of delivering VoIP services should be lower once schools and libraries
have robust broadband, we expect the price of these services to
continue to drop over the coming years, alleviating the need to retain
higher discounts for VoIP funding. Similarly, a few commenters argue
that we should retain support for wireless telephone services, while
others support eliminating wireless telephone services in funding year
2015. As with VoIP services, eliminating support for wireless telephone
service in 2015, or subjecting wireless telephone services to a
separate phase out track, would provide non-wireless providers a
competitive advantage over wireless providers in serving schools and
libraries.
130. Some commenters argue that, because the USF/ICC Transformation
Order, 76 FR 76623, December 8, 2011, included voice telephony service
in the definition of universal service, we are compelled to include
voice telephony as an eligible service for E-rate support
[[Page 49177]]
under sections 254(c)(3) and 254(h)(1)(B) of the Act. However, as
explained, nothing in section 254(c)(1) bars the Commission from
establishing different supported services for different elements of the
overall Universal Service Fund, and in this Report and Order,
consistent with the purpose of the E-rate program, we find that it is
necessary and appropriate to phase down voice services.
131. During the initial two years of the phase down of support for
voice services, we direct the Bureau to study the impact of these
discount reductions for voice support on E-rate recipients and to study
the transition of eligible schools and libraries to VoIP services. The
Bureau shall report its findings to the Commission by October 1, 2017,
after completion of funding year 2016. If, at the conclusion of this
study, no further action is pursued by the Commission before the
application filing window opens for funding year 2018, the phase down
will continue.
2. Eliminating Support for Telephone Features, Outdated Services, and
Non-Broadband Services That Do Not Facilitate High-Speed Broadband
132. Pursuant to sections 254(c)(1), (c)(3), (h)(1)(B), and (h)(2)
of the Act, we eliminate support for other legacy and non-broadband
services effective for funding year 2015. Our decision to stop
supporting these services reverses prior Commission and USAC decisions,
however, we find many of these services to be important, but not
essential to education, and E-rate funding is not sufficient to support
these services at the risk of not being able to fund the services
identified herein that advance our program goals. Within the
Commission's authority under section 254 of the Communications Act to
designate telecommunications and additional services rests our equal
authority to withdraw services from eligibility, especially as the
needs of schools and libraries evolve. The record supports our
decision.
133. Beginning in funding year 2015, we will no longer provide E-
rate support for components of telephone service, outdated services
such as paging and directory assistance, and services that may use
broadband but do not provide it, including email, voice mail, and web
hosting. Applicants may continue to seek support for individual data
plans and air cards, but only when they can demonstrate, consistent
with our current rules, that the purchase of such services is the most
cost-effective way to connect students on school premises or library
locations to the Internet.
a. Telephone Features and Outdated Telephone Services
134. The record supports eliminating E-rate support for paging, and
telephone service components such as text messaging and directory
assistance beginning in funding year 2015. There is widespread
agreement among commenters that paging service is largely outdated and
can be retired from funding. Similarly, there is agreement that the
features listed as ``Telephone Service Components'' should no longer
receive E-rate support. The Telephone Service Components to be removed
from the ESL are directory assistance charges, text messaging, custom
calling services, direct inward dialing, 900/976 call blocking, and
inside wire maintenance plans.
135. Although a few commenters argue that paging serves an
educational purpose because sometimes it is the only way to reach a key
staff member in an emergency, other commenters asserted that paging is
not really critical, and has been replaced by other services.
Similarly, a few commenters argue that we should continue to support
text messaging because students prefer it for quick communication, and
it is used for a variety of work related tasks for administrators and
teachers in way that does not disrupt the classroom. These are all
valid assertions and while we recognize that these services are worthy
to certain applicants, we conclude that continuing to fund them diverts
funding away from the high-speed broadband services that have become
essential to schools and libraries.
136. Notably, those commenters recommending a longer adjustment
period for the phase down of funding for voice services did not request
a commensurate phase down timeline for telephone components, or assert
that a transition period would be critical for schools and libraries.
This is consistent with our view that a protracted phase out for
telephone components is not necessary, and that these services should
be eliminated from the list of those that are eligible for E-rate
support beginning in funding year 2015. Funding commitment data is not
available for several of the telephone features we will eliminate,
however, funding year 2012 commitments totaled approximately
$898,045.00 for paging and text messaging. Some commenters point out
that removing these services will not result in sizable cost savings
for the Fund. However, we agree with other commenters who argue that we
should eliminate support for these features and services because it
will allow us to direct some additional funds towards meeting our high-
speed connectivity targets without imposing undue hardship on
applicants.
137. We recognize that removing telephone components from the ESL
in funding year 2015 will require some providers to change their
billing practices or require some applicants to cost allocate the cost
of those services from their requests for support. However, because
these services are typically provided as an add-on or enhanced services
for an extra fee, they are often presented as separate line items on
telephone bills. Accordingly, it should not be overly burdensome for
applicants to seek funding for the voice component of the telephone
service only, and provide a cost allocation for any telephone features
we remove from the ESL. Under the Commission's rules, if a product or
service contains ineligible components, costs should be allocated to
the extent that a clear delineation can be made between the eligible
and ineligible components. The clear delineation must have a tangible
basis and the price for the eligible portion must be the most cost-
effective means of receiving the eligible service. For telephone
feature costs that are bundled with the cost of voice services, one way
to determine the cost of the feature is for an applicant to seek an
appropriate cost allocation from its service provider. We find that the
benefits of streamlining support for voice services by removing funding
for these services to enable that support to be used for essential
educational purposes outweigh any burdens applicants may face in the
next few funding years as they adjust to these changes, which the
record leads us to predict generally should be minimal.
b. Email, Web Hosting, Voicemail
138. We eliminate E-rate support for email, web hosting, and
voicemail beginning in funding year 2015 and delete the reference to
``electronic mail services.'' As many commenters recognize, these
services are applications delivered over broadband service, and do not
themselves deliver high-speed broadband. There is also evidence in the
record that applicants seeking E-rate support for these services may
not be getting the most cost-effective solutions, and that some service
providers package web hosting and email service offerings to E-rate
customers in a way that has created a risk that E-rate funds will pay
for ineligible services. We recognize that email, web hosting and
voicemail services may be important services for the day-to-day
operations of many schools and libraries and that some of
[[Page 49178]]
them have come to rely on E-rate support for those services. However,
continuing to fund these services diverts E-rate funding away from
essential high-speed broadband services. Therefore, removing E-rate
support for email, web hosting, and voicemail services aligns with our
restructuring of the E-rate program under section 254.
c. Data Plans and Air Cards for Mobile Devices
139. Data plans and air cards for mobile devices will continue to
be eligible for E-rate support only in instances when the school or
library seeking support demonstrates that individual data plans are the
most cost-effective option for providing internal broadband access for
portable mobile devices at schools and libraries. We agree with
commenters that it is generally not cost effective for applicants to
purchase on-campus use individual data plans that provide service on a
one plan per-device basis when a school or library has robust internal
wireless networks that provide Internet connectivity to multiple
devices within a school or library. Some commenters also contend that
these individual data plan services generally do not provide users with
enough high-speed connectivity to access certain educational and
informational materials.
140. Some schools and libraries already have wireless networks that
support one-to-one device initiatives. Moreover, with the increased
availability of E-rate funds as a result of our decisions in this
Report and Order, many more will be able to install high-speed internal
broadband networks to support one-to-one learning programs in schools
and reliable public Internet access in libraries. We consider funding
for individual data plans or air cards for individual users to be not
cost effective when those users can already access the Internet through
internal wireless broadband networks on wireless-enabled devices
without the help of stand-alone data plans or air cards. In general
(i.e., assuming no showing of cost effectiveness), for applicants that
receive data plans bundled with voice, only the voice services in the
plan will remain eligible for funding in accordance with the phase down
reductions we implement; the applicant must remove from its funding
request the costs associated with all other services in a bundled plan
that are ineligible.
141. We recognize that there are a few locales where WLANs are
impracticable or difficult to install, such as library bookmobiles.
There may also be some schools or libraries where installation of a
wireless network is possible but would be more costly than using
individual data plans because the school or library location serves a
very small number of students or patrons. Therefore, we will allow
applicants to seek funding for individual data plans where the
applicant is able to demonstrate that individual data plans are the
most cost-effective option for providing internal broadband access for
mobile devices. In order to ensure that individual data plans are the
most cost-effective option, applicants that seek funding for individual
data plans must be able to demonstrate either that installing a WLAN is
not physically possible, or must provide a comparison of the costs to
implement an individual data plan solution versus a wireless local area
network solution. The cost comparison may be established through the
competitive bidding process by seeking and comparing bids on both
internal wireless networks and individual data plans. Applicants should
be prepared to demonstrate to the Commission and USAC that individual
data plans are the most cost-effective option for their situation by
submitting the cost comparison information upon request.
3. Impact on Multiyear Contracts
142. In response to commenters asking that we permit funding for
phased-out services until multi-year contracts expire for those
services, we decline to provide exceptions or allow ``grandfathering''
for multi-year contracts. This decision will simplify the elimination
of funding for these components and services for applicants and for
USAC, and is consistent with our need to transition funding in the
program to high-speed broadband without undue delay. Although the
Commission permits applicants to enter into multi-year contracts for
eligible services, the Commission has never adopted a rule insulating
applicants and service providers from changes in program rules simply
because a multi-year contract was utilized.
IV. Maximizing the Cost-Effectiveness of Spending for E-Rate Supported
Purchases
143. To maximize the cost-effectiveness of spending for E-rate
supported services, we focus in this section on driving down costs for
the services and equipment needed to deliver high-speed broadband
connectivity to and within schools and libraries. There is widespread
agreement in the record about the importance of encouraging cost-
effective purchasing in the E-rate program. Every dollar spent
inefficiently for E-rate supported services is one less dollar
available to meet schools' and libraries' broadband connectivity needs.
144. Moreover, there appears to be substantial room for improvement
in E-rate-supported purchasing. Although E-rate applicants are required
to seek competitive bids for E-rate supported services and to select
the most cost-effective bid they receive, there remain large variations
in the amount of money spent on similar services. Some variation is to
be expected due to differences in local needs and conditions, such as
between large urban schools and small rural schools. However, pre-
discount prices also vary in ways that are unexpected. For instance,
prices paid for telecommunications and Internet access in urban areas
are often higher than those in rural areas. This is the opposite of
what we would generally expect, given that the economies of scale and
distance should generally make broadband deployment more expensive to
smaller districts in rural America. In major metropolitan areas, the
quartile of schools paying the most for 100 Mbps of Internet access
services pays nearly three times more than the quartile paying the
least and the quartile paying the most for 1 Gbps WAN connections pays
nearly four times more than the quartile paying the least. Even in the
same state, prices for rural broadband services can vary widely. For
example, the Idaho Commission for Libraries explains that prices range
from $3.33/Mbps/month to $397.56/Mbps/month in its state's rural
libraries, while ALA notes that the cost for a T1 line can vary from a
few hundred dollars to more than two thousand dollars per month in
Pennsylvania.
145. This variation suggests there is more we can do to drive down
prices for E-rate services. It also suggests that applicants need more
information about purchasing decisions. Therefore, in this section, we
adopt changes to increase pricing transparency, encourage consortium
purchasing and amend our LCP rule to clarify that potential service
providers must offer eligible schools, libraries and consortia the LCP.
A. Increasing Pricing Transparency
146. To assist schools and libraries in finding the best prices for
E-rate supported services, we adopt transparency requirements for E-
rate recipients and vendors beginning in funding year 2015. We agree
with those commenters who argue that transparency is an essential tool
to help applicants make educated buying
[[Page 49179]]
decisions. Transparent pricing will give schools and libraries greater
visibility into pricing and technology choices for their peers, which
we expect will help applicants in negotiations with equipment and
service providers.
147. Shining a light on prices paid for E-rate supported services
will help the Commission and third parties ensure that variations in
prices paid are in accordance with the program rules and that schools
and libraries are purchasing E-rate supported services cost
effectively. As several commenters explain, the public should have a
simple method to ensure that their students are getting the high-speed
connectivity needed for digital learning at the lowest price. Making
the pricing data publicly available will also improve analyses
performed by the Commission, state coordinators, and third parties
regarding the program's effectiveness and whether more needs to be done
to improve cost-efficient purchasing by schools and libraries. Finally,
pricing transparency will help third parties identify best practices
for purchasing and reduce waste across the program.
148. Therefore, to increase pricing transparency in the E-rate
program, we will make information regarding the specific services and
equipment purchased by schools and libraries, as well as their line
item costs, publicly available on USAC's Web site for funding year 2015
and beyond. This information is currently collected on FCC Form 471,
Block 5, Item 21 (``Item 21s''). In addition, we agree with commenters
that the information contained in the Item 21s should be standardized
to provide meaningful information that is easy to compare across
applications. We delegate authority to the Bureau to revise and oversee
form standardization, while directing the Bureau to be mindful of the
need to keep all forms as simple as possible in light of our goal of
streamlining administration of the program. Because pricing and
purchasing information will be of greatest benefit if it is available
in electronic, searchable forms, we also direct OMD to work with USAC
to ensure ready availability of the information in these forms, such as
through publicly available APIs and/or bulk data files posted on USAC's
Web site.
149. A few commenters express concern that a state law, local rule,
or an existing long-term contract may explicitly prohibit pricing
disclosure. In light of these concerns, we will allow applicants to opt
out of making pricing data public where such applicants can certify and
cite to a specific statute, rule, or other restriction barring
publication of the purchasing price data, such as a court order or a
contract in existence prior to adoption of this order. Applicants
making this certification shall retain necessary documentation to
demonstrate the restriction in the event of a Program Integrity
Assurance (PIA) review or audit. Contracts executed after the effective
date of this Report and Order, however, may not contain such
restrictions, and any such restrictions will have no effect.
150. We recognize the arguments of some commenters that price
transparency increases the risk of anti-competitive behavior by service
providers. It is true that in certain market conditions, publication of
prices can raise the risk of collusion or price harmonization. But
given the level of public scrutiny of the E-rate program, we think
price transparency will shine a light on any anti-competitive behavior.
Moreover, the benefits to applicants from better pricing information
are likely to outweigh any increased risks of collusion or price
harmonization among providers. As many commenters note, some pricing
information is already publicly available through state master
contracts and state public records laws in a piecemeal fashion--a state
of affairs that carries most of the collusion risks of broader
publication with many fewer benefits. Sophisticated vendors interested
in their competitors' pricing are most likely to be able to avail
themselves of public records laws, while individual school and library
applicants are less likely to have the practical ability to navigate
these processes. In contrast, centralized, easily accessible data about
pricing for purchased services will be more useful for applicants and
program oversight, while doing little to increase the risk of
collusion. For all these reasons, on balance, we conclude that
increasing pricing transparency is likely to increase competition and
drive down prices.
151. Some commenters also argue that transparency will reduce the
number of vendors competing to provide E-rate supported services
because vendors will leave the program rather than allow their prices
to be made public. Again, we are not persuaded. As described, in many
states pricing information is already publicly available in some
fashion, and there is no evidence in the record that this has lowered
participation in those states. Moreover, schools and libraries, like
all community anchor institutions, are valuable customers. Indeed,
greater pricing transparency should help those vendors offering the
best prices attract market interest in their services and equipment,
which should help foster a competitive marketplace.
152. We also disagree with the argument that school districts and
libraries will find pricing information too confusing to be useful. As
many commenters note, individual school districts or libraries often
have unique characteristics that make the prices available to them
lower or higher than national or regional averages. For example, small
rural schools may legitimately face higher prices for broadband
connectivity than large urban schools because of their distance from
the nearest fiber, the dearth of other broadband customers in their
immediate vicinity, and lack of competitive options. But E-rate
applicants are already required to make judgments regarding the costs
of proposed services. To the extent a school or library arms itself
with price information from its peers and requests a price that a
vendor believes is unreasonably low for some equipment or service, we
are confident that the vendor will be appropriately incented to explain
any unique circumstances that justify its higher price. In sum, even
acknowledging that applicants will face varying circumstances that
affect the prices available to them, we find that transparency will aid
applicants in making smarter spending judgments in accordance with
their obligation to select cost-effective services.
153. Although we require publication of prices for goods and
services purchased by applicants, we decline at this time to require
public disclosure of other pricing information, including available
pricing from service providers or bid responses. Many commenters argue
that submitting bid information is burdensome, and the goods and
services selected by applicants should represent the most cost-
effective solution for their needs following a competitive bidding
process, with price as the primary factor. Therefore, we are persuaded
that the current burden to applicants of submitting comprehensive bid
information to USAC outweighs any incremental benefit to the public
from the publication of prices for non-winning bids, which, by
definition, were not the most cost-effective choice. At the same time,
we take this opportunity to remind applicants and vendors that they are
responsible for the retention of all documents related to their
applications, including bids submitted in response to a solicitation,
in accordance with our rules. Applicants still may be required to
provide all bid responses during PIA
[[Page 49180]]
review of an application or during an audit.
154. We also decline to require disclosure of pricing information
for past funding years. Pricing information on Item 21s has not been
published in the past, and the Commission has redacted pricing
information from Freedom of Information Act responses at the request of
service providers claiming it was proprietary information. Given
stakeholders' expectations when prior-year applications were submitted,
we will continue to treat recent Item 21 information as potentially
sensitive for funding year 2014 and before. However, this Report and
Order serves as notice to all service providers that the receipt of E-
rate support will be conditioned on disclosure of this pricing
information beginning in funding year 2015.
155. Finally, we terminate the program the Commission created in
the Second Report and Order, 68 FR 36931, June 20, 2003, testing an
online list of internal connections equipment eligible for discounts.
USAC no longer updates the database in part because of the burdens it
placed on USAC and vendors. Meanwhile, the publication of pricing data
as provided will provide a less burdensome and more accurate
representation of the goods and services being purchased by applicants
with E-rate support, as well as the prices paid. We received no
comments objecting to termination of the eligible products database.
B. Encouraging Consortia and Bulk Purchasing
156. Consortium purchasing can drive down the prices paid by
schools and libraries for E-rate supported services. In this section,
we reduce or eliminate some of the existing barriers to applicants'
participation in consortia. As an initial matter, we direct Commission
staff to work with USAC to prioritize review of consortia applications.
We also adopt rules to make it easier for applicants to take advantage
of consortium bidding and clarify some apparent misconceptions about
consortia participation. In response to concerns raised by E-rate
applicants about the current method for allocating E-rate support among
members of an E-rate consortium, in the accompanying FNPRM, we propose
to amend the way consortia determine the amount of support to be
received by their members to ensure that E-rate applicants that choose
to join a consortium do not risk receiving less support, and seek
comment on other ways to encourage consortium purchasing.
1. Speeding Review of Consortium Applications
157. In order to address applicants' complaints that consortia
applications have historically received reviews late in the application
review process, we direct OMD and the Bureau, working with USAC, to
prioritize application review for state and regional consortia
applicants. OMD and USAC have already undertaken an initiative to speed
review of all E-rate applications, with a particular focus on broadband
applications. We applaud that work and want to build on the positive
results, particularly with respect to state and regional consortia
applications. We expect that the improved processing times for
consortia applications will result in more funding commitments flowing
faster to schools and libraries, which will motivate more applicants to
join consortia in future funding years.
2. Preferred Master Contracts
158. To further encourage applicants to take advantage of bulk
buying opportunities, we delegate authority to the Bureau to designate
preferred master contracts for category two equipment. The Bureau may
make such a designation for the purpose of (a) exempting the preferred
master contract from the FCC Form 470 filing requirement and (b)
requiring applicants to include the preferred master contract in their
bid evaluations even if the master contract is not submitted as a bid
in response to the applicant's FCC Form 470. The Bureau has authority
to institute either one or both of these exceptions for a preferred
master contract and must re-evaluate its decision to designate a
contract as a preferred master contract every two funding years.
159. We authorize the Bureau to designate a master contract as a
preferred master contract if it offers eligible entities nationwide the
opportunity to obtain excellent pricing for category two services as
reported on FCC Form 471. National availability of the equipment
offered on a preferred master contract will ensure that all E-rate
applicants have the opportunity to take advantage of its pricing.
160. We limit preferred master contracts to equipment used in
category two internal connections at this time. Commodities such as the
equipment used in internal connections lend themselves to bulk
purchasing arrangements, and can be shipped nationwide. The more varied
nature of services, such as broadband services and internal connection
installation services, makes implementing bulk purchase arrangements
more complicated. We therefore choose not to authorize the designation
of preferred master contracts for such services at this time.
161. We agree with commenters who support national bulk buying
opportunities because of the unmatched economy of scale national
purchasing allows. In order to help ensure such scale (and thus
maximize the benefit to applicants and the E-rate program), we
authorize the Bureau to limit the number of master contracts it
designates as preferred. Recognizing, however, that E-rate applicants
may still be able to negotiate better pricing from vendors not
associated with a preferred master contract, we decline to require
applicants to purchase services from a preferred master contract at
this time.
a. FCC Form 470 Exception
162. Allowing applicants to take internal connections equipment
from a preferred master contract without filing an FCC Form 470 will
ease the administrative burden on applicants without compromising cost-
effectiveness. Several commenters encouraged us to eliminate the FCC
Form 470 filing requirement for certain master contracts because of the
administrative burdens associated with competitive bidding. Although
competitive bidding is vital to limiting waste and ensuring that
services are provided at the lowest possible rates, in the limited case
of equipment available on a preferred master contract, we find that it
is not necessary for applicants to file an FCC Form 470 because the
terms of the preferred master contract assure us that applicants will
receive the best possible pricing on the services they order. We cannot
at this time exempt master contracts that are not preferred master
contracts from any competitive bidding requirements because we do not
have the same assurances with respect to pricing for all master
contracts.
163. Applicants who wish to take services from a preferred master
contract without filing an FCC Form 470 would indicate on their FCC
Form 471 that they are purchasing services from a preferred master
contract instead of citing to an FCC Form 470.
b. Bid Evaluation Requirement
164. Requiring applicants to include preferred master contracts in
bid evaluations helps ensure that applicants make cost-effective
purchases while enabling them to select the services that best suit
their needs. Applicants will only be required to include equipment
available on a preferred master contract in their bid evaluations if it
is the same
[[Page 49181]]
equipment the applicant sought on its FCC Form 470. Applicants would
still have the ability to select bids submitted by service providers in
response to the FCC Forms 470, as long as the applicants' evaluation
treats the price of eligible equipment as the primary factor in bid
selection and the selected bid is the most cost-effective.
3. Authority To Seek Consortium Bids
165. To further increase cost-effective purchasing by applicants,
we next amend our rules to permit a consortium lead to identify on its
consortium's FCC Form 470 the schools, school districts and libraries
for which it has authority to seek competitive bids for E-rate eligible
services even if it does not have authority to order services for those
entities. Our rules currently require the FCC Forms 470 and FCC Forms
471 be signed by a person authorized to order eligible services for the
applicants and do not distinguish between authority for E-rate
consortium leads to seek bids and authority for consortium leads to
purchase the services. As a result, consortium members who are
unwilling to cede authority to purchase E-rate eligible services to the
consortium lead release their own FCC Form 470 and likely do not
attract the number of competitively priced bids, if any, from
competitive vendors. By aggregating potential demand in the bidding
process, and using the FCC Form 470 process to attract bidders, a
consortium can drive down the price of eligible services even for its
members who wish to order services on their own. This rule change will
take effect for funding year 2015. Our rules will continue to permit
consortium leads to purchase services on behalf of some or all of their
members and we encourage consortium leads to seek both forms of
authorization, as appropriate.
4. Correcting Misconceptions
166. We also take this opportunity to correct misconceptions about
consortia applications that appear to have prevented some applicants
from joining consortia, and to remind applicants and service providers
about already-existing rules that should work to encourage
participation in consortia. We remind applicants that E-rate rules do
not require a consortium to solicit or select a single vendor to
provide service to all consortium members and that applicants can
authorize a consortium lead to act on their behalf for multiple years.
167. Consortia selection of multiple service providers. Some
commenters argue that consortia purchasing may actually increase prices
by excluding smaller service providers who are not able to serve the
full needs of a consortium. In light of these comments, we remind all
stakeholders that consortia do not need to solicit or select a single
vendor able to provide service to all members of a consortium. Rather,
a consortium may invite vendors to bid on services to a subset of
consortia members, and may find that a combination of different service
providers offer the most cost-effective solution for consortium
members. Even though a larger service provider may enjoy economies of
scale and scope, it will not necessarily be able to provide
competitively priced service in every area in which a consortium's
members are located. Therefore, consortia applicants should make clear
in their FCC Forms 470 and any associated RFPs that they are not
required to select a single provider that can meet the needs of all
members. While some consortia select a single service provider, many
others select a combination of service providers to meet the needs of
their consortium members. In light of the apparent confusion on this
issue, we direct USAC to remind applicants and vendors, during USAC
training and other outreach, that consortia can solicit bids from
service providers to cover a portion of the services sought by the
consortia.
168. Multi-year authorization. We also clarify that applicants can
authorize a consortium lead to act on their behalf for multiple years,
and need not reaffirm that authorization every funding year. In order
to ensure that a consortium lead is not seeking bids or applying for
support on behalf of schools and libraries without their knowledge or
consent, our rules have required and continue to require FCC Forms 470
and FCC Forms 471 to be signed by a person authorized to seek or order
services for the applicants. To show that it is authorized to seek or
order eligible services for the applicants, a consortium lead may
provide copies of relevant state statutes or regulations requiring
members to participate in the consortium or some other proof that each
consortium member is aware that it is represented in the application.
169. Another common way for a consortium lead to demonstrate its
authority to seek or order eligible services on behalf of its members
is to solicit letters of agency (LOAs) from consortium members. Some
commenters ask us to ease consortia's administrative burdens by
reducing the frequency with which applicants provide LOAs or eliminate
the practice of applicants providing LOAs to consortium leads. We
decline to eliminate the LOA practice altogether because, in many
circumstances, an LOA could be the only means a consortium lead has to
demonstrate its authority to seek or order services on behalf of a
specific consortium member. We can, however, clarify that applicants
may provide consortia leads with LOAs that cover multiple funding years
as long as those years are specified in the LOA and as long as the
authorization includes the type of services covered by the LOA.
5. Other Rules Changes
170. We also add a definition of ``consortium'' in our rules that
is based on the definition of ``library consortium'' that has long been
a part of our rules. In the definition, we also make it clear that
consortia may include health care providers eligible under the Rural
Health Care program and public sector (governmental) entities,
including, but not limited to, state colleges and state universities,
state educational broadcasters, counties, and municipalities. This
change does not alter requirements for applicants and service
providers.
C. Offering the Lowest Corresponding Price
171. In order to help ensure that E-rate applicants make cost-
effective purchasing decisions, we remind service providers that they
not only must charge eligible schools, libraries, and consortia the LCP
when providing E-rate services, but also must offer eligible entities
the LCP when submitting competitive bids to provide E-rate supported
services.
172. The LCP rule prohibits an E-rate provider from ``charg[ing]''
E-rate applicants a price higher than the lowest price that provider
charges to non-residential customers who are similarly situated to a
particular school, library, rural health care provider or consortium
that purchase directly from the service provider. In authorizing the
creation of the E-rate program, Congress imposed an obligation on
telecommunications carriers to provide services to schools and
libraries at rates less than the amounts charged for similar services
to other parties. To ensure that schools, libraries and consortia
participating in the E-rate program receive all services at the lowest
rates available, the Commission extended this requirement to apply to
all providers of E-rate supported services. The LCP rule benefits E-
rate applicants and the Fund by ensuring that the price for E-rate
supported services is no more than the market price for those services,
absent a showing by a provider that it faces
[[Page 49182]]
demonstrably higher costs to serve a particular school or library.
173. While the LCP rule does not expressly mention an obligation to
``offer'' eligible entities the LCP, this obligation was articulated in
the Universal Service First Report and Order where the Commission
described the LCP provision as requiring service providers to ``offer''
services that comply with the LCP. To ensure that applicants receive
the best possible bids from service providers in response to their FCC
Forms 470, consistent with the Commission's intent, we take this
opportunity to reemphasize that our LCP rule, as it is now codified in
our rules, means that providers must both (i) submit bids to applicants
at prices no higher than the lowest price they charge to similarly-
situated non-residential customers for similar services; and (ii)
charge applicants a price no higher than the LCP. In abundance of
caution, we also modify our LCP rule to better reflect the dual nature
of this obligation.
174. Because the LCP rule makes prices more affordable for schools
and libraries, as contemplated by the statute, we also take this
opportunity to agree with those commenters who support stepped-up
enforcement of our LCP rule. We therefore direct the Enforcement Bureau
to devote additional resources to investigating, and where appropriate,
bringing enforcement actions against service providers who violate the
LCP rule.
V. Making the E-Rate Application Process and Other E-Rate Processes
Fast, Simple and Efficient
175. In this section, we focus on making the E-rate application
process and other E-rate processes fast, simple and efficient. There is
broad agreement on the need to simplify the administration of the E-
rate program in order to reduce the burden on applicants, make the most
efficient use of E-rate funding, and foster greater participation in
the E-rate program. We therefore adopt a host of programmatic changes
in this section, including simplifying the application process by,
among other things, providing a process for expediting the filing and
review of applications involving multi-year contracts; eliminating
technology plans for internal connections; simplifying and clarifying
applicants' discount rate calculations; simplifying the invoicing and
disbursement process; and requiring all USF requests for review to be
filed initially with USAC. As we streamline the program, we remain
mindful of our need to gather relevant data from applicants and to
protect against waste, fraud, and abuse. Accordingly, in this section,
we also adopt measures to protect against waste, fraud, and abuse.
176. We also direct USAC to take steps to reduce the administrative
burden on applicants by processing and managing applications more
efficiently, modernizing its E-rate information technology (IT)
systems, timely publishing all non-confidential E-rate data in an open
and standardized format, and communicating more clearly with E-rate
applicants and service providers. We recognize that, as part of this
modernization effort, USAC, working with OMD and the Bureau, already
has made great strides, and we expect that they will continue to work
together closely to push these reforms forward.
177. USAC, working with the Bureau and OMD, will implement the
administrative changes we adopt today in funding year 2015, unless
otherwise noted. In the Universal Service Third Report and Order, 62 FR
56118, October 29, 1997, the Commission delegated authority to the
Bureau to issue orders interpreting our E-rate rules as necessary to
ensure that support for services provided to schools and libraries
operate to further our universal service goals. We re-affirm that
delegation. We also direct the Bureau, working with OMD and other
Commission staff, to make changes to the E-rate forms, as needed, and
to provide direction to USAC to implement the changes, including
providing clarification and guidance in the case of any ambiguity that
may arise. These changes, taken together, will result in a program that
is easier to navigate for applicants and vendors, will improve program
efficiency by eliminating unnecessary complexities, and will constrain
USAC's administrative expenses, ultimately resulting in a cost savings
to the E-rate program that can be used for the benefit of schools and
libraries.
A. Simplifying the Application Process
178. We agree with those commenters who support simplifying the E-
rate application process as an important part of streamlining the
administration of the E-rate program. We therefore adopt a simplified
application process for multi-year contracts; eliminate the requirement
for technology plans; ease the signed contract requirement to allow
applicants to seek E-rate support once they have entered into a legally
binding agreement with a service provider; exempt from our competitive
bidding requirements purchases of commercially available high-speed
broadband services that cost less than $3,600 per year; require the use
of electronic filings; and enable direct connections between schools
and libraries.
1. Simplifying the Application Process for Multi-Year Contracts
179. As an initial matter, we simplify the application process for
funding requests that involve multi-year contracts for eligible
services. This simplified application process will be available to any
applicant, beginning in funding year 2015, when: (1) The applicant has
a multi-year contract for E-rate supported services that is no longer
than five years, and (2) any changes in the requested services or to
the terms and conditions under which those services are provided are
within the scope of the establishing FCC Form 470 and the applicable
contract. As the Commission proposed in the E-rate Modernization NPRM,
applicants that elect to use the multi-year contract funding review
process will only be required to submit a complete FCC Form 471 for the
first funding year in which they are seeking E-rate support under the
multi-year contract. All applicants, even those currently in the middle
of a multi-year contract, will be required to file a complete FCC Form
471 once. In subsequent funding years covered by a multi-year contract,
applicants will be permitted to use a streamlined application process
that will be shorter, require less information from the applicants, and
be approved through an expedited review process, absent evidence of
waste, fraud, or abuse.
180. By minimizing pre-commitment application review by USAC in
subsequent years of a multi-year contract, we anticipate USAC will be
able to review applications more quickly while lowering the
administrative burdens on applicants and without increasing the
likelihood of waste, fraud and abuse. While applicants taking advantage
of this new process will benefit greatly from expedited review and the
reduced administrative burden, this process does not guarantee funding
in subsequent years, even for the same services. E-rate funding will
continue to be committed and disbursed on an annual basis. Applicants
must be eligible for E-rate support in each of the years funding is
sought, and the services must be eligible for support in each such
year.
181. We agree with those commenters who suggest that five years is
an appropriate maximum length of time for contracts seeking to use a
multi-year contract application process. Commenters note that a five-
year contract length is consistent with other
[[Page 49183]]
procurement models in the education industry. We therefore find that
the three-year limit the Commission proposed in the E-rate
Modernization NPRM is too restrictive. Although we do not adopt a
maximum contract length in this Report and Order, in the accompanying
FNPRM we do seek further comment on setting a maximum contract length
for E-rate supported services.
182. To facilitate these changes to our application process, we
direct the Bureau and OMD to work with USAC to revise the application
process for multi-year contracts so that an applicant is not required
to complete the full FCC Form 471 after the first year the applicant
seeks funding for services provided pursuant to a multi-year contract
that has a maximum term of five years. Under this revised application
process, applicants must file a complete FCC Form 471 in the first year
of a multi-year contract that is eligible for this streamlined review
process, but in subsequent contract years applicants will only need to
provide basic information identifying the applicant, confirm that the
funding request is a continuation of an FRN from a previous funding
year based on a multi-year contract, and identify and explain any
changes to their application, such as changes in the discount rate, the
membership of a consortium, or the services ordered. (All such changes
must be within the scope of the establishing FCC Form 470 and the
underlying agreement.) While USAC and the Commission staff, of course,
remain able to request other information necessary to reach a
commitment decision, we direct USAC to aim to minimize such requests.
183. Although some commenters would prefer to file a single FCC
Form 471 to cover multiple years of a multi-year contract, we find that
a streamlined filing and review process for subsequent contract years
of a multi-year contract balances the applicant's desire for expedited
review and administrative convenience with USAC's need to confirm basic
information about the request in subsequent years, and to verify an
applicant's interest in applying for funds for that funding year. USAC
will review the initial FCC Form 471 applications associated with
multi-year contracts as thoroughly as it reviews applications covered
by one-year contracts. In subsequent years of a multi-year contract,
however, where USAC has already reviewed a funding application for the
first year of a multi-year contract, USAC will be able to streamline
its pre-commitment review. If there are no changes to the services
purchased, conducting the same review for each subsequent year of the
contract is not likely to identify errors in the application.
184. While we amend our rules to simplify applicants' use of multi-
year contracts, we decline to allow applicants to receive multi-year
funding commitments. In the E-rate Modernization NPRM, the Commission
sought comment on allowing multi-year funding commitments. The
Commission cited to its recent decision to allow multi-year funding
commitments in the Healthcare Connect Fund Order, 78 FR 38606, June 27,
2013, in which the Commission noted that, by eliminating the need for
applicants to file every year, multi-year funding commitments would
reduce uncertainty and minimize the administrative burden for
applicants and for USAC. Despite support from commenters for similar
multi-year funding commitments in the E-rate context, important
differences between the Healthcare Connect Fund and the E-rate program
prevent us from adopting multi-year funding commitments in the E-rate
program. Unlike the Healthcare Connect Fund, demand for E-rate funds
significantly outstrips supply. Further, there is no record yet on the
effect of the Healthcare Connect Fund Order on the Healthcare Connect
Fund or as a constraint on funding available for other applicants in
the fund. Although multi-year commitments may slightly increase
administrative efficiency for applicants and USAC, obligating funds
years in advance of their use would be detrimental to the management of
the program. Moreover, the multi-year contract application process we
adopt today should allow the E-rate program and applicants to achieve
many of the efficiencies of a multi-year funding commitment process.
2. Eliminating the Technology Plan Requirements
185. In the interest of reducing the administrative burden on E-
rate applicants, beginning with funding year 2015, we eliminate from
our rules the technology plan requirements for applicants seeking E-
rate support for category two services. The Commission previously
eliminated the technology plan requirements for priority one services,
and having considered the record, we now agree with commenters that the
burden of our requirement that applicants for internal connections and
basic maintenance of internal connections have certified technology
plans outweighs the benefits, particularly for small applicants with
limited resources.
186. We agree with those commenters who argue that technology
planning is an important step in the process of long-term planning on
how best to procure and utilize internal connections. We are certain
though that, even absent this rule, technology planning will continue
to occur because technology has become a central part of school and
library infrastructure, and technology planning has become integrated
into applicants' core strategic planning. We also expect that the
structural changes we make to the E-rate program's approach to
providing support for internal connections and basic maintenance of
internal connections will encourage good planning. We strongly
encourage all applicants, both large and small, to carefully review
existing plans given the many changes to the E-rate program that we
adopt in this Report and Order. However, we find that the burden of
getting formal approval and certification of these technology plans
outweighs the benefits to the program.
3. Exempting Low-Dollar Purchases of Commercially Available Business-
Class Internet Access From Competitive Bidding Rules
187. We create an exemption in our competitive bidding rules for
applicants seeking E-rate support to purchase commercially available,
business-class Internet access services that cost $3,600 or less for a
single year. An Internet access service will be eligible for this
exemption only if it offers bandwidth speeds of at least 100 Mbps
downstream and 10 Mbps upstream for a pre-discount price of $3,600 or
less annually, including any one-time installation and equipment
charges, and the service and price are commercially available. Based on
our review of commercial offerings online, this $3,600 annual limit is
a reasonable maximum that will allow some applicants to purchase
commercially available business-class Internet access. We clarify that
the $3,600 annual limit is the pre-discount amount for the service per
school or library. So, for example, a library system with three library
branches could qualify for this exemption if it purchased 100 Mbps
downstream and 20 Mbps upstream Internet access service for each of its
three branches at a cost of $250 per month for each branch. Each school
or library building must receive the eligible service at a cost of less
than $3,600 annually and applicants may not average the cost of
services across a number of schools or libraries. This exemption will
become effective in funding year 2015. As explained, applicants may
purchase services with a
[[Page 49184]]
multi-year contract, such as a two-year term, but we will not make
multi-year commitments. Applicants will therefore still be required to
file an FCC Form 471 in the second year of the service.
188. We recognize that competitive bidding is an essential
component of the E-rate program. At the same time, the record supports
a finding that administrative costs associated with the Commission's
competitive bidding rules and requirements may deter program
participation by entities requesting low-dollar Internet access
services. We are particularly concerned that smaller schools and
libraries may not be purchasing high-speed Internet connectivity
through the E-rate program due to these administrative costs.
Consistent with the goals we adopt today to increase broadband and
streamline the administrative process, we expect this limited exemption
to competitive bidding will encourage additional bandwidth purchases
and increased program participation. This exemption is likely to be
particularly attractive to small applicants that face a
disproportionate administrative burden from the competitive bidding
process and encourage these entities to increase bandwidth speeds in
the short term. Moreover, the bandwidth speeds required to qualify for
this program are consistent with the goals we have outlined in this
Report and Order, albeit typically for ``best efforts'' class services
rather than dedicated connections. We believe that such ``best
efforts'' service will frequently be sufficient for smaller entities
with fewer students or patrons or in rural areas where fiber has not
been deployed. For example, ALA notes that ``[o]ver half of all rural
libraries have internet speeds of 4 Mbps or less . . . and only 17
percent of rural libraries have speeds greater than 10 Mbps.'' As of
2012, only nine percent of all libraries have speeds greater than 100
Mbps. For these entities and others, this exemption will provide a
simple and efficient method to purchase business-class Internet access
and quickly increase connectivity speeds.
189. With respect to their purchase of such services, applicants
will be exempt from the competitive bidding rules under Sec. 54.503(a)
through (c), the certification requirement under Sec.
54.504(a)(1)(vi), and the corresponding rule on the selection of a
provider of eligible services under Sec. 54.511(a) of our rules. Such
applicants will use the FCC Form 471 to certify to their purchase of an
eligible commercially available business-class Internet access service.
We remind applicants of their obligation to comply with record
retention rules when purchasing eligible Internet access. We also
caution applicants and vendors that our gift rules will continue to
apply even where a purchase arrangement is exempt from the competitive
bidding process.
190. We find that purchasing high-speed Internet access with at
least 100 Mbps/10 Mbps for no more than a pre-discount price of $3,600
is a cost-effective service offering, particularly in light of the
benefits for smaller schools and libraries. In order to ensure that the
benefits of removing the administrative burden continue to outweigh the
costs of exempting competitive bidding, we also delegate authority to
the Bureau to lower the annual cost of broadband services or raise the
speed threshold of broadband services eligible for this competitive
bidding exemption, based on a determination of what rates and speeds
are commercially available and will meet the needs of at least some
subset of schools and libraries. We decline to adopt a de minimis
exemption for other eligible services at this time, but we keep the
record open on this issue and look forward to learning from the
experience of applicants who take advantage of the exemption from
competitive bidding that we adopt today.
4. Easing the Signed Contract Requirement
191. In order to further increase the efficiency of the
administrative process and simplify the application process for
applicants, we revise Sec. 54.504(a) of our rules to require that
applicants have a signed contract or other legally binding agreement in
place prior to submitting their FCC Forms 471 to USAC. The rule had
required applicants to submit their FCC Forms 471 requesting support
for services ``upon signing a contract for eligible services.'' While
this rule ensures that applicants have negotiated and agreed to
contractual terms prior to the filing of an FCC Form 471 requesting
support for E-rate services, there are many instances where applicants
have an agreement in place with their service provider or are already
receiving services, but have difficulty obtaining signatures prior to
the submission of their FCC Forms 471. Although we received no comments
on this issue, in many instances, applicants have sought a waiver of
this rule after having failed to obtain signatures prior to the
submission of their FCC Forms 471. The Commission has consistently
waived the requirement of a signed contract for petitioners who have
demonstrated that they had a legally binding agreement in place for the
relevant funding year. Rather than requiring applicants to seek such
waivers, we now revise our rules to require applicants to have a signed
contract or other legally binding agreement in place prior to filing
their FCC Forms 471. This revision to our rules will be effective
beginning in funding year 2015.
192. Applicants and service providers should understand that,
although no longer required, a signed contract will constitute the best
evidence that a legally binding agreement exists. Absent the existence
of a signed contract, in determining whether a legally binding
agreement is in place, we direct USAC to consider the existence of a
written offer from the service provider containing all the material
terms and conditions and a written acceptance of that offer as evidence
of the existence of a legally binding agreement. For example, a bid for
the services that includes all material terms and conditions provided
in response to an FCC Form 470 would be sufficient evidence of an offer
and an email from the applicant telling the service provider the bid
was selected would suffice as evidence of acceptance. In addition,
after a commitment of funding, an applicant's receipt of services
consistent with the offer and with the applicant's request for E-rate
support will also constitute evidence of the existence of a sufficient
offer and acceptance. A verbal offer and/or acceptance will not be
considered evidence of the existence of a legally binding agreement.
Revising the rule in this manner will provide applicants with
sufficient flexibility to finalize their service agreements after
filing their FCC Forms 471 while protecting the Fund against waste,
fraud, and abuse. We also remind parties that they must retain all
relevant documents for 10 years, consistent with our revised document
retention rules.
5. Requiring Electronic Filing of Documents
193. We also agree with commenters who suggest that, in order to
streamline the administration of the program, we should require E-rate
applicants and service providers to file all documents with USAC
electronically and USAC to make all notifications electronically, and
therefore direct USAC, in consultation with the Bureau and OMD, to
phase in such a requirement over the next three funding years. As the
Commission noted in the E-rate Modernization NPRM, the electronic
submission of FCC forms will improve the efficiency of submitting and
processing applications, resulting in faster commitments and
disbursements of E-rate funding. Furthermore, electronic filing will
reduce the
[[Page 49185]]
program's administrative costs because USAC will not have manually
entered data into its electronic system from paper submissions.
Electronic filing will result in fewer errors on forms and other
communications between USAC and applicants and service providers.
Therefore, beginning in funding year 2017, we will require the
submission of all filings and notifications electronically.
194. Some commenters argue that E-rate applicants and service
providers should have the option of filing paper copies. We recognize
that applicants vary widely in connectivity, technical resources and
administrative resources, and a limited exemption to our mandatory
electronic filing requirement would allow applicants and USAC to reap
many of the benefits of electronic filing while allowing the program to
respond to the needs of all applicants and service providers. We will
therefore allow applicants who can demonstrate that they have
insufficient resources to make electronic filings to file paper copies
of applications and other documents. We direct the Bureau and OMD,
working with USAC, to determine the circumstances under which
applicants may be exempt from this mandatory electronic filing
requirement and the process for applicants to seek permission to file
paper copies of documents.
6. Enabling Direct Connections Between Schools and Libraries
195. In the interest of promoting access to high-speed broadband
connections in the simplest and most efficient manner possible, we take
action consistent with a suggestion made by the ALA, and supported by
other commenters, that we allow rural schools and libraries eligible
for E-rate support to establish direct connections for the purpose of
accessing high-speed broadband services. As ALA explains, in many rural
communities, a library with low bandwidth may be in close proximity
(e.g., across the street) to a school with significantly higher
bandwidth and could be easily added to the school WAN. We find that
allowing these connections will afford some schools and libraries that
presently lack access to high-speed broadband the opportunity to
quickly and efficiently benefit from such connections.
196. We recognize that it will likely be necessary to waive some of
our rules to allow E-rate support for such connections. However, the
record is not fulsome enough for us to determine with certainty what
rules will need to be waived for each particular direct connection
project. We therefore encourage applicants to file waiver requests for
the purpose of seeking E-rate support for such direct connections. We
also direct the Bureau to expeditiously consider such waiver requests
and, as appropriate, to waive our rules, as is necessary, to grant such
requests, including the rule that would otherwise require both the
school and the library to apply for E-rate support. We further direct
the Bureau to report back to us on any such projects so that we may
consider whether to amend our rules in the future to allow for such
projects.
B. Simplifying Discount Rate Calculations
197. In the interest of making the E-rate application process and
other E-rate processes fast, simple and efficient, we adopt four
changes to the procedures for applicants to use in calculating their E-
rate discounts. First, we require school districts to calculate and use
district-wide discount rates for each application, thus eliminating the
need to calculate different discount rates depending on which schools
in a district are receiving services. Second, we modernize our
definitions of ``rural'' and ``urban'' for purposes of determining
applicants' discount rates. Third, we provide direction on how schools
and school districts that receive funding under the new community
eligibility provision (CEP) of the United States Department of
Agriculture's (USDA) National School Lunch Program (NSLP) should
calculate their E-rate discount rates. Finally, in order to protect the
program against waste, fraud and abuse, we also direct USAC to require
schools that calculate discount eligibility based on projections from
school-wide surveys to base their E-rate discount rate only on the
surveys they actually collect.
1. Adopting District-Wide Discount Rates
198. Consistent with our goal of making the E-rate application
process and other E-rate processes fast, simple and efficient, we adopt
the proposal in the E-rate Modernization NPRM to amend our rules to
require each school district to calculate and use a single district-
wide discount rate, rather than calculating and using building-by-
building discount rates. This requirement will be effective beginning
with funding year 2015. The record demonstrates that E-rate applicants
find the current building-by-building discount calculation approach to
be confusing, time-consuming, and fraught with the potential for
errors. It is also a significant source of delay in USAC's application
review process. We agree with commenters that adopting a district-wide
discount rate will simplify and streamline the E-rate application
process for applicants as well as USAC, while creating a more equitable
system of determining the discount schools and libraries should receive
for eligible services.
199. Requiring the use of a district-wide discount ensures the E-
rate program provides higher discount rates for higher poverty school
districts, while more closely matching the E-rate funding mechanism to
the actual accounting practices and organizational structure of school
districts. Individual schools within a district do not have their own
local taxing authority nor do they generally have a budget that is
legally separate from the district's budget. Moreover, the tax base of
a district is the entire district population, not just the population
associated with a subset of schools. While individual schools within a
district may have more or fewer student eligible for NSLP, school
districts develop consolidated budgets and allocate resources to
support comprehensively all of the district's students. As such, we
find that it is more appropriate to gauge a district's relative need
for funding based on its entire student population.
200. The record demonstrates the many benefits of adopting a
district-wide discount. For example, districts will no longer need to
complete multiple steps to calculate the appropriate discounts for each
building. Districts will also no longer need to file separate FCC Forms
471 for different combinations of schools that produce different
discount level requests. Also, by using a district-wide discount,
districts will no longer have to make difficult determinations
regarding non-instructional facilities (NIFs). For example, adopting a
district-wide discount approach will eliminate the confusing and
possibly misleading calculation for a NIF with a classroom that
requires the applicant to rely on a snapshot of students on a single
day for the specific discount. Consortia applications will also be
simpler and more equitable since each member of the consortium, whether
an individual school or an entire district, will use the discount level
for the district in which it is located, calculated on a district-level
basis.
201. The record also demonstrates that a district-wide approach
will reduce the administrative burden on USAC by removing the need to
identify and verify each school's discount rate. Commenters note that
associated USAC efforts to validate the calculation are
[[Page 49186]]
time-consuming. Reducing the burden of verifying each school's discount
rate should speed the review process, and therefore help speed funding
decisions to the benefit of all applicants.
202. Modifying our rules so that schools calculate a district-wide
discount rate should also benefit libraries, which already use the
district-wide discount rate of the school districts in which they are
located. We anticipate libraries will benefit from this change because
school districts will have to determine their district-wide discount
rates to submit their FCC Forms 471 and thus libraries should have an
easier time getting that information in a timely fashion from the
relevant school districts.
203. Several commenters express concern that a district-wide
discount calculation could deprive schools and libraries in higher
poverty neighborhoods of internal connection funding. However, the
revisions we make in this Report and Order to funding internal
connections will provide predictable support for internal connections
for all schools and libraries, and provide a greater discount for
higher poverty school districts and the libraries located in those
school districts.
204. School districts rarely purchase broadband on a school or
neighborhood basis but instead buy on a larger scale. Cost efficiencies
and budgeting realities result in school districts purchasing
telecommunications and Internet services on a district-wide basis or in
geographic areas within that district that align with service provider
availability. Although commenters also express concern that school
districts will be unable to target E-rate resources to schools and
libraries in lower-income neighborhoods if a district-wide discount
calculation is in place, the Commission's decision to adopt a district-
wide discount will not affect school districts' ability to apply for
funding based on the connectivity needs of individual schools. We also
take this opportunity to remind school districts that they are under an
obligation to ensure ``that the most disadvantaged schools and
libraries that are treated as sharing in the service receive an
appropriate share of benefits from those services.''
205. In light of the benefits to school districts and libraries of
adopting a district-wide discount, we revise Sec. 54.505(b)(4) of our
rules to require school districts to calculate their E-rate discounts
by: Dividing the total number of students in the district eligible for
NSLP by the total number of students in the district and comparing that
single figure against the discount matrix to determine the school
district's discount rate for E-rate supported services. All public
schools and libraries within that public school district will receive
the same discount rate. For the sake of simplicity, library systems
that have branches or outlets in more than one public school district
should use the address of the central outlet or main administrative
office to determine which public school district the library system is
in, and should use that public located in school district's discount
rate when applying as a library system or on behalf of individual
libraries within that system.
206. In addition, our adoption of a district-wide discount allows
us to permit applicants to add schools within their districts that were
inadvertently omitted from a district's E-rate funding applications
even post-commitment. Our rules currently require schools and libraries
to list on their FCC Forms 471 every entity that will receive E-rate
supported services under that application. Even when a school district
is intending to use the requested service to serve all the schools in
its district, it sometimes inadvertently omits an eligible school from
the application. The district has the opportunity to correct such an
omission if it catches the error when it receives from USAC its Receipt
Acknowledgement Letter (RAL), which summarizes the district's
application and funding requested. However, if it does not notice the
error by the time its funding commitment letter is issued, but it is
later discovered by USAC as part of a post-commitment review--for
example, an audit or other assessment--that eligible school technically
is not allowed to receive E-rate funding, under the current procedures,
even though it is an eligible school and the services were meant to
serve the entire district. This procedure exists because omission of
one school from a discount rate calculation can change the discount the
district receives, as each school's discount is calculated separately.
With our move to a district-wide discount calculation, districts will
be including all the students from all their schools in their discount
calculation. As such, we find that an applicant can add eligible
schools within its district that were inadvertently omitted from its
applications, even after the deadline for making changes to the FCC
Form 471.
207. We recognize that some schools use a federally approved
alternative mechanism, such as a survey alternative, to determine their
discount percentage. We do not anticipate any negative ramifications to
districts with any such schools because, regardless of the method a
school district uses to establish its discount, it must determine a
district-wide percentage of students eligible for the free and reduced
lunch program from the total student population.
208. While we do not specifically define the term ``school
district,'' an applicant should determine its discount using all E-rate
eligible students in schools that fall under the control of a central
educational agency. Commenters note that private and charter schools
generally operate independently of the main public school district and
are individually responsible for their finances and administration. We
therefore agree with commenters that these educational entities and
local public school districts should calculate their discounts
separately if not affiliated financially or operationally with a school
district. Independent charter schools, private schools, and other
eligible educational facilities that are seeking support for more than
one school building should factor all students in facilities under the
control of their central administrative agency into the discount
calculation.
209. Consortia applications will continue to use a simple average
of all members' discounts to calculate the overall consortium discount,
but will now be required to use each member's district-wide discount.
Consistent with current Commission rules, we require that for services
used only by an individual institution, the applicable discount rate
for the services will be determined based on the applicable district-
wide discount rate for that individual school or library, not the
consortium's overall discount rate. We realize that there will be
shared services that cannot, without substantial difficulty, be
identified with particular users or be allocated directly to particular
entities. In those situations, we will continue to require the state,
school district, or library system to ``strive to ensure'' that each
school and library in a consortium receives the full benefit of the
discount on shared services to which it is entitled. Using the
district-wide average, should help prevent consortia applications from
being held up due to changes in building status, such as school
closings and consolidations, so long as there is no indication of
waste, fraud or abuse at the invoicing stage. We realize, however, that
using a district-wide average in place of the individual consortium
member discount still does not provide a ``weighted average'' for
consortia members that better indicates the discount to which members
would have been entitled if they had applied
[[Page 49187]]
for E-rate services on their own. Therefore, we seek additional comment
on a proposal to use a weighted average in the accompanying FNPRM.
2. Updating the Definition of ``Rural''
210. In keeping with our commitment to ensuring that rural schools
and libraries are able to afford E-rate supported services, we adopt
the U.S. Census Bureau (Census) definitions of rural and urban for the
purpose of determining whether an E-rate applicant qualifies for an
additional rural discount. In so doing, we adopt one of the approaches
the Commission proposed in the E-rate Modernization NPRM to modernizing
the definitions of ``rural'' and ``urban'' in Sec. 54.505(b)(3) of our
rules. While many commenters supported an alternative proposal to adopt
the U.S. Department of Education's National Center for Education
Statistics (NCES) definition for determining whether a school is rural,
we find that using Census data avoids several administrative challenges
that would arise were we to adopt the NCES classification system. For
instance, commenters noted that there can be delays in obtaining NCES
codes for new schools and some E-rate-eligible entities do not have an
NCES designation. Using Census data ensures that all E-rate-eligible
schools and libraries, even those without an NCES code (or the library-
equivalent FCES code) can readily determine their urban/rural status.
We also note that the Census definition fully overlaps with the
geography defined by NCES as ``rural.''
211. Our current definition of ``rural'' for purposes of the E-rate
program is outdated. By contrast, the Census data is relatively new
and, the urban boundaries are adjusted annually to remain current. The
Census definition classifies a particular location as rural or urban
based on population density and geography, and other criteria involving
non-residential development. For the 2010 Census, the Census Bureau
defined urban areas as the densely settled core of census tracts or
blocks that met minimum population density requirements (50,000 people
or more), along with adjacent territories of at least 2,5000 people
that link to the densely settled core. ``Rural'' encompasses all
population, housing, and territory not included within an urban area.
Therefore, beginning with funding year 2015, schools and libraries
located in areas that are not located in urban areas, as defined by the
most recent decennial Census, will be considered rural for the purposes
of the E-rate program. We direct USAC to post a tool on its Web site
that will allow schools and libraries to obtain information regarding
whether they are classified as urban or rural under the new definition.
We note that the Census Bureau already offers a tool on its Web site
that provides the urban/rural status of any U.S. address.
212. In the E-rate Modernization NPRM, we sought comment on how to
treat school districts and library systems with a combination of rural
and urban schools and libraries. We conclude that any school district
or library system that has a majority of schools or libraries in a
rural area that meets the statutory definition of eligibility for E-
rate support will qualify for the additional rural discount. This
approach mirrors the methodology used by NCES to determine whether a
school district is urban or rural and is supported by commenters in the
record. This approach is also consistent with the method the FCC uses
in the rural health care program context. We further direct USAC to
take steps to minimize the burden of reporting rural or urban
classification in conjunction with the requirement to phase in all-
electronic filing over the next three years.\1\ For example, USAC
should ensure that the FCC Form 471 allows applicants to certify that
the location of the schools or libraries listed have not changed from
the previous year's filing, or does not require applicants to provide
classification data in cases where the applicant's status as ``urban''
or ``rural'' does not affect their discount rate.
---------------------------------------------------------------------------
\1\ See supra section VI.A.5.
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3. Addressing the NSLP Community Eligibility Provision
213. Consistent with our goal of making the E-rate application
process and other E-rate processes fast, simple and efficient,
beginning with funding year 2015, we will allow schools and school
districts that are participating in the NSLP CEP to use the same
approach for determining their E-rate discount rate as they use for
determining their NSLP reimbursement rate. Specifically, schools
utilizing the CEP shall calculate their student eligibility for free or
reduced priced lunches by multiplying the percentage of directly
certified students by the CEP national multiplier. This number shall
then be applied to the discount matrix to determine a school district's
discount for eligible E-rate services. Libraries' discount percentages
will continue to be based on that of the public school district in
which they are physically located. Schools participating in the CEP
will not be considered to have a greater than 100 percent student
eligibility for purposes of determining the district-wide discount rate
for E-rate services, priority access to category two services, or for
any other E-rate purposes.
214. Traditionally, schools that participate in the NSLP collect,
on an annual basis, individual eligibility applications from each of
their students seeking free or reduced-priced lunches. Schools use the
NSLP eligibility data for many other purposes, including calculating an
applicant's E-rate discount rate. However, schools increasingly have
the option of participating in the CEP, which neither requires nor
permits schools to collect individual student eligibility information.
A school is eligible for community eligibility if at least 40 percent
of its students are ``directly certified,'' i.e., identified for free
meals through means other than household applications (for example,
students directly certified as receiving benefits from the Supplemental
Nutrition Assistance Program). To compensate for low-income families
not reflected in the direct certification data, schools apply a
standard, national factor (multiplier), currently set at 1.6, to their
identified student population in order to determine the total
percentage of meals for which they will be reimbursed by the USDA.
Schools are required to renew their direct certification numbers once
every four years. If, during the four-year cycle, a school's percentage
of identified students increases, the school may use the higher
percentage in determining USDA reimbursement. If the percentage of
identified students decreases, the school may continue to use the
original percentage for the remainder of the four-year eligibility
period.
215. We agree with commenters who recommend that we allow schools
and school districts that participate in the CEP to determine their
discount rate for E-rate by treating the number of directly certified
students multiplied by the national multiplier as the percentage of
students eligible for NSLP. The record demonstrates that the CEP
provides an estimate of the percentage of students eligible for free
and reduced-price meals in participating schools comparable to the
poverty percentage that would be obtained in a non-CEP school, and does
not unfairly inflate E-rate discounts on eligible services. As E-Rate
Central notes in its comments, schools and school districts electing
the CEP already have high low-income populations and most are already
at the current 90 percent discount level. Thus, a multiplier that
raises the percentage of students eligible for NSLP from, for example,
an 81 percent to 89 percent level, would have
[[Page 49188]]
no effect on the school's E-rate discount rate.
216. Allowing schools and school districts that participate in the
CEP to use their CEP data to determine eligibility for E-rate support
will also, as the West Virginia Department of Education explains, help
to alleviate confusion and additional burdens on schools and school
districts by eliminating the need for additional paperwork and
administrative costs. Moreover, by relying on a USDA change intended in
large part to reduce paperwork and other burdens on schools, this
decision is consistent with our other measures taken in this Report and
Order to alleviate applicant administrative burdens. Additionally, as
the State E-rate Coordinators' Alliance notes, permitting the use of
the CEP data for E-rate discount eligibility provides a predictable
means of calculating the discount level for new CEP schools.
217. We realize that the USDA has the statutory authority to change
the multiplier to a number between 1.3 and 1.6, and to apply a
different multiplier for different schools or local educational
agencies beginning on or after July 1, 2014. To simplify schools'
administrative burden, we will require CEP applicants to use the same
multiplier under the E-rate program for determining their poverty level
as required by the USDA for their reimbursement under the CEP. Unlike
applicants to the current E-rate program, CEP applicants will not be
required to calculate their discount rate every year, but for clarity
and administrative ease, shall use the calculation that they use during
the course of a four-year CEP cycle. However, if an applicant adjusts
that calculation for purposes of the CEP, it must also adjust it for
purposes of E-rate support.
4. Modifying the Requirements for Using School-Wide Income Surveys
218. We also direct USAC to revise its procedures to require
schools and school districts seeking to calculate their E-rate
discounts by using a school-wide income survey to base their E-rate
discount rate only on the surveys they actually collect beginning with
funding year 2015. Under the E-rate program, instead of using NSLP
data, schools and school districts can choose to use a federally
approved alternative mechanism, such as a survey, as a proxy for
poverty when calculating E-rate support. Until now, a school using a
school-wide income survey needed to collect surveys from at least 50
percent of its students. It could then calculate the percentage of
NSLP-eligible students from the returned surveys, and project that
percentage of eligibility for the entire school population, for
purposes of determining its discount rate under the E-rate program. We
agree with New Hope that allowing schools to use an alternative method
for determining eligibility is essential. However, we are concerned
that permitting schools to project the number of NSLP-eligible students
may provide an artificially higher eligibility percentage. Therefore,
in order to help protect against incentives to artificially inflate
eligibility percentages, beginning with funding year 2015, schools
electing to use a school wide income survey to determine the number of
students eligible for NSLP must calculate their discount based only the
surveys returned by their students that demonstrate that those students
would qualify for participation in the free and reduced school lunch
program to determine the school's discount level. For example, a school
with 100 students that distributes and collects 60 surveys showing that
52 students meet the eligibility criteria for the free and reduced
lunch program would be considered to have a 52 percent eligibility
percentage and therefore qualify for an 80 percent discount rate.
219. We considered the proposal offered by the Alaska Department of
Education & Early Development to allow projections based on a 75
percent return rate. We agree that would be more accurate than the
current 50 percent return rate. But, on balance, we find that it is
more equitable to base the discount rate for schools that conduct
surveys on the actual number of students whose survey responses
demonstrate that they meet the NSLP criteria. We thus direct USAC to
amend its procedures to require actual survey results for determining a
school's NSLP-eligibility from the surveys. We also take this
opportunity to remind applicants that, upon request from any
representative (including any auditor) appointed by a state education
department, USAC, the Commission, or any local, state or federal agency
with jurisdiction over the entity, they are required to provide copies
of all returned surveys supporting their discount eligibility.
C. Simplifying the Invoicing and Disbursement Processes
220. Consistent with our goal of reducing the administrative
burdens on applicants and service providers, we take several measures
related to the invoicing process to simplify and expedite funding
disbursement. First, we revise our rules to allow an applicant that
pays the full cost of the E-rate supported services to a service
provider to receive direct reimbursement from USAC. Second, we adopt
rules codifying USAC's existing invoice filing deadline, while allowing
applicants to request and automatically receive a single one-time 120-
day extension of the invoicing deadline. Taken together, these
modifications will yield an invoicing process that is simpler and
clearer, while still providing protections against waste, fraud, and
abuse.
1. Allowing Direct Invoicing
221. In response to widespread support in the comments, we revise
Sec. Sec. 54.504 and 54.514 of our rules to allow an applicant that
pays the full cost of the E-rate supported services to a service
provider to receive direct reimbursement from USAC, beginning with
funding year 2016. We agree with the commenters who argue this change
would improve the administrative process by eliminating unnecessary
invoicing steps, which in turn would speed disbursements to schools and
libraries. We also agree with applicants and service providers who
argue that revising the invoicing process to allow applicants to
receive direct reimbursement from USAC is a common-sense approach to
simplifying the administration of the E-rate program. Further, we agree
with those commenters who argue that providing an option for
reimbursing schools and libraries that have paid upfront for E-rate
supported services is consistent with section 254 of the Act. As the
courts have found, section 254 of the Act gives the Commission broad
discretion in administering the E-rate program. Nothing in the Act
prevents the payment of universal service funds directly to applicants
in the schools and libraries program. The only requirement in the Act
regarding reimbursement is that the service provider is made whole,
either through an offset against their contribution obligations, or
using the Commission's universal service mechanism. We find that the
revised Billed Entity Reimbursement (BEAR) process we adopt today
provides sufficient documentation to demonstrate that the applicant has
fully paid for the requested services and is entitled to direct
reimbursement from USAC, thereby satisfying Congress's statutory
requirement.
222. Under the current E-rate program's Billed Entity Applicant
Reimbursement (BEAR) process, if an applicant agrees to pay its service
provider in full before USAC has reimbursed the provider for E-rate
supported services, the applicant must submit an FCC Form 472 (BEAR
form)
[[Page 49189]]
to USAC but only after getting approval from the service provider.
After making a funding commitment and receiving invoices for eligible
services, USAC will then process payments to the service provider,
which in turn passes funds through to the applicant. The BEAR process
requires significant coordination between the applicant and service
provider for the applicant to receive payment. If a service provider is
unable to process a BEAR form because, for example, the service
provider has gone out of business or has filed for bankruptcy
protection prior to the applicant submitting the BEAR form, another
service provider (the Good Samaritan) can agree to serve as the conduit
and receive payment from USAC for purposes of passing the payment
through to the applicant. By removing the requirement that E-rate funds
pass through the service provider to the applicant, we remove the need
for a Good Samaritan procedure.
223. This change we adopt today will only affect applicants that
avail themselves of the BEAR process and elect to pay the entire cost
of the discounted service in advance of USAC's reimbursement. Some
commenters express concern that applicants should continue to have the
option of the SPI process, paying only their portion of the price of
eligible services and requiring the service provider to wait for
payment from USAC for the remaining portion of the price of the
eligible services. We take this opportunity to reiterate that E-rate
applicants continue to have the option of electing BEAR or SPI
reimbursement. Thus, when the applicant pays only the discounted cost
of the services directly to the service provider through the SPI
process, the service provider will continue to file a SPI form with
USAC to receive reimbursement.
224. Under the revised BEAR process we adopt today, an applicant
filing an FCC Form 471 and selecting reimbursement through the BEAR
process will be required to have on file with USAC current and accurate
information concerning where payments should be sent. In accordance
with the Debt Collection Improvement Act of 1996 (DCIA), all universal
service disbursements must be made by electronic funds transfer.
Accordingly, schools and libraries that choose to utilize the BEAR
process must provide USAC with bank account information from a bank
that can accept electronic transfers of money. We expect there will be
additional information that USAC will also need to process payment to
applicants, and we direct the Bureau and OMD to work with USAC to
collect from applicants that use the new BEAR process all the
information USAC will need to process such payments while protecting
the integrity of the program. Further, for purposes of program
integrity, payments will not be made to consultants, but only directly
to schools or libraries.
225. We direct the Bureau and OMD to work with USAC to implement
the new direct reimbursement process. We recognize that the current FCC
Form 472 requires a service provider to certify that: (1) It must remit
the discount amount authorized by the fund administrator to the Billed
Entity Applicant; (2) it must remit payment of the approved discount
amount to the Billed Entity Applicant; and (3) it is in compliance with
the rules and orders governing the schools and libraries universal
service support program. Because service providers will no longer serve
as a pass-through for payment, they will not be required to approve
every FCC Form 472. However, the service provider certifications on the
current FCC Form 472 are crucial for protecting the program against
waste, fraud and abuse. We therefore revise Sec. 54.504(f) of our
rules by adding a paragraph requiring each service provider to certify
on the FCC Form 473 that the service provider has complied with the E-
rate invoicing rules and regulations. Specifically, the service
provider will be required to certify that the bills or invoices that it
provides to applicants are accurate, and that the services it provides
are eligible for E-rate support.
2. Adopting Invoicing Deadlines
226. We also codify USAC's existing invoice filing deadline to
allow applicants to request and automatically receive a single one-time
120-day extension of the invoicing deadline. Codifying the invoicing
deadline will provide certainty to applicants and service providers.
Providing certainty on invoicing deadlines will also allow USAC to de-
obligate committed funds immediately after the invoicing deadline has
passed, providing increased certainty about how much funding is
available to be carried forward in future funding years. The invoice
deadline extension rule will be effective beginning in funding year
2014.
227. As the Commission has explained, filing deadlines are
necessary for the efficient administration of the E-rate program. We
agree with commenters that the current invoice deadline--the latter of
120 days after the last day to receive service, or the date of the FCC
Form 486 notification letter--provides the right balance between the
need for efficient administration of the program, and the need to
ensure that applicants and service providers have sufficient time to
finish their own invoicing processes. We also agree that codifying the
existing deadline provides certainty to program participants, while
generally providing sufficient flexibility based on an applicant's or
service provider's specific circumstances.
228. At the same time, we agree with commenters that there may be
circumstances beyond some applicants' or service providers' control
that could prevent them from meeting the 120-day invoice filing
deadline. Therefore, we adopt a rule allowing applicants to seek and
receive from USAC a single one-time invoicing extension for any given
funding request, provided the extension request is made no later than
what would otherwise be the deadline for submitting invoices: The
latter of 120 days after the last day to receive service, or the date
of the FCC Form 486 notification letter. By adopting such a rule, we
eliminate the need for applicants and service providers to identify a
reason for the requested extension and the need for USAC to determine
whether such timely requests meet certain criteria, which will ease the
administrative burden of invoice extension requests on USAC. In the
interest of efficient program administration, USAC shall grant no other
invoicing deadline extensions. Moreover, in considering waivers of our
new invoicing rules, we find that it is generally not in the public
interest to waive our invoicing rules, and therefore the Bureau should
grant waivers of those rules in extraordinary circumstances.
229. In light of our codification of the invoice deadline, we
direct USAC, working with OMD, to determine the appropriate de-
obligation date for funds against which an invoice has not been
received for a particular funding year, taking into account the
existence of pending appeals, holds, investigations, and other matters.
Our goal is to have USAC establish, working with OMD, a date on which
the bulk of undisbursed funds from a given funding year can be de-
obligated. By de-obligating those funding commitments, USAC will have
greater certainty with respect to the amount of funds from past funding
years that can be carried forward for future requests.
230. With respect to appeals or requests to USAC or the Commission
seeking permission to submit invoices after USAC's invoicing deadline
for earlier funding years, we direct USAC
[[Page 49190]]
and the Bureau to consider whether such requests were made in good
faith and within a reasonable time period after the services were
provided or whether other extraordinary circumstances exist that
support such a request. In the Canon-McMillan Order, the Bureau
established a precedent of granting relief to petitioners demonstrating
good faith in complying with the invoicing deadline despite submitting
very late invoices. At the same time the Bureau recognized that invoice
filing deadlines are necessary for the efficient administration of the
E-rate program and that as schools and libraries continue to
participate in the E-rate program, participants should ``become more
experienced with the invoice requirements of the program.'' Until now,
USAC had allowed unlimited invoice extensions under certain
circumstances, and the Bureau, acting on delegated authority, has been
generous when deciding invoicing deadline appeals. As reflected in the
rules we adopt today, we find that while USAC's procedures were
reasonable in the past, firmer limits on invoicing extensions are
required at this time. Therefore, with respect to invoicing deadlines
for earlier funding years, absent extraordinary circumstances
justifying the failure to timely submit invoices, we expect the Bureau
and USAC to deny any requests or appeals seeking an invoicing deadline
extension of more than 12 months after the last date to invoice.
D. Creating a Tribal Consultation, Training, and Outreach Program
231. As part of our overall effort to modernize the E-rate program,
we take several actions today to raise the profile of the E-rate
program and ensure that Tribal schools and libraries are able to
participate effectively in the program. Specifically, we commit to
enhance the Commission's Tribal consultation, training, and outreach,
and we seek to gain a better understanding of the current state of
connectivity among Tribal schools and libraries to enable the
Commission to take steps that will reduce the digital divide and
promote high-speed broadband connectivity to Tribal lands.
232. The Commission recognizes the historic federal trust
relationship and responsibilities it has with federally recognized
Tribal Nations. Accordingly, we have a longstanding policy of promoting
Tribal self-sufficiency and economic development and have developed a
record of helping to ensure that Tribal Nations and those living on
Tribal lands obtain access to communications services. It is well
documented that communities on Tribal lands have historically had less
access to both basic and advanced forms of telecommunications services
than any other segment of the U.S. population. We recognize that a
digital divide persists and extends not only to residents of Tribal
lands, but also to Tribal anchor institutions such as schools and
libraries located on Tribal lands. Given the challenges many Tribal
Nations face in lacking access to even basic services, we recognize the
important role of universal service support and the E-rate program in
helping provide telecommunications services to and on remote and
underserved Tribal lands. We thus take these actions today to gain a
better understanding of the current state of connectivity among Tribal
schools and libraries and to empower Tribal Nations to meet the high-
speed broadband needs of their schools and libraries.
233. Consultation. We find that more extensive government-to-
government consultation with Tribal Nations is necessary to understand
both the need for E-rate support on Tribal lands and how to
successfully connect Tribal schools and libraries with modern high-
speed communications. One benefit of consultation will be the
opportunity to collect better data on the connectivity needs of Tribal
schools and libraries. While some data was provided in response to the
E-rate Modernization NPRM, we need to know much more about connectivity
and the use of E-rate support on Tribal lands. In particular, we
recognize the need for data on how E-rate has impacted connectivity on
Tribal lands to date, which Tribal schools and libraries receive E-rate
and for what uses, what services are available to those schools and
libraries, what the price structure is on Tribal lands, what speeds are
available and needed on Tribal lands, and where broadband
infrastructure still is most needed. We recognize that, without Tribal-
specific data, we cannot make the most informed decisions for provision
of E-rate support to Tribal Nations.
234. Many Tribal commenters agree and advocate for the need to
collect data to ensure that all schools and libraries, including Tribal
schools and libraries, have affordable access to high-speed broadband
that supports digital learning and educational mandates. NCAI also
advocates for coordination with certain inter-Tribal organizations to
collect the necessary data. We therefore delegate authority to the
Office of Native Affairs and Policy (ONAP), in coordination with the
Bureau and OMD, to conduct government-to-government consultation for
the purpose of determining how best to gather data on current
connectivity levels and help the Commission better determine the need
for E-rate support among Tribal schools and libraries. We expect that
ONAP's experience in working with Tribal Nations will inform their
decisions on how best to conduct this consultation, in coordination
with the Bureau and OMD. Our hope is that, by gaining a better
understanding of the current state of connectivity among Tribal schools
and libraries, we will be in a better position to more effectively meet
the high-speed broadband needs of the Native Nations of the United
States.
235. Training. We find that training tailored to the specific and
often unique needs of Tribal schools and libraries is necessary to
ensure that Tribal Nations are informed and empowered to participate
fully in the E-rate program. In response to several Tribal-specific
inquiries in the E-rate Modernization NPRM, commenters stressed the
need to adopt E-rate program reforms that serve to increase access to
high-speed broadband technologies for Tribal lands, specifically Tribal
anchor institutions, and encouraged both rule changes and
administrative changes. For example, NNTRC requested Tribal-specific
training and outreach to ensure that Tribal schools and libraries are
aware of the E-rate program and have at least a basic understanding of
the E-rate process, services, and eligibility, all to ensure that
Tribal Nations have equal access to participation in the E-rate
program. The Confederated Tribes of the Colville Reservation stated
that Tribal Nations are unable to fully benefit from the E-rate program
due to a lack of available training on the program. Further, a 2011
study of Tribal libraries by the Association of Tribal Archives,
Libraries, and Museums (ATALM) found that the top three barriers to
Tribal library participation in the E-rate program are lack of
awareness of the program, uncertainty about eligibility, and a
complicated application process. This study found that, while 46
percent of Tribal libraries are the only source of free public Internet
access in their communities, less than 5 percent of Tribal libraries
benefit from the E-rate program (as compared to 51 percent of public
libraries).
236. USAC currently conducts a series of applicant trainings during
the fall of each year, usually located in large cities and focused on
issues of general importance to E-rate applicants. As part of the
training we adopt today, we envision that ONAP, in coordination with
USAC, would help provide E-rate specific training to schools and
libraries. We therefore direct USAC to work with ONAP to develop and
provide Tribal-
[[Page 49191]]
specific E-rate training targeted to Tribal schools and libraries. We
direct ONAP, in consultation with the Bureau and OMD to advise USAC on
the most appropriate timing and mechanism to provide such training,
outreach, and materials to Tribal schools and libraries. We also direct
ONAP to coordinate with USAC to incorporate and distribute USAC E-rate
training materials when mobilizing the Native Learning Lab.
237. Outreach. In conjunction with the training described, we
direct USAC, in close coordination with and under the guidance of ONAP,
the Bureau, and OMD, to create a formal Tribal liaison at USAC to
assist with Tribal-specific outreach, training, and assistance. We
expect that USAC's Tribal liaison will coordinate closely with ONAP,
the Bureau, and OMD on all Tribal training initiatives. The Tribal
liaison's responsibilities will require direct communication with
Tribal schools and libraries throughout the E-rate process and will
include helping to conduct and coordinate Tribal-specific trainings and
training materials, initiating and responding to Tribal ``Helping
Applicants To Succeed'' requests and visits, fielding questions from
Tribal schools and libraries regarding the E-rate program and process,
and attending national and regional Tribal conferences or meetings
where Tribal school and libraries are present. The creation of this
position at USAC and the required coordination with ONAP, the Bureau,
and OMD, will further our goal of ensuring that Tribal schools and
libraries can participate fully and effectively in the E-rate program.
E. Requiring Filing of Appeals With USAC
238. Consistent with our goal of streamlining the administration of
the E-rate program and improving the E-rate appeals process, we revise
Sec. 54.719 of our rules to require parties aggrieved by an action
taken by a division of USAC, including the Schools and Libraries
Division, to first seek review of that decision by USAC before filing
an appeal with the Commission. The standards for evaluating the merits
of these appeals will be unchanged and affected parties will still have
the right to seek Commission review of such decisions, as provided in
the Commission's rules. This rule change will become effective 30 days
after the publication of this Report and Order in the Federal Register.
239. Currently, any party may seek Commission review of an action
taken by USAC without first seeking review of that decision by USAC.
One result of the current system is a growing number of E-rate appeals
with the Commission. While we have made a concerted effort to reduce
the backlog of appeals, a backlog remains and we continue to receive
numerous appeals on a monthly basis. The appeals backlog is further
exacerbated by the fact that aggrieved parties often decline to seek
review from USAC and appeal directly to the Commission.
240. We find that requiring parties to first file appeals of USAC
decisions with USAC itself before seeking Commission review will
improve efficiency in the appeals process. It will reduce the number of
appeals coming to the Commission, and allow USAC an initial opportunity
to correct any of its own errors, and to receive and review additional
information provided by aggrieved parties without having to involve the
Commission staff. We remind parties filing an appeal with USAC to
follow USAC's appeals guidelines and provide USAC with all relevant
information and documentation necessary for USAC to make an informed
decision on an appeal. USAC cannot waive our rules; therefore parties
seeking only a waiver of our rules are not governed by this
requirement, but instead must seek relief directly from the Commission
or the Bureau.
F. Directing USAC To Adopt Additional Measures To Improve the
Administration of the E-Rate Program
241. We adopt a number of additional measures to ease the burden
upon applicants, expedite commitments, and ensure that all applicants
receive complete and timely information to help inform their decisions
regarding E-rate purchases. In particular, we adopt a specific
application review and funding commitment target for all category one
funding requests as a performance measure in evaluating our progress
towards this goal; continue to work on modernizing USAC's E-rate
Information Technology (IT) systems; require the publishing of all non-
confidential E-rate data in open, electronic formats; and direct USAC
to make its communications simpler and clearer so that applicants and
service providers will have no difficulty understanding the information
and direction that USAC provides them.
1. Speeding Review of Applications, Commitment Decisions and Funding
Disbursements
242. Many of the rule revisions we adopt today will help speed
review of applications, funding commitment decisions and funding
disbursements. In this proceeding, we received many comments
complaining about the delay in receiving funding commitments. We
recognize that those delays have real and substantial impacts on
schools and libraries' willingness and ability to purchase high-speed
broadband services. USAC, working closely with OMD, has already
committed to overhaul its application review process for the current
funding year 2014 and the initial results are impressive. As noted, by
July 1, 2013, USAC had only committed approximately $181 million in
support. By contrast, as of July 1, 2014, USAC has already committed
approximately $1.22 billion in support. In 2013, USAC did not reach $1
billion in commitments until October.
243. We applaud the work that USAC and OMD have done in the last
few months. Building on that momentum, we adopt a specific application
review and funding commitment target for all funding requests as a
performance measure in evaluating our progress toward meeting our goal
of streamlining the administrative process. We believe that
establishing a specific target will help to hold USAC further
accountable for more quickly reviewing and issuing category one funding
commitments in future funding years. We again remind applicants that
failure to timely respond to requested information by USAC could delay
the issuance of a commitment, and we therefore encourage applicants to
respond expeditiously and completely to all information and
documentation requests by USAC.
2. Modernizing USAC's E-Rate Information Technology Systems
244. We also direct USAC and OMD to continue to work on modernizing
USAC's E-rate IT systems. Numerous commenters express frustration with
USAC's E-rate IT systems, and recommend that USAC create an online
portal with pre-populated information for returning applicants and
service providers to reduce administrative burden and errors, and to
provide applicants and service providers with easy access to historic
information as well as information about the status of their funding
and invoice requests.
245. OMD and the Bureau have already begun the process of working
with USAC to modernize its E-rate IT systems. We recognize that this is
a long-term project. We therefore direct OMD and the Bureau to continue
USAC's IT modernization work, with a focus on easing the administrative
burdens on E-rate applicants and service providers, while protecting
against waste, fraud and abuse, and on collecting high-quality data
that will assist us in measuring our progress
[[Page 49192]]
towards the goals we adopt today. We note that measuring progress
towards our goals, particularly the first two goals, will require USAC
to collect a wealth of data from applicants and service providers in a
manner that will allow us the flexibility to manipulate and analyze
that data in a variety of ways.
3. Requiring Open and Accessible E-Rate Data
246. We direct USAC to timely publish through electronic means all
non-confidential E-rate data in open, standardized, electronic formats,
consistent with the principles of the Office of Management and Budget's
(OMB's) Open Data Policy. USAC must provide the public with the ability
to easily view and download non-confidential E-rate data, for both
individual datasets and aggregate data. We further direct USAC to
design open and accessible data solutions in a modular format to allow
extensibility and agile development, such as providing for the use of
application programming interfaces (APIs) where appropriate and
releasing the code, as open source code, where feasible. USAC's
solutions must be accessible to people with disabilities, as is
required for federal agency information technology. The solutions must
also, on a going-forward basis, incorporate international standards and
best practices for security and privacy controls.
247. The record supports USAC releasing E-rate data in as open a
manner as possible so that the schools and libraries that receive
support from the program and their associated service providers can
track the status of their E-rate applications and requests for
reimbursement and so that they and the public at large can benefit from
greater program transparency and public accountability. Making non-
confidential E-rate data open and accessible will allow members of the
public to develop new and innovative methods to analyze E-rate data,
which will benefit all stakeholders, including this Commission as we
continue to improve the program. Releasing E-rate data in this manner
should also enable greater integration with other datasets such as
those maintained by NCES and those maintained by IMLS. This integration
will create opportunities for new and innovative analyses about
connectivity to and within our nation's schools and libraries.
4. Adopting Plain Language Review
248. We are concerned that many of USAC's standard communications
are excessively lengthy and difficult to understand. Because the E-rate
program has a wide range of large and small stakeholders, USAC should
be particularly careful to communicate in a simple, direct, and user-
friendly manner. Plain language is an essential tool for communicating
information effectively to the public about decisions and benefits. We
therefore direct USAC to work with OMD to implement a full review and
revision, as appropriate, of USAC's most commonly used correspondence
using plain language, before the beginning of funding year 2016. We
find that this review and the improvement to USAC's communications that
result will reduce applicant confusion and ensure parties have the
information necessary to comply with or appeal USAC's decisions. These
requirements will be effective beginning in funding year 2015.
G. Protecting Against Waste Fraud and Abuse
249. While we seek to modernize the E-rate program and ease the
burdens upon applicants and service providers, we are extremely mindful
of our commitment to ensuring the program's integrity by protecting
against waste, fraud and abuse. We believe that proper documentation is
crucial for demonstrating applicant and vendor compliance with E-rate
rules, and for uncovering waste, fraud and abuse in the program,
whether through compliance audits or investigations. Therefore, we
revise our document retention requirements and compliance procedures
and clarify that applicants must permit inspectors on their premises as
described below.
1. Extending the E-Rate Document Retention Requirements
250. We revise Sec. 54.516(a) of our rules to extend the document
retention period from five to 10 years after the latter of the last day
of the applicable funding year, or the service delivery deadline for
the funding request. As the Commission explained in the E-rate
Modernization NPRM, the current five year document retention
requirement is not adequate for purposes of litigation under the False
Claims Act (FCA), which can involve conduct that occurred substantially
more than five years prior to the filing of a complaint. We recognize
commenters' concerns that extending the mandatory document retention
period to 10 years may create additional administrative burdens and
incur document storage costs. However, we agree with the San Jacinto
School District that electronic storage of documents can dramatically
reduce these costs. We therefore strongly encourage schools, libraries,
consortia, and service providers to take advantage of digital storage
mechanisms. As the Commission did in both the USF/ICC Transformation
Order and FNPRM, 76 FR 78384, December 16, 2011, and Lifeline Reform
Order, 77 FR 12784, March 2, 2012, we conclude that the benefits to the
integrity of the program outweigh the burdens of extending our document
retention rules to 10 years. Our action thus ensures greater
consistency across the various universal service programs.
251. We also modify Sec. 54.516 of our rules to refer to
``schools, libraries and consortia'' rather than just ``schools and
libraries,'' thereby providing clarity that all applicants (as well as
all service providers) are required to comply with our document
retention and other auditing rules.
2. Allowing Access for Inspections
252. To support E-rate compliance audits and enforcement
investigations, we also revise Sec. 54.516 to clarify that E-rate
applicants and service providers must permit auditors, investigators,
attorneys or any other person appointed by a state education
department, USAC, the Commission or any local, state or federal agency
with jurisdiction over the entity to enter their premises to conduct E-
rate compliance inspections. Allowing auditors and investigative
personnel to inspect an applicant's premises is necessary to ensure
that the applicant is in compliance with E-rate rules. The list of
entities entitled to appoint representatives to enter the premises of
an applicant or service provider parallels the list of entities
entitled to seek production of records from applicants and service
providers.
VI. Delegation To Revise Rules
253. Given the complexities associated with modernizing the E-rate
program, modifying our rules, and the other programmatic changes we
adopt in this Report and Order, we delegate authority to the Bureau to
make any further rule revisions as necessary to ensure the changes to
the program adopted in this Report and Order are reflected in our
rules. This includes correcting any conflicts between new and/or
revised rules and existing rules as well as addressing an omissions or
oversights. If any such rule changes are warranted the Bureau shall be
responsible for such change. We note that any entity that disagrees
with a rule change made on delegated authority will have the
opportunity to file an
[[Page 49193]]
Application for Review by the full Commission.
VII. Procedural Matters
A. Final Regulatory Flexibility Analysis
254. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Federal Communications Commission (Commission)
included an Initial Regulatory Flexibility Analysis (IRFA) of the
possible significant economic impact on a substantial number of small
entities by the policies and rules proposed in the E-rate Modernization
NPRM in WC Docket No. 13-184. The Commission sought written public
comment on the proposals in the E-rate Modernization NPRM, including
comment on the IRFA. This Final Regulatory Flexibility Analysis (FRFA)
conforms to the RFA.
B. Need for, and Objectives of, the Proposed Rule
255. The Commission is required by section 254 of the
Communications Act of 1934, as amended, to promulgate rules to
implement the universal service provisions of section 254. On May 8,
1997, the Commission adopted rules to reform its system of universal
service support mechanisms so that universal service is preserved and
advanced as markets move toward competition. Specifically, under the
schools and libraries universal service support mechanism, also known
as the E-rate program, eligible schools, libraries, and consortia that
include eligible schools and libraries may receive discounts for
eligible telecommunications services, Internet access, and internal
connections.
256. In July 2013, the Commission issued a Notice of Proposed
Rulemaking seeking public comment on proposals to update the E-rate
program to focus on 21st Century broadband needs of schools and
libraries. Then, in February 2014, the Wireline Competition Bureau
issued a Public Notice seeking focused comment on issues raised in the
E-rate Modernization NPRM. In this Report and Order, the Commission
adopts a number of the proposals put forward in the E-rate
Modernization NPRM and discussed in the E-rate Modernization Public
Notice.
257. This Report and Order continues the Commission's efforts to
promote broadband access for schools and libraries. In it, we adopt
goals and measures for the E-rate program to (1) ensure affordable
access to high-speed broadband sufficient to support digital learning
in schools and robust connectivity for all libraries, (2) maximize the
cost-effectiveness of spending for E-rate supported purchases, and (3)
make the E-rate application process and other E-rate processes fast,
simple and efficient.
258. The rule changes we adopt support these goals and fall into
three conceptual categories. First, we ensure affordable access to
high-speed broadband sufficient to support digital learning in schools
and robust connectivity for all libraries by providing more reliable
and equitable funding for broadband without schools and libraries and
by phasing down support for legacy services. Second, we maximize the
cost-effectiveness of spending for E-rate supported purchases by
increasing transparency in the purchasing process, encouraging
consortium purchasing, and amending the lowest corresponding price
(LCP) rule. Third, we make the E-rate application process and other E-
rate processes fast, simple, and efficient by simplifying the
application process; simplifying discount rate calculations;
simplifying the invoicing and disbursement process; requiring filing of
appeals with USAC; directing USAC to adopt additional measures to
streamline the administration of the E-rate program; and protecting
against waste, fraud, and abuse.
C. Summary of Significant Issues Raised by Public Comments to the IRFA
259. No comments specifically addressed the IRFA.
D. Description and Estimate of the Number of Small Entities to Which
the Proposed Rules May Apply
260. The RFA directs agencies to provide a description of and,
where feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted. The RFA generally defines
the term ``small entity'' as having the same meaning as the terms
``small business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small business concern'' under the Small Business
Act. A small business concern is one that: (1) Is independently owned
and operated; (2) is not dominant in its field of operation; and (3)
satisfies any additional criteria established by the Small Business
Administration (SBA). Nationwide, there are a total of approximately
28.2 million small businesses, according to the SBA. A ``small
organization'' is generally ``any not-for-profit enterprise which is
independently owned and operated and is not dominant in its field.''
261. Nationwide, as of 2002, there were approximately 1.6 million
small organizations. The term ``small governmental jurisdiction'' is
defined generally as ``governments of cities, towns, townships,
villages, school districts, or special districts, with a population of
less than fifty thousand.'' Census Bureau data for 2002 indicate that
there were 87,525 local governmental jurisdictions in the United
States. We estimate that, of this total, 84,377 entities were ``small
governmental jurisdictions.'' Thus, we estimate that most governmental
jurisdictions are small.
262. Small entities potentially affected by the proposals herein
include eligible schools and libraries and the eligible service
providers offering them discounted services.
263. Schools and Libraries. As noted, ``small entity'' includes
non-profit and small government entities. Under the schools and
libraries universal service support mechanism, which provides support
for elementary and secondary schools and libraries, an elementary
school is generally ``a non-profit institutional day or residential
school that provides elementary education, as determined under state
law.'' A secondary school is generally defined as ``a non-profit
institutional day or residential school that provides secondary
education, as determined under state law,'' and not offering education
beyond grade 12. For-profit schools and libraries, and schools and
libraries with endowments in excess of $50,000,000, are not eligible to
receive discounts under the program, nor are libraries whose budgets
are not completely separate from any schools. Certain other statutory
definitions apply as well. The SBA has defined for-profit, elementary
and secondary schools and libraries having $6 million or less in annual
receipts as small entities. In funding year 2007, approximately 105,500
schools and 10,950 libraries received funding under the schools and
libraries universal service mechanism. Although we are unable to
estimate with precision the number of these entities that would qualify
as small entities under SBA's size standard, we estimate that fewer
than 105,500 schools and 10,950 libraries might be affected annually by
our action, under current operation of the program.
264. Telecommunications Service Providers. First, neither the
Commission nor the SBA has developed a size standard for small
incumbent local exchange services. The closest size standard under SBA
rules is for Wired Telecommunications Carriers. Under that size
standard, such a business is
[[Page 49194]]
small if it has 1,500 or fewer employees. According to Commission data,
1,307 incumbent carriers reported that they were engaged in the
provision of local exchange services. Of these 1,307 carriers, an
estimated 1,006 have 1,500 or fewer employees and 301 have more than
1,500 employees. Thus, under this category and associated small
business size standard, we estimate that the majority of entities are
small. We have included small incumbent local exchange carriers in this
RFA analysis. A ``small business'' under the RFA is one that, inter
alia, meets the pertinent small business size standard (e.g., a
telephone communications business having 1,500 or fewer employees), and
``is not dominant in its field of operation.'' The SBA's Office of
Advocacy contends that, for RFA purposes, small incumbent local
exchange carriers are not dominant in their field of operation because
any such dominance is not ``national'' in scope. We have therefore
included small incumbent carriers in this RFA analysis, although we
emphasize that this RFA action has no effect on the Commission's
analyses and determinations in other, non-RFA contexts.
265. Second, neither the Commission nor the SBA has developed a
definition of small entities specifically applicable to providers of
interexchange services (IXCs). The closest applicable definition under
the SBA rules is for wired telecommunications carriers. This provides
that a wired telecommunications carrier is a small entity if it employs
no more than 1,500 employees. According to the Commission's 2010 Trends
Report, 359 companies reported that they were engaged in the provision
of interexchange services. Of these 300 IXCs, an estimated 317 have
1,500 or few employees and 42 have more than 1,500 employees.
Consequently, the Commission estimates that most providers of
interexchange services are small businesses.
266. Third, neither the Commission nor the SBA has developed a
definition of small entities specifically applicable to competitive
access services providers (CAPs). The closest applicable definition
under the SBA rules is for wired telecommunications carriers. This
provides that a wired telecommunications carrier is a small entity if
it employs no more than 1,500 employees. According to the 2010 Trends
Report, 1,442 CAPs and competitive local exchange carriers (competitive
LECs) reported that they were engaged in the provision of competitive
local exchange services. Of these 1,442 CAPs and competitive LECs, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than
1,500 employees. Consequently, the Commission estimates that most
providers of competitive exchange services are small businesses.
267. Wireless Telecommunications Carriers (except Satellite). Since
2007, the Census Bureau has placed wireless firms within this new,
broad, economic census category. Prior to that time, such firms were
within the now-superseded categories of ``Paging'' and ``Cellular and
Other Wireless Telecommunications.'' Under the present and prior
categories, the SBA has deemed a wireless business to be small if it
has 1,500 or fewer employees. Because Census Bureau data are not yet
available for the new category, we will estimate small business
prevalence using the prior categories and associated data. For the
category of Paging, data for 2002 show that there were 807 firms that
operated for the entire year. Of this total, 804 firms had employment
of 999 or fewer employees, and three firms had employment of 1,000
employees or more. For the category of Cellular and Other Wireless
Telecommunications, data for 2002 show that there were 1,397 firms that
operated for the entire year. Of this total, 1,378 firms had employment
of 999 or fewer employees, and 19 firms had employment of 1,000
employees or more. Thus, we estimate that the majority of wireless
firms are small.
268. Wireless telephony includes cellular, personal communications
services, and specialized mobile radio telephony carriers. As noted,
the SBA has developed a small business size standard for Wireless
Telecommunications Carriers (except Satellite). Under the SBA small
business size standard, a business is small if it has 1,500 or fewer
employees. According to the 2010 Trends Report, 413 carriers reported
that they were engaged in wireless telephony. Of these, an estimated
261 have 1,500 or fewer employees and 152 have more than 1,500
employees. We have estimated that 261 of these are small under the SBA
small business size standard.
269. Common Carrier Paging. As noted, since 2007 the Census Bureau
has placed paging providers within the broad economic census category
of Wireless Telecommunications Carriers (except Satellite). Prior to
that time, such firms were within the now-superseded category of
``Paging.'' Under the present and prior categories, the SBA has deemed
a wireless business to be small if it has 1,500 or fewer employees.
Because Census Bureau data are not yet available for the new category,
we will estimate small business prevalence using the prior category and
associated data. The data for 2002 show that there were 807 firms that
operated for the entire year. Of this total, 804 firms had employment
of 999 or fewer employees, and three firms had employment of 1,000
employees or more. Thus, we estimate that the majority of paging firms
are small.
270. In addition, in the Paging Second Report and Order, the
Commission adopted a size standard for ``small businesses'' for
purposes of determining their eligibility for special provisions such
as bidding credits and installment payments. A small business is an
entity that, together with its affiliates and controlling principals,
has average gross revenues not exceeding $15 million for the preceding
three years. The SBA has approved this definition. An initial auction
of Metropolitan Economic Area (``MEA'') licenses was conducted in the
year 2000. Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven
companies claiming small business status won 440 licenses. A subsequent
auction of MEA and Economic Area (``EA'') licenses was held in the year
2001. Of the 15,514 licenses auctioned, 5,323 were sold. One hundred
thirty-two companies claiming small business status purchased 3,724
licenses. A third auction, consisting of 8,874 licenses in each of 175
EAs and 1,328 licenses in all but three of the 51 MEAs, was held in
2003. Seventy-seven bidders claiming small or very small business
status won 2,093 licenses.
271. Currently, there are approximately 74,000 Common Carrier
Paging licenses. According to the most recent Trends in Telephone
Service, 291 carriers reported that they were engaged in the provision
of ``paging and messaging'' services. Of these, an estimated 289 have
1,500 or fewer employees and two have more than 1,500 employees. We
estimate that the majority of common carrier paging providers would
qualify as small entities under the SBA definition.
272. Internet Service Providers. The 2007 Economic Census places
these firms, whose services might include voice over Internet protocol
(VoIP), in either of two categories, depending on whether the service
is provided over the provider's own telecommunications facilities
(e.g., cable and DSL ISPs), or over client-supplied telecommunications
connections (e.g., dial-up ISPs). The former are within the category of
Wired Telecommunications Carriers, which has an SBA small business size
standard of 1,500 or fewer employees. The latter are within the
[[Page 49195]]
category of All Other Telecommunications, which has a size standard of
annual receipts of $25 million or less. The most current Census Bureau
data for all such firms, however, are the 2002 data for the previous
census category called Internet Service Providers. That category had a
small business size standard of $21 million or less in annual receipts,
which was revised in late 2005 to $23 million. The 2002 data show that
there were 2,529 such firms that operated for the entire year. Of
those, 2,437 firms had annual receipts of under $10 million, and an
additional 47 firms had receipts of between $10 million and
$24,999,999. Consequently, we estimate that the majority of ISP firms
are small entities.
273. Vendors of Internal Connections: Telephone Apparatus
Manufacturing. The Census Bureau defines this category as follows:
``This industry comprises establishments primarily engaged in
manufacturing wire telephone and data communications equipment. These
products may be standalone or board-level components of a larger
system. Examples of products made by these establishments are central
office switching equipment, cordless telephones (except cellular), PBX
equipment, telephones, telephone answering machines, LAN modems, multi-
user modems, and other data communications equipment, such as bridges,
routers, and gateways.'' The SBA has developed a small business size
standard for Telephone Apparatus Manufacturing, which is: all such
firms having 1,000 or fewer employees. According to Census Bureau data
for 2002, there were a total of 518 establishments in this category
that operated for the entire year. Of this total, 511 had employment of
under 1,000, and an additional seven had employment of 1,000 to 2,499.
Thus, under this size standard, the majority of firms can be considered
small.
274. Vendors of Internal Connections: Radio and Television
Broadcasting and Wireless Communications Equipment Manufacturing. The
Census Bureau defines this category as follows: ``This industry
comprises establishments primarily engaged in manufacturing radio and
television broadcast and wireless communications equipment. Examples of
products made by these establishments are: Transmitting and receiving
antennas, cable television equipment, GPS equipment, pagers, cellular
phones, mobile communications equipment, and radio and television
studio and broadcasting equipment.'' The SBA has developed a small
business size standard for firms in this category, which is: All such
firms having 750 or fewer employees. According to Census Bureau data
for 2002, there were a total of 1,041 establishments in this category
that operated for the entire year. Of this total, 1,010 had employment
of under 500, and an additional 13 had employment of 500 to 999. Thus,
under this size standard, the majority of firms can be considered
small.
275. Vendors of Internal Connections: Other Communications
Equipment Manufacturing. The Census Bureau defines this category as
follows: ``This industry comprises establishments primarily engaged in
manufacturing communications equipment (except telephone apparatus, and
radio and television broadcast, and wireless communications
equipment).'' The SBA has developed a small business size standard for
Other Communications Equipment Manufacturing, which is having 750 or
fewer employees. According to Census Bureau data for 2002, there were a
total of 503 establishments in this category that operated for the
entire year. Of this total, 493 had employment of under 500, and an
additional 7 had employment of 500 to 999. Thus, under this size
standard, the majority of firms can be considered small.
E. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities
276. Several of our rule changes will result in additional
recordkeeping requirements for small entities. For all of those rule
changes, we have determined that the benefit the rule change will bring
for the program outweighs the burden of the increased recordkeeping
requirement. Other rule changes decrease recordkeeping requirements for
small entities.
1. Increase in Projected Reporting, Recordkeeping and Other Compliance
Requirements
277. Compliance burdens. All of the rules we implement impose some
burden on small entities by requiring them to become familiar with the
new rule to comply with it. For many new rules, such as those codifying
invoicing deadlines, increasing price transparency, phasing down
support for voice services, eliminating support for telephone features,
and reducing the maximum discount rate for internal connections, the
burden of becoming familiar with the new rule in order to comply with
it is the only burden the rule imposes.
278. Connectivity metrics. The metrics we adopt will require
applicants to provide data on connectivity, demand costs and LAN/WLAN
capacity. The benefit collection of this data will provide us by giving
us a better understanding of how the E-rate program is accomplishing
its goals outweighs the burden it will impose on small entities.
279. Internal connections funding. Our rule change to provide more
funding for internal connections will increase recordkeeping burdens on
small entities who previously did not apply for funding for internal
connections because funding was not available to them. The benefit of
receiving funding for internal connections clearly outweighs the burden
on applying for this funding.
280. Preferred master contracts. Our rule change to allow the
Bureau to designate preferred master contracts that applicants would be
required to include in their bid evaluations even if the master
contract was not submitted as a bid would increase recordkeeping
requirements on small entities because it would require many small E-
rate applicants to consider an additional bid in their evaluations. The
significant savings the Fund and applicants would realize from
including preferred master contracts in bid evaluations justifies this
added burden.
281. Price transparency. We allow applicants to opt out of public
disclosure by USAC of their E-rate pricing data if such disclosure
would violate a state law, local rule, or an existing long-term
contract by certifying and citing to the specific statute, rule or
other restriction barring publication of pricing data. Making this
certification will increase recordkeeping requirements for those
applicants who wish to opt out, but allowing the certification is
necessary to ensure consistency between E-rate rules and state and
local laws.
282. Determining rurality for school districts. Requiring
applicants to determine whether a majority of their schools are in
rural areas increases recordkeeping requirements. The benefit to rural
applicants of receiving an additional discount justifies this
additional burden.
283. Document retention. Extending the retention period from five
to 10 years after the latter of the last day of the applicable funding
year, or the last day of delivery of services for that funding year
increases recordkeeping requirements and costs for E-rate recipients
and service providers. Our interest in combatting waste, fraud and
abuse by litigating matters under the False Claims Act, which can
involve conduct that relates back substantially
[[Page 49196]]
more than five years, justifies this additional burden.
284. Electronic filing. Although filing electronically is easier
than filing on paper for most applicants, we recognize that requiring
electronic filing may impose additional burdens for applicants who are
unfamiliar with the electronic filing process. Nonetheless, the
efficiencies for USAC that requiring electronic filing creates outweigh
the burden on applicants.
285. Maximum term for multi-year contracts. Our requirement that
contracts for E-rate supported services not exceed five years, which an
exception permitting contracts for deployment of new fiber to schools
or libraries to not exceed ten years, could increase reporting
requirements for some applicants by requiring them to negotiate
contracts more frequently than they otherwise would. Our interest in
promoting cost-effective purchasing justifies this additional burden.
286. Requiring filing of appeals with USAC. Requiring applicants to
first file appeals with USAC before appealing decision to the
Commission could increase recordkeeping requirements by requiring
applicants who planned to appeal directly to the Commission to file an
additional appeal before doing so. The benefit of reducing the
Commission's E-rate appeal backlog outweighs this burden.
287. Changes to ESL. We recognize that the changes to focus the
category two Eligible Services List (ESL) on broadband may require
applicants to cost allocate newly-ineligible services. E-rate
recipients have always been required to cost allocate ineligible
components. In many instances, cost allocation should not be difficult
because these services appear on separate line items on bills. Even
when ineligible services do not appear as separate line items on bills,
the savings to the program from these changes to the ESL outweighs the
administrative burden of cost allocation for program participants.
2. Decrease in Projected Reporting, Recordkeeping and Other Compliance
Requirements
288. Focusing support on broadband. Limiting internal connections
support to routers, switches, wireless access points, internal cabling,
wireless controller systems, data protection services, and the software
supporting each of these components used to distribute high-speed
broadband throughout school buildings and libraries will decrease
recordkeeping requirements for small entities because they will no
longer go through the application process for services that have been
made ineligible.
289. Simplified application process for multi-year contracts. Our
new procedure for funding commitments for multi-year contracts for
priority one services that is no longer than five years will alleviate
reporting burdens on small entities because, in many circumstances,
applicants will only be required to submit an FCC Form 471 for the
first year of a multi-year contract. For subsequent years, applicants
will be permitted to use a streamlined application process.
290. Eliminating technology plan requirements. We eliminate the
technology plan requirement for applicants seeking category two
services, which will decrease recordkeeping requirements.
291. Exempting certain low-dollar purchases from competitive
bidding rules. The exemption to our competitive bidding rules that
allows E-rate applicants to purchase certain business-class Internet
access reduces recordkeeping requirements related to the competitive
bidding process. Although the requirement that applicants certify that
they have purchased services that are eligible for an exemption imposes
a minimal recordkeeping requirement, the overall effect of the rule
change is a reduction in recordkeeping requirements.
292. Preferred master contracts. We also permit applicants to take
services on a preferred master contract designated by the Bureau
without filing an FCC Form 470. This reduces the burdens associated
with filing an FCC Form 470 and conducting a bid evaluation.
293. District-wide discount rates. The requirement that applicants
use a district-wide data to determine their discount rates will reduce
reporting requirements because districts will no longer have to perform
a discount rate calculation for each school within a district.
294. Invoicing. Applicants who submit a Billed Entity Application
for Reimbursement (BEAR) Form may now receive reimbursement directly
from USAC, rather than having the service provider serve as an
intermediary. This alleviates reporting requirements on the service
provider.
295. Plain language review. The plain language review of USAC's
standard forms that we order make it easier for small entities to
comply with our rules by reducing applicant confusion and ensuring that
entities have the information necessary to comply with our rules.
3. Steps Taken To Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
296. The RFA requires an agency to describe any significant,
specifically small business, alternatives that it has considered in
reaching its proposed approach, which may include the following four
alternatives (among others): ``(1) the establishment of differing
compliance or reporting requirements or timetables that take into
account the resources available to small entities; (2) the
clarification, consolidation, or simplification of compliance and
reporting requirements under the rule for such small entities; (3) the
use of performance rather than design standards; and (4) an exemption
from coverage of the rule, or any part thereof, for such small
entities.''
297. This rulemaking could impose minimal additional burdens on
small entities. We considered alternatives to the rulemaking changes
that increase projected reporting, recordkeeping and other compliance
requirements for small entities.
4. Alternatives Permitted
298. Electronic filing. To accommodate applicants who have
insufficient connectivity or other administrative resources to file
electronically with USAC, we permit an exception to our electronic
filing requirement that allows those applicants to file applicants and
other documents with USAC using paper.
299. Document retention. We encourage applicants to take advantage
of electronic storage of documents to mitigate the additional expense
our increase of the document retention requirement from five to 10
years imposes.
5. Alternatives Considered and Rejected
300. Connectivity metrics. The best source for obtain the data we
need for connectivity metrics is applicants. Although we could obtain
this data from service providers, it is less burdensome for an
applicant to provide connectivity data for itself than it would be for
a service provider to furnish it for all of its customers who receive
E-rate support.
F. Report to Congress
301. The Commission will send a copy of this Report and Order,
including this FRFA, in a report to be sent to Congress pursuant to the
SBREFA. In addition, the Commission will send a copy of the Report and
Order, including the FRFA, to the Chief Counsel for Advocacy of the
SBA. A copy of the
[[Page 49197]]
Report and Order and the FRFA (or summaries thereof) will also be
published in the Federal Register.
G. Paperwork Reduction Act Analysis
302. This Report and Order contains new information collection
requirements subject to the Paperwork Reduction Act of 1995 (PRA),
Public Law 104-13. It will be submitted to the Office of Management and
Budget (OMB) for review under section 3507(d) of the PRA. OMB, the
general public, and other Federal agencies are invited to comment on
the revised information collection requirements contained in this
proceeding. In addition, we note that pursuant to the Small Business
Paperwork Relief Act of 2002, Public Law 107-198, the Commission
previously sought specific comment on how it might further reduce the
information collection burden on small business concerns with fewer
than 25 employees.
H. Congressional Review Act
303. The Commission will include a copy of this Report and Order in
a report to be sent to Congress and the Government Accountability
Office pursuant to the Congressional Review Act.
304. For additional information on this proceeding, contact James
Bachtell at (202) 418-2694 or Kate Dumouchel at (202) 418-1839 in the
Telecommunications Access Policy Division, Wireline Competition Bureau.
VIII. Ordering Clauses
305. Accordingly, it is ordered, that pursuant to the authority
contained in sections 1 through 4, 201 through 205, 254, 303(r), and
403 of the Communications Act of 1934, as amended, 47 U.S.C. Sec. Sec.
151-154, 201-205, 254, 303(r), and 403, and section 706 of the
Telecommunications Act of 1996, 47 U.S.C. Sec. 1302, this Report and
Order is Adopted effective September 18, 2014, except to the extent
expressly addressed below.
306. It is further ordered, that pursuant to the authority
contained in sections 1 through 4, 201 through 205, 254, 303(r), and
403 of the Communications Act of 1934, as amended, 47 U.S.C. 151-154,
201-205, 254, 303(r), and 403, and section 706 of the
Telecommunications Act of 1996, 47 U.S.C. 1302, Part 54 of the
Commission's rules, 47 CFR part 54, is Amended as set forth below, and
such rule amendments shall be effective September 18, 2014 of the
Report and Order in the Federal Register, except for Sec. Sec.
54.502(b)(2) through (3) and (5), 54.503(c), 54.504(a) and (f),
54.507(d), 54.514(a), 54.516(a) through (c), and 54.720(a), which are
subject to the Paperwork Reduction Act and will become effective upon
announcement in the Federal Register of OMB approval of the subject
information collection requirements; and except for amendments in
Sec. Sec. 54.500, 54.501(a)(1), 54.502(a), 54.507(a) through (c) and
(e) through (f), 54.516, and 54.570(b) and (c), which shall become
effective on July 1, 2015; and amendments in Sec. Sec. 54.504(f)(4)
and (f)(5) and 54.514(c), which shall become effective on July 1, 2016.
307. It is further ordered that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, Shall Send a
copy of the Report and Order, including the Final Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
Federal Communications Commission.
Sheryl D. Todd,
Deputy Secretary.
Final Rules
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR part 54 as follows:
PART 54--UNIVERSAL SERVICE
Subpart A--General Information
0
1. The authority citation for part 54 continues to read as follows:
Authority: Sections 1, 4(i), 5, 201, 205, 214, 219, 220, 254,
303(r), and 403 of the Communications Act of 1934, as amended, and
section 706 of the Communications Act of 1996, as amended; 47 U.S.C.
151, 154(i), 155, 201, 205, 214, 219, 220, 254, 303(r), 403, and
1302 unless otherwise noted.
0
2. Amend Sec. 54.5 by revising the definition of ``Internet access''
to read as follows:
Sec. 54.5 Terms and definitions.
* * * * *
Internet access. ``Internet access'' includes the following
elements:
(1) The transmission of information as common carriage; and
(2) The transmission of information as part of a gateway to an
information service, when that transmission does not involve the
generation or alteration of the content of information, but may include
data transmission, address translation, protocol conversion, billing
management, introductory information content, and navigational systems
that enable users to access information services, and that do not
affect the presentation of such information to users.
* * * * *
Subpart F--Universal Service Support for Schools and Libraries
0
3. Amend Sec. 54.500 by removing the alphabetical paragraph
designations and adding in alphabetical order definitions for ``basic
maintenance,'' ``consortium,'' ``internal connections,'' ``managed
internal broadband services,'' and ``voice services'' to read as
follows:
Sec. 54.500 Terms and definitions.
Basic maintenance. A service is eligible for support as a ``basic
maintenance'' service if, but for the maintenance at issue, the
internal connection would not function and serve its intended purpose
with the degree of reliability ordinarily provided in the marketplace
to entities receiving such services. Basic maintenance services do not
include services that maintain equipment that is not supported by E-
rate or that enhance the utility of equipment beyond the transport of
information, or diagnostic services in excess of those necessary to
maintain the equipment's ability to transport information.
* * * * *
Consortium. A ``consortium'' is any local, statewide, regional, or
interstate cooperative association of schools and/or libraries eligible
for E-rate support that seeks competitive bids for eligible services or
funding for eligible services on behalf of some or all of its members.
Consortium may also include health care providers eligible under
subpart G, and public sector (governmental) entities, including, but
not limited to, state colleges and state universities, state
educational broadcasters, counties, and municipalities, although such
entities are not eligible for support. Eligible schools and libraries
may not join consortia with ineligible private sector members unless
the pre-discount prices of any services that such consortium receives
are generally tariffed rates.
* * * * *
Internal connections. A service is eligible for support as a
component of an institution's ``internal connections'' if such service
is necessary to transport or distribute broadband within one or more
instructional buildings of a single school campus or within one or more
non-administrative buildings that comprise a single library branch.
* * * * *
Managed internal broadband services. A service is eligible for
support as
[[Page 49198]]
``managed internal broadband services'' if provided by a third party
for the operation, management, and/or monitoring of the eligible
components of a school or library local area network (LAN) and wireless
LAN.
* * * * *
Voice services. ``Voice services'' include local phone service,
long distance service, plain old telephone service (POTS), radio loop,
800 service, satellite telephone, shared telephone service, Centrex,
wireless telephone service such as cellular, interconnected voice over
Internet protocol (VoIP), and the circuit capacity dedicated to
providing voice services.
* * * * *
0
4. Amend Sec. 54.501 by revising the section heading and paragraph
(a)(1), by removing paragraph (c)(1), and by redesignating paragraphs
(c)(2) and (3) as paragraphs (c)(1) and (2), respectively.
The revisions read as follows:
Sec. 54.501 Eligible recipients.
(a) * * *
(1) Only schools meeting the statutory definition of ``elementary
school'' and ``secondary school'' as defined in Sec. 54.500 of this
subpart, and not excluded under paragraphs (a)(2) or (3) of this
section shall be eligible for discounts on telecommunications and other
supported services under this subpart.
* * * * *
0
5. Revise Sec. 54.502 to read as follows:
Sec. 54.502 Eligible services.
(a) Supported services. All supported services are listed in the
Eligible Services List as updated annually in accordance with paragraph
(b) of this section. The services in this subpart will be supported in
addition to all reasonable charges that are incurred by taking such
services, such as state and federal taxes. Charges for termination
liability, penalty surcharges, and other charges not included in the
cost of taking such service shall not be covered by the universal
service support mechanisms. The supported services fall within the
following general categories:
(1) Category one. Telecommunications services, telecommunications,
and Internet access, as defined in Sec. 54.5 and described in the
Eligible Services List are category one supported services.
(2) Category two. Internal connections, basic maintenance and
managed internal broadband services as defined in Sec. 54.500 and
described in the Eligible Services List are category two supported
services.
(b) Funding years 2015 and 2016. Libraries, schools, or school
districts with schools that receive funding for category two services
in funding years 2015 and/or 2016 shall be eligible for support
pursuant to paragraphs (b)(1) through (6) of this section.
(1) Five-year budget. Each eligible school or library shall be
eligible for a budgeted amount of support for category two services
over a five-year funding cycle. Excluding support for internal
connections received prior to funding year 2015, each school or library
shall be eligible for the total available budget less any support
received for category two services in the prior four funding years.
(2) School budget. Each eligible school shall be eligible for
support for category two services up to a pre-discount price of $150
per student over a five-year funding cycle. Applicants shall provide
the student count per school, calculated at the time that the discount
is calculated each funding year. New schools may estimate the number of
students, but shall repay any support provided in excess of the maximum
budget based on student enrollment the following funding year.
(3) Library budget. Each eligible library shall be eligible for
support for category two services, up to a pre-discount price of $2.30
per square foot over a five-year funding cycle. Libraries shall provide
the total area for all floors, in square feet, of each library outlet
separately, including all areas enclosed by the outer walls of the
library outlet and occupied by the library, including those areas off-
limits to the public.
(4) Funding floor. Each eligible school and library will be
eligible for support for category two services up to at least a pre-
discount price of $9,200 over five funding years.
(5) Requests. Applicants shall request support for category two
services for each school or library based on the number of students per
school building or square footage per library building. Category two
funding for a school or library may not be used for another school or
library. If an applicant requests less than the maximum budget
available for a school or library, the applicant may request the
remaining balance in a school's or library's category two budget in
subsequent funding years of a five year cycle. The costs for category
two services shared by multiple eligible entities shall be divided
reasonably between each of the entities for which support is sought in
that funding year.
(6) Non-instructional buildings. Support is not available for
category two services provided to or within non-instructional school
buildings or separate library administrative buildings unless those
category two services are essential for the effective transport of
information to or within one or more instructional buildings of a
school or non-administrative library buildings, or the Commission has
found that the use of those services meets the definition of
educational purpose, as defined in Sec. 54.500. When applying for
category two support for eligible services to a non-instructional
school building or library administrative building, the applicant shall
allocate the cost of providing services to one or more of the eligible
school or library buildings that benefit from those services being
provided.
(c) Funding year 2017 and beyond. Absent further action from the
Commission, each eligible library or school in a school district, which
did not receive funding for category two services in funding years 2015
and/or 2016, shall be eligible for support for category two services,
except basic maintenance services, no more than twice every five
funding years. For the purpose of determining eligibility, the five-
year period begins in any funding year in which the school or library
receives discounted category two services other than basic maintenance
services. If a school or library receives category two services other
than basic maintenance services that are shared with other schools or
libraries (for example, as part of a consortium), the shared services
will be attributed to the school or library in determining whether it
is eligible for support. Support is not available for category two
services provided to or within non-instructional school buildings or
separate library administrative buildings unless those category two
services are essential for the effective transport of information to or
within one or more instructional buildings of a school or non-
administrative library buildings, or the Commission has found that the
use of those services meets the definition of educational purpose, as
defined in Sec. 54.500.
(d) Eligible services list process. The Administrator shall submit
by March 30 of each year a draft list of services eligible for support,
based on the Commission's rules for the following funding year. The
Wireline Competition Bureau will issue a Public Notice seeking comment
on the Administrator's proposed eligible services list. The final list
of services eligible for support will be released at least 60 days
prior to the
[[Page 49199]]
opening of the application filing window for the following funding
year.
0
6. Amend Sec. 54.503 by revising paragraphs (c), (d)(2)(i), and (d)(4)
and adding paragraph (e) to read as follows:
Sec. 54.503 Competitive bidding requirements.
* * * * *
(c) Posting of FCC Form 470. (1) An eligible school, library, or
consortium that includes an eligible school or library seeking bids for
eligible services under this subpart shall submit a completed FCC Form
470 to the Administrator to initiate the competitive bidding process.
The FCC Form 470 and any request for proposal cited in the FCC Form 470
shall include, at a minimum, the following information, to the extent
applicable with respect to the services requested:
(i) A list of specified services for which the school, library, or
consortium requests bids; and
(ii) Sufficient information to enable bidders to reasonably
determine the needs of the applicant.
(2) The FCC Form 470 shall be signed by a person authorized to
request bids for eligible services for the eligible school, library, or
consortium, including such entities.
(i) A person authorized to request bids on behalf of the entities
listed on an FCC Form 470 shall certify under oath that:
(A) The schools meet the statutory definition of ``elementary
school'' or ``secondary school'' as defined in Sec. 54.500 of these
rules, do not operate as for-profit businesses, and do not have
endowments exceeding $50 million.
(B) The libraries or library consortia eligible for assistance from
a State library administrative agency under the Library Services and
Technology Act of 1996 do not operate as for-profit businesses and have
budgets that are completely separate from any school (including, but
not limited to, elementary and secondary schools, colleges, and
universities).
(C) Support under this support mechanism is conditional upon the
school(s) and library(ies) securing access to all of the resources,
including computers, training, software, maintenance, internal
connections, and electrical connections necessary to use the services
purchased effectively.
(ii) A person authorized to both request bids and order services on
behalf of the entities listed on an FCC Form 470 shall, in addition to
making the certifications listed in paragraph (c)(2)(i) of this
section, certify under oath that:
(A) The services the school, library, or consortium purchases at
discounts will be used primarily for educational purposes and will not
be sold, resold, or transferred in consideration for money or any other
thing of value, except as allowed by Sec. 54.513.
(B) All bids submitted for eligible products and services will be
carefully considered, with price being the primary factor, and the bid
selected will be for the most cost-effective service offering
consistent with Sec. 54.511.
(3) The Administrator shall post each FCC Form 470 that it receives
from an eligible school, library, or consortium that includes an
eligible school or library on its Web site designated for this purpose.
(4) After posting on the Administrator's Web site an eligible
school, library, or consortium FCC Form 470, the Administrator shall
send confirmation of the posting to the entity requesting service. That
entity shall then wait at least four weeks from the date on which its
description of services is posted on the Administrator's Web site
before making commitments with the selected providers of services. The
confirmation from the Administrator shall include the date after which
the requestor may sign a contract with its chosen provider(s).
(d) * * *
(2) * * *
(i) The terms ``school, library, or consortium'' include all
individuals who are on the governing boards of such entities (such as
members of a school committee), and all employees, officers,
representatives, agents, consultants or independent contractors of such
entities involved on behalf of such school, library, or consortium with
the Schools and Libraries Program of the Universal Service Fund (E-rate
Program), including individuals who prepare, approve, sign or submit E-
rate applications, or other forms related to the E-rate Program, or who
prepare bids, communicate or work with E-rate service providers, E-rate
consultants, or with USAC, as well as any staff of such entities
responsible for monitoring compliance with the E-rate Program; and
* * * * *
(4) Any service provider may make charitable donations to an
eligible school, library, or consortium that includes an eligible
school or library in the support of its programs as long as such
contributions are not directly or indirectly related to E-rate
procurement activities or decisions and are not given by service
providers to circumvent competitive bidding and other E-rate program
rules, including those in paragraph (c)(2)(i)(C) of this section,
requiring schools and libraries to pay their own non-discount share for
the services they are purchasing.
(e) Exemption to competitive bidding requirements. An applicant
that seeks support for commercially available high-speed Internet
access services for a pre-discount price of $3,600 or less per school
or library annually is exempt from the competitive bidding requirements
in paragraphs (a) through (c) of this section.
(1) Internet access, as defined in Sec. 54.5, is eligible for this
exemption only if the purchased service offers at least 100 Mbps
downstream and 10 Mbps upstream.
(2) The Chief, Wireline Competition Bureau, is delegated authority
to lower the annual cost of high-speed Internet access services or
raise the speed threshold of broadband services eligible for this
competitive bidding exemption, based on a determination of what rates
and speeds are commercially available prior to the start of the funding
year.
0
7. Revise Sec. 54.504 to read as follows:
Sec. 54.504 Requests for services.
(a) Filing of the FCC Form 471. An eligible school, library, or
consortium that includes an eligible school or library seeking to
receive discounts for eligible services under this subpart shall, upon
entering into a signed contract or other legally binding agreement for
eligible services, submit a completed FCC Form 471 to the
Administrator.
(1) The FCC Form 471 shall be signed by the person authorized to
order eligible services for the eligible school, library, or consortium
and shall include that person's certification under oath that:
(i) The schools meet the statutory definition of ``elementary
school'' or ``secondary school'' as defined in Sec. 54.500 of this
subpart, do not operate as for-profit businesses, and do not have
endowments exceeding $50 million.
(ii) The libraries or library consortia eligible for assistance
from a State library administrative agency under the Library Services
and Technology Act of 1996 do not operate as for-profit businesses and
whose budgets are completely separate from any school (including, but
not limited to, elementary and secondary schools, colleges, and
universities).
(iii) The entities listed on the FCC Form 471 application have
secured access to all of the resources, including computers, training,
software, maintenance, internal connections, and electrical
connections, necessary to
[[Page 49200]]
make effective use of the services purchased, as well as to pay the
discounted charges for eligible services from funds to which access has
been secured in the current funding year. The billed entity will pay
the non-discount portion of the cost of the goods and services to the
service provider(s).
(iv) The entities listed on the FCC Form 471 application have
complied with all applicable state and local laws regarding procurement
of services for which support is being sought.
(v) The services the school, library, or consortium purchases at
discounts will be used primarily for educational purposes and will not
be sold, resold, or transferred in consideration for money or any other
thing of value, except as allowed by Sec. 54.513.
(vi) The entities listed in the application have complied with all
program rules and acknowledge that failure to do so may result in
denial of discount funding and/or recovery of funding.
(vii) The applicant understands that the discount level used for
shared services is conditional, for future years, upon ensuring that
the most disadvantaged schools and libraries that are treated as
sharing in the service, receive an appropriate share of benefits from
those services.
(viii) The applicant recognizes that it may be audited pursuant to
its application, that it will retain for ten years any and all
worksheets and other records relied upon to fill out its application,
and that, if audited, it will make such records available to the
Administrator.
(ix) Except as exempted by Sec. 54.503(e), all bids submitted to a
school, library, or consortium seeking eligible services were carefully
considered and the most cost-effective bid was selected in accordance
with Sec. 54.503 of this subpart, with price being the primary factor
considered, and it is the most cost-effective means of meeting
educational needs and technology goals.
(2) All pricing and technology infrastructure information submitted
as part of an FCC Form 471 shall be treated as public and non-
confidential by the Administrator unless the applicant specifies a
statute, rule, or other restriction, such as a court order or an
existing contract limitation barring public release of the information.
(i) Contracts and other agreements executed after adoption of this
rule may not prohibit disclosure of pricing or technology
infrastructure information.
(ii) The exemption for existing contract limitations shall not
apply to voluntary extensions or renewals of existing contracts.
(b) Mixed eligibility requests. If 30 percent or more of a request
for discounts made in an FCC Form 471 is for ineligible services, the
request shall be denied in its entirety.
(c) Rate disputes. Schools, libraries, and consortia including
those entities, and service providers may have recourse to the
Commission, regarding interstate rates, and to state commissions,
regarding intrastate rates, if they reasonably believe that the lowest
corresponding price is unfairly high or low.
(1) Schools, libraries, and consortia including those entities may
request lower rates if the rate offered by the carrier does not
represent the lowest corresponding price.
(2) Service providers may request higher rates if they can show
that the lowest corresponding price is not compensatory, because the
relevant school, library, or consortium including those entities is not
similarly situated to and subscribing to a similar set of services to
the customer paying the lowest corresponding price.
(d) Service substitution. (1) The Administrator shall grant a
request by an applicant to substitute a service or product for one
identified on its FCC Form 471 where:
(i) The service or product has the same functionality;
(ii) The substitution does not violate any contract provisions or
state or local procurement laws;
(iii) The substitution does not result in an increase in the
percentage of ineligible services or functions; and
(iv) The applicant certifies that the requested change is within
the scope of the controlling FCC Form 470, including any associated
Requests for Proposal, for the original services.
(2) In the event that a service substitution results in a change in
the pre-discount price for the supported service, support shall be
based on the lower of either the pre-discount price of the service for
which support was originally requested or the pre-discount price of the
new, substituted service.
(3) For purposes of this rule, the two categories of eligible
services are not deemed to have the same functionality as one another.
(e) Mixed eligibility services. A request for discounts for a
product or service that includes both eligible and ineligible
components must allocate the cost of the contract to eligible and
ineligible components.
(1) Ineligible components. If a product or service contains
ineligible components, costs must be allocated to the extent that a
clear delineation can be made between the eligible and ineligible
components. The delineation must have a tangible basis, and the price
for the eligible portion must be the most cost-effective means of
receiving the eligible service.
(2) Ancillary ineligible components. If a product or service
contains ineligible components that are ancillary to the eligible
components, and the product or service is the most cost-effective means
of receiving the eligible component functionality, without regard to
the value of the ineligible component, costs need not be allocated
between the eligible and ineligible components. Discounts shall be
provided on the full cost of the product or service. An ineligible
component is ``ancillary'' if a price for the ineligible component
cannot be determined separately and independently from the price of the
eligible components, and the specific package remains the most cost-
effective means of receiving the eligible services, without regard to
the value of the ineligible functionality.
(3) The Administrator shall utilize the cost allocation
requirements of this paragraph in evaluating mixed eligibility requests
under paragraph (e)(1) of this section.
(f) Filing of FCC Form 473. All service providers eligible to
provide telecommunications and other supported services under this
subpart shall submit annually a completed FCC Form 473 to the
Administrator. The FCC Form 473 shall be signed by an authorized person
and shall include that person's certification under oath that:
(1) The prices in any offer that this service provider makes
pursuant to the schools and libraries universal service support program
have been arrived at independently, without, for the purpose of
restricting competition, any consultation, communication, or agreement
with any other offeror or competitor relating to those prices, the
intention to submit an offer, or the methods or factors used to
calculate the prices offered;
(2) The prices in any offer that this service provider makes
pursuant to the schools and libraries universal service support program
will not be knowingly disclosed by this service provider, directly or
indirectly, to any other offeror or competitor before bid opening (in
the case of a sealed bid solicitation) or contract award (in the case
of a negotiated solicitation) unless otherwise required by law; and
(3) No attempt will be made by this service provider to induce any
other concern to submit or not to submit an
[[Page 49201]]
offer for the purpose of restricting competition.
(4) The service provider listed on the FCC Form 473 certifies that
the invoices that are submitted by this Service Provider to the Billed
Entity for reimbursement pursuant to Billed Entity Applicant
Reimbursement Forms (FCC Form 472) are accurate and represent payments
from the Billed Entity to the Service Provider for equipment and
services provided pursuant to E-rate program rules.
(5) The service provider listed on the FCC Form 473 certifies that
the bills or invoices issued by this service provider to the billed
entity are for equipment and services eligible for universal service
support by the Administrator, and exclude any charges previously
invoiced to the Administrator by the service provider.
0
8. Amend Sec. 54.505 by revising paragraphs (b)(1), (b)(2), (b)(3)(i),
(b)(3)(ii), (b)(4), (c) and adding paragraph (d) to read as follows:
Sec. 54.505 Discounts.
* * * * *
(b) * * *
(1) For schools and school districts, the level of poverty shall be
based on the percentage of the student enrollment that is eligible for
a free or reduced price lunch under the national school lunch program
or a federally-approved alternative mechanism. School districts shall
divide the total number of students eligible for the National School
Lunch Program within the school district by the total number of
students within the school district to arrive at a percentage of
students eligible. This percentage rate shall then be applied to the
discount matrix to set a discount rate for the supported services
purchased by all schools within the school district. Independent
charter schools, private schools, and other eligible educational
facilities should calculate a single discount percentage rate based on
the total number of students under the control of the central
administrative agency.
(2) For libraries and library consortia, the level of poverty shall
be based on the percentage of the student enrollment that is eligible
for a free or reduced price lunch under the national school lunch
program or a federally-approved alternative mechanism in the public
school district in which they are located and should use that school
district's discount rate when applying as a library system or on behalf
of individual libraries within that system. Library systems that have
branches or outlets in more than one public school district should use
the address of the central outlet or main administrative office to
determine which school district the library system is in, and should
use that school district's discount rate when applying as a library
system or on behalf of individual libraries within that system. If the
library is not in a school district, then its level of poverty shall be
based on an average of the percentage of students eligible for the
national school lunch program in each of the school districts that
children living in the library's location attend.
(3) * * *
(i) The Administrator shall designate a school or library as
``urban'' if the school or library is located in an urbanized area as
determined by the most recent rural-urban classification by the Bureau
of the Census. The Administrator shall designate all other schools and
libraries as ``rural.''
(ii) Any school district or library system that has a majority of
schools or libraries in a rural area qualifies for the additional rural
discount.
(4) School districts, library systems, or other billed entities
shall calculate discounts on supported services described in Sec.
54.502(a) that are shared by two or more of their schools, libraries,
or consortia members by calculating an average discount based on the
applicable district-wide discounts of all member schools and libraries.
School districts, library systems, or other billed entities shall
ensure that, for each year in which an eligible school or library is
included for purposes of calculating the aggregate discount rate, that
eligible school or library shall receive a proportionate share of the
shared services for which support is sought. For schools, the discount
shall be a simple average of the applicable district-wide percentage
for all schools sharing a portion of the shared services. For
libraries, the average discount shall be a simple average of the
applicable discounts to which the libraries sharing a portion of the
shared services are entitled.
(c) Matrices. Except as provided in paragraph (d) of this section,
the Administrator shall use the following matrices to set discount
rates to be applied to eligible category one and category two services
purchased by eligible schools, school districts, libraries, or
consortia based on the institution's level of poverty and location in
an ``urban'' or ``rural'' area.
----------------------------------------------------------------------------------------------------------------
Category one schools and Category two schools and
libraries discount matrix libraries discount matrix
---------------------------------------------------------------
% of students eligible for National School Discount level Discount level
Lunch Program ---------------------------------------------------------------
Urban Rural Urban Rural
discount discount discount discount
----------------------------------------------------------------------------------------------------------------
< 1............................................. 20 25 20 25
1-19............................................ 40 50 40 50
20-34........................................... 50 60 50 60
35-49........................................... 60 70 60 70
50-74........................................... 80 80 80 80
75-100.......................................... 90 90 85 85
----------------------------------------------------------------------------------------------------------------
(d) Voice Services. Discounts for category one voice services shall
be reduced by 20 percentage points off applicant discount percentage
rates for each funding year starting in funding year 2015, and reduced
by an additional 20 percentage points off applicant discount percentage
rates each subsequent funding year.
* * * * *
0
9. Revise Sec. 54.507 to read as follows:
Sec. 54.507 Cap.
(a) Amount of the annual cap. The aggregate annual cap on federal
universal service support for schools and libraries shall be $2.25
billion per funding year, of which $1 billion per funding year will be
available for the category two services, as described in Sec.
54.502(a)(2), unless demand for category one services is higher than
available funding.
(1) Inflation increase. In funding year 2010 and subsequent funding
years, the
[[Page 49202]]
$2.25 billion funding cap on federal universal service support for
schools and libraries shall be automatically increased annually to take
into account increases in the rate of inflation as calculated in
paragraph (a)(2) of this section.
(2) Increase calculation. To measure increases in the rate of
inflation for the purposes of this paragraph (a), the Commission shall
use the Gross Domestic Product Chain-type Price Index (GDP-CPI). To
compute the annual increase as required by this paragraph (a), the
percentage increase in the GDP-CPI from the previous year will be used.
For instance, the annual increase in the GDP-CPI from 2008 to 2009
would be used for the 2010 funding year. The increase shall be rounded
to the nearest 0.1 percent by rounding 0.05 percent and above to the
next higher 0.1 percent and otherwise rounding to the next lower 0.1
percent. This percentage increase shall be added to the amount of the
annual funding cap from the previous funding year. If the yearly
average GDP-CPI decreases or stays the same, the annual funding cap
shall remain the same as the previous year.
(3) Public notice. When the calculation of the yearly average GDP-
CPI is determined, the Wireline Competition Bureau shall publish a
public notice in the Federal Register within 60 days announcing any
increase of the annual funding cap based on the rate of inflation.
(4) Filing window requests. At the close of the filing window, if
requests for category one services are greater than the available
funding, the Administrator shall shift category two funds to provide
support for category one services. If available funds are sufficient to
meet demand for category one services, the Administrator, at the
direction of the Wireline Competition Bureau, shall direct the
remaining additional funds to provide support for category two
requests.
(5) Amount of unused funds. All funds collected that are unused
shall be carried forward into subsequent funding years for use in the
schools and libraries support mechanism in accordance with the public
interest and notwithstanding the annual cap. The Chief, Wireline
Competition Bureau, is delegated authority to determine the proportion
of unused funds, if any, needed to meet category one demand, and to
direct the Administrator to use any remaining funds to provide support
for category two requests. The Administrator shall report to the
Commission, on a quarterly basis, funding that is unused from prior
years of the schools and libraries support mechanism.
(6) Application of unused funds. On an annual basis, in the second
quarter of each calendar year, all funds that are collected and that
are unused from prior years shall be available for use in the next full
funding year of the schools and libraries mechanism in accordance with
the public interest and notwithstanding the annual cap as described in
this paragraph (a).
(b) Funding year. A funding year for purposes of the schools and
libraries cap shall be the period July 1 through June 30.
(c) Requests. Funds shall be available to fund discounts for
eligible schools and libraries and consortia of such eligible entities
on a first-come-first-served basis, with requests accepted beginning on
the first of July prior to each funding year. The Administrator shall
maintain on the Administrator's Web site a running tally of the funds
already committed for the existing funding year. The Administrator
shall implement an initial filing period that treats all schools and
libraries filing within that period as if their applications were
simultaneously received. The initial filing period shall begin on the
date that the Administrator begins to receive applications for support,
and shall conclude on a date to be determined by the Administrator. The
Administrator may implement such additional filing periods as it deems
necessary.
(d) Annual filing requirement. Schools and libraries, and consortia
of such eligible entities shall file new funding requests for each
funding year no sooner than the July 1 prior to the start of that
funding year. Schools, libraries, and eligible consortia must use
recurring services for which discounts have been committed by the
Administrator within the funding year for which the discounts were
sought. Implementation of non-recurring services may begin on April 1
prior to the July 1 start of the funding year. The deadline for
implementation of non-recurring services will be September 30 following
the close of the funding year. An applicant may request and receive
from the Administrator an extension of the implementation deadline for
non-recurring services if it satisfies one of the following criteria:
(1) The applicant's funding commitment decision letter is issued by
the Administrator on or after March 1 of the funding year for which
discounts are authorized;
(2) The applicant receives a service provider change authorization
or service substitution authorization from the Administrator on or
after March 1 of the funding year for which discounts are authorized;
(3) The applicant's service provider is unable to complete
implementation for reasons beyond the service provider's control; or
(4) The applicant's service provider is unwilling to complete
installation because funding disbursements are delayed while the
Administrator investigates their application for program compliance.
(e) Long term contracts. If schools and libraries enter into long
term contracts for eligible services, the Administrator shall only
commit funds to cover the pro rata portion of such a long term contract
scheduled to be delivered during the funding year for which universal
service support is sought.
(f) Rules of distribution. When the filing period described in
paragraph (c) of this section closes, the Administrator shall calculate
the total demand for both category one and category two support
submitted by applicants during the filing period. If total demand for
the funding year exceeds the total support available for category one
or both categories, the Administrator shall take the following steps:
(1) Category one. The Administrator shall first calculate the
demand for category one services for all discount levels. The
Administrator shall allocate the category one funds to these requests
for support, beginning with the most economically disadvantaged schools
and libraries, as determined by the schools and libraries discount
matrix in Sec. 54.505(c). Schools and libraries eligible for a 90
percent discount shall receive first priority for the category one
funds. The Administrator shall next allocate funds toward the requests
submitted by schools and libraries eligible for an 80 percent discount,
then for a 70 percent discount, and shall continue committing funds for
category one services in the same manner to the applicants at each
descending discount level until there are no funds remaining.
(2) Category two. The Administrator shall next calculate the demand
for category two services for all discount categories as determined by
the schools and libraries discount matrix in Sec. 54.505(c). If that
demand exceeds the category two budget for that funding year, the
Administrator shall allocate the category two funds beginning with the
most economically disadvantaged schools and libraries, as determined by
the schools and libraries discount matrix in Sec. 54.505(c). The
Administrator shall allocate funds toward the category two requests
submitted by schools and libraries eligible for an 85 percent
[[Page 49203]]
discount first, then for a 80 percent discount, and shall continue
committing funds in the same manner to the applicants at each
descending discount level until there are no category two funds
remaining.
(3) To the extent that there are single discount percentage levels
associated with ``shared services'' under Sec. 54.505(b)(4), the
Administrator shall allocate funds to the applicants at each descending
discount level (e.g., 90 percent, 89 percent, then 88 percent) until
there are no funds remaining.
(4) For both paragraphs (f)(1) and (2) of this section, if the
remaining funds are not sufficient to support all of the funding
requests within a particular discount level, the Administrator shall
allocate funds at that discount level using the percentage of students
eligible for the National School Lunch Program. Thus, if there is not
enough support to fund all requests at the 40 percent discount level,
the Administrator shall allocate funds beginning with those applicants
with the highest percentage of NSLP eligibility for that discount level
by funding those applicants with 19 percent NSLP eligibility, then 18
percent NSLP eligibility, and shall continue committing funds in the
same manner to applicants at each descending percentage of NSLP until
there are no funds remaining.
Sec. 54.508 [Removed and Reserved]
0
10. Remove and reserve Sec. 54.508.
0
11. Revise Sec. 54.511 to read as follows:
Sec. 54.511 Ordering services.
(a) Selecting a provider of eligible services. Except as exempted
in Sec. 54.503(e), in selecting a provider of eligible services,
schools, libraries, library consortia, and consortia including any of
those entities shall carefully consider all bids submitted and must
select the most cost-effective service offering. In determining which
service offering is the most cost-effective, entities may consider
relevant factors other than the pre-discount prices submitted by
providers, but price should be the primary factor considered.
(b) Lowest corresponding price. Providers of eligible services
shall not submit bids for or charge schools, school districts,
libraries, library consortia, or consortia including any of these
entities a price above the lowest corresponding price for supported
services, unless the Commission, with respect to interstate services or
the state commission with respect to intrastate services, finds that
the lowest corresponding price is not compensatory. Promotional rates
offered by a service provider for a period of more than 90 days must be
included among the comparable rates upon which the lowest corresponding
price is determined.
0
12. Revise Sec. 54.514 to read as follows:
Sec. 54.514 Payment for discounted services.
(a) Invoice filing deadline. Invoices must be submitted to the
Administrator:
(1) 120 days after the last day to receive service, or
(2) 120 days after the date of the FCC Form 486 Notification
Letter, whichever is later.
(b) Invoice deadline extension. In advance of the deadline
calculated pursuant to paragraph (a) of this section, service providers
or billed entities may request a one-time extension of the invoicing
deadline. The Administrator shall grant a 120 day extension of the
invoice filing deadline, if it is timely requested.
(c) Choice of payment method. Service providers providing
discounted services under this subpart in any funding year shall, prior
to the submission of the FCC Form 471, permit the billed entity to
choose the method of payment for the discounted services from those
methods approved by the Administrator, including by making a full,
undiscounted payment and receiving subsequent reimbursement of the
discount amount from the Administrator.
0
13. Revise Sec. 54.516 to read as follows:
Sec. 54.516 Auditing and inspections.
(a) Recordkeeping requirements--(1) Schools, libraries, and
consortia. Schools, libraries, and any consortium that includes schools
or libraries shall retain all documents related to the application for,
receipt, and delivery of supported services for at least 10 years after
the latter of the last day of the applicable funding year or the
service delivery deadline for the funding request. Any other document
that demonstrates compliance with the statutory or regulatory
requirements for the schools and libraries mechanism shall be retained
as well. Schools, libraries, and consortia shall maintain asset and
inventory records of equipment purchased as components of supported
category two services sufficient to verify the actual location of such
equipment for a period of 10 years after purchase.
(2) Service providers. Service providers shall retain documents
related to the delivery of supported services for at least 10 years
after the latter of the last day of the applicable funding year or the
service delivery deadline for the funding request. Any other document
that demonstrates compliance with the statutory or regulatory
requirements for the schools and libraries mechanism shall be retained
as well.
(b) Production of records. Schools, libraries, consortia, and
service providers shall produce such records at the request of any
representative (including any auditor) appointed by a state education
department, the Administrator, the FCC, or any local, state or federal
agency with jurisdiction over the entity.
(c) Audits. Schools, libraries, consortia, and service providers
shall be subject to audits and other investigations to evaluate their
compliance with the statutory and regulatory requirements for the
schools and libraries universal service support mechanism, including
those requirements pertaining to what services and products are
purchased, what services and products are delivered, and how services
and products are being used. Schools, libraries, and consortia
receiving discounted services must provide consent before a service
provider releases confidential information to the auditor, reviewer, or
other representative.
(d) Inspections. Schools, libraries, consortia and service
providers shall permit any representative (including any auditor)
appointed by a state education department, the Administrator, the
Commission or any local, state or federal agency with jurisdiction over
the entity to enter their premises to conduct E-rate compliance
inspections.
Subpart G--Universal Service Support for Health Care Providers
0
14. Amend Sec. 54.642 by revising paragraph (h)(5) to read as follows:
Sec. 54.642 Competitive bidding requirements and exemptions.
* * * * *
(h) * * *
(5) Schools and libraries program master contracts. Subject to the
provisions in Sec. Sec. 54.500, 54.501(c)(1), and 54.503, an eligible
health care provider in a consortium with participants in the schools
and libraries universal service support program and a party to the
consortium's existing contract is exempt from the Healthcare Connect
Fund competitive bidding requirements if the contract was approved in
the schools and libraries universal service support program as a master
contract. The health care provider must comply with all Healthcare
Connect Fund rules and procedures except for those applicable to
competitive bidding.
[[Page 49204]]
Subpart H--Administration
Sec. 54.705 [Amended]
0
15. Amend Sec. 54.705 by removing and reserving paragraphs (a)(1)(vi)
through (viii).
Subpart I--Review of Decisions Issued by the Administrator
0
16. Revise Sec. 54.719 to read as follows:
Sec. 54.719 Parties permitted to seek review of Administrator
decision.
(a) Any party aggrieved by an action taken by the Administrator, as
defined in Sec. 54.701, Sec. 54.703, or Sec. 54.705, must first seek
review from the Administrator.
(b) Any party aggrieved by an action taken by the Administrator,
after seeking review from the Administrator, may then seek review from
the Federal Communications Commission, as set forth in Sec. 54.722.
(c) Parties seeking waivers of the Commission's rules shall seek
relief directly from the Commission.
0
17. Revise Sec. 54.720 to read as follows:
Sec. 54.720 Filing deadlines.
(a) An affected party requesting review of an Administrator
decision by the Commission pursuant to Sec. 54.719, shall file such a
request within sixty (60) days from the date the Administrator issues a
decision.
(b) In all cases of requests for review filed under Sec. 54.719(a)
through (c) the request for review shall be deemed filed on the
postmark date. If the postmark date cannot be determined, the applicant
must file a sworn affidavit stating the date that the request for
review was mailed.
(c) Parties shall adhere to the time periods for filing oppositions
and replies set forth in 47 CFR 1.45.
[FR Doc. 2014-18937 Filed 8-18-14; 8:45 am]
BILLING CODE 6712-01-P