FCC Approves NPRM to Modernize E-Rate In an open FCC meeting held last Friday, the Commissioners unanimously approved the release of a broad Notice of Proposed Rulemaking (“NPRM”) designed to modernize the E-rate program. Although the details of the NPRM will not be known until it is released, presumably early this week, many of the major objectives of the changes were discussed. Discussion of the NPRM was preceded by a presentation by the LEAD (Leading Education by Advancing Digital) Commission. Last month, the LEAD Commission had made the following five recommendations for improving the effectiveness of technology in education: 1. Solve our infrastructure challenge by wiring schools with high‐speed broadband; 2. Build a national initiative to put learning devices in the hands of all students by 2020; 3. Accelerate adoption of digital curriculum and encourage continued innovation; 4. Embrace and encourage model schools; and 5. Invest in human capital to train our teachers. The LEAD Commission’s recommendations, which are in line with President Obama’s recent ConnectED initiative, were also presented in last week’s Senate hearing (see below), and are addressed in part in the FCC’s NPRM. According to the FCC’s Fact Sheet, the NPRM includes the following key goals and provisions: • Increased Broadband Capacity: To ensure schools and libraries have affordable access to 21st century broadband, the notice of proposed rulemaking seeks comment on a range of approaches to focus funds on high-capacity broadband, including: o Simplifying rules on fiber deployment to lower barriers to new construction o Prioritizing funding for new fiber deployments that will drive higher speeds and long-term efficiency o Phasing out support for services like paging and directory assistance o Ensuring that schools and libraries can access funding for modern high-speed Wi-Fi networks in classrooms and library buildings o Allocating funding on a simplified, per-student basis • Cost-Effective Purchasing: To maximize the cost-effectiveness of E-rate purchases, the proposal seeks comment on: o Increasing consortium purchasing to drive down prices o Creating other bulk buying opportunities and increasing pricing transparency o Increasing transparency on how E-rate dollars are spent o Improving the competitive bidding process o Creating a pilot program to incentivize and test more cost-effective purchasing practices • Streamlined Program Administration: To streamline the administration of the E-rate program, the proposal seeks comment on: o Speeding review of E-rate applications o Providing a streamlined electronic filing system and requiring electronic filing of all documents o Increasing the transparency of USAC’s processes o Simplifying the eligible services list and adopting more efficient ways to disburse Erate funds o Streamlining the E-rate appeals process • Outstanding Issues: The proposal also seeks comment on a variety of other issues, including: o The applicability of the Children’s Internet Protection Act (CIPA) to devices brought into schools and libraries, and to devices provided by schools and libraries for at-home use o Adjusting to changes in the National School Lunch Program that affect E-rate o Additional measures for protecting the program from waste, fraud and abuse o Wireless community hotspots Disappointingly to many, the NPRM does not appear to propose any additional funding for Erate. Assuming that the full NPRM is released early this week, a fuller analysis of the NPRM will begin in our newsletter next week. CC Releases E-Rate 2.0 NPRM The FCC’s extensive Notice of Proposed Rulemaking for Modernizing the E-rate Program for Schools and Libraries (FCC 13-100), or what we’ll call the “E-Rate 2.0 NPRM,” was formally released for comment on July 23rd. As indicated in the outline below, the breadth of E-rate issues addressed by the E-Rate 2.0 NPRM is striking. So too is the FCC’s approach to these issues. Aside from the relatively few actual proposals (discussed further below), the NPRM is more in the nature of a notice of inquiry. It suggests many issues that need to be examined — asking 616 questions and seeking 350 comments. This suggests that after the FCC receives and digests all these comments, a second NPRM may be needed to address more specific proposals. Somewhat surprisingly — and a disappointment to many — one issue discussed, but hardly stressed, in the ERate 2.0 NPRM is an increase in the annual funding cap. Paragraphs 173-176 seek comments on whether a temporary increase in the E-rate cap is necessary to achieve the broadband connectivity goals (much as suggested in the President’s ConnectED initiative), or whether a permanent increase is warranted. The following outline of topics covered is drawn from the NPRM’s Table of Contents. The first three major topics are related to the three fundamental goals of the E-rate modernization project as discussed in our previous newsletter. I. ENSURING AFFORDABLE ACCESS TO 21st CENTURY BROADBAND . Focusing E-rate Funds on Supporting Broadband to and within Schools and Libraries 2. Funding for Broadband Connections 3. Phasing Down Support for Certain Services . Ensuring Equitable Access to Limited E-rate Funds 1. Modifying the Discount Matrix 2. Support Based on District-Wide Eligibility and Application by School District 3. More Equitable Funding for Rural Schools and Libraries 4. Setting Budgets or Limits 5. More Equitable Access to Funding for Internal Broadband Connections 6. Simplified Allocation of Funds to All Schools and Libraries . Lowering New Build Costs and Identifying Additional Funding to Support Broadband II. MAXIMIZING THE COST EFFECTIVENESS OF E-RATE FUNDS • Increasing Consortium Purchasing • Encouraging Other Types of Bulk Buying Opportunities • Increasing Transparency • Improving the Competitive Bidding Process • Efficient Use of Funding • Broadband Planning and Use • Innovative Approaches to Encouraging Maximum Efficiency III. STREAMLINING THE ADMINISTRATION OF THE E-RATE PROGRAM • Electronic Filing of FCC Forms and Correspondence • Increasing the Transparency of USAC’s Processes • Speeding Review of Applications, Commitment Decisions, and Funding Disbursement • Simplifying the Eligible Services List • Funding Recovery Considerations • Effective Disbursement of Unused Funding • Invoicing and Disbursement Process • Streamlining E-rate Appeal Process IV. OTHER OUTSTANDING ISSUES • The Children’s Internet Protection Act • Identifying Rural Schools and Libraries • Addressing Changes to the National School Lunch Program • Additional Measures to Prevent Waste, Fraud and Abuse • Extending the E-rate Document Retention Requirements • Documentation of Competitive Bidding • E-rate FCC Form Certification Requirements • Post-Commitment Compliance and Enforcement • Wireless Community Hotspots • Procedures for National Emergencies Over the next few newsletters we plan to address many of these issues in greater detail. As a starting point, however, it will be useful to outline the actual proposals contained in the NPRM. Such proposals suggest that the FCC has preliminarily decided to make these changes and, absent strong comments to the contrary, are likely to be adopted earlier in the E-rate modernization process. These proposals, together with NPRM paragraph references, are discussed below. Eligible Services: Para. 90-91: The FCC proposes “to phase out support for a number of specific services, including outdated services currently on the ESL, for components of voice service,” and seeks comments on the phasing out of other services “not used primarily for educational purposes.” This is the one proposal which could begin as early as FY 2014. The services targeted to be phased out include paging, wireless text messaging, and the following voice services: • Directory assistance • Custom calling features • Inside wiring maintenance plans • Call blocking • 800 number services Para. 248: The FCC proposes “to simplify the ESL and the FCC Form 471 application process by adopting a definition of eligible services that provides funding for eligible services regardless of regulatory classification.” Specifically, it proposes “to amend section 54.502 and the ESL to remove the regulatory classifications of telecommunications services and Internet access to allow applicants to seek eligible services from any entity.” Presumably, this would mean that all Telecommunications services, not just fiber optics, could be offered by any type of service provider, not just by eligible carriers (i.e., Form 499 filers). Para. 71: The FCC proposes to make its “treatment of lit and dark fiber more consistent” by providing Priority 1 support for modulating electronics (e.g. GBICs) and for special construction charges for dark fiber (as it now does for lit fiber). Funds Distribution: Para. 116: Most broadly, the FCC is seeking comment on “six options for revising the structure for distributing funds under the E-rate program by: (1) revising the discount matrix to increase certain applicants’ matching requirements; (2) providing support on a district-wide basis; (3) revising our approach to supporting rural schools and libraries; (4) incorporating a per-student or per-building cap on funding into the discount matrix; (5) providing more equitable access to priority two funding; and (6) allocating funds to all eligible schools and libraries up front.” But within those options, the FCC makes the following concrete proposals: • Para. 123: For any changes it makes to applicant discounts, the FCC proposes “to phase in such changes over some period of time, such as three years.” • Para. 129: The FCC proposes to change the way school district discount rates are calculated so as to use a single discount rate percentage for the entire district based on total student NSLP eligibility. “This single discount 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.” In other words, a district would have a “matrix” discount (e.g., 20%, 25%, 40%...90%) rather than some intermediate aggregate discount (e.g., 67%). Note that this would be consistent with the way a library calculates its discount based on total district NSLP data. • Para. 130 and 276: The FCC proposes “to change our definition of “rural” for purposes of the E-rate program to ensure greater funding to truly rural areas by using the U.S. Department of Education’s NCES definitions.” Increased Transparency: Para. 191: The FCC proposes “to increase the transparency of E-rate spending and…the prices E-rate applicants pay for service.” More specifically, it plans to provide “options for informing schools and libraries about the prices at which service providers are willing to offer for E-rate supported services.” This proposal would appear to raise all sorts of red flags about vendor proprietary data and the real role of USAC in the competitive bidding process. We suspect that this is one “proposal” that will be subject to considerable debate. Streamlining Program Administration: Para. 226: The FCC proposes “several options for streamlining the administration of the E-rate program while preserving critical safeguards. These options include: moving to electronic filing of all FCC forms and correspondence with USAC; increasing transparency throughout the application process; speeding review of applications and issuance of commitment decisions; simplifying the eligible services list (ESL) to focus on the service provided rather than the regulatory classification of the service; recovery considerations when seeking reimbursement of previously disbursed E-rate funding; more effective disbursement of unused funds; improve invoicing and disbursement; and streamlining the E-rate appeals review process.” Para. 229-230: After first referencing a previous SECA proposal that “all of an applicant’s forms and correspondence with USAC should be available from a centralized portal,” the FCC directs — not merely proposes — “USAC to incorporate into its consideration this proposal as it adopts measures to improve operational efficiencies.” Multi-Year Contracts: Para. 241: The FCC proposes, “absent a change in the contract, service provider or recipients of service,” to “allow E-rate applicants with multi-year contracts that are no more than three years in length (including any voluntary extensions) to file a single FCC Form 471 application for the funding year in which the contract commences and go through the full review process just one time for each such multi-year contract.” Comments were sought “on what additional steps E-rate applicants should have to take in the second and third year of such contracts to confirm their request for E-rate support for the subsequent years.” Invoicing and Disbursement Process: Para. 259: Finally, after many years of consideration, the FCC proposes “to modify our process to permit schools and libraries to receive disbursements directly from USAC.” If adopted, BEAR payments could be made to the applicants rather than having to be forwarded through the service providers. The proposal also adopts “specific invoice deadline and invoice deadline extension rules.” Document Retention: Para. 295: The FCC proposes “to extend the E-rate program document retention requirements from five to at least ten years.” Note that since the current five year requirement is based on the last date to receive service, and many documents subject to retention are created two years or more before that date, this change would require documents to be kept for twelve years or more. Form Signatures and Certifications: Para. 300: The FCC proposes “to require that an officer of the service provider sign certain forms submitted to USAC in support of an application for eligible services and any requests for payment,” “to codify the current certifications,” and “require service providers to certify their compliance with the lowest corresponding price rule and with state and local procurement laws.” Note that the LCP certification was originally included in the draft revision of this year’s Form 473, but was removed from the version as finally approved. Para. 306: Similarly, the FCC proposes to “require all E-rate forms submitted by E-rate applicants be signed by someone with authority equivalent to that of a corporate officer.” Such a provision would presumably prevent consultants from signing applicant forms on behalf of their clients. National Emergency Procedures: Para. 324-328: The FCC proposes “to adopt rules requiring USAC to follow specific procedures in the aftermath of a natural disaster or other emergency in order to ensure that USAC can efficiently assist affected schools and libraries in obtaining immediate relief.” E-Rate 2.0 NPRM – Ensuring Broadband Access This is the third in a series of articles discussing the FCC’s Notice of Proposed Rulemaking for Modernizing the E-rate Program for Schools and Libraries (FCC 13-100), the “ERate 2.0 NPRM,” which was formally released on July 23rd. This article discusses the first of the FCC’s primary goals, ensuring affordable access to 21st century broadband services. Background: To a very large extent, interest in E-Rate 2.0 is being driven by two developments: 1. When E-rate was first authorized under the Telecommunications Act of 1996, less than 15% of the nation’s classrooms were connected to the Internet, and the majority of the connections were at dial-up speeds. Today, essentially all schools and libraries are connected to the Internet. The question now, particularly in light of the move to online assessments, is at what speed? The President’s ConnectED initiative and the SETDA (State Education Technology Directors Association) recommendations generally agree on the near-term need for speeds of 100 Mbps per school per 1,000 students, increasing to 1 Gbps by the end of the decade. 2. As schools have been moving in this direction, the demand for Priority 1 funding has been growing, now surpassing the annual E-rate funding cap. This year, for the first time, no E-rate funding may be available for Priority 2, even at the 90% level. Financially, E-rate has hit the wall. There appears to be only two solutions to this problem. One approach, addressed but not stressed in the NPRM, is to increase funding, either temporarily or permanently. The question, of course, is where to find that funding. The other approach — akin to the proverbial rearranging of deckchairs on the Titanic — is to redistribute funding by making less services eligible and/or reducing funding to some applicants. Either approach (or combination) benefits some applicants (and service providers) and hurts others. As discussed below, the NPRM includes a multitude of options, few of which are likely to be applauded by all. Funding for Broadband Connections: To funnel more E-rate funds to broadband, the NPRM discusses a number of options, including: 1. Eliminating the difference between lit and dark fiber eligibility by making special construction charges and terminating equipment for dark fiber eligible. Since the difference between lit and dark fiber is often the negligible cost of GBIC ownership, this is unlikely to be a controversial proposal. 2. Making the purchase of actual fiber or IRUs (indefeasible rights to use) eligible (as opposed to funding only fiber services). This would be a major shift away from the current policy of funding of services only in Priority 1, but could be more cost-effective in the long run. 3. Ensuring technology neutrality between fiber and radio-based broadband technologies. 4. Reconsidering the current requirement to amortize installation costs over a period of at least three years. This would make purchases more attractive, but could lead to spikes in E-rate funding demand. Phasing Down Support for Certain Services: The NPRM discusses a number of options for making fewer services eligible, including the elimination of: 1. Paging services. This would be a small, but relatively benign, change. 2. Certain components of voice service such as directory assistance, 800 numbers, custom calling, etc. Since these services are not too expensive and are often buried deep within many phone bills (if listed individually at all), and would have to be cost allocated out, this may be a poor funding vs. administration trade-off. 3. All basic telephone service, local and long distance, possibly including basic VoIP. A question is raised as to whether this would be possible without statutory changes. 4. Cellular text messaging, or even e-mail services. Given the importance of these services to 24x7 online learning, this option may be a non-starter. 5. Web hosting. The high cost allocation being assigned to web hosting, as a percent of online application packages, has raised questions about the desirability of making web hosting eligible at all. 6. Funding for non-instructional buildings. If the primary goal is student Internet access, funding for non-instructional buildings may be questionable, presumably unless the NIF is the NOC. 7. Certain Internal Connections equipment. One proposal would limit internal equipment to specific terminating hardware and a limited numbers of drops or wireless access points. 8. Basic maintenance. Concerns have been raised about the level of funding being requested, the complexity of the resulting application and invoice review process, and the poor utilization of awarded funding in this category. If any of these services are made ineligible, the NPRM asks whether eligibility should be phased out or terminated at once. Ensuring Equitable Access to Limited E-rate Funds: This is an area of exploration which would create major funding dislocations for certain applicants. The NPRM discusses 4-6 options, namely: 1. Modifying the discount matrix. One option which has been discussed for a number of years is to reduce the maximum discount rate from 90% to 70-80%, either across the board, with lower current rates being scaled back accordingly, or for Priority 2 alone. Not only would this reduce E-rate‘s share of pre-discount costs, but, by increasing applicant share, it would likely reduce the pre-discount amounts as well. Another option, listed separately, is the possibility of either increasing or eliminating the discount matrix distinctions between rural and urban. 2. Providing support based on district-wide eligibility. The FCC proposes to calculate school district discounts based on total student eligibility rather than on a school-by-school basis. This would always give a district an even matrix discount, as is currently the case for libraries, rather than some midpoint aggregate average. For a district currently comprised of schools at different discount rates, this would eliminate Priority 2 cherry-picking requests for only the higher discount schools. 3. Setting budgets or limits. One proposal being aggressively promoted is to limit any school or library to a fixed pre-discount cost per student or patron, regardless of category of service. While simple in concept, the proposal rapidly becomes more complex when adjustments are proposed to provide greater fairness based on factors such as school size, school age or construction parameters, geographic location, needs of new schools, etc. Even greater problems are encountered when dealing with schools or libraries that obtain some services directly and other services through consortia (i.e., must a school give up some of its per student cap for the benefit of its consortium?). Given the FCC’s focus on the power of consortia to lead the cost-effective expansion of broadband on a regional or statewide basis, this is a serious drawback. Another option discussed is the possibility of eliminating the discount matrix altogether, replacing it with a fixed applicant budget to be spent on any eligible service. Presumably, this would work as a per student cap on total E-rate funding rather than as a pre-discount cap. 4. Providing more equitable access to Internal Connections. Suggestions include: a. Eliminating the 2-in-5 rule (which has been totally ineffective). b. Establishing a rolling funding cycle which would give all applicants access to Priority 2 funding over time. c. Replacing the current priority systems with a “whole networks” approach. Lowering New Build Costs and Identifying Additional Funding: The final subsection of the broadband portion of the NPRM addresses additional funding opportunities for meeting the broadband deployment goals. It solicits comments on three basic approaches, including: 1. Public-private partnerships. The NPRM asks what “steps the Commission could take to improve the private sector business case for deploying fiber to schools and libraries, or otherwise expanding connectivity, and thereby reduce the need for E-rate funding?” 2. Coordination with other universal service programs. Specifically, because the Connect America fund involves broadband service obligations of carriers receiving high-cost support, the NPRM asks how to minimize the overlap between the two programs while extending the reach of both. Not discussed is the possibility of coordinating the low-income Lifeline program to support off-campus wired or wireless Internet access for low-income students or patrons. 3. Additional funding of proposed goals through E-rate. The NPRM raises the possibility of “refocusing or reprioritizing” funds within the Universal Service Fund as a whole. Alternatively, as mentioned above, this is the one small section that seeks comments on the need to temporarily or permanently increase funding, perhaps targeting the increase to only one category of applicants such as regional consortia. As we have indicated in our E-Rate 2.0 NPRM articles to date, and as we’ll continue to note in forthcoming articles, this NPRM is long on questions and short on specific proposals. Interested applicants and service providers are encouraged to take an active role in the comment and reply comment process. Initial comments are due September 16th.
Posted on: Sun, 11 Aug 2013 02:11:53 +0000
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