July 25, 2013

E-rate Program Overhaul Proposed to Bring Ultrafast Broadband to U.S. Classrooms

By Laura H. Phillips and Patrick R. McFadden

Following President Obama’s announcement in June of the ConnectED initiative to connect schools and libraries serving 99% of K-12 students to high capacity broadband services, the Federal Communications Commission (FCC) on July 19 released a Notice of Proposed Rulemaking (Notice) launching a proceeding to substantially overhaul its Schools and Libraries program, more commonly known as the E-rate program. To achieve the ConnectED initiative’s goal of delivering ubiquitous faster broadband in US classrooms, the FCC proposes to shift the focus of its program from supporting traditional or legacy services, including voice communications, towards enhancing broadband service. The FCC also seeks to tackle perceived inequities in the distribution of funding by potentially eliminating its priority funding approach that effectively favors some services over others, as well as modifying the way discounts are applied or calculated for eligible institutions. Another goal is to streamline the entire process so that applicants can navigate the program with greater ease.

These proposals could have significant ramifications for current E-rate participants, as well as potential participants as they signal a coming broad shift in the E-rate program. Underscoring the apparent urgency of the FCC’s action, in an unusual action, the comment dates were set at the time the Notice was issued. Further, the Notice includes specific proposed revised rules, and the FCC made a point of also releasing a list of education officials, business leaders and others who have endorsed the ConnectED initiative, in an apparent effort to suggest broad consensus supporting substantial revisions to the E-rate program. Public comments on the Notice are due September 16, and replies are due October 16, 2013.

The E-rate program allows eligible schools and libraries to receive up to 90% discounts for telecommunications services and Internet access with the help of funds from the federal Universal Service Fund (USF), money currently collected from carriers but ultimately paid by consumers of telecommunications services. Under the current program, schools and libraries issue a request for competitive bids for the provision of supported services. When a school or library selects a vendor, it submits an application to the Universal Service Administrative Company (USAC), which administers E-rate funds. If the application is approved, the vendor may be reimbursed with USF funds for the service discounts it provides to the school or library for eligible services. Funding for the E-rate program for 2013 is capped at $2.4 billion. However, the program is typically oversubscribed, with funding requests exceeding available funding by a factor of two to one and services categorized on the FCC’s Eligible Service List as "priority one" being funded at a much higher level than "priority two" services. Moreover, the many program rules and requirements and the delays and unpredictability of funding support have discouraged rural and Tribal entities from taking the same advantage of the program as have some large urban school districts.

The Notice sets out three broad goals to modernize the program, as well as proposes measurements for tracking progress towards achieving those goals. The FCC seeks comment on its proposed measurements, as well as options to advance the articulated goals, including alternative or supplemental measurements.

First, the FCC seeks to increase access for schools and libraries to high speed broadband data connections that support digital learning, such as interactive and collaborative distance learning applications. The FCC seeks comment on:

  • Adoption of appropriate performance measurements, including connectivity metrics for the broadband speeds that will support digital learning, measuring school and library broadband speeds as one metric of availability and affordability, and whether it is possible to measure how success in the classroom is affected by access to E-rate funding and supported services.
  • Ways to focus funding on broadband by updating the eligible services list, eliminating some "outdated" services (including transitioning away from supporting voice services and cellular data plans as a form of Internet access, web hosting, among other things), and possibly revising rules for funding construction and new deployments. The FCC seeks comment on costs to deploy fiber or other technologies and on the most efficient technological architectures that schools and libraries are likely to use for connectivity.
  • Ensuring equitable access to limited E-rate funds. Proposals include increasing certain applicants’ matching funding requirements to 25 or 30%, providing support on a school district-wide basis, revising the approach to supporting rural schools and libraries, incorporating a per-student or per-building budget or cap to ensure that available funds are more broadly distributed, and other options.
  • Identifying additional steps to help ensure sufficient funding, including steps to improve the private sector business case for deploying fiber to schools and libraries, and improved coordination with other universal service programs.

Second, the FCC seeks to maximize the cost-effectiveness of the support program. The FCC seeks comment on:

  • Appropriate performance measurements, including how value could be measured by tracking price and speed of connections, cost per-student, or cost compared with non-supported products and services available in the marketplace.
  • Ways to increase consortium purchasing to negotiate lower rates and secure efficiencies.
  • Other bulk buying opportunities, including a possible FCC formal bulk buying program for supported services, or the possibility of aggregating data traffic with other anchor institutions.
  • Increasing transparency of how E-rate funds are allocated and spent, such as the prices schools and libraries pay, to aid oversight and drive down prices. The FCC also asks whether, as part of this effort, it should direct USAC to take an active role in helping applicants identify the most cost effective purchasing options.
  • Improving or even scrapping the competitive bidding process, and in particular identifying ways to reduce the number of E-rate funding applicants that do not receive multiple responsive bids.
  • Ensuring cost-effective use of funding, including whether the FCC should adopt guidelines or benchmarks for purchasing based on per-classroom, per-teacher or per-library needs.
  • Improving planning and use of broadband, including perhaps identifying steps applicants must take to assess their need for and ability to use high speed broadband connections. While the Notice acknowledges that the FCC’s prior requirement of a technology plan had discouraged some eligible entities from participating, the FCC suggests that some assessment of options at the outset may assist applicants in locating cost effective service alternatives.
  • The use of pilot or small-scale testing of alternative approaches to purchasing to help identify the most cost effective practices that do not lead to fraud, waste or programmatic abuse.

Third, the FCC proposes to streamline the administration of the program itself. The FCC seeks comment on:

  • Appropriate performance measurements, including the possible use of an independent third party to perform an analysis of the barriers schools and libraries encounter in participating in the program.
  • A proposed requirement that all E-rate applicants and service providers file all documents electronically and that USAC make all notifications electronically.
  • Ways to increase the transparency of USAC’s review process, including by requiring additional, more detailed information on the status of pending applications.
  • Ways to speed USAC’s review of applications and funding decisions, including possible deadlines for decisions, reporting requirements for USAC, limits on the number of opportunities for applicants to respond to USAC requests for further information and documentation, and other means of streamlining the review process. The FCC also proposes to revise its rules to allow multi-year contracts without going through the application and review process every year, and seeks comment on a related proposal to allow multi-year funding commitments in the E-rate program.
  • Simplifying the eligible services list by eliminating distinctions based on the regulatory classification of services, allowing applicants to seek eligible services from any entity.
  • Revisions to the rules regarding recovery (by the FCC or USAC) of funds disbursed in violation of program rules, including whether there are some rule violations that might warrant reduced recovery or some other measure short of full recovery.
  • Ways to reduce the amount of unused funds. Despite the fact that funding requests consistently exceed available funds, because applicants do not spend all of the funds for which they receive commitments, typically there are funds that remain unused every year – this results in funding being carried over on the USF’s balance sheet to the next year. The FCC seeks comment on ways to reduce this circumstance, including by identifying applicants that consistently seek and receive excessive commitments.
  • Proposals to improve the funding disbursement process and streamline the process for appealing USAC decisions denying funding or seeking the return of money for violations of program rules.

In addition to these primary goals, the FCC also seeks comment on a variety of "housekeeping" issues, including changes to the rules defining what are "rural" schools and libraries eligible for additional discounts, as well as ways to encourage Tribal entities to participate in the program and gain higher speed broadband access in Tribal area classrooms and libraries. Also prominent is a discussion of additional proposed measures to prevent waste, fraud and abuse – such as increased documentation and document retention requirements, changes to certification requirements, and ways to strengthen audit and enforcement rules. The Notice also seeks comment on proposals that would allow schools to provide wireless hotspots to their surrounding communities using E-rate supported services, and rules to ensure that USAC can efficiently assist affected schools and libraries in the aftermath of a natural disaster or other national emergency.

As previously noted, public comments will be due by September 16, 2013, and reply comments by October 16, 2013. The proceeding has the potential to modify nearly every aspect of the program, thus, parties who are eligible, as well as parties who supply services to eligible entities should consider how the proposals might affect their interests.

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