Current USF Information
Provided by Cliff Ehlinger

Updated 1/13/98

January 5, 1998

A message from Washington

Dear E-Rate Colleague:

Welcome back! I hope that you all had a wonderful holiday vacation.

While you were away, the Federal Communications Commission (FCC) ended the year by answering many of the open questions on the operation of the E-rate. On December 30, it released its Fourth Order on Reconsideration relating to the Universal Service Fund. The order is 190 pages plus separate statements and exhibits and should be posted on the FCC's web site shortly. Highlights of the order relating to the E-rate and not already reflected in Forms 470 - 471 and their instructions are as follows:

  1. LOWEST CORRESPONDING PRICE: In order to exclude a price given to another customer from determination of the lowest corresponding price, a service provider is not required to show that the price given to the other customer would not be compensatory, if that price was given under a special regulatory subsidy or negotiated under very different conditions. Former tariffed rates that were applicable during the three-year look-back period must still be offered unless a regulatory agency ordered the change, or the former tariffed rate is shown not to be compensatory. Promotional rates offered for no more than 90 days may be excluded in determining the lowest corresponding price.
  2. APPROVAL OF TECHNOLOGY PLANS: A school or library may apply directly to the Schools and Libraries Corporation (SLC) for approval of its technology plan only if (1) it is not required by State or local law to obtain State approval for technology plans and telecommunications expenditures, or (2) "the applicant provides evidence that a state agency is unwilling or unable to do so in a reasonably timely fashion." SLC may structure its approval process "in any manner it deems necessary to complete review in a timely fashion, consistent with the purposes of the review." This would presumably authorize, but not require, SLC to utilize a system of peer review. A technology plan that has been rejected by a State may not then be resubmitted to SLC.
  3. STATE TELECOMMUNICATIONS NETWORKS: State organizations that provide State government communications facilities (STNs) may apply for discounts on eligible telecommunications services only on behalf of the eligible schools and libraries to which they provide the services and may not seek reimbursement on their own behalves as service providers. Thus, the benefit of the discounts must be passed on to the individual schools and libraries, either by allowing direct payment of the undiscounted portion by the eligible schools and libraries to the service providers or by applying the discounts to the schools' and libraries' reimbursement obligations to the STN and reducing the STN's payments to the service provider by the amount of the reimbursement discounts. With respect to Internet access and internal connections, on the other hand, STNs may seek reimbursement directly as service providers or apply for the discounts on behalf of the schools and libraries to which they provide the eligible services. If the STN seeks reimbursement on its own behalf, use of the STN as a service provider by schools and libraries is subject to the E-rate's competitive bidding requirement. Although the order does not say so expressly, direct or pass-through support is presumably an election, and "double-dipping" by applying for discounts at both levels is not allowed. If STNs bundle telecommunications services with Internet access and/or internal connections, they must allocate costs and claim E-rate reimbursement only on the latter portion. Open questions remain as to the provision of telecommunications services by STNs without reimbursement by the users, the status of STNs (such as some educational service agencies) that qualify as schools themselves and the availability of E-rate support for add-ons of administrative expenses.
  4. WIDE AREA NETWORKS (WANs): Although the leasing of a WAN from a common carrier is an eligible service, the construction or purchase of a WAN is not. Connections that cross public rights-of-way are rebuttably presumed to be WANs. Connections of multiple buildings that comprise a school campus or library branch are considered to be internal connections.
  5. STATE SUPPORT MECHANISMS: The pre-discount price on which the discounts is calculated is before the application of any other support provided by the State. The FCC or SLC needs to develop a mechanism to implement this decision, so that the aggregate amount of State and E-rate support may not exceed normal rates for the supported services.
  6. NON-INSTRUCTIONAL USE: E-rate support for internal connections is limited "to those essential to providing connections within instructional buildings." The examples given for administrative buildings are "routers and hubs in a school district office if individual schools in the school district were connected to the Internet through the district office," but the order then goes on to make the discounts eligible for "internal connections installed in a school district office if that office were used as the hub of a local area network (LAN) and all schools in the district connect to the Internet through the internal connections in that office." The FCC seems to have taken a more restrictive position than previously taken by SLC on the eligibility of internal connections for district/LEA/SEA offices. The FCC order does not indicate whether this more restrictive position also applies to telecommunications services and Internet access.
  7. EXISTING CONTRACTS: Full grandfathering from the competitive bidding requirement is extended to all contracts signed on or before July 10, 1997, for the lives of those contracts. Contracts signed after that date but before the website becomes fully operational are grandfathered only for services received between January 1 and December 31, 1998, regardless of the duration of the contract. For services taken under a master contract, the date of signing of the master contract governs.
  8. MINOR MODIFICATIONS: An additional competitive bidding is not required for a "minor modification" of a contract previously approved for funding. The determination whether a contract modification is "minor" should be made under applicable State and local procurement laws. In the absence of any such provision, the "cardinal change" doctrine used under Federal procurement laws ("whether the modified work is essentially the same as that for which the parties contracted") should be used. In the accompanying regulation "minor contract modifications" is defined as " a change . . . that is within the scope of the original contract and has no effect or merely a negligible effect on price, quantity, or quality, or delivery under the original contract." A Form 471 must be filed to reflect the minor modification.
  9. MASTER CONTRACTS: Schools and libraries may acquire eligible services under master contracts without further competitive bidding if the master contract was made in accordance with the competitive bidding requirements of the E-rate or is grandfathered as an existing contract. The party negotiating the master contract need not be an eligible school or library itself.
  10. OTHER CHARGES: Discounts are available for "all reasonable charges, including federal and state taxes, that are incurred by obtaining an eligible telecommunications service." They are not available for costs associated with terminating a service.

Don Feuerstein

For more information, contact a GWAEA Technology Consultant.

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