FCC Initiates Massive E-Rate Program Overhaul

by Davis Wright Tremaine LLP
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On July 23, 2013, the Federal Communications Commission (FCC) released the 175-page text of a Notice of Proposed Rulemaking to transform the Schools and Libraries component of its Universal Service program—more commonly known as the “E-rate” program—into a more modern, streamlined and cost-efficient program with the goal of expanding high speed broadband connections to support digital learning to virtually all of the nation’s schools and libraries. The FCC’s Notice asks for comment on hundreds of questions relating to every aspect of the E-rate program, but it builds upon and would largely implement the “ConnectED” initiative announced by President Obama on June 6, 2013. The primary goal of that initiative is to connect 99 percent of America’s students to broadband at speeds of at least 100 Mbps and with a target of 1 Gbps within five years, as well as to provide high-speed wireless service within their schools and libraries.

The E-rate program, established in 1997 under the mandate of the Telecommunications Act of 1996, is the federal government’s largest education technology program, providing subsidized Internet service to 97% of the nation’s classrooms. But there have been only modest revisions to the program over its 15 years of existence, and the FCC’s Notice recognizes that the needs of U.S. schools and libraries are changing, declaring: “The challenge we now face is modernizing the program to ensure that our nation’s students and communities have access to high-capacity broadband connections that support digital learning while making sure that the program remains fiscally responsible and fair to the consumers and businesses that pay into the universal service fund.” The FCC states three key goals in the Notice: (1) ensuring that schools and libraries have affordable access to 21st Century broadband that supports digital learning; (2) maximizing the cost-effectiveness of E-rate funds; and (3) streamlining the administration of the E-rate program.

A key underlying challenge to the FCC’s proposals is to achieve its ambitious goal of expanding and broadening the E-rate program in an era of budgetary austerity. Even under the current program, requests for E-rate funding by schools and libraries now far outstrip the program’s budgetary cap ($2.25 billion annually, with an index for inflation that resulted in a $2.38 billion cap in 2012). In the current funding year, the amount of funding requests total $4.9 billion. The new Notice proposes to re-prioritize funding by shifting current subsidies from voice telecommunications to high-capacity broadband, phasing out subsidies for arguably outdated services (mentioning paging, directory assistance, stand-alone voice service, and web hosting as examples), implementing a simplified Eligible Services List (ESL), and imposing performance measures and data-gathering to optimize the use of E-rate funds. Another challenge is to make the program less complex and bureaucratic even as the FCC implements so many transformational changes. Indeed, over the past decade, in striving to ensure the cost-efficient use of funds for their intended purposes, the FCC and USAC have undeniably introduced greater complexity and confusion into the program.

The FCC also seeks to ensure more equitable access by students and teachers in rural and urban areas to limited funds, seeking comment on six options for changing the way it distributes funds under the program: (1) revising the discount scale to increase some applicants’ fund-matching requirements; (2) providing the same level of support on a district-wide basis; (3) revising the approach to supporting rural schools and libraries; (4) incorporating a per-student or per-building cap on funding into the discount scale; (5) providing more equitable access to the program’s lower “priority two” funding (which primarily entails funding for equipment as opposed to funding for services); and (6) allocating funds to all eligible schools and libraries up front.

Included among the Notice’s plethora of proposals and questions are:

A Focus on High-Capacity Broadband
The FCC asks how it should set and measure the effective use of E-rate funds, such as through the President’s ConnectED target of at least 100 Mbps service with a target of 1 Gbps to most schools and libraries within five years, and/or the State Education Technology Directors Association (SETDA) proposal for at least 100 Mbps per 1,000 students and staff by the 2014-15 school year and at least 1 Gbps Internet access per 1,000 users by the 2017-18 school year; and on SETDA’s recommendation for Wide Area Network (WAN) connectivity for schools within a district of at least 10 Gbps per 1,000 students and staff by 2017-2018. The FCC also seeks comment on whether E-rate should provide more support for internal connections; however, it also asks whether it should limit the type of equipment supported and the number of connections that can be installed for each building. Finally, the FCC proposes to provide priority one support for charges associated with using leased dark fiber, bringing it in line with current treatment of lit fiber. 

Maximizing the Cost-Effectiveness of E-rate Funds
In the Notice, the FCC acknowledges that major additional funding will be needed to support its goal of connecting the nation’s classrooms and libraries with high-speed broadband. The FCC seeks comment on whether it should seek to obtain a significant amount of that funding by cutting costs and increasing efficiencies within the E-rate program itself, by eliminating funding for pagers, components of voice service, separate email and webhosting services, and for services used only by school and library staff and in non-instructional buildings.

The FCC suggests various structural changes to the E-rate support mechanism, asks whether it should eliminate the distinction between priority one funding (i.e., funding for Internet access and telecommunications services) and priority two funding (i.e., funding for equipment and other items such as maintenance), and seeks comment on a more radical revision to the program under which E-rate would give school districts a fixed per-student budget, perhaps with double funding for rural districts. It also asks whether a flat matching funds requirement of 25 or 30 percent would improve the cost-effectiveness of E-rate support. Alternatively, it asks whether it should require schools with the highest discounts to pay greater out of pocket matching funds. 

The FCC also asks for suggestions about how to increase transparency and improve the competitive bidding process for E-rate funding. For example, it seeks comments on publicly sharing information on offered prices, bids, and purchase prices of E-rate-supported services. It also asks for suggestions on how to improve the competitive bidding process for E-rate support. Finally, it asks whether it should temporarily increase the E-rate cap in order achieve the goal of ensuring high-capacity broadband connectivity to and within schools.

Streamlining the E-rate Program
The Notice offers a number of suggestions on streamlining E-rate in order to cut administrative costs and to make the process easier for applicants. For example, it proposes to simplify the application process, such as by allowing E-rate applicants with multi-year contracts to file a single application just once. It also seeks comments on ways to speed up the appeals process after a denial of funding or a request for reimbursement; one suggestion is to issue orders with little to no discussion of the facts when the decision is clearly consistent with FCC precedent. 

Other Proposals
The FCC makes many other suggestions, including some that would add considerable complexity to the application process. For example, it asks for comment on whether it should require applicants to submit bid documents to USAC to enable additional review of the bidding process. It also asks for comment on whether it should adopt regular audit cycles for E-rate applicants similar to those it has imposed on large Lifeline providers.

Comments in response to the Notice of Proposed Rulemaking are due on Sept. 16, 2013. Reply comments are due on Oct.16, 2013. DWT has been working closely with clients that provide E-rate-supported services since the inception of the program.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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