FCC Seeks Comment on Bundled Components for E-rate

Executive Summary: The Wireline Competition Bureau (“Bureau”) is seeking comment on proposed clarifications to the treatment of ineligible devices when bundled with E-rate eligible components.
Background – Last year, the Bureau sought comment on a Petition filed by the State E-rate Coordinator’s Alliance (SECA) asking the Commission to clarify whether the E-rate rules allowed service providers to bundle ineligible end-user devices and equipment with eligible services without cost allocation. SECA noted that the 2010 Gift Rule Clarification Order stated that “service providers cannot offer special equipment discounts or equipment with service arrangements to E-rate recipients that are not currently available to some other class of subscribers or segments of the public.” However, the Order went on to explain that because “many cell phones are free or available to the general public at a discounted price with the purchase of a two-year service contract …[s]chools and libraries are free to take advantage of these deals, without cost-allocation…” The Order further stated that schools and libraries “…. cannot accept other equipment with service arrangements that are not otherwise available to some segment of the public or class of users.” For example, “a service provider may not offer free iPads to a school with the purchase of telecommunications or Internet access services eligible under E-rate, if such an arrangement is not currently available to the public or a designated class of subscribers.”
Comments SoughtNow that the Bureau has had an opportunity to review the comments from the SECA petition, it seeks comment on additional clarifications to resolve the ambiguity around the issue. Specifically, the Bureau seeks comment on the following:
  • Beginning with FY2014, whether ineligible components must be cost allocated, even where bundled with eligible services and offered to the public or a class of users. [This would essentially do away with the exception made in the Gift Rule Clarification Order.]
  • Whether the Bureau should further clarify the standard that it currently uses for cost allocations for end-user equipment in situations where, for example, the cost of components is not easily obtainable or where applicants have to rely on service providers for cost allocation percentages.
  • Ways to reduce the burden on E-rate recipients that would be required under the new clarification to cost allocate bundled components that were previously understood to be exempt from cost allocation.
  • Whether the Bureau should provide further clarification regarding what should qualify as an “ancillary” component (for example, whether a telephone handset, cell phone or tablet could ever be considered an ancillary component of a service). Currently, ineligible ancillary components (components that are ancillary to the principal use of the eligible component and whose price cannot be separated from the price of the eligible component) are exempt from the cost-allocation requirement.
Due Date for Comments – Comments will be due thirty (30) days after the Public Notice is published in the Federal Register and reply comments forty-five (45) days after publication.

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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