FCC Adopts New E-rate Rules
Message Posted May 5, 2003

A new series of E-rate rules was formally released by the FCC this week -- three of which will delight E-rate applicants. The full text of the "Second Report and Order and Further Notice of Proposed Rulemaking" (designated "FCC 03-101") is available at:
http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-03-101A1.doc.

To understand the new Order, two key points must be understood. First, additional regulations may be required to clarify portions of the Order and, second, many of the new rules will not take affect until Year 7 (FY 2004) or after. I've tried to list them most important points first.

(1) Educational Purpose:
Under the current rules, the eligibility of many mproducts and services is conditional on their use for an "educational purpose." Effective for Year 7 (FY 2004), the definition of "educational purpose" will be based on "a presumption that activities that occur in a library or classroom or on library or school property are integral, immediate, and proximate to the education of students or the provision of library services to library patrons." This change essentially expands the definition of "educational purpose" to include all on-site school or library functions such as administration, maintenance, and security. The most visible change will be to make cellular telephone service eligible for almost all school and library personnel. Unfortunately, this definition will NOT be used when reviewing current Year 6 applications.

(2) Choice and Timing of Payment Method:
Current rules provide that funding can be provided through either discounted billing or BEAR reimbursement payments with the choice to be mutually agreed upon by both the applicant and service provider (which usually turns out to be the service provider). The new rules give the ultimate choice to the applicant. The FCC also codified (albeit at 20 days, rather than the current 10 days) a previous guideline that set a service provider deadline for remitting a BEAR payment to the applicant, but still didn't impose any penalties for late payment.

(3) Voice Mail Services:
Voice mail will also become eligible in Year 7 (FY 2004), although some clarification is needed before concluding that eligibility will apply to both voice messaging services and equipment (i.e., as associated with a PBX). Individual answering machines are still considered end-user equipment and would not be eligible.

(4) Computerized Eligible Services List:
The FCC directed the SLD to develop a pilot computerized eligible services list by FY 2005. Since the SLD’s existing Eligible Service List is already available online in PDF format, the new list would presumably provide additional data, such as actual product names and model numbers, and might be linked more closely to the filing of online Form 471s. The Order seeks additional comment on whether the list should serve as a "safe harbor" for funding eligibility.

(5) Duplicative Services:
The Order contains a finding by the FCC that duplicative services — "that deliver the same functionality to the same population in the same location during the same period of time" — are neither reasonable nor cost effective and will not be funded. How this prohibition will be implemented has yet to be determined. The Order contains only one example of duplicative functionality (a telephone PBX and a key system), but notes more generally that functionality "may depend on the particular circumstances presented." Duplicative requests listed on both individual applicant and consortium applications may prove particularly troublesome.

(6) Codification of 30% Policy:
The SLD has long had an administrative policy of denying any FRN for which it finds that more than 30% of the requested funding is ineligible. The FCC has generally supported this policy in its appeal decisions, but has now formally codified the policy as a rule.

(7) FCC Appeal Procedures:
The Order formally establishes a 60-day deadline for submitting FCC appeals. (The deadline had originally been 30-days, but had been extended temporarily to 60-days as a result of 9-11 postal service disruptions.) The date by which FCC appeals are considered filed was also changed from the FCC’s receipt date to the actual postmark date (although we recommend not relying on this change until it appears on the SLD Web site). As a small procedural change, the Order now specifies that FCC appeals should be captioned "In the matter of Request for Review by (name of party seeking review) of Decision of Universal Service Administrator" and should reference "CC Docket No. 02-6."

(8) Funding of Successful Appeals:
Although the SLD has always maintained a reserve to cover successful appeals, uncertainty had existed as to what would happen in the unlikely event that successful appeals in any given year exceeded that year’s reserve limit. The FCC has now authorized the use of funds budgeted for future years to cover earlier funding year requirements should this occur. This added flexibility may be particularly important in setting the final funding award level for FY 2002 given the especially large funding denials this year.

(9) Suspension and Debarment:
The Order provides that persons (defined as individuals, corporations or other legal entities) "convicted of criminal violations or held civilly liable for misconduct arising from participation in the program will be debarred from participation for three years and where circumstances warrant, for a longer period." Additional comment is sought on whether to debar persons under less strict standards of wrongdoing.

(10) Utilization of Unused Funds:
Under a previous FCC Order, unutilized E-rate funds are to rolled-over into future funding years as of this calendar quarter. This Order proposes, and requests additional comments on, specific procedures for such funding. No actual use of roll-over funds is expected before FY 2004.

(11) Technology Plans:
The SLD has long asserted that technology plans must be approved by the time discounted services begin (not simply by the time the Form 486 is filed). This Order requests comments on a proposal to codify this timing.

(12) Other Comments:
In addition to the requests for comments noted above, the FCC also seeks comments on the broad subject of "other measures to limit waste, fraud, and abuse." Comments by interested parties are due 30 days after the publication of this Order in the Federal Register (expected later this month). Reply comments will be due 30 days thereafter.

Julie Tritt Schell