With funding for the first year of the eRate finally set, the FCC now must turn its attention to interpreting the program’s rules. How the FCC resolves a dispute involving Tennessee’s statewide application may have far-reaching effects for both service providers and schools.

Under FCC rules, building or upgrading a state-owned wide area network can’t be done with eRate funds. Tennessee, which owned a statewide education network called ConnecTEN, sold the network to a private company called Education Networks of America (ENA) and now pays ENA for upgraded internet access to its 1,600 schools. Tennessee is requesting $17 million in eRate discounts for this upgraded service.

Depending on whom you ask, Tennessee’s application is either “creative” or “a deceptive shell game.”

Jackie Shrago, director of ConnecTEN, said the state worked with an attorney familiar with the FCC to make sure it followed the program’s rules. There are no rules prohibiting the sale of an existing network to a private owner, Shrago said.

But ISIS 2000, the loser in a bid to provide service for the state, contends that Tennessee’s contract with the ENA violates the rules’ intention. ISIS 2000 wants the FCC to throw out the state’s application.

Rudolph Geist, an attorney for ISIS 2000, said that ENA is using a loophole in the program to fund upgrades to the network by transferring its ownership out of the state’s hands.

“What [Tennessee is] doing raises extremely important questions about program integrity and what is eligible for discounts,” said Geist. “These are important questions for the future of the program.”

Service providers and education officials from other states are watching closely to see how the FCC rules in this case. If Tennessee’s application is approved, some fear it could open the program to widespread abuse.

If the state’s application is rejected, however, thousands of Tennessee students might have to wait for expanded internet access.

Stretching the rules?

In its request for proposals, the state asked bidders to come up with “creative” ways of using eRate discounts to provide students with the best possible internet service, given a fixed contribution from the state of $5 million per year.

ENA won the contract, even though its bid of $74 million over three years was $23 million higher than ISIS 2000’s. The reason, according to Geist: ENA’s proposal could generate more federal money.

Through an ingenious but “suspect” proposal, Geist said, ENA offered to buy the state’s existing public education network. ConnecTEN is a two-year old project linking at least one computer in each of Tennessee’s schools to the internet.

In return, ENA would charge the state for “turnkey” internet service to all its public schools. Turnkey service means all equipment, access, security, and support—from the school to the internet and back—are supplied by the provider.

As part of its service, ENA offered to install a point of presence (POP) at each school so it could charge the state for direct internet access only rather than routers, hubs, switches, T-1 lines, or similar equipment.

But transferring the network to ENA’s hands lets the company upgrade the network’s connections using federal eRate funds, Geist said.

Furthermore, Tennessee’s application stretches the definition of “internet access” far beyond what the FCC intended, Geist said.

“For the six-month period from July 1 to December 31, the state requests $17 million in eRate discounts just for internet access,” Geist said. “That’s almost 20 percent of the total [$88 million] requested for internet access by all 30,000 applicants.”

The Joint Board that set the rules of the eRate defined internet access as “basic conduit,” Geist said—that is, non-content access from a school or library to the backbone internet network.

ENA’s contract with the state includes services such as filtering and web site caching, Geist said—services that are ineligible for discounts. The state’s application includes these services under the rubric “internet access” as well, he said, without making any attempt to unbundle them from eligible services.

A question of semantics

ENA President Al Ganier painted an entirely different picture.

“We’re providing internet access; we’re not selling bandwidth or hardware back to the state,” he said. “We designed a comprehensive program with the teachers and students of Tennessee in mind.”

The state chose ENA because it offered a superior proposal, Ganier said, and ISIS 2000 is just disgruntled because it wasn’t chosen. “There is no comparison between our services, delivery, or design,” he said.

ENA’s $74 million proposal meets the needs of schools much better than ISIS 2000’s plan would have, Ganier said. He cited time constraints as one problem schools face in particular. ENA’s plan calls for a three-level caching system to store web sites so teachers don’t have to wait for frequently visited sites to download during peak hours, he said.

Other features of ENA’s proposal that Ganier called superior are its filtering and security measures and its capacity for growth. The state’s goal is to increase the number of its school computers hooked up to the internet from 50,000 to 90,000 by supplementing existing wiring with sufficient bandwidth and equipment.

Such features constitute an internet service plan that should qualify for the eRate when it is offered to schools, Ganier said. Aside from being more school-friendly, ENA’s approach is no different from that of any other internet service provider, he said.

“At a cost of $15 per student per year, we are dramatically cheaper than if the state had contracted with BellSouth.net, for example,” Ganier said. “And we deliver a much more school-oriented approach.”

The FCC shouldn’t question Tennessee’s plan, Ganier said, given that the state agrees the solution it has purchased is cost-effective.

A review board including members of the legislature and Tennessee Supreme Court, the state’s comptroller, and its chief financial officer unanimously upheld the state’s contract with ENA back in April.

“The only thing we’re billing the FCC for is internet access,” Ganier said. “There’s nothing in the FCC rules saying that purchasing existing equipment is not allowed.”

That may be true, but Tennessee’s application raises a host of questions the Joint Board could not have anticipated when it set the program’s rules. At the very least, the state’s bundling of eligible and ineligible services—if Geist’s allegations prove true—may force the SLC to reject the state’s application.