In a highly unusual move, Tennessee has asked the Federal Communications Commission (FCC) for permission to change eRate service providers before receiving a funding decision letter so 900,000 students statewide won’t lose internet access.

Tennessee’s 2002-2003 eRate funding is being withheld pending the outcome of a joint state and federal investigation into how contracts were awarded during the administration of former Gov. Don Sundquist. Tennessee officials want the FCC to pay another service provider, BellSouth Corp., to maintain internet access in the state’s schools while the investigation continues, thereby circumventing the company currently managing the system.

Last year, Nashville-based Education Networks of America (ENA) won a $106 million, five-year contract with the state Department of Education to run the statewide network, called ConnecTENN. But 70 percent of the money for the contract comes from the eRate program, which gives telecommunications discounts to schools and libraries.

The network provides internet access to 900,000 students and 97 percent of the state’s public schools.

ENA is one of several companies whose contracts are under scrutiny by the FBI, the Tennessee Bureau of Investigation, and the state comptroller’s office as part of the contracts probe started in December.

In an April 17 letter to the FCC, William Coulter, a Washington attorney hired by Gov. Phil Bredesen to handle the ENA negotiations, said the investigation “may continue for several years” and the state needs alternatives to pay for the network.

“In the situation at hand, ENA is unable to file for its reimbursement,” Coulter wrote. “As a result, subcontractors cannot be paid—and service to the state and its schools is imperiled.”

BellSouth, the largest ENA network subcontractor among 24, has agreed “in concept” to act as a paymaster for the federal funding and distribute it to other subcontractors, according to the letter. The agreement would keep federal money away from ENA corporate officials, Coulter wrote.

Under current program rules, an applicant may request a change in the service provider associated with a particular funding request only after the Schools and Libraries Division of the Universal Service Administrative Co., the agency that administers the eRate, has issued its funding decision—a procedure known as a “SPIN change” (for “Service Provider Identification Number”).

The FCC issued a notice April 21 asking for comments on the state’s request. The public comment period ended April 30, and reply comments are due May 5.

FCC spokesman Michael Balmoris said commissioners will review Tennessee’s request and issue a ruling soon. The state is asking for action before the end of the school year so it can avoid a disruption in service, but there is no timetable for a decision, Balmoris said.

Tennessee Department of Education spokeswoman Carrington Fox said no decision has been made on the state’s continuing relationship with ENA after this school year.

“All of our actions so far have been solely geared at maintaining service to schools,” she said. “We’ll take any further steps as they come after the school year.”

ENA President David Pierce said using federal eRate money to pay the company’s subcontractors directly is an acceptable, temporary solution to the problem.

“We’re fully supporting what the state is doing,” he said. “We think they are on the right track.”

ENA continues to receive payment from the state for its 30 percent of the contract price, according to state and company officials. As of March, the state had paid nearly $4 million on the contract.

Pierce has laid off 30 of ENA’s 77 employees and warned that ConnecTENN would be reduced to 30 percent of its capacity unless a solution to the funding freeze is found.

ENA has lost more than $1 million a month on the contract by keeping the network at full power, he said.

ENA was founded in 1996 by Sundquist friends Al Ganier and John Stamps. Stamps, a Monteagle, Tenn., entrepreneur, also owns Chattanooga-based Workforce Strategists, which closed its doors in September when agents raided the company offices.


Federal Communications Commission

FCC Public Notice

Tennessee Department of Education

Education Networks of America