Beginning next year, schools and libraries will be able to apply for eRate discounts on internal connections–the wiring, routers, switches, and network file servers necessary to bring internet access into classrooms–only twice within a five-year period, the Federal Communications Commission (FCC) has decided.

The agency, which adopted the new policy at its Dec. 17 meeting, made an exception for network maintenance. That is, schools and libraries will be able to apply for discounts each year on the costs associated with maintaining their existing networks–but starting in Funding Year 2005, they will be limited in the number of times they can apply for discounts on new equipment.

The FCC also ratified procedures for rolling over approximately $420 million in unused funds from the 1999, 2000, and 2001 program years. These funds will be dispersed in Funding Year 2003 to increase the overall amount of funding available. In subsequent years, any unused funds will be rolled into the next program year.

The new policies are part of the “Third Report and Order and Second Further Notice of Proposed Rulemaking,” a document that amends a number of rules concerning administration of the $2.25 billion-a-year eRate, which provides discounts on telephone and internet services for schools and libraries. The changes aim to make the program fairer for participants while also discouraging waste, fraud, and abuse.

Limiting the number of times schools can apply for discounts on internal connections “will provide applicants with a greater incentive to fully utilize internal connections purchased with universal service support,” explained Karen Franklin, attorney advisor for the Telecommunications Access Policy Division of the FCC’s Wireline Competition Bureau, who presented the “Third Report and Order” at the meeting.

It also should allow for a greater number of schools to receive funding for internal connections. Schools in the lower discount brackets repeatedly miss out on this funding because the demand for eRate funding is so high each year.

In addition to these rule changes, the FCC imposed a three-year limit on the transferability of equipment purchased with the help of the eRate. Unless a school or library building temporarily or permanently closes, the equipment must stay put for at least three years.

“This will further strengthen our oversight of the use internal connections discounts as they relate to equipment purchased,” Franklin said.

Furthermore, the Schools and Libraries Division (SLD) of the Universal Service Administrative Co., which administers the eRate, now will have a specific due date to submit its updated eligible services list to the FCC each year, so the FCC can solicit public comments about the list prior to its final adoption. This policy also will start in Funding Year 2005.

Lastly, the “Third Report and Order” includes a new “Notice of Proposed Rulemaking” to solicit comments on other potential changes to the program, including changing the current discount matrix used to determine an applicant’s discount level, imposing a limit on the total funding an applicant can request each year, as well as modifying competitive-bidding procedures and the definitions of rural applicants, internet access, and leased wide-area networks. Other program changes–such as cost allocation and a free-services prohibition–also are included in the “Third Report and Order,” but details were not available at press time.

The “Third Report and Order” is based on suggestions and feedback gathered from a public forum held last May, the FCC Inspector General’s semi-annual report, and recommendations from the SLD’s eRate Task Force on Waste, Fraud, and Abuse.

Although all of the commissioners expressed support for the eRate and these changes, a few commissioners called attention to other outstanding problems–including the recent decision to discontinue dark fiber as an eligible service.

“We don’t solve all problems today, however. An abrupt change in the eligible services list has left applications from rural schools and libraries in North Dakota and elsewhere high and dry,” said Commissioner Michael J. Copps. “I see nothing in [the program rules] that compels the exclusion of dark fiber facilities from the eRate program support. I hope we can correct this mistake as soon as possible.”

“I also share the concern about dark fiber,” Commissioner Jonathon S. Adelstein said. “I’m pleased that we are reviewing this in the further notice. I’m hopeful that we can resolve this problem.”

The “Third Report and Order” comes one week after the FCC’s Office of Inspector General (OIG) publicly released its semi-annual report, which highlights the agency’s continued concerns and progress at reducing eRate waste, fraud, and abuse.

The OIG said it is working in partnership with the U.S. Department of Education, the Federal Bureau of Investigation, and the U.S. Department of Justice to complete its investigations into several alleged cases of fraud and abuse. The OIG, which has never been funded to oversee the eRate, noted that is expecting to receive $3 million from Congress to help complete its work.


Federal Communications Commission

“FCC Office of the Inspector General Semi-Annual Report to Congress”

FCC ruling allows districts to reapply for 2002 eRate funds
From eSchool News staff and wire service reports
December 17, 2003

An FCC ruling issued Dec. 8 will allow eight school districts, including four in Texas, to reapply for millions of dollars they were formerly denied to improve technology in their schools.

The FCC’s ruling directly affects more than $250 million in eRate discounts sought by the eight districts, including El Paso’s two largest. But the decision also has broad implications for all eRate applicants this year and in future program years.

The Schools and Libraries Division (SLD) of the Universal Service Administrative Co., which oversees the eRate program, rejected those requests last year when it ruled the districts contracted with IBM for services without following the eRate’s competitive-bidding policies.

The FCC upheld the SLD’s decision. But in a highly unusual ruling, the commission said the districts could reapply for funding from the 2002 program year because previous funding commitments approved by the SLD might have created a belief that the districts were not doing anything wrong.

“The commission felt the rules were not entirely clear, so it felt these applicants should be allowed to reapply,” FCC spokesman Michael Balmoris told eSchool News.

The districts affected in Texas by this decision are El Paso Independent School District, $44.8 million; Ysleta ISD, $18.3 million; Donna ISD, $28.6 million; and Galena Park ISD, $23.9 million. The ruling also affected the Oklahoma City School District, $44.6 million; Memphis, Tenn., City School District, $25.8 million; Albuquerque, N.M., School District, $37.4 million; and the Navajo Education Technology Consortium, $41.3 million.

“I figured we had messed up so big that the funding year in question was dead,” Ysleta School Board President Wayne Belisle told the El Paso Times. “Mistakes were made, there’s no doubt. But I see this decision as a victory.”

The FCC’s ruling, dubbed the Ysleta Order, found the eight eRate applicants in question followed a similar pattern as Ysleta ISD–a “two-step” bidding process that violates the programs competitive-bidding requirements.

First, Ysleta filed a Form 470 that requested nearly every eligible product and service available and stated it was seeking a “systems integration” partner. On its Form 470, the district also indicated that it did not have a Request for Proposal (RFP) for these services, but then five days later the district released a separate RFP seeking a systems integration partner.

Five vendors responded to the RFP, including IBM. The 147-page response from IBM was very general and gave no prices except the hourly rates for its systems integration services. Ysleta choose IBM based on this information and then began the process of negotiating the actual prices and scope of work for eRate-eligible products and services.

The SLD denied Ysleta’s application because the district failed to note that it had issued an RFP and because it chose IBM without first establishing it as the most cost-effective provider. Although IBM’s system integration services were competitively priced, the company was free to charge any price for the specific eRate services requested by the district, the SLD said.

The FCC’s Ysleta Order reaffirmed this ruling. “Ysleta engaged in a two-step procurement process, but only the first step, at which it selected the service provider, involved competitive bidding, and only in a limited fashion,” the commission stated. “First, Ysleta sought competitive bids for a systems integrator without regard to costs for specific projects funded by the [eRate]. Second, Ysleta negotiated with the systems integrator it had selected regarding the scope and prices of eRate-eligible services, but it never sought competing bids for those products and services, as required by our rules.”

However, the FCC decided it was only fair to reopen the 2002 funding year to let Ysleta and the other districts rebid for two reasons: because it was in “public interest,” and because the SLD had approved similar “two-stepped” applications in prior years.

In Funding Year 2001, for example, El Paso ISD’s eRate application used the same two-step process, which reportedly led to an increase in funding for the district from $2 million in 2000 to $70 million in 2001. IBM touted its success with El Paso in its marketing materials, the FCC noted–which is why so many districts adopted the same approach in 2002 (and why the practice finally caught the SLD’s attention).

Also, the FCC said, a number of other successful applicants have submitted Form 470s that were overly broad, requesting every item on the eligible services list.

“The extent to which applicants relied upon the fact that other applicants [who] utilized this approach previously were approved for funding” influenced the FCC’s decision to permit these eight districts to reapply.

With its Yselta Order, however, the FCC took the opportunity to clarify and reemphasize its rules. “We are clarifying on a going-forward basis how an applicant’s FCC Form 470 must be based upon its technology plan and must detail specific services sought in a manner that allows bidders to understand the specific technologies that the applicant is seeking,” the agency said.

“A Form 470 should not be a general, open-ended solicitation for all services available on the eligible services list, with the hope that bidders will present more concrete proposals,’ the ruling continued. ‘The research and planning for technology needs should take place when the applicant drafts its technology plan, with the applicant taking the initiative and responsibility for determining its needs. The applicant should not post a broad Form 470 and expect bidders to do the ‘planning’ for its technological needs.”

The eight districts in question have until Feb. 6 to file a new Form 470 application for Funding Year 2002. But the FCC imposed restrictions on the districts’ rebids. For instance, districts cannot ask for a sum higher than their original request; they cannot receive funding for services (such as telephone service and internet access) that already were received and were paid for in full; and they cannot receive funding for ‘duplicative’ services, or services that were funded in the 2003 program year.

‘Because many of the contracts at issue & may not have been the most cost-effective offerings for obtaining eligible services, we fully anticipate that applicants will obtain substantial savings over their original applications,’ the Ysleta Order said. It also warned that the SLD will treat these rebids with utmost scrutiny.

Lon Levitan, a spokesman for IBM in Austin, said the FCC ruling was favorable for his company and the districts it served. The FCC, he said, has admitted there was some inconsistency in past rulings.


Federal Communications Commission

Ysleta Order