As the Federal Communications Commission (FCC) prepares to make key changes to the eRate–such as increasing the minimum amount the neediest applicants are required to contribute, and possibly eliminating the Form 470 used to seek competitive bids–stakeholders in the $2.25 billion-a-year federal program remain sharply divided as to what these changes should entail.

About 45 applicants, consultants, and vendors responded to the FCC’s “Third Report and Order and Further Notice of Proposed Rulemaking” by the March deadline. The notice continued the agency’s effort to explore ways of improving the program’s application process and reducing waste, fraud, and abuse.

The eRate provides discounts of up to 90 percent on the cost of telecommunications services, internet access, and internal connections for eligible schools and libraries. Year after year, demand for the eRate has exceeded what’s available.

For the 2004 funding year, the agency that oversees the program, the Schools and Libraries Division (SLD) of the Universal Service Administrative Co., reported that 39,785 applicants requested more than $4.278 billion in discounts. Although that amount is some $440 million (9 percent) less than last year, school and libraries still have asked for nearly double the amount available.

Despite the high level of participation, eRate stakeholders say the program needs a makeover because the application process is complicated and burdensome–and, increasingly, instances of program abuse have become widely publicized.

New House Energy and Commerce Committee Chairman Joe Barton, R-Texas, who says he supports the goals of the eRate, recently announced that he intends to step up focus on the program by reviewing the way it is funded in conjunction with an analysis of several telecommunications issues.

Barton declined to comment on whether such a review might lead to a reduction in annual eRate funding. The eRate is also still under investigation by a House oversight and investigations subcommittee. On April 5, the Justice Department indicted five more individuals for eRate fraud, alleging they falsely claimed to have provided telecommunications services to three schools in order to receive funding.

Eliminating the Form 470

As one possible remedy, the FCC’s Notice asked whether the eRate would be improved if the Form 470 process–which ensures that applicants seek competitive bids–were simplified or even eliminated.

Many who submitted comments applauded the idea of eliminating the form altogether and creating a system whereby applicants certify their own procurement policy and procedures.

“School districts are already bound by procurement rules designed to ensure favorable pricing, encourage competition, and prevent fraud,” said the New York City Department of Education (NYCDOE). “Imposing another set of vaguely defined rules only complicates an already time-consuming process.”

The Pennsylvania Department of Education, which described the Form 470 as a “meaningless administrative burden,” suggested that the FCC should require applicants to seek a minimum of three bids before selecting an internal connections provider.

“Six years’ experience has proven that very few, if any, entities receive viable bids as a result of their Form 470 postings,” officials wrote.

Instead of completely eliminating the Form 470 process, many said it should just be radically reduced.

The Consortium for School Networking (CoSN) and the International Society for Technology in Education (ISTE) suggested eliminating the Form 470 for telephone and internet service but keeping it for internal connections.

E-Rate Complete LLC, an eRate consulting firm in Iowa, disagreed with the proposal to eliminate the Form 470. “Even if there is no other available vendor, it isn’t a hardship to complete the Form 470. It forces the applicant to consider adding new services or eliminating those that are not utilized,” the firm wrote.

Revising the discount matrix

Additionally, the FCC asked whether it should adjust its discount matrix for internal connections to distribute funds to more applicants and deter waste, fraud, and abuse. Currently, the poorest schools and libraries receive a 90-percent discount to wire their buildings, leaving them responsible for only 10 percent of the cost.

Many who submitted comments said applicants should bear more of the costs for wiring their buildings. The Pennsylvania Department of Education, the Virginia Department of Education, the Arkansas eRate Work Group, BellSouth, and Sprint Corp. suggested lowering discounts to 70 or 80 percent.

“I believe a 10-percent match does not provide a sufficient incentive for applicants to limit internal connection funding requests,” said Greg Weisiger, Virginia’s state eRate coordinator.

The benefits would be threefold, he explained. First, the increased cost to applicants would prevent them from purchasing expensive, unnecessary products. Second, giving applicants 70-percent discounts instead of 90-percent discounts will free up funds to be distributed among more applicants. Lastly, it would stop vendors who inflate prices or offer applicants “grants” to cover their 10 percent.

Sprint recommended lowering the maximum discount for internal connections to 80 percent, but leaving the maximum discount for maintenance on internal connections at 90 percent.

“It makes little sense to install equipment and facilities, but then have those facilities operate below par because of lack of maintenance,” the company wrote.

On the other hand, several entities strongly opposed the idea of changing the discount matrix–including the American Association of School Administrators (AASA), NYCDOE, CoSN, and ISTE.

“In a time of record state funding shortfalls and tight budgets, this could restrain applicants from participating–especially in high-poverty and rural areas,” AASA wrote.

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