What’s in the E-rate Order? Maximizing E-rate Dollars

Maximizing the benefit of each dollar spent on telecommunications services for schools and libraries and minimizing the contribution burden on consumers and businesses is a major goal adopted by the Federal Communications Commission in its July 2014 E-rate order. The FCC is aiming to drive down costs for the services and equipment needed to deliver high-speed broadband connectivity to and within schools and libraries. The FCC changed E-rate rules to increase pricing transparency, encourage consortium purchasing and amend its lowest corresponding price (LCP) rule to clarify that potential service providers must offer eligible schools, libraries and consortia the LCP.

I. Increasing Pricing Transparency

Starting in funding year 2015, the FCC is placing new transparency requirements on E-rate recipients and vendors. The FCC will make information regarding the specific services and equipment purchased by schools and libraries, as well as their line item costs, publicly available on the Universal Service Administrative Company’s website for funding year 2015 and beyond. The FCC will standardize an electronic form used to collect the information.

II. Encouraging Consortia and Bulk Purchasing

A “consortium” is any local, statewide, regional, or interstate cooperative association of schools and/or libraries eligible for E-rate support that seeks competitive bids for eligible services or funding for eligible services on behalf of some or all of its members. Consortium may also include rural health care providers, and public sector (governmental) entities, including, but not limited to, state colleges and state universities, state educational broadcasters, counties, and municipalities, although such entities are not eligible for support. Eligible schools and libraries may not join consortia with ineligible private sector members unless the pre-discount prices of any services that such consortium receives are generally tariffed rates.

Recognizing that consortium purchasing can drive down the prices paid by schools and libraries for E-rate supported services, the FCC has decided to reduce or eliminate some of the existing barriers to E-rate applicants’ participation in consortia and asked USAC staff to prioritize review of consortia applications. The FCC also adopted rules to make it easier for applicants to take advantage of consortium bidding and clarify some apparent misconceptions about consortia participation. [In response to concerns raised by E-rate applicants about the current method for allocating E-rate support among members of an E-rate consortium, the FCC is proposing, in a new proceeding, to amend the way consortia determine the amount of support to be received by their members to ensure that E-rate applicants that choose to join a consortium do not risk receiving less support.]

A. Speeding Review of Consortium Applications
The FCC has directed USAC, the administrator of the E-rate program, to prioritize application review for state and regional consortia applicants.

B. Preferred Master Contracts
The FCC's Wireline Competition Bureau may designate preferred master contracts for category two (i.e. internal connections) equipment. The Bureau may make such a designation for the purpose of:

• exempting the preferred master contract from the FCC Form 470 filing requirement (1) and
• requiring applicants to include the preferred master contract in their bid evaluations even if the master contract is not submitted as a bid in response to the applicant’s FCC Form 470.

The Bureau has authority to institute either one or both of these exceptions for a preferred master contract and must re-evaluate its decision to designate a contract as a preferred master contract every two funding years. The Bureau may designate a master contract as a preferred master contract if it offers eligible entities nationwide the opportunity to obtain excellent pricing for category two services as reported on the Description of Services Ordered and Certification Form (FCC Form 471). Allowing applicants to take internal connections equipment from a preferred master contract without filing an FCC Form 470, the FCC finds, will ease the administrative burden on applicants without compromising cost-effectiveness.

C. Authority to Seek Consortium Bids
The FCC amended its E-rate rules to permit a consortium lead to identify on its consortium’s FCC Form 470 the schools, school districts and libraries for which it has authority to seek competitive bids for E-rate eligible services even if it does not have authority to order services for those entities. FCC rules currently require the FCC Forms 470 and FCC Forms 471 be signed by a person authorized to order eligible services for the applicants and do not distinguish between authority for E-rate consortium leads to seek bids and authority for consortium leads to purchase the services. As a result, consortium members who are unwilling to cede authority to purchase E-rate eligible services to the consortium lead release their own FCC Form 470 and likely do not attract the number of competitively priced bids, if any, from competitive vendors. By aggregating potential demand in the bidding process, and using the FCC Form 470 process to attract bidders, a consortium can drive down the price of eligible services even for its members who wish to order services on their own. This rule change will take effect for funding year 2015. FCC rules will continue to permit consortium leads to purchase services on behalf of some or all of their members and the FCC encourages consortium leads to seek both forms of authorization, as appropriate.

D. Correcting Misconceptions
The FCC reminds applicants that E-rate rules do not require a consortium to solicit or select a single vendor to provide service to all consortium members. A consortium may invite vendors to bid on services to a subset of consortia members, and may find that a combination of different service providers offer the most cost-effective solution for consortium members. Consortia applicants should make clear in their FCC Forms 470 and any
associated RFPs that they are not required to select a single provider that can meet the needs of all members.

The FCC also clarified that applicants can authorize a consortium lead to act on their behalf for multiple years. In order to ensure that a consortium lead is not seeking bids or applying for support on behalf of schools and libraries without their knowledge or consent, FCC rules require FCC Forms 470 and FCC Forms 471 to be signed by a person authorized to seek or order services for the applicants.

III. Offering the Lowest Corresponding Price

The FCC reminds service providers that they not only must charge eligible schools, libraries, and consortia the lowest corresponding price (LCP) when providing E-rate services, but also must offer eligible entities the LCP when submitting competitive bids to provide E-rate supported services. The LCP rule prohibits an E-rate provider from charging E-rate applicants a price higher than the lowest price that provider charges to non-residential customers who are similarly situated to a particular school, library, rural health care provider or consortium that purchase directly from the service provider. The LCP rule ensures that the price for E-rate supported services is no more than the market price for those services, absent a showing by a provider that it faces demonstrably higher costs to serve a particular school or library.

The FCC’s Enforcement Bureau is directed to devote additional resources to investigating, and where appropriate, bringing enforcement actions against service providers who violate the LCP rule.

IV. Measuring Progress

The FCC will measure, track and report on the prices paid for the E-rate services delivered to schools and libraries and for connections to and connections within schools and libraries.

The FCC will measure and report on prices paid as a function of bandwidth (e.g., dollars per Mbps) and also as a function of number of users (or unique devices). In addition, the FCC will track pricing as a function of various potential cost drivers, which may include physical layer type (e.g., fiber, copper, coax, fixed wireless), service type (e.g., DSL, cable modem, metro Ethernet, Internet access), geography (e.g., rural, urban), carrier, carrier type, and purchasing mechanism (e.g., individual school, district, regional consortium).

The FCC will also develop and maintain best practices and benchmarks regarding network utilization, network architectures, network performance, and network optimization and management. For connectivity within schools and libraries, the FCC will measure and report pricing as a function of number of users or unique devices. The FCC will track pricing of eligible expenses associated with LANs and WLANs (e.g., Wi-Fi), including pricing of eligible network components (e.g., switches, routers, wireless access points, cabling), managed services, and other eligible services associated with LANs and WLANs.

In addition to tracking the pricing and capacity, the FCC will seek to track utilization and performance of these internal connections to more fully measure the value delivered with E-rate support. The FCC will also track replacement and upgrade cycles and LAN/WLAN architectures to accurately measure cost-effectiveness.

Earlier, we looked at the FCC’s efforts to bring Internet connectivity both to the building and to devices within schools and libraries. Next we'll look at making the E-rate application process and other E-rate processes fast, simple and efficient.

Notes:

1. Applicants post a Description of Services Requested and Certification Form (FCC Form 470) to the USAC website to open a competitive bidding process. Applicants can also issue a Request for Proposals (RFP) or related bidding document. Service providers can then review the posted FCC Form 470 information and submit bids.