E-rate Process

© 2005 millennium strategies

Background

The Universal Services Fund or E-Rate (for education rate) program was created in the wake of the breakup of Bell Telephone to provide an alternative way to assure telecommunications connectivity to disadvantaged areas. An additional benefit was that it became a significant force to promote adoption of the Internet, use of advanced networking and additional telecommunications services. The Schools and Libraries Division of the Universal Service Access Corporation manages the E-Rate program using $2.25 billion gathered through the universal service fee charged on the nation's telephone bills. Subsidies up to 90% are provided to school districts to pay for eligible services and systems implementation. Level of subsidy is based on the proportion of students that take part in the government?s free and reduced-cost lunch program.

Initially the phone companies weren't too pleased with the E-rate program. With the 1996 Telecommunications Act equipment vendors, cabling contractors and competing phone companies could get paid by funds that were contributed by Ma Bell.

Two things happened as a result of this fear. The first is that the phone companies started to charge the Universal Service Fee back to the customer. It was no longer a cost of doing business but a fee to their customer base. Because of this E-rate was referred to as an unconstitutional tax. The second thing the phone companies did was lobby so that their services were subsidized first before systems implementation.

This lead to two levels of subsidy, called Priority 1 and Priority 2. For the most part, Priority 1 funding is for eligible services delivered by a certified telecommunications carrier and Internet access fees charged by an Internet service provider. Priority 1 services are distributed first and are funded for all applicants regardless of need. Priority 2 funding is for equipment and service related to school-owned internal connections including network cabling and equipment. Priority 2 subsidies are funded only if there is money left over from Priority 1 disbursements.

Total funding available to E-rate is $2.25 Billion per year. E-rate is managed by the Schools and Libraries Division (SLD) of the Universal Service Administration Company (USAC.) This group makes recommendations to the FCC on rules and regulations and administers the fund. For additional information, please visit: www.sl.universalservice.org.

Recent Changes and the Future

In an effort to improve the effect that the E-rate program has on schools and libraries, the SLD is constantly modifying regulations and making changes to the program. These changes take time to be approved and there are many changes under consideration at one time. Some of the changes that have recently been approved or are pending include:

• • Limiting the number of times a school or library can apply for internal connections to twice in a six year period. (approved)
• • Reducing the highest discount level from 90% to 80%. (pending)
• • Discounting only the maintenance that is basic and necessary for system functionality. (approved)
• • Deciding on the level of eligibility for dark fiber and IP telephony as a telecommunications service. (pending)

The future of E-rate is good. Due to the fact that the source for the funding comes from the telecommunication service providers and not Federal taxes, it is highly unlikely that the fund will go away. In addition, there has been a shift by opponents of the fund to proponents, who in the past had lobbied against the program. Although it is highly likely that the fund will continue to subsidize costs for telecommunications and Internet service, the methodology for requesting and receiving the subsidies will most probably be changed to further reduce the opportunity for fraud and disproportionate distribution to certain vendors.

Schools and school districts across the country are struggling to meet the needs of their students while minimizing the tax burden to their constituencies. E-rate has subsidized the cost for upgrading the infrastructure within these schools without burdening tax payers. Discounts can be as much as 90% off of equipment and service. Many districts seek discounts for services and equipment just because these services are eligible without regard for their actual need or how it benefits students and learning. For this reason it is critically important to have a valid and current technology plan to support the implementation.

Eligible Services and Systems

Telecommunications services are funded as a Priority 1 Service. A telecommunications service is "the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used" [47 U.S.C. 153(46). Telecommunications is defined as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." The following is an example of eligible telecommunications equipment or service.

• • Plain Old Telephone Service (POTS)
• • Long distance service
• • CENTREX service
• • Voicemail service
• • Wide area network connectivity as a service
• • Cellphone service
• • Paging service.

Internet access is funded as a Priority 1 service. Internet access is limited to the provision of "basic conduit access" to the Internet and apply to services not purchases of equipment used in Internet access. Service providers for Internet access need not be eligible telecommunications providers. Types of eligible services include:

• • High speed internet access
• • Internet connection circuits
• • Domain name registration
• • Email as a service
• • Firewall as a service.

Internal connections are funded as Priority 2. Internal connections are components located at the applicant site that are necessary to transport information to classrooms, publicly accessible rooms of a library, and to eligible administrative areas of buildings. Internal connections include connections within, between or among instructional buildings that comprise a school campus or library branch, but do not include services that extend beyond the school campus or library branch. This category of service includes:

• • Network cabling
• • LAN equipment (such as switches and routers)
• • Servers
• • Video conferencing equipment
• • Private branch exchange and voicemail systems.

Application Process

• Prepare a technology plan
• Open the competitive process (Form 470)
• Seek discounts on eligible services (Form 471)
• Confirm receipt of services (Form 486)
• Invoice for services (Forms 472 and 474)
• Retain Records for Audit.

Prepare a Technology Plan

A technology plan must contain the following five elements:

• • Clear goals and a realistic strategy for using telecommunications and information technology to improve educational services
• • A professional development strategy to ensure that staff knows how to use new technologies to improve educational services
• • An assessment of the telecommunication services, hardware, software and other services that will be needed to improve educational services
• • A sufficient budget and funding plan to acquire and support the ineligible and non-discounted elements of the plan.
• • An evaluation process that enables the school to monitor progress toward the specified goals.

Before invoices are paid the technology plan must be approved by an SLD-certified technology plan approver. A Technology Plan is not needed for telecommunication service applications.

Open the Competitive Process

After the technology plan has been developed and the applicant has identified the products and services needed to implement the plan, the applicant submits a Form 470 (Description of Services Requested and Certification Form). The SLD posts forms on their web site to notify vendors that the applicant is seeking the products and services identified.

Applicants must wait at least 28 days after the Form 470 is posted to the web site and to consider all bids they receive before selecting the optimum vendor to provide the goods and services desired. In addition, applicants must comply with state and local procurement rules and regulations and competitive bidding requirements that apply to their district. The Form 470 applicant is responsible for ensuring an open and fair competitive process and for selecting the most cost-effective provider of the desired services.

Specific requirements for filing the Form 470 include:

• • The Form 470 must be completed by the entity that negotiates with potential vendors.
• • A service provider who will respond as a potential vendor cannot complete the Form 470.
• • An applicant cannot seek discounts for systems or services on the Form 471 if those systems or services were not included on a Form 470.

The applicant should retain competing bids or proposals for services and evaluation forms to demonstrate that the vendor chosen is the most cost-effective, with price being the primary consideration. This information, as with all documents that may be requested as part of an audit or other inquiry, should be saved for at least five years.

Note that once an applicant has signed a multi-year contract in a prior funding year based on a posted Form 470, it need not submit a new Form 470 to be eligible to apply for discounts on the services provided under that multi-year contract for future funding years.

After successful posting of a Form 470, the SLD sends the applicant a Form 470 Receipt Notification Letter that provides important information, including the "Allowable Vendor Selection/Contract Date," the earliest date the applicant can execute a contract, select a vendor and sign and submit the Form 471.

Seek Discounts on Eligible Services

Having selected the vendor, the applicant completes the Form 471 (Services Ordered and Certification Form) - the actual request for funding. Because the amount of funding available each year is capped at $2.25 billion and demand in most years significantly exceeds funds available, FCC rules define a filing window during which all Forms 471 that are filed are treated as if simultaneously received. Once the filing window opens, the applicant can submit the Form 471 either online or on paper.

The Form 471 is used to calculate the discount percentage to which the applicant is entitled. In general, the discount percentage for an individual school is based on the percent of the student population eligible for the National School Lunch Program. The Form 471 also lists the individual funding requests, which must be separated by service category and vendor.

Specific requirements for filing the Form 471 include:

• • Applicants must file within the filing window in order for their applications to be considered with all others received in that timeframe.
• • Schools and libraries are required to pay the non-discounted portion of the services for which they receive discounts. The funding necessary to pay this portion must be budgeted and approved before submission of the Form 471.
• • Funding requests should be limited to eligible goods and services to be delivered to eligible entities for eligible purposes. If 30% or more of a request is determined to be, in fact, ineligible, the entire request will be denied.
• • There are a number of important certifications on the Form 471. Applicants should be sure they can truthfully and correctly make these certifications. The SLD checks the accuracy of the certifications made by applicants and denies funding if one or more of the certifications are found to be untrue. False statements on the Form 471 (and other forms) can result in civil or criminal liability.
• • The Form 471 cannot be processed without required attachments that must contain information about the products and services ordered so that the SLD can verify eligibility.
• • The Form 471 Receipt Acknowledgment Letter provides important information to the applicant and the vendor including a summary of the data from the Form 471.

Once the Form 471 has been reviewed, the SLD issues one or more Funding Commitment Decision Letters to both the applicant and the vendor setting out its decisions for each funding request. If an applicant believes any of its funding requests have been incorrectly reduced or denied the applicant can appeal the decision. Appeals must be received by the SLD no later than 60 days after the date of the SLD decision letter.

Confirm Receipt of Services

To help the SLD ensure that it pays vendors only for services that have actually been delivered, applicants submit the Form 486 (Receipt of Service Confirmation Form) listing each funded request for which the delivery of services has begun. The Form 486 also tells the SLD that the applicant's technology plan has been approved and informs the SLD of the applicant's status of compliance with the Children's Internet Protection Act (CIPA). Funding may be reduced if the Form 486 is received or postmarked after the service delivery deadline.

Invoice for Services

The SLD must receive an invoice to pay the discounted amount on services for which funds have been committed. If applicants receive discounts on their bills from vendors, the vendor must submit the Form 474 (Service Provider Invoice Form) to receive payment for the discounts they have provided. If applicants wish to request reimbursement for services for which they have already paid in full, they must submit the Form 472 (Billed Entity Applicant Reimbursement Form). The SLD bases the billing mode for each funding request - discounting or reimbursement - on the first type of invoice it processes for payment. Note that payment will not be made on a Form 472 or a Form 474 received or postmarked after the dead-line. Receipt of discounts or reimbursements completes the E-rate process.

Retain Records for Audit

Applicants must maintain their records for at least five years to be able to comply with audits and other inquiries or investigations. USAC and the FCC visit a sample of applicants to ensure services have been delivered in compliance with FCC rules.

Eligibility and Categories of Services

An overarching goal of the E-Rate program is that disadvantaged schools should have access to advanced telecommunications systems and services. These systems and services provide a conduit for the flow of information whether it is voice, video or data. FCC rules indicate that funds will be available for three categories of service: Telecommunications Services, Internet Access and Internal Connections. The eligibility of vendors to provide service, and the prioritization for funding, vary among these categories.

Requests for Telecommunications Services and Internet Access (Priority 1 services) are funded first. Remaining funds are then applied to approved requests for Internal Connections (Priority 2 services). Because of this prioritization, not all requests for Internal Connections will necessarily receive funding. Funding for Internal Connections begins with the most economically disadvantaged districts.