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Letter from SLC CEO Ira Fishman (June 24, 1998)




Dear School, Library, and Telecommunications Industry Leaders:

I am certain you have closely followed the recent press reports about the Federal Communications Commission (FCC)decisions regarding the size, timing, and structure of the Universal Service Fund for Schools and Libraries — commonly known as the E-rate — and have attempted to assess what impact these decisions might have on your applications. We understand the frustration many of you have experienced due to the uncertainties surrounding the E-rate. On behalf of the Schools and Libraries Corporation (SLC), I am writing to you today to summarize the changes contained in the FCC's formal Order released on June 22, and to discuss what happens next.

Although the funding for the 1998 program year as set in the FCC's new Order will disappoint some applicants, other revisions may make the E-rate more manageable for you in the months ahead. The FCC has worked hard to put the E-rate on stable footing operationally and financially, and the SLC has made constructive suggestions during this process based in large part on feedback we have received from you.

Funding Levels Set for 1998

Although an annual funding cap of $2.25 billion remains in place, the FCC acted last winter to limit collections from the telecommunications industry to $625 million for the first six months of 1998, with funding level for the remainder of the year to be determined. In their recent Order, the FCC set collections and disbursements for the program at $325 million per quarter for the next four quarters. Together with the $625 collected in the first six months of 1998, this equals $1.925 billion over the 18 month period from January 1, 1998 to June 30, 1999.

The 18-Month Year

As a result of suggestions from the SLC, the FCC extended the 1998 program year through June 30, 1999. This shift in the program schedule allows all of us sufficient time to implement properly the first program year, and synchronizes the E-rate funding cycle with the most common fiscal year among schools and libraries. Approved discounts for ongoing telecommunications and Internet access costs will be extended for six months. While the amount for approved internal connections discounts will not be augmented, discount recipients will have until June 30, 1999 to use these discounts. The second funding year will begin July 1, 1999, and will run through June 30, 2000.

This 18-month transition for 1998 has several benefits. In addition to maximizing our ability to fund applicants to the fullest extent possible within the collection levels described above, it will give schools and libraries the time they need to properly roll out their 1998 technology projects while carefully developing their applications for 1999. In addition, the funding schedule should make budgeting and planning much more workable for E-rate applicants. The 18-month transition will allow E-rate applicants several additional months of planning time before the second cycle begins.

Rules of Priority Revised

The FCC's order has established a new method of assuring that the poorest schools and libraries get the greatest E-rate benefits while honoring the needs of all other applicants as well. For applications received within the 75-day window, available funding will be allocated first to fulfill all approved requests for telecommunications services and Internet access. Remaining funds will then be allocated for internal connections, beginning with the schools and libraries in the highest need categories those that qualify for the greatest discounts) and continuing as long as funds remain.

Effect on Other Program Rules

To permit the six-month extension of ongoing telecommunications and Internet access discounts, the FCC has revised program rules to allow the voluntary extension of contracts to June 30, 1999, for contracts that would otherwise have expired between December 31, 1998 and June 30, 1999. The rules governing retroactivity will remain in place.

Application Cycle for 1999

The FCC's Order states that the second year application cycle should begin no later than October 1, 1998, rather than July 1, 1998. This will give schools and libraries more time to plan for their second year requests. Application materials will be distributed well before the application cycle begins. While we expect that the FCC Forms will remain unchanged, the accompanying explanatory materials are being improved based on first-year experience and your comments and suggestions. A "window" period, during which all correctly completed applications received will be treated as if they had arrived simultaneously, will be established and its length will be determined soon. Funding commitments for the second program year will be made in the spring, and discounts will take effect July 1, 1999.

Funding Commitments for 1998

The SLC is making substantial progress on processing the 30,000 applications received from schools and libraries during the 75-day window. As you probably know, the application review process got off to a slower start than planned as accommodations were made to process the unexpectedly large number of applications requiring time-intensive problem resolution. The SLC made a conscious choice to provide as much hands-on customer assistance as possible to assure that schools and libraries had the greatest opportunity to properly complete the applications. And, the SLC needed to improve some of our initial problem resolution procedures once the process was underway. In addition, the FCC's new Order will require some revisions to our computer systems and to application processing procedures.

All of this adds up to a longer than hoped for lead time on funding commitments for 1998. Clearly, we will not be able to commit funds before many applicants' fiscal years end on June 30, 1998, and probably will not be able to do so in a manner that enables you to undertake installations during this summer. Although the 18-month schedule should alleviate some time pressure for implementation of E-rate projects, we recognize the importance of giving you a timetable for funding commitments as soon as a reliable date is available, and then starting the actual funding as quickly as possible. You have our commitment to do both. Also, once again, please remember that the FCC Order reconfirms that funding commitments will be retroactive in accordance with our existing guidelines on this issue.

FCC Form 486

This "start payment" Form, which applicants will file AFTER they have been notified of funding commitments and AFTER contracted services have begun to flow, is in the process of being finalized in light of the FCC Order. This fairly simple 3-page(no, I am not kidding) form will be made available directly to applicants at the same time they are being notified of funding commitments.

Special Thanks

Start-ups are always challenging, and, as you know, so has been the launch of the E-rate. Rarely has such a multi-faceted, sizable operation been rolled out in so short a time, only to be buffeted by so many uncertainties beyond our collective control. Each step along the way, we have asked for your guidance in improving the way we do business, and you have been very generous and properly candid with your feedback. We think you will be pleased to see your suggestions reflected in our improved program materials and application processes for the second program year. As further details become available on these issues and others, the SLC will disseminate them widely.

In the meantime, please accept our apology for not being able to provide more regular information updates to you over the past several weeks. While open communication and excellent client service are among the SLC's highest priorities, we could not responsibly share information about recent developments until the FCC had acted definitively. Now, although Congress may yet act to further revise the E-rate, we wanted to take this opportunity to bring you up to date and to thank you for your continued patience and assistance.


Ira Fishman

CEO, Schools and Libraries Corporation

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