Federal Communications Commission
Washington, DC 20554
In the Matter of
Request for Comments in Response to File No. SLD-2631, CC Docket No. 96-45
In RE: The Universal Service Support Mechanism for Schools and Libraries
June 15, 2000
Magalie Roman Salas
Office of the Secretary
Federal Communications Commission
445 12th Street SW
Washington, DC 20554
Dear Ms. Salas:
These comments are filed by Funds For Learning, LLC, in response to the Federal Communications Commission's request for comments in the above referenced matter, dated June 2, 2000.
Funds For Learning, LLC, is an educational technology consulting firm that has specialized in the Schools and Libraries Support Mechanism (otherwise known as the 'E-rate program") since its inception in 1997. We work with school and library clients to help them comply with the program's competitive bidding and contracting requirements, prepare their E-rate applications and manage the wide range of issues that are now associated with the program. Our clients include some of the nation's largest school districts as well as single-school districts and private schools. We also have worked with companies that sell internal connections, Internet access and telecommunications services to help them better understand the program and work with customers who qualify for support. Thus we have observed most E-rate issues from both sides of the process, the applicant's and the service provider's.
In the Copan (OK) Public Schools decision, the FCC adopted an intelligent, common-sense approach to acceptable service provider (or in E-rate parlance, SPIN) changes. Three years of experience with the E-rate program has demonstrated that it is virtually impossible to anticipate every kind of situation that could arise to disrupt a contracting arrangement between an E-rate applicant and a vendor. The FCC's new policy, therefore, makes sense: allow an applicant to change vendors—even if the vendor had not responded when the Form 470 application was originally posted–if the switch was permitted under both the applicant's state and local procurement rules and its current contract and if it had notified its original vendor of its decision.
This approach includes adequate safeguards against fraud, protects the original winning vendor from losing business without good cause and at the same time provides an E-rate applicant with the flexibility it needs to move forward on a timely basis to build its technology infrastructure. Changing vendors in midstream will be disruptive enough for E-rate applicants without having to subject them to needless bureaucratic delays for a review that serves little practical purpose. We encourage the FCC to retain an approach that gives applicants the flexibility to make good business decisions for themselves, yet safeguards the program's integrity and underlying purpose.
In response to the commission's specific questions, we offer these comments:
1. Whether the Copan guidelines are applicable to pre-funding commitment and post-funding commitment SPIN changes.
We see no reason, from a program integrity standpoint, to make a distinction between the pre-commitment and post-commitment stages. When an applicant files a Form 471, it is supposed to have a binding purchase agreement in place. The date when a funding commitment is issued is a matter that is totally in the hands of the Schools and Libraries Division. As experience has shown, that date can occur anywhere from three months after an applicant submits a Form 471 to as many as seven months later. If the change in service provider is permitted under an applicant's state and local procurement regulations, as well as the applicant's contract, it makes no difference, from a regulatory or program integrity standpoint, whether the change occurred before an arbitrary date on which the applicant finally found out whether it would receive funding. Although the distinction may be important to the Universal Service Administrative Company from an administrative standpoint, or in how its computers are currently configured, we believe that is insufficient reason to draw this distinction for applicants when they have so little control over when a funding commitment decision may actually be issued.
If an applicant needs to make a change in vendors before a funding commitment is made, and its application is subject to a Program Integrity Assurance review by the SLD, the applicant should simply be permitted to respond with the information relevant to its new contractor. This will have the added benefit of not requiring the SLD to issue one funding commitment for the original service provider and then an amended one for the new service provider. If an applicant can change service providers only if it can do so under the terms of its contract and if it has first notified its original vendor, that should give the original vendor ample opportunity to alert the SLD if it disagrees with the applicant's assertions. Contrary to the assertion by the USAC, if the original service provider protests a SPIN change at the pre-commitment stage, there is a solution that will not embroil the agency in the parties' dispute: do not issue a funding commitment until the parties have resolved it. If necessary, funding for applications that are being held in abeyance for this reason could be included in the contingency fund that the SLD sets aside in anticipation of appeals.
We believe that, in fact, most service provider changes will come after funding commitments have been made and after the start of the funding year. An applicant should be permitted to alert the SLD of the change by means of a letter or completion of a simple form, much like the service provider corrections form that the SLD briefly distributed after the first-year funding commitments were issued. The applicant's interest in making a contracting change that it believes is in its best interest (and may, in fact, cost less), and is permitted by law, surely outweighs whatever administrative convenience could be achieved by making this distinction.
2. Whether the Copan guidelines are applicable to tariff and month-to-month service arrangements.
A contractual arrangement in the context of the E-rate program generally contemplates a legally binding relationship between an applicant and a vendor for a period of more than one month. If the FCC is prepared to let an applicant change a contractual relationship, so long as its Copan criteria are satisfied, why should it impose a more stringent standard if an applicant wishes to change the less formal and restrictive relationship that a tariffed or month-to-month arrangement represents? Such a decision would presumably be prompted by a recognition that a lower-cost, or better alternative were available, which E-rate applicants, as public institutions, should be free to pursue. This approach could, of course, also result in the disbursal of less universal service support to the applicant if it does, indeed, find a better deal. The FCC should encourage both of these results.
3. Whether the principles set forth in the Copan decision should have retroactive effect.
Fairness militates that applicants who made a reasoned decision to change contractors, even if it meant foregoing already approved E-rate support, should be permitted to receive support for which they were approved, even if the original funding commitment involved another service provider. Applicants should be required to describe the circumstances and certify that they met the Copan criteria to qualify for this funding. Considering that, according to the FCC's 'Proposed Third Quarter 2000 Universal Service Contribution Factor" filing, approximately $448 million worth of commitments went unclaimed in the first funding year, it suggests a) that many applicants may have found themselves in this situation through no fault of their own and b) that there should be money available to fund these kinds of requests from earlier funding years.
4. Whether a new Form 470 must be posted by a new service provider.
We assume that the FCC is seeking comments on the question of whether an applicant should be permitted to change service providers if the new service provider did not respond to the original Form 470 application posting, and/or whether an applicant in this situation should be required to post a new Form 470. USAC, in its filing to the FCC, also raised the issue of whether an applicant should be permitted to sign a multi-year contract with a new vendor if the vendor did not respond to the original Form 470.
Applicants should be permitted to change service providers even if the new service provider did not respond to the original Form 470 application. The commission's Copan guidelines adequately protect the rights of the original service provider (the applicant must be able to terminate the contract under its terms) as well as guarantee that the applicant will make a change that is in its best interests (because it must still meet state and local procurement requirements). The requirement that state and local procurement rules must be met will ensure, in many cases, that the new vendor did, in fact, respond when the Form 470 application was posted, as many applicants will be required to go back to the original pool of vendors that responded to an RFP. However, our experience is that many applicants get no responses to a Form 470 posting, or, at best, one response from the original vendor. Requiring applicants to choose a vendor from those that responded during the Form 470 posting period assumes a perfect world in which the E-rate program is highly competitive and all applicants receive many proposals to consider. But it is common sense that faced with a choice of 30,000 potential contracts, and a short period of time in which to close the sales, most vendors will tend to focus on those applications that offer the greatest potential reward.
If a better offer presents itself, if the applicant can terminate its original contract, and if state and local procurement rules are followed, the applicant will be able to choose the best solution for its needs and the program's goal of promoting competition and more wide-ranging solutions will be protected by relying on the good judgment of state and local governments to assess the circumstances under which a vendor may be changed.
If the FCC seeks comments on whether an applicant in this situation should be required to post a new Form 470, we believe it should not. If an applicant conforms with state and local procurement regulations in making the switch, that should be sufficient. An applicant who needs to move quickly to stave off a service interruption when a contractor is not performing should not have to post a new Form 470 and wait 28 days before solving its problems. USAC's petition to the FCC seemed to suggest that its computers could not cope with the situation in which a new vendor did not respond to the original Form 470 application. We do not understand why this should be a problem as there can, in fact, be many vendors' contracts associated with a particular Form 470. The SLD can already change a Service Provider Identification Number and company name if a typographical error was made or the change involved a merger or acquisition-type situation. As long as the applicant can point to the establishing Form 470, and, if required, to detail the course of events that led it to change its contractor, that should be sufficient.
Moreover, there is no statute of limitations on a Form 470. Program rules state only that an applicant must post a Form 470 for at least 28 days before signing a contract for services covered by that form. (See Section 54.504 (b) cited in USAC's petition.) The FCC has never stated that a Form 470 has a shelf life of only so many months or years. Therefore, it makes perfect sense to refer back to the 'original" Form 470 in these types of circumstances.
Finally, we do not agree with USAC that the FCC should broadly prohibit multi-year contracts with substitute service providers. If the original contract was for more than one year, why should the FCC stop the applicant from contracting for the remainder of the term, even if that may mean entering in a multi-year contract? Standing in the way of procurement rules that state and local authorities have adopted to safeguard the integrity of their own contracting procedures and their taxpayers' money is certainly not an effective use of the FCC's regulatory authority. USAC's argument is more compelling in situations where an applicant may want to contract beyond the original expiration date, but even there, we believe it is in everyone's best interest to defer to state and local rules. If, for instance, an applicant terminates its original contract nine months into a funding year, would its only choice be to sign a three-month contract with a new vendor and then start the process all over again, or jeopardize its future E-rate support? That scenario is not likely to produce either good contract terms or the efficient use of a school or library official's time.
(5) How the Copan decision relates to changes in service content.
The Copan decision is a thoughtful policy that encourages cost-effective solutions, minimizes federal interference in state and local contracting, and trusts applicants to do what is in their best interests, while not doing any disservice to the competitive bidding process. Taking this common-sense policy one step further and applying it to service changes also makes sense.
We noted with great interest USAC's description of the FCC policy on changes in service content, a policy that to the best of our knowledge has never been communicated publicly to the applicant or service provider community despite repeated requests for clarification on the part of applicants and vendors alike. Because these policies and procedures have not been clarified, applicants and vendors are forced to assume a pragmatic 'don't ask, don't tell" stance in which they make minor changes in the specified services, usually lower-cost upgrades of the same product line or, in the case of resellers, the substitution of a lower-cost, but comparable brand, and 'cross their fingers" that the FCC's thinking ultimately is in line with their own. It's possible that the SLD does not publicize this policy for fear of increasing its already large burden of work if it were, in fact, required to review these changes. What applicants and their contractors are looking for—and what the SLD should provide–is a simple process that would allow them to move forward quickly with the best, lowest-cost solution without subjecting themselves to a months-long review cycle at the SLD. We hope that the FCC will apply the clear, common-sense Copan ruling as the basis for moving forward with these kinds of requests, rather than fall back on a model that only serves to increase bureaucratic delays and prevent E-rate applicants from adopting the latest, most cost-effective technologies. Considering that the E-rate application process now can conservatively span as many as 18 months—from submission of the Form 471 to the final month of the funding year—such a restrictive stance on product changes makes little sense in the fast-changing world of telecommunications and networking.
It is interesting to note that the FCC already has a policy in place that could cover situations in which an applicant wants to change the nature of a service, and, if the FCC chose to use it, provide a mechanism for notifying the SLD that the applicant needed to change a service provider, too. This is the Minor Modification Section of the Form 471 application. This would provide the applicant with a way to notify the SLD and for the SLD to quickly review and approve these changes.
On the other hand, we believe that many changes of service content are indeed so insubstantial that the FCC should define a de minimis standard under which applicants could make product changes without having to file any forms. Perhaps the FCC has already done so. One such example is when an applicant could obtain an upgraded model of an approved product at a price that was the same or lower than the funding commitment that had been approved. For example, does an applicant really need to notify the FCC if it finds it can purchase higher bandwidth DSL service at the same price for which it had specified ISDN service? Can it change a service description from SMDS to ATM without submitting a new application? Can it purchase a server with the latest chipset if it can obtain the product at the price previously specified for a less-powerful model?
The FCC policy, as described by USAC, specifies that the new product should cost no more than the old, and that 'the substituted products do not have a higher percentage of ineligible functions than the original product." As E-rate applicants will not be able to qualify for more support than they originally requested, it should not matter whether the new product costs more. An applicant could reasonably decide to purchase a better product, even though it recognized that it might have to pay a higher portion of the actual price. USAC would only be authorized to pay the amount of the original funding commitment. Further, it is irrelevant whether the new product has a 'higher percentage of ineligible functions" than the original product. All that is required of the applicant is that it seek support only for the eligible portion of the purchase price. If an applicant specified that it wanted to purchase a PBX with 25 speakerphones and now wants to purchase an improved PBX with 50 speakerphones, it does not matter how many speakerphones are attached, as long as the applicant does not submit those costs for reimbursement, or the vendor does not include them when it submits its invoice. If USAC is concerned about this process, it could simply ask to review the product detail at the time the invoice is submitted, not force E-rate applicants to stick with an out-of-date technology because of some arbitrary limit on permitted percentage of ineligible services.
In summary, we welcomed the approach that the FCC appeared to be taking in the Copan decision, an approach that we feel preserved the pro-competition goals of the E-rate program while acknowledging that the world in which schools and libraries do their contracting is complicated and imperfect—and frequently not in synch with the neat world of competition and contracting envisioned by the E-rate program's rules. Schools, school districts and libraries are already required to jump through monumental hoops to qualify for E-rate support. The SLD is already over-burdened in managing a program that has added procedures, processes, paperwork and deadlines that were never envisioned when the program was created. We understand and respect the need for both. However, we see no need at this juncture to add to the bureaucratic burden when the FCC has devised a simple, rational solution to a problem that an increasing number of E-rate applicants may face.
FUNDS FOR LEARNING, LLC
BY: Orin Heend
2111 Wilson Blvd. #700
Arlington, VA 22201
(703) 351-6218 (FAX)