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FCC Broadens Scope of Eligible Services, Takes Steps to Curb Waste, Fraud and Abuse

By broadening the definition of the term "Educational Purpose," it appears the Federal Communications Commission has made virtually all otherwise eligible services to schools and libraries (such as cell phone use by bus drivers and telecom services to administrative buildings) eligible for E-rate discounts. This wider definition should help to streamline the processing of applications, since services and equipment that failed to meet the FCC's former, more restrictive test had to be segregated from eligible services within applications.

At its regular April meeting, the FCC approved language that now establishes a "presumption that activities that occur in a library or classroom, or on library or school property, are integral, immediate and proximate to the education of students or the provision of library services to library patrons" and will be eligible for E-rate consideration starting in Funding Year 2004. (The Commission did not want to implement eligibility changes in the middle of a funding cycle.)

The FCC also designated voicemail as a new eligible Priority One service in the same manner that e-mail (Internet Access) currently is eligible. Voicemail eligibility will not take effect until Funding Year 2004, and will be approved under Telecommunications services. The Commission's decision fails to make clear, however, whether voicemail also may be eligible in the Internal Connections category. The FCC said the growing need for voicemail as a communications tool for school and library staff for educational purposes caused it to add voicemail to the eligibility list.

As another means to streamline the application process and provide relief to applicants, the Commission has ordered the Universal Service Administrative Company (USAC) to develop a pilot program for an online computerized list of acceptable vendor products for Internal Connections. However, the FCC declined to order similar pilot projects for Telecommunications services and Internet Access. The Internal Connections list must be formulated in order to not favor particular vendor products and services, the Commission said, and will be initiated in stages — such as testing the use of the list on limited portions of eligible services and products.

The Internal Connections list, which would go online "no later than" Funding Year 2005, will "continue to allow flexibility" of applicant choices, operate as a 'safe harbor" rather than a complete list of eligible items, and set up a formal procedure to allow products to be included on the list. Also, using appeal procedures already in place, applicants and vendors may use those same procedures to appeal items which the USAC does not include on the list.

The Commission also set official penalties for those parties ("bad actors") who are convicted of criminal violations or held civilly liable regarding abuse of the E-rate program: They will be ineligible to participate in any portion of the program for at least three years, and possibly longer. In addition, the FCC is seeking further comments on how to most effectively deal with bad actors — indicating that penalties arising from fraud and abuse will be examined on a continuing, and perhaps expanded, basis by the Commission.

Also under Commission action at its April meeting, vendors will now have to provide applicants a choice each funding year to either pay the discounted price – or the full price and be reimbursed through the BEAR process. Applicants must follow the same chosen payment procedure for the entire funding year. The FCC also ruled that the period for remittance of BEAR payments should be 20 days.

In some housekeeping items, the Commission formally codified the 30 Percent Policy which disqualifies entire funding requests if 30 percent or more of requests pertain to ineligible services. The FCC also formally extended the appeals period from 30 to 60 days (which the SLD already has been allowing), and postmarks will now determine the official dates that appeals are received (rather than the old procedure of using the dates they were actually filed). The FCC also reiterated that wired and wireless services will be treated equally. And for the first time, the Commission has indicated that unused funding will be delayed for carry-over until Funding Year 2004.

The FCC also underscored their stance that "duplicative services" – that deliver the same functionality to the same recipients in the same locations at the same time — will automatically be rejected on the grounds that they do not meet the standards for what are "reasonable and cost effective."

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