As we all know, the E-rate rules are complex. The FCC and USAC have acknowledged that there is a fairly high turnover rate among the school administrators who handle E-rate from year to year. The same is true for those in the service provider community where a company may have participated in the E-rate program for years, however, each year they need to train new sales staff, accounting executives, and others within their organization how to remain in compliance with the E-rate program's rules and regulations.
For the most part, E-rate stakeholders are doing the best they can to adhere to the rules of the road, and this year has been particularly challenging with lots of new rules being released, as well as a new Form 470 and Form 471. While I believe the regulators have the best intentions to reform and simplify the program, there have been some unintended consequences which have caused confusion in the K-12 and service provider community. I'm hoping that the FCC will grant USAC additional authority to work with applicants to correct any mistakes on their Form 471 which occurred as a direct result of the new rules and guidance over the last few months.
Speaking of rule changes, let's talk about Basic Maintenance. Here is a recap of the Basic Maintenance changes, clarifications and guidance and why I hope that if USAC has any questions about an applicant's Form 471, that they provide the applicant appropriate time to respond to fix any possible issue before outright denying their application.
The FCC's Sixth Report & Order was released on September 29th, 2010. In the Order, the FCC changed their policy on Basic Maintenance to state that "unbundled warranties" were no longer E-rate eligible. Many applicants had existing multi-year contracts for warranty-type services, and a slew of other questions were raised.
On December 16, 2010 the FCC released a "clarifying order" which stated that fixed price contracts to cover eligible equipment would not be limited; however, stakeholders would not be able to seek reimbursement until maintenance work was actually performed. In addition, the FCC stated that there are some types of basic maintenance contracts that would be eligible for E-rate support without applicants demonstrating that work was performed. The examples provided are services such as software upgrades and patches, including bug fixes and security patches, and online and telephone-based technical assistance.
On January 27th, 2011, USAC released guidance that Cisco's SMARTnet and similar types of manufacturer warranties would not qualify for support. USAC stated that "…SMARTnet contains an unbundled warranty, and the Sixth Report and Order deems unbundled warranties ineligible for support beginning with FY2011. Applicants cannot simply cost-allocate out the ineligible portion of SMARTnet because the Commission's rules do not allow applicants to receive support for services in a basic maintenance contract that contains both eligible and ineligible services." (emphasis added)
On February 18th, USAC released further guidance surrounding Basic Maintenance. USAC now clarified that applicants who are currently in the middle of multi-year maintenance contracts which may contain ineligible services will be allowed to cost-allocate funding requests for FY2011.
On March 8th, the FCC issued an appeal granting six school districts the opportunity to provide additional information to USAC to "…remove any ineligible maintenance services from their funding requests so that they can receive funding for eligible basic maintenance services…" In another words, now the FCC is clarifying that for FY 2011 and beyond, new technical contracts which contain ineligible items can also be cost allocated instead of the entire application being denied.
It is clear that the regulators are struggling with reforming the program, which makes it extremely difficult for applicants and service providers to have a clear understanding of how to be compliant with the rules, regulations and subsequent guidance and clarifications. While I believe that the end result of the clarifications is a positive move forward for the program, it has been a challenging road, as the changes were occurring during the time where most applicants are procuring services and completing their applications. In the future, any major E-rate reforms or changes should be released in the spring or summer so that stakeholders will have more of a chance to digest and understand them before making important procurement decisions. In the end, that is the most reasonable way for the regulators to accomplish their ultimate goal of stakeholders being in compliance with the regulations that are issued.