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Funding Year 2015 E-rate Eligibility Q&A

As E-rate consultants for applicants nationwide, we often encounter questions regarding the E-rate process. The following Q&A gives a sample of some of the recent questions that we have addressed during the FY 2015 filing window.

Q: Are WAN circuits to non-school sites (offices, maintenance and workshops) eligible for E‚Äërate discounts?

A: Yes. Category 1 services delivered to non-instructional facilities (NIFs) can be eligible for E‚Äërate discounts. Category 2 equipment used by NIFs is not eligible for funding (although NIFs that serve as network hubs may house C2 equipment that serves eligible educational sites, such as a centralized wireless LAN controller that “controls” access points at eligible locations.)

Q: Are contract termination fees eligible for reimbursement – so for example if you terminate with one provider in order to get a better rate, can that be reimbursed?

A: Early termination fees are not eligible for E-rate funds in any circumstance. The Funding Year 2014 Eligible Services List states the following:

“In addition to items indicated in other sections of this Eligible Services List, the following items are NOT ELIGIBLE for discount:

  • Interest or finance charges
  • Late payment fees
  • Performance bond
  • Termination charges”

It should be noted that the FY2014 language above does not appear in the FY2015 ESL. When the FCC released the draft FY2015 version of the ESL, it stated:

“The proposed ESL eliminates the list of ineligible services that had been posted at the end of each category of service. Although there are instances where these lists could prove helpful, providing applicants long lists of examples to review and understand has not been a fast, simple, or efficient aspect of the application process. Also, rather than examining long lists of ineligible services, it will be more efficient for applicants to assume that any service or component not listed in the ESL is ineligible for E-rate support.”

When the final ESL was released for FY2015, the FCC adopted their proposed additions and removals:

"Upon consideration of the record, we adopt most of the formatting and substantive changes to the ESL proposed in the ESL Public Notice… therefore, unlike previous ESLs, the 2015 ESL does not include the ESL Glossary, Special Eligibility Conditions, and list of ineligible services that had been posted at the end of each category of service."

Given this, these charges’ absence from the FY2015 Eligible Services List should not be interpreted as a regulatory change in favor of their eligibility. Instead, they were removed in the interest of "streamlining" the ESL document. In short, then, if a previously eligible product or service was removed in the FY 2015 version of the ESL, that product or service is no longer eligible.  If a previously ineligible product or service was removed from the FY 2015 ESL, it remains ineligible unless a subsequent FCC policy states otherwise.

Q: How are self-build fiber strands reimbursed under E-rate?  Is there a maximum strand count that is eligible?

A: They aren’t – for now, at least.  Current E-rate rules limit discounts to leased fiber services only (lit or dark).  Discounts for applicant-owned fiber will not be a possibility until FY 2016. In FY 2016, the FCC has indicated that “self-construction” of fiber networks can be discounted with program funds if a self-constructed network is a more cost-effective option than a leased service.  The procedural details surrounding self-construction have not yet been fully clarified, although we suspect that current E-rate prohibitions regarding cost-effectiveness and duplicative services will generally apply (in broad strokes, discounts will be available for the portion of a self-constructed network that will be lit and used by eligible entities, with a reasonable allowance for future growth.)  It remains to be seen how USAC will view the actual fiber strands, especially in cases where there are no incremental construction costs to bury, say, twenty pair instead of ten.

Q: Are non-recurring costs eligible for E-rate discounts?  If so, are all types of NRC eligible?  What types of non-recurring costs will become eligible in 2016?  Is it only fiber construction, or will microwave/wireless solutions also be eligible?

A: Not all non-recurring charges are eligible, but at a high level, most installation, activation, and initial setup charges qualify (presuming the service being installed is itself eligible). There are special areas of E-rate rules that govern the eligibility of customer-premise equipment such as terminating electronics, and “special construction charges” for fiber deployments vary depending on whether a lit or dark fiber service is being procured.

Starting in FY 2016, both dark and lit fiber services will be treated more or less equally with respect to recurring, non-recurring, construction, and maintenance charges.  On-premise installation of wireless and microwave services does qualify, but there can be some eligibility limitations on the amount, type, and configuration of equipment involved.

Q: If something changes in an existing contract (e.g. rates are reduced, or speeds increased), but it is part of an existing contract, do you still need to file a 470/471?

A: Possibly. When it comes to changes in service, there are a few things to keep in mind.

First, program rules require that all changes be compliant with the applicant’s state and local purchasing and contracting laws, as well as allowable per the terms and conditions of the existing contract.

Next, FCC rules stipulate that the services for which discounts are requested must always match the scope and description of services described in the applicant’s original Form 470, RFP, and procurement documentation. If, for example, an applicant’s Form 470 listed “100MB fiber Internet access,” a change to a 1GB line could be considered outside the scope of the original 470 (even if allowable by the customer’s contract). On the other hand, a Form 470 that lists “100MB to 1GB in 100MB increments” would easily be allowable for gradual increases from 100MB to 1GB over the life of the contract.

USAC does not publish specific thresholds that dictate when an increase is “too much” as compared to the original bid. As a general guideline, we suggest that a new procurement and Form 470 should be opened any time an increase represents a change in class of service, or if the change is of a nature which would have potentially attracted a different type of bidder during the original bid process.

For all multi-year contracts, Form 471 funding requests must be filed annually.  If an allowable change/increase occurs during a funding year, USAC typically will not increase previously committed funding amounts to account for an increase in cost.  However, the updated cost of the increased service can be requested in subsequent years’ funding requests.
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