After voting on December 11, 2014 to adopt new E-rate rules, the Commission’s Second Report and Order and Order on Reconsideration became available to the public on December 19.  As we wrote earlier, the new E-rate rules increase the program’s funding cap to $3.9 billion and provide schools and libraries with additional options and incentives to purchase high-speed broadband connections.  There is a lot of information packed into the 105 pages of text and rules, so here is a quick study guide, if you will:

Funding.  As discussed at the last Open Meeting, the headline is that the Commission will adjust the E-rate funding cap by $1.5 billion, bringing the program’s total funding to $3.9 billion (up from $2.4 billion).  Funding support for category two internal connections has been extended for three years and will be available through FY19. 

Payment Options.  USAC will suspend its current amortization policy which requires E-rate applicants to amortize category one non-recurring charges of $500,000 or more, over a three-year period.  Under this policy, applicants could not request funding support for their whole expenditure in the first year.  This policy was put in place because the Commission was concerned that requesting large, up-front payments would drain the E-rate Fund.  In the Second Report and Order, the Commission concludes that these one-time expenditures would not have this anticipated effect.   Accordingly, the FCC directs USAC to suspend its amortization policy, beginning in FY15 through FY18.  The FCC hopes that by suspending the policy, schools and libraries will be able to attract more vendors to their broadband deployment projects.

Beginning in FY16, applicants will also be able to pay their service provider in installments for the non-discounted portion of their special construction charges.  Previously, applicants had to pay their service provider for the entire non-discounted amount of category one construction charges within 90 days of receiving service.  In FY16, applicants will have the option to pay their service providers in installments, for up to four years.  Applicants that wish to use this flexible payment arrangement must include this information on their FCC Form 470; however, service providers are not required to accept these installment plan payments.

Dark and Lit Fiber.  The Order puts dark fiber on equal-footing with lit fiber.  In FY16, category one support will be available for special construction charges associated with leased dark fiber, and the charges necessary for “lighting” the leased dark fiber.

Self-Construction. In FY16, applicants will be able to build their own networks when this is the applicant’s most cost-effective option.  When evaluating “cost effectiveness” USAC will look at the total cost of ownership over the useful life of the facility being constructed. Applicants who wish to build their own networks (or portions of their own networks) must solicit bids for services and construction in the same FCC Form 470.  Funding for self-construction projects will only be available to applicants if the facilities are built and used within the same funding year.

State-Funding Match. If an eligible school or library receives state funding for special construction charges, the E-rate program will match the state’s funding, dollar-for-dollar, up to 10 percent of the construction costs.  States are allowed to contribute more than 10 percent of funding to an E-rate project, but the E-rate program will only match a state’s contribution, up to 10 percent of the total project cost.

For example, if a school with a 90 percent discount rate receives an additional state contribution of 5% (of the total project cost), the E-rate program will match the state’s contribution, and it will give the school an additional 5% (of the total project cost) in funding.

Tribal schools and libraries that receive funding from states, Tribal governments or other federal agencies are eligible for the E-rate state-funding match.  Schools and libraries operated by (or those receiving funding from) Tribal Nations or the Bureau of Indian Education may also receive the matching funds.

High-Cost Program Requirements.  In a surprise, the Second Report and Order imposes new obligations on entities that receive high-cost funding under the USF.  These carriers receiving high-cost support will be required to bid on category one telecommunications and Internet access services when an eligible school or library in the carriers’ geographic area submits an FCC Form 470.  This rule is intended to address the problem some districts reported in receiving bids on their projects.

USAC Performance Tracking.  The Order instructs USAC to put a performance management system in place to ensure that it is advancing the goals of the E-rate program.  Most notably, USAC is directed to explore moving towards an all-electronic filing and notification system as well as ways to connect schools and libraries with neutral, expert technical assistance.

USAC Appeals and Decisions.  The Second Report and Order revises Commission rule 54.719 to require parties aggrieved by a USAC action to first seek review of that decision by USAC, before filing an appeal with the FCC.  Parties have 60 days from the issuance of a USAC decision letter to file an appeal with USAC.  If USAC issues an adverse outcome on appeal, parties then have 60 days to file a request for review with the Commission.  Parties seeking a waiver of the Commission’s rules must file a waiver with the FCC (not USAC).

Order on Reconsideration.  The Commission modified its definitions of “urban” and “rural.”  Previously, the E-rate Modernization Order defined “rural” as an area with less than 2,500 people.  Beginning in FY15, a school or library will be considered “rural” if it has a population of less than 25,000 people.  This new definition means that more schools and libraries located in small towns or remote areas will be eligible for additional E-rate support.