At its Open Meeting today, the Federal Communications Commission adopted new E-rate rules, despite strong objections from Commissioners Pai and O’Reilly.  As predicted, the new E-rate rules direct a significant, short-term boost of funding for wireless connections to schools and further focus E-rate funding on broadband services.  While the Chairman lauded the Commissioners for approving the new rules, Commissioners Pai and O’Reilly lamented the “missed opportunities” of the new rules, and making special mention of the lack of bipartisanship during the rulemaking process.  Among the dissenting Commissioners, Pai was most concerned with how the E-rate program would continue to receive funding, and repeated assertions that the Chairman intended to raise the E-rate cap later this year.  Commissioner O’Rielly asserted that there was “no long term plan” for the program and complained that many changes were “short-sighted.”

According to the Commission’s press release, the new E-rate rules will bring digital learning benefits to 10 million students across the country in 2015 alone.  The new rules also phase-out support for voice services and lower the maximum discount for schools from 90% to 80%, meaning that for every $1 that is spent by a school, $4 will be contributed by the USF.

As of this writing, the full order has not been released.  Based on statements and the Commission’s press release, some other notable portions of the E-rate decision include:

  • The annual cap on E-rate expenditures will remain at $2.4 billion, pending a Further Notice of Proposed Rulemaking to consider “long term program funding needs.”
  • $1 billion per year will be made available for Wi-Fi expansion over the next two years.  This increase will come entirely from USAC reserve funds, arising from previous E-rate funding that was approved but never spent.  This increase is consistent with the overall amount that has been estimated for months.  In an apparent bow to Commissioner Pai’s objections expressed earlier this week, the Commission drops a promise to fund Wi-Fi beyond the availability of the reserve funds, which would cover only the next two years of the program.  Instead, the Wi-Fi funding methodology was described in Commissioner statements as a “test.”
  • Under the new rules, funding for non-broadband support will be phased out, in favor of Wi-Fi and wired internal connections.  We understand that some services will be eliminated immediately (paging was the only one mentioned specifically), and others over a five year period (voice services, and, apparently, web hosting services).
  • The Commission appears to maintain the “Priority 1″ and “Priority 2″ funding categories, but under new names.  The order changes these designations from ”Priority 1″ and “Priority 2″ to “Category 1″ and “Category 2.”  Under the old rules, all “Priority 1″ services had to be fully funded before the Commission would begin funding “Priority 2″ services.  Prior to the meeting today, it appeared that the new rules would allow “Category 2” services such as eligible local area networks, wide area networks, and private branch exchanges to be funded even if all of the former “Priority 1” projects were not fully funded. “Category 1” services (the former “Priority 1″) include basic telephone service, long distance service, cable modem services, DSL, and wireless internet access.   At the last minute, the Commission backed away from eliminating the priorities altogether, with two Commissioners stating that Category 1 broadband internet requests would be fully funded before any Wi-Fi requests were.  (It was not clear from the statements or the press release whether this protection applied only to internet access requests in Category 1, or to all Category 1 requests).  Thus, though there has been a shift in terminology of the two categories of requests, it seems the prioritized funding scheme will remain the same for at least the next two years.
  • The Commission will accept multi-year applications and require electronic filings.  The E-rate application process will be streamlined, making it faster and easier for schools and libraries.
  • Schools will be able to use GSA pricing so schools can buy services for less.  The new rules give schools and libraries the opportunity to take advantage of GSA’s front-loaded discount pricing and reverse-auction approach to bidding, apparently (we believe) without use of competitive bidding.  (We will know for sure when the order is released).
  • The Commission is committed to increasing transparency throughout the e-rate program.  Specifically, the order will require disclosure of the prices charged for all “supported services.”  This, the Commission said, will allow schools and libraries to know what prices are being offered to other applicants in their area and with similar characteristics.

As we noted earlier last month, the new rules emphasize a “zero tolerance” policy for fraud and abuse.  In the past, the FCC and USAC have strictly enforced their competitive bidding rules and have denied applications for failing to follow the rules.  With a more stringent application process, it is increasingly important for service providers to pay attention to the new E-rate rules and strictly adhere to the competitive bidding process.