Yesterday, the FCC adopted its first notice of proposed rulemaking (“NPRM”) to implement e-rate reforms proposed in the National Broadband Plan, including a proposal to annually increase e-rate funding to keep pace with inflation, streamline application processes and expand funding to new types of services and equipment.

The most financially significant proposal is to adjust the annual $2.25 billion cap on e-rate funding based on the rate of inflation, which the FCC estimates would result in an increase to $2.55 billion in the next five years. Under the current cap, the program is unable to fund most “priority two” services (such as internal connections) especially for more affluent eligible districts. This change would allow these districts to receive more funding and may help e-rate service providers to sell more of these services.

E-rate is the second largest program financed through the federal universal service fund (“USF”) after the high cost program. Several FCC Commissioners expressed concern at the FCC’s meeting about this growth at a time when there is pressure to reduce the size of the fund and the resulting contribution requirements. (See our earlier advisory for additional information on proposals for USF reform.

The FCC also proposes to fund wireless Internet access services for use outside school campuses. Currently, applicants are only permitted to seek funding for time spent using such services on campus. This proposal, if adopted, would no longer require applicants to figure out the relative amount of time spent on- versus off-campus. The FCC emphasized, however, that it would not fund off-campus equipment used to access these services. It also asked for comment on the best ways to ensure that the services are used for educational purposes, and seeks comment on whether it should adopt rules to ensure that additional services are not requested to support noneducational uses. It is not clear the extent to which the FCC might expect service providers to participate in monitoring any nonapproved uses.

The FCC also proposes to revamp funding for “internal connections” equipment located on customer premises. It seeks comment on whether internal connections rules should be revised to provide funding on a per-student, capped amount, and whether the FCC should set aside a specific amount of funding for this equipment. Under current rules, internal connections are only funded with any remaining money after all telecommunications and Internet access services have been funded. Moreover, internal connections are currently funded only for two out of every five years. The result of these two rules has been that few schools actually receive any internal connections funding. The FCC has sought comment on whether $500 million would be sufficient to set aside for this purpose, as well as whether it should eliminate the two-in-five rule.

The National Broadband Plan heralded e-rate program as one of the universal service success stories, but program complexity has hampered broadband deployment to the schools and libraries that depend on e-rate funding. The NPRM has proposed to eliminate technology plans and certain bidding requirements for funding telecommunications and Internet access services for applicants that are otherwise subject to state or local planning or procurement requirements. It has also proposed to have a single, districtwide “discount” subsidy rate that would apply to all schools in a given school district, rather than the more complex weighted averages currently used. Finally, the FCC has proposed to determine discounts for rural applicants based on the U.S. Department of Education’s National Center for Education Statistics definition of rural, which is specifically targeted at schools, rather than the current definition originally designed for rural health grants.