Lawyer Article

On October 30, 2006 the Federal Communications Commission (“Commission” or “FCC”) issued two interesting decisions extending the leniency with which it has begun to direct USAC to administer the Schools and Libraries Universal Support Mechanism (E-Rate) program.

Minnesota River Valley Education District (MRVED)

In this Order the Commission ruled that a Billed Entity is entitled to clarify how on-premise equipment is used before USAC denies funding.

In Funding Year 2003, USAC, after conducting a routine Program Integrity Assurance (PIA) review, reclassified MRVED’s services from Priority One to Priority Two. Under the E-rate program, Internet access and telecommunications services are designated as priority one services while any remaining funds are allocated for internal connections, designated as priority two services. This change effectively denied MRVED’s funding request. MRVED subsequently filed a Request for Review regarding this denial of funding.

Pursuant to the commission’s 1999 Tennessee Order, a presumption exists that “if facilities are located on an applicant’s premises, then such facilities are necessary to transport information within one or more buildings of the school campus, and are not part of an end-to-end Internet access service. This presumption can be rebutted with evidence that the applicant does not own or have exclusive use of the facilities and thus is truly buying an end-to-end service rather than seeking reimbursement for an internal connection.”

During the PIA review, USAC had asked whether there were “any contractual, technical. Or other limitations that would prevent the service provider from using the leased on-premise communications equipment in part for other customers?” MRVED had misunderstood this as a question regarding the physical integrity of the equipment located at MRVED, as opposed to whether MRVED had exclusive use of the equipment as a result of its contract with its service provider.

The Commission granted MRVED’s request stating that “MRVED’s misinterpretation of the PIA question should [not] result in the denial of funding under these circumstances. MRVED should be allowed an opportunity to clarify how its on-premises equipment is used. However, we believe this situation could have been avoided if MRVED sought clarification from USAC regarding the type of service in question before formally responding to the PIA inquiry.” To prevent any misunderstanding that could lead to funding denials, all conversations with USAC should be documented and sent to USAC for confirmation before the Billed Entity takes further action.

Benavides Independent School District (Benavides)

In this Order the Commission granted a waiver of the rule that prohibits funding outside of the funding year. USAC had mistakenly granted a Funding Year extension to Benavides but then subsequently denied paying the invoices submitted by the service provider. Benavides filed a series of questionable Service Provider Identification Number (SPIN) changes and extensions to their service provider contracts during the funding year in question. Surprisingly and contrary to E-rate rules, these changes and extensions were accepted and processed by USAC. However, once the service provider began submitting invoices to USAC, USAC denied payment. Unfortunately, these denials were sent directly to the service provider and failed to include any information regarding the right of the service provider or the school to appeal USAC’s decision. Moreover, Benavides was not notified by USAC of its denial of payment to the service provider.

USAC denied Benavides’ appeal because: (1) it failed to file the appeal within 60 days of the initial denial of payment to the service provider and (2) the billing date was outside of the funding year.

In granting Benavides’ appeal, the Commission found that although USAC should not have approved Benavides’ contract extensions, Benavides justifiably proceeded in reliance on USAC’s approvals of its SPIN changes and spent program funds outside the funding year. The Commission stated that USAC’s subsequent refusal to pay the submitted invoices after they had already approved the contract extensions was impermissible. The Commission further noted that Benavides’ service provider received an invoice remittance statement that did not give Benavides or its service provider notice of the 60-day deadline for filing an appeal. Finally, the Commission found that Benavides had complied with all other program rules and worked with USAC in good faith to make changes to its funding requests. In addition, the Commission found no evidence of waste, fraud or abuse, misuse of funds, or a failure to adhere to core program requirements and concluded that denial of funding would inflict undue hardship on Benavides.

This decision reinforces the need for Billed Entities to provide, as part of the Item 21 attachment, an adequate description of and the uses for the equipment procured under the E-rate program. Service Providers should assist Billed Entities in this process and accurately describe the equipment and its intended use in their contracts and bid response documents. Vague or misleading language may lead to funding denials.

Please contact the attorneys at Womble Carlyle should you have any questions regarding your participation in the E-rate Program.

The Communications Lawyers at
Womble Carlyle Sandridge & Rice, PLLC
Howard J. Barr
Ross Buntrock, (202) 857-4479, email
John F. Garziglia, (202) 857-4455, email
Peter Gutmann, (202) 857-4532, email
Michael B. Hazzard, (202) 857-4540, email
Mark Palchick, (202) 857-4411, email
Vincent A Pepper, (202) 857-4560, email
Michael H. Shacter, (202) 857-4494, email
Gregg P. Skall, (202) 857-4441, email