Back for its 10th year, our most popular webinar offers an in-depth discussion on the federal Universal Service Fund for participants in USF programs and for contributors to the Fund. This webinar will address major developments in the four support funds and discuss the pressures on the USF contribution system in an era of 20% contribution rates. In addition, as usual, we will offer tips and insights into managing audits and investigations in these highly scrutinized programs.

Continue Reading Register for the 10th Annual USF Update Webinar on March 6th

We attended the Audit Committee meeting at USAC’s quarterly business meeting this morning.  While much of the discussion concerned internal controls USAC has in place to oversee its functions, the business update portion of the meeting gave us a snapshot into contributor and beneficiary audit activity at USAC.  The presentation gave us some insight into a likely increased amount of activity over the next few months.

Continue Reading Flurry of USF Audit Reports Expected by End of Year, Random Audits to Return in FY 2019

On September 12, 2017, the Federal Communications Commission’s (Commission) Office of the Managing Director (OMD) released a Public Notice proposing a universal service fund (USF) contribution factor of 18.8% for fourth quarter 2017.  This proposed contribution factor would be the highest rate since the USF program’s inception and likely reflects the impact of the declining USF contribution base. Continue Reading Proposed Fourth Quarter 2017 Universal Service Fund Contribution Factor Jumps – Poised to Hit New High

Federal Communications Commission (FCC or Commission) Chairman Ajit Pai sent a letter this week to Chris Henderson, CEO of the Universal Service Administrative Company (USAC) expressing concern about flaws in USAC’s administration of the E-Rate Productivity Center (EPC), the online application and account portal. In the letter, Chairman Pai noted his support for E-Rate as a program that is a key component of the Universal Service Fund but said that major problems exist in the process through which schools and libraries apply for E-Rate funding.

The EPC was established in response to a 2014 FCC directive to make the E-Rate process faster, simpler, and more efficient. In his letter, the Chairman stated that the EPC was supposed to be fully operational for the funding year 2016 filing window and that today it is still not adequately functional. According to Pai, “EPC implementation issues have created major headaches for applicants requesting E-Rate funding.” As an example, the Chairman cited the fact that USAC has been unable to meet a Commission directive to process funding requests by September 1 of the funding year, resulting in a number of applicants who are still awaiting decisions for funding year 2016. The Chairman also noted similar delays with other matters including issuance of commitment adjustments, revisions to funding commitment decision letters, and appeals resolutions.

Chairman Pai also took issue with the cost of the EPC project. He emphasized the fact that the project was originally supposed to cost $19 million, has already cost over $30 million and is projected to cost $60 million or more. Pai further criticized USAC for a lack of transparency with the FCC “about program issues that directly and materially affect applicants, such as system outages during critical application periods.”  In one instance, E-Rate stakeholders, and not USAC, informed the FCC about a problem with invoice deadline extensions using USAC’s Invoice Deadline Extension Tool and the Wireline Competition Bureau had to devise an impromptu solution.

In the letter, Pai seeks the following specific commitments from USAC going forward:

  • Guarantee to take all necessary steps to quickly resolve any issues with the EPC, with a focus on supporting and completing basic functionality for applicants to apply for and receive funds;
  • Be transparent with and accountable to the Commission by providing timely and accurate information; and
  • Work to proactively identify and implement alternative options to assist applicants when EPC fails, including manually processing items if needed (which should fall to SOLIX under its $38 million contract to process applicant funding applications).

USAC is directed to provide a response to this letter and outline its plan to address these matters by May 18, 2017.

By an Order issued late last week, the Wireline Competition Bureau (Bureau) provided important insight regarding determining the jurisdictional classification of private line revenues.  In ruling on long-pending petitions for reconsideration of Universal Service Administrative Company (USAC) audit findings regarding the classification of private line revenues, the Bureau explained that the longstanding Ten Percent Rule does not establish any presumption that a private line is jurisdictionally either intrastate or interstate.  Instead, the Bureau clarified that it is the jurisdictional nature of the traffic carried over private lines, not the existence (or nonexistence) of a customer certification, that determines the appropriate jurisdictional classification.  Moreover, carriers must conduct a good faith inquiry into the nature of the traffic carried on the private line when determining the jurisdiction of those line revenues.  Carriers that provide private line services should be sure to review the Order to ensure their private line jurisdictional classification methods will withstand any Bureau or USAC scrutiny.

Continue Reading Wireline Competition Bureau Explains No Presumption of Intrastate or Interstate Jurisdiction for Private Lines; Carriers Must Conduct Good Faith Inquiry Into Nature of Traffic Carried

It’s a new year and the FCC has just released its annual update to the FCC Form 499A.  Telecommunications providers must use the 2016 Form 499A to report calendar year 2015 revenues for purposes of calculating contributions to the federal Universal Service Fund and other revenue-based contribution requirements including TRS, LNP, NANP and annual FCC regulatory fees.  The FCC’s Public Notice describes the 2016 Form 499A updates as non-substantive and the bulk of the edits appear to be formatting changes designed to make the Instructions more reader-friendly.  However, there are a few process changes including a new instruction that providers relying on traffic studies for reporting USF assessable revenues are now directed to submit the studies only to USAC, not to the Wireline Competition Bureau.

The updated Form 499A is available on the FCC’s website and USAC has stated the form will be available to filers, in USAC’s online E-File system, on or before March 1, 2016.

 

Reminder:  Kelley Drye will be hosting its 7th Annual USF Update webinar, where we will talk about the 2016 Form 499A and more, on February 24, 2016. This one-of-a-kind webinar provides an in-depth discussion of trends and issues involving the Universal Service Fund, from contributions, to the four support funds, as well as audits and enforcement.  This is one of our most popular webinars and we encourage you to register today.

iStock_000008141839LargeToday, the Federal Communications Commission released a Policy Statement announcing a “treble damages” methodology to assess forfeitures for failure to make payment to a series of federal programs, a move which the agency anticipates will allow it to begin “significantly more investigations.”    The new policy appears to allow the FCC to impose significantly larger fines than in similar investigations in the past, but may implicate the FCC’s statutory maximum forfeiture authority in some cases. Continue Reading In a Shift, FCC Shelves Prior Forfeiture Methodology For Failure to Pay Into USF and Other Federal Programs

With the e-rate program pressing against its cap in funding, the FCC seems to be clamping down on its competitive bidding procedures.  For the fifth time this month, the FCC’s Wireline Competition Bureau denied a school’s e-rate appeal because it failed to comply with the competitive bidding procedures.

In this case, the applicant, Fall River School District, evaluated bids using criteria that weighed price equally to another factor, "knowledge of infrastructure" (both factors were weighed 25% in the bid evaluation).  This violates the FCC’s rule, which requires that price be given more weight than any other single factor.  Thus, the Bureau denied the school district’s appeal.

Significantly, the Bureau also refused to grant a waiver to the school district.  Unlike in other cases, where the FCC concluded that the school had selected the lowest cost provider, the Bureau concluded here that it could not be sure that the vendor was the lowest cost provider.  It also found that there was no way to tell whether, if the school district had properly given price the greatest weight, the outcome of its bid evaluations would have been the same.  Therefore, the Bureau denied the appeal and the waiver request.

Finally, it is notable that the Bureau acted with unusual speed in resolving this appeal.  Whereas many appeals take years to resolve, this appeal was filed only on February 28 of this year.  Perhaps the Bureau acted quickly to emphasize the importance of complying with the competitive bidding procedures.

Shortly after I posted an entry noting the FCC’s denial of e-rate appeals for competitive bidding violations, the Wireline Competition Bureau issued another decision along the same lines.  In this case, however, the focus was on the conduct of the service provider during the bidding process. 

This case involves a Missouri service provider, Synergetics Diversified Computer Services.  The Bureau found that Synergetics assisted the school in submitting the request for services (Form 470), including the fact that the Form 470 was submitted from the service provider’s IP address.  While limited service provider assistance is permitted after a contract is signed (in submitting the Form 471), service providers are not permitted to assist a school in drafting or submitting its Form 470, which starts the competitive bidding process.  In a caution that all service providers should heed, the Bureau declared that

any direct involvement by the service provider in the preparation and submission of the FCC Form 470, even clerical or data entry assistance, is a violation of the Commission’s competitive bidding rules

Earlier this month, the FCC’s Wireline Competition Bureau denied three appeals by school districts seeking funding under the Schools and Libraries Program of the Universal Service Fund.  In all three decisions, the Bureau found that the school had failed to follow the Commission’s competitive bidding rules for such requests, and therefore, the USAC had properly denied funding of the request.

The decisions highlight three elements of the competitive bidding rules:  (1) that the selection of vendors be based on the bid process itself, (2) that all information be disclosed to all potential bidders and (3) that price be the primary factor in selecting vendors. 

Collectively, the cases serve as a reminder to schools and service providers alike that the bid process must be fair and open in order to receive funding from the program.  Both school districts and service providers need to be vigilant to avoid inadvertent violations of the e-rate program’s competitive bidding rules.

Continue Reading Three E-rate Appeals Denied for Failures in Competitive Bidding