Mining the E-Rate data

Slow day in the exhibit booth today, so I've been playing with some numbers from the 2004-2005 program year. I didn't notice anything earth-shattering, but I did notice some trends that might be interesting to the E-Rate-obsessed.

First, New York, Texas and California take a disproportionate amount of E-Rate funding. With only about one fifth of the country's population, they get about 40% of the E-Rate funding. New York state only makes the big-time because of New York City, which by itself take's about 10% of the nation's funding (with less than 3% of the nation's population).

Second, I looked at whether funding was affected by the type of applicant. I didn't see any surprises: libraries and consortia get a greater percentage of their funding approved, but mostly because they request less Priority Two funding. Schools do, though, have a noticeably lower approval percentage than the other applicant types. That doesn't surprise me: in my experience, individual schools are more likely to make errors, and are more often preyed upon by unscrupulous service providers. (Looking for fraud? Look for a service provider mentioned only in FRNs for parochial and charter schools.)

Site Visits seem to target Internal Connections

The BearingPoint site visit report for April 2006 is available online at:
www.universalservice.org/sl/about/site-visits/site-visit-interim-reports/april-2006-board-report.aspx
The numbers in the report are troubling.

When the Extended Outreach Site Visits were started, the SLD claimed that site visits would be assigned by plucking invoices at random from the stream of invoices being processed. That does not seem to be the case. The preponderance of site visits connected to Internal Connections invoices indicates that the SLD is targeting those FRNs.

By my calculations, over 50% of the Site Visits to date were for Internal Connections. Meanwhile, less than 25% of FRNs for 2005 were for Internal Connections (and that includes unfunded FRNs), and less than 14% of approved 2004 FRNs were for Internal Connections. So Internal Connections FRNs are somewhere between 2 and 4 times as likely to be selected for a Site Visit.

I am in complete agreement with focusing audit resources on Internal Connections (despite BearingPoint and SLD protestations to the contrary, the Site Visits are audits). However, I am not in agreement with telling participants that site visits are selected randomly when they are not.

Of course, we can't know how site visits are assigned: that information is part of "internal controls," the secret set of rules by which the SLD operates.

There are some variations in the numbers of site visits by entity type (libraries got off easy, schools had it hard) and by state, but those variations don't look statistically significant to me.

Don't know much about the site visits? For more information on audits of all types, see my article in this month's School Business Affairs magazine.

FCDLs AWOL

It seems that something like 600 Funding Commitment Decision Letters never got mailed. Apparently they covered Waves 35, 40, and A06 for 2005-2006. Oops.

Replacement FCDLs are being sent to all the applicants involved. The SLD has also spread the word through its informal networks of state coordinators. However, there will be no written acknowledgment of a problem, either on the Web site or in a News Brief. I guess there's no harm done, and most applicants won't even notice, but it kind of seems like a little more acknowledgement is in order.

Selective Reviews have started

Let the Selective Reviews begin! I got my first notice today. No surprise: I came on to help this client clean up a mess, and so I expect them to get at least one more year of heightened scrutiny.

It's great that the SLD is starting so early, so the reviews could actually be done by July 1. However, in this case, I would have preferred to wait until an appeal filed with the FCC for this client was resolved. On the other hand, it appears that the FCC appeal is not on the fast track of so many recent decisions, and I think the appeal raises some rather significant and thorny issues, so it could be years before the FCC releases a decision.

Interesting news from the SLD

The monthly service provider conference call usually does not have much of general interest in it, but this month was an exception. There were several real news items:

1. The Form 470 for 2007 is already available. For most applicants, this is of no interest, since it doesn't make sense to file before, say, September, but for applicants planning a construction project or with long-term contracts coming up for renewal, it's significant.
2. Funding commitments for 2006-2007 are close. The SLD's board has approved release of the first "wave" of funding for 06-07, and it's now at the FCC for approval. Hopefully, the FCC will make a quick decision.
3. The SLD's board has approved Priority Two funding down to the 81% level, and that matter is with the SLD. Apparently, the FCC is planning to lower the discount in steps, rather than going straight to 81%. I seem to remember the SLD estimating wrong a couple of years back, so maybe the FCC is being cautious.

There was also a long discussion of what is a valid contract. In particular, whether a contract has to have 2 dates to be valid for E-Rate purposes. The controversy stems from the Fifth Report & Order. In paragraph 48, when describing document retention requirements, the FCC said: "Both beneficiaries and service providers must retain executed contracts, signed and dated by both parties." The SLD has taken this to mean that all contracts must have a space at the bottom under each signature where the signatory can put the date. Apparently there has been some backpedaling on this, but according to some of the service providers on the call, the backpedaling has not reached all the PIA reviewers.

Let's hope the appeals that service providers have filed with the FCC are resolved quickly, so that this nonsense will end. The FCC has always deferred to state law on contracts, and no state law that I'm aware of requires each signatory to write out the date, as long as the date is on the contract.

Yet another applicant-friendly FCC decision

In the Illinois School decision, the FCC waived its rule that a contract must be signed before the 471 submitted. The Illinois School for the Visually Impaired apparently conducted a competitive bid and selected a vendor before submitting a 471 in February 2004, but was prevented by state law from signing a contract. Apparently the school is funded by the state of Illinois and the state said they couldn't actually sign the contract until the E-Rate funding was available.

I know that the FCC thinks this is an isolated case, but it isn't. I believe all applicants face the same problem. I have heard this complaint from people in other states, but the only state where I have confirmation is NJ. I talked to the person in the Department of Community Affairs who is responsible for school purchasing law. When I told him that the E-Rate required school districts to sign contracts in February for service that could not start until the following fiscal year, he said that was not legal. In February, districts have no budget for the following fiscal year, so they cannot obligate funds.

So what do schools do? They sign contracts that are contingent on E-Rate funding and contingent on budget approval and contingent on board approval. E-Rate Central has a sample contract cover letter with the contingencies in it.

Selective Review appeals will come in droves

The latest SLD News Brief describes the new Selective Review process. At some point I'll probably look at the new 9-page Selective Review Information Request (SRIR), which replaces the dreaded 19-page fax, but it's Friday night, so you'll excuse me if I don't dive into an item-by-item analysis.

What grabbed me:
"If you do not respond to a question or provide an incomplete response, the Selective Reviewer will assume that you do not have more information to provide for that question. The Selective Reviewer will not follow up with you if your submission is missing requested documentation. If you are not sure what to provide, contact your Selective Reviewer and ask for clarification."

No follow-up? Didn't the SLD read the Fayette Order? It overturned an SLD denial because they didn't follow up: "To the extent that Fayette’s response was not sufficient to demonstrate eligibility, SLD failed to specify what additional information was required."

Here's an example from a quick glance at the new form. They request "Correspondence between the consultant/service provider and the school/library regarding the competitive bidding process and the application process." That clearly states that as a consultant, I am to supply only correspondence with the school or library, not the correspondence On-Tech has had with the service provider. But I'll bet that's not what they meant. A less knowledgeable applicant might not know to "ask for clarification"; the instructions are clear, and they are wrong.

I'm sure it won't be as disastrous as I fear. Usually, the SLD creates stiff rules, and then relaxes them in practice (for example, I've seen that 7-day deadline stretch into months). Still, I see a lot of appeals in the FCC's future....

On the plus side, applicants now have 30 days to respond instead of 7. That's more realistic, given the volume of material that has to go to the SLD (I've sent in well over 500 pages on some reviews).

CIPA revisited

I was rereading the Children's Internet Protection Act (CIPA), and found some things that I either hadn't realized or had forgotten.

For those who don't know what CIPA is, it is federal legislation that requires schools and libraries who want to receive federal technology funding to:

1. Develop an Internet safety policy,
2. Hold a public meeting concerning the policy, and
3. Implement a "technology measure."

These measures are to protect users from obscene material and child pornography, and further protect children from material harmful to minors.
CIPA is a big E-Rate issue, because organizations that are not CIPA-compliant can only get funded for telecommunications services. This is not an issue for most public schools; there are very few schools that don't filter. I was surprised to learn, however, that librarians are valiant champions of our civil liberties, and objected to the restriction. In fact, they fought CIPA all the way to the Supreme Court and lost. As a result, most libraries choose not to receive E-Rate funding.
So what surprising things did I find?

1. Only visual depictions are covered. Any text is allowed. I find this particularly interesting since most filters can examine the text of a page, but not the pictures. (The exception I know of is "The Bair," which has poweful computers scan pictures and determine if they contain naughty bits.) Of course, filters rely largely on blacklists, which should stop most inappropriate sites.
2. Only sexual content is forbidden. "Harmful to minors" means "prurient" and "patently offensive" depictions of a "sexual act" or "a lewd exhibition of the genitals." Pictures that are extremely violent or otherwise inappropriate for minors are not covered by CIPA.

On-Premise Priority One Equipment

I just got the current set of questions for determining the eligibility of On-Premise Priority One Equipment (OPPOE), and thought it might be useful for applicants to see the questions and the correct answers. Not so that you can cheat (because it's worse to fool PIA and then have to pay the money back after an audit), but so that you can make see how you need to structure your agreements to pass the tests.

[Don't know what OPPOE is? It's the ability of a service provider to put equipment in your building and charge you for the equipment as an installation fee or capital recovery fee or non-recurring charge (NRC), and still charge it to the E-Rate under Priority One. It's not easy to prove, but it is possible. For those interested in learning more, see the FCC decision (paragraph 44) and the SLD pages.]

So here are the questions and the correct answers.

1.) Is the leased on-premise equipment an integral component of a Telecommunications or Internet Access service? (YES/NO)
Answer: Yes

2.) Will the leased on-premise equipment be provided by the same service provider that provides the associated Telecommunications Service or Internet Access service? (YES/NO)
Answer: Yes

3.) Does responsibility for maintaining the equipment rest with the service provider? (YES/NO)
Answer: Yes

4.) Will ownership of the equipment transfer to the school or library in the future? (YES/NO)
Answer: No

5.) Does the relevant contract or lease include an option for the applicant to purchase the equipment? (YES/NO)
Answer: No

6.) Will the leased equipment be used at the applicant site for any purpose other than receipt of the eligible Telecommunications Services or Internet Access of which it is a part? (YES/NO)
Answer: No

7.) Will the school's or library's internal communications network function without dependence on the equipment? (YES/NO)
Answer: Yes

8.) Are there any contractual, technical, or other limitations that would prevent the service provider from using equipment that would normally be shared in other similar arrangements with other customers? (YES/NO)
Answer: No

That last question is incomprehensible to me, but I know where it comes from, so I know the right answer. Basically, the FCC has said that there should be no contractual or technical requirement that the equipment be for the exclusive use of the client. But then the FCC goes on to say that cable modems are OK, and the equipment necessary to light fiber is OK, even though these pieces of equipment must be for the exclusive use of the client. So the SLD had to craft a question to fit those contradictory instructions.