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FCC Releases E-rate Modernization Order

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Released: July 23, 2014
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Federal Communications Commission

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Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of

)

)

Modernizing the E-rate

)

WC Docket No. 13-184

Program for Schools and Libraries

)

REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING

Adopted: July 11, 2014

Released: July 23, 2014

Comment Date: September 15, 2014

Reply Comment Date: September 30, 2014

By the Commission:

Chairman Wheeler and Commissioner Clyburn issuing separate statements;

Commissioner Rosenworcel approving in part, concurring in part and issuing a statement; Commissioners

Pai and O’Rielly dissenting and issuing separate statements.

TABLE OF CONTENTS

Heading

Paragraph #

I. INTRODUCTION.................................................................................................................................. 1

II. BACKGROUND.................................................................................................................................. 10

III. PERFORMANCE GOALS AND MEASURES .................................................................................. 22

A.

Ensuring Affordable Access to High-Speed Broadband Sufficient to Support Digital

Learning in Schools and Robust Connectivity for All Libraries.................................................... 26

1. Goal ......................................................................................................................................... 26

2. Measures.................................................................................................................................. 32

a. Internet Access.................................................................................................................. 34

b. WAN................................................................................................................................. 39

c. Internal Connections......................................................................................................... 45

3. Reporting and Further Development of Measures and Targets............................................... 48

B. Maximizing the Cost-Effectiveness of Spending for E-rate Supported Purchases........................ 50

1. Goal ......................................................................................................................................... 50

2. Measures.................................................................................................................................. 51

C.

Making the E-rate Application Process and Other E-rate Processes Fast, Simple and

Efficient ......................................................................................................................................... 55

1. Goal ......................................................................................................................................... 55

2. Measures.................................................................................................................................. 57

IV. ENSURING AFFORDABLE ACCESS TO HIGH-SPEED BROADBAND SUFFICIENT

TO SUPPORT DIGITAL LEARNING IN SCHOOLS AND ROBUST CONNECTIVITY

FOR ALL LIBRARIES........................................................................................................................ 63

A. Legal Authority.............................................................................................................................. 67

B. Providing More Equitable Funding for Broadband Within Schools and Libraries........................ 76

1. Providing Support for Internal Connections............................................................................ 77

2. Increasing the Minimum Applicant Contribution Rate for Category Two Services............... 82

3. Setting Applicant Budgets....................................................................................................... 86

a. Methodology..................................................................................................................... 89

b. Reasons for a Multi-Year Budget Approach................................................................... 108

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c. Other Applicant Budget Issues ....................................................................................... 115

4. Setting an Annual Funding Target for Internal Connections ................................................ 118

5. Focusing Support on Broadband ........................................................................................... 119

a. Core Components of Broadband Internal Connections .................................................. 119

b. Basic Maintenance, Managed Wi-Fi, and Caching......................................................... 122

6. Other Issues........................................................................................................................... 132

C. Phasing Down and Ending Support for Legacy and Other Non-Broadband Services................. 134

1. Phasing Down Support for Voice Services ........................................................................... 135

2.

Eliminating Support for Telephone Features, Outdated Services, and Non-Broadband

Services That Do Not Facilitate High- Speed Broadband..................................................... 144

a. Telephone Features and Outdated Telephone Services .................................................. 146

b. E-mail, Web Hosting, Voicemail.................................................................................... 150

c. Data Plans and Air Cards for Mobile Devices................................................................ 151

3. Impact on Multiyear Contracts.............................................................................................. 154

V.

MAXIMIZING THE COST-EFFECTIVENESS OF SPENDING FOR E-RATE

SUPPORTED PURCHASES ............................................................................................................. 155

A. Increasing Pricing Transparency.................................................................................................. 158

B. Encouraging Consortia and Bulk Purchasing .............................................................................. 168

1. Speeding Review of Consortium Applications ..................................................................... 169

2. Preferred Master Contracts.................................................................................................... 170

a. FCC Form 470 Exception............................................................................................... 174

b. Bid Evaluation Requirement........................................................................................... 176

3. Authority to Seek Consortium Bids ...................................................................................... 177

4. Correcting Misconceptions.................................................................................................... 178

5. Other Rules Changes............................................................................................................. 182

C. Offering the Lowest Corresponding Price ................................................................................... 183

VI. MAKING THE E-RATE APPLICATION PROCESS AND OTHER E-RATE PROCESSES

FAST, SIMPLE AND EFFICIENT ................................................................................................... 187

A. Simplifying the Application Process ........................................................................................... 190

1. Simplifying the Application Process for Multi-Year Contracts ............................................ 191

2. Eliminating the Technology Plan Requirements................................................................... 197

3.

Exempting Low-Dollar Purchases of Commercially Available Business-Class

Internet Access from Competitive Bidding Rules................................................................. 199

4. Easing the Signed Contract Requirement.............................................................................. 203

5. Requiring Electronic Filing of Documents............................................................................ 205

6. Enabling Direct Connections Between Schools and Libraries.............................................. 207

B. Simplifying Discount Rate Calculations...................................................................................... 209

1. Adopting District-Wide Discount Rates................................................................................ 210

2. Updating the Definition of “Rural”....................................................................................... 222

3. Addressing the NSLP Community Eligibility Provision....................................................... 225

4. Modifying the Requirements for Using School-Wide Income Surveys................................ 230

C. Simplifying the Invoicing and Disbursement Processes.............................................................. 232

1. Allowing Direct Invoicing..................................................................................................... 233

2. Adopting Invoicing Deadlines............................................................................................... 238

D. Creating a Tribal Consultation, Training, and Outreach Program............................................... 243

E. Requiring Filing of Appeals with USAC..................................................................................... 250

F.

Directing USAC to Adopt Additional Measures to Improve the Administration of the E-

rate Program................................................................................................................................. 253

1.

Speeding Review of Applications, Commitment Decisions and Funding

Disbursements ....................................................................................................................... 254

2. Modernizing USAC’s E-rate Information Technology Systems........................................... 256

3. Requiring Open and Accessible E-rate Data......................................................................... 258

4. Adopting Plain Language Review......................................................................................... 260

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G. Protecting Against Waste Fraud and Abuse ................................................................................ 261

1. Extending the E-rate Document Retention Requirements..................................................... 262

2. Allowing Access for Inspections........................................................................................... 264

VII. DELEGATION TO REVISE RULES.............................................................................................. 265

VIII. FURTHER NOTICE OF PROPOSED RULEMAKING................................................................. 266

A. Meeting Future Funding Needs ................................................................................................... 268

B. Ensuring That Multi-Year Contracts Are Efficient...................................................................... 271

C. Standardizing the Collection of NSLP Data ................................................................................ 279

D. Encouraging Consortium Participation........................................................................................ 285

1. Consortium Discount Rate Calculations ............................................................................... 286

2. Additional Ways to Encourage Consortium Participation .................................................... 292

E. Ensuring Support for Libraries is Sufficient................................................................................ 298

IX. PROCEDURAL MATTERS.............................................................................................................. 301

X. ORDERING CLAUSES..................................................................................................................... 312

APPENDIX A — Final Rules

APPENDIX B — Proposed Rules

APPENDIX C — Internal Connection Models

APPENDIX D — E-Rate Modernization NPRM Commenters and Reply Commenters

APPENDIX E — E-Rate Modernization PN Commenters and Reply Commenters

APPENDIX F — Final Regulatory Flexibility Analysis

APPENDIX G — Initial Regulatory Flexibility Analysis

I.

INTRODUCTION

1.

In this Report and Order we take major steps to modernize the E-rate program (more

formally known as the schools and libraries universal service support mechanism). In so doing, we

recognize E-rate’s extraordinary success as the federal government’s largest education technology

program. Over the last 17 years, the E-rate program has helped to ensure that our nation’s schools and

libraries are connected to the digital world. At the same time, we acknowledge and embrace our

responsibility to make sure the program evolves as the needs of schools and libraries evolve. In

particular, the E-rate program must evolve to focus on providing support for the high-speed broadband

that schools need to take advantage of bandwidth-intensive digital learning technologies and that libraries

need to provide their patrons with high-speed access to the Internet on mobile devices as well as desktops.

Access to high-speed broadband is crucial to improving educational experiences and expanding

opportunities for all of our nation’s students, teachers, parents and communities. Building on the

comments we received in response to the E-rate Modernization NPRM,1 and the E-rate Modernization

Public Notice,2 as well as recommendations from the Government Accountability Office (GAO),3 the

program improvements we adopt as part of this Report and Order begin the process of reorienting the E-

rate program to focus on high-speed broadband for our nation’s schools and libraries.4

2.

The record clearly demonstrates the power of high-speed broadband connectivity to

transform learning. High-speed broadband, to and within schools, connects students to cutting-edge

learning tools in the areas of science, technology, engineering and math (STEM) education, necessary for

1 Modernizing the E-rate Program for Schools and Libraries, WC Docket No. 13-184, Notice of Proposed

Rulemaking, 28 FCC Rcd 11304 (2013) (E-rate Modernization NPRM).

2 Wireline Bureau Seeks Further Focused Comment on Modernizing the E-rate Program, WC Docket No. 13-184,

29 FCC Rcd 2174 (2014) (E-rate Modernization Public Notice).

3 See U.S. Gov’t Accountability Office, GAO-09-253, Telecommunications: Long-term Strategic Vision Would

Help Ensure Targeting of E-rate Funds to Highest-Priority Uses (2009) (2009 GAO E-rate Report).

4 See Appendices D and E for lists of comments and reply comments from the E-rate Modernization NPRM and E-

rate Modernization Public Notice cited in this Report and Order.

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preparing them to compete in the global economy.5

High-speed broadband also creates opportunities for

customized learning, by giving our students and their teachers access to interactive content, and to

assessments and analytics that provide students, their teachers, and their parents real-time information

about student performance while allowing for seamless engagement between home and school.6 Finally,

high-speed broadband expands the reach of our schools and creates opportunities for collaborative

distance learning, providing all students access to expert instruction, no matter how small the school they

attend or how far they live from experts in their field of study.7

3.

High-speed broadband is also a critical component of 21st Century libraries. In many

communities, libraries are the only source of free, publicly available Internet access.8 As a result, high-

speed broadband at libraries provides library patrons, many of whom have no other Internet access, the

ability to participate in the digital world. Broadband services at libraries are crucial for enabling and

fostering life-long learning, and they enable students at all stages of their education to perform research

and complete their homework. Broadband at libraries is also crucial for students studying for and taking

their General Educational Development (GED) tests and allows students to take and study for college and

graduate-level courses.9 Broadband at libraries enables patrons to seek and apply for jobs; learn new

skills; interact with federal, state, local, and Tribal government agencies; search for health-care and other

crucial information; make well-informed purchasing decisions; and stay in touch with friends and

family.10

4.

In adopting this Report and Order, we recognize the critical role the E-rate program plays

in the lives of our students and communities and the importance of ensuring that the program supports

sufficient, equitable, and predictable support for high-speed connectivity to and within schools and

libraries. It is a crucial part of the Commission’s broader mandate to further broadband deployment and

adoption across our nation. We therefore adopt a number of the proposals made in the E-rate

Modernization NPRM and begin the process of re-focusing the E-rate program on providing the necessary

support to ensure our nation’s schools and libraries have affordable access to high-speed broadband.

5.

To maximize the benefits of the E-rate program to our nation’s schools and libraries, we

adopt the proposal made in the E-rate Modernization NPRM to establish clear goals and measures for the

program. The three goals we adopt for the E-rate program are: (1) ensuring affordable access to high-

speed broadband sufficient to support digital learning in schools and robust connectivity for all libraries;

(2) maximizing the cost-effectiveness of spending for E-rate supported purchases; and (3) making the E-

rate application process and other E-rate processes fast, simple and efficient. We also adopt approaches

for measuring our success towards meeting those goals.

5 See, e.g., SDDOE PN Comments (Digital Dakota Summary Attachment); SIIA NPRM Comments at 2; GCI

NPRM Comments at 8-11; TIA NPRM Comments at 3.

6 See, e.g., Foundation for Excellence in Education, Digital Learning Now! at 11-12 (rel. Dec 1, 2010),

http://www.edweek.org/media/12-1-10_digital_learning_now_report.pdf; EdCo NPRM Comments at 3; Butte

County NPRM Comments at 2.

7 See, e.g., ACT NPRM Comments at 1-2; Affiniti PN Comments at 7-8.

8 See, e.g., Letter from Marijke Visser, Assistant Director, Office of Information Technology Policy, American

Library Association, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-

184, at 2 (filed Feb 7, 2014) (in 62 percent of communities, the public library is the only source of free Internet

access in their communities); ULC Reply Comments at 6 (more than 60 percent of libraries are the only source of

free Internet access in their communities).

9 See, e.g., ALA NPRM Comments at 6-10; ULC Reply Comments at 8-10; GCI NPRM Comments at 8-11;

Alliance PN Comments at 6.

10 See, e.g., ALA NPRM Comments at 6-10; ALA Summer 2012 Report at 41;ULC Reply Comments at 8-11.

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6.

In addition, we adopt the following updates to the E-rate program aimed at furthering

each of those goals:

To ensure affordable access to high-speed broadband sufficient to support digital learning

in schools and robust connectivity for all libraries, we:

o

set an annual funding target of $1 billion for funding for internal connections

needed to support high-speed broadband within schools and libraries;

o

test a more equitable approach to funding internal connections for applicants who

seek support in funding years 2015 and 2016; and

o

reorient the E-rate program to focus on supporting high-speed broadband by

phasing down support for voice services and eliminating support for other legacy

services.

To maximize the cost-effectiveness of spending for E-rate supported purchases, we:

o

adopt transparency measures to encourage sharing of cost and connectivity data;

o

encourage consortia purchasing; and

o

emphasize that providers must offer the lowest corresponding price.

To make the E-rate application process and other E-rate processes fast, simple and

efficient, we:

o

streamline the application process by:

simplifying the application process for multi-year contracts;

exempting low-cost, high-speed business-class broadband Internet access

services from the competitive bidding requirements;

easing the signed contract requirement;

removing the technology plan requirement;

requiring electronic filings; and

enabling direct connections between schools and libraries.

o

simplify discount rate calculations by:

requiring a district-wide discount rate;

modifying the definition of urban and rural;

addressing changes to the national school lunch program (NSLP); and

modifying the requirements for applicants using surveys.

o

simplify the invoicing and disbursement process by:

allowing direct invoicing by schools and libraries; and

adopting an invoicing deadline.

o

create a Tribal consultation, training and outreach program.

o

require the filing of all universal service appeals initially with USAC.

o

direct USAC to adopt additional measures to improve the administration of the

program by:

speeding review of applications, commitment decisions and

disbursements;

modernizing USAC’s information technology systems;

adopting open data policies;

improving communications with E-rate applicants and providers.

o

protect against waste, fraud, and abuse by:

extending the document retention deadline; and

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ensuring auditors and investigators access to an applicant’s premises

upon request.

7.

The most fundamental step we take today is to overhaul the support system for internal

connections, including the deployment of high-speed Wi-Fi in classrooms and libraries nationwide.

When the E-rate program was created, the idea of wired connections to classrooms was revolutionary.

Today, students and teachers can and do take their devices with them wherever they go, which means

they need to have Internet connectivity throughout their schools. Likewise, in 1997, desktop computers

offered state of the art connectivity in libraries. Now, library patrons bring their own devices and use

those that belong to their libraries. By modernizing the E-rate program to expand schools and libraries

access to more predictable E-rate funding that is sufficient to meet their needs for Wi-Fi connectivity, and

other internal broadband connections.

8.

Of course Wi-Fi in classrooms and libraries requires broadband connectivity to schools

and libraries. We therefore also take steps in this Report and Order to ensure that all eligible schools and

libraries will continue to be able to receive E-rate support to purchase broadband services to their

buildings.

9.

At the same time, we are mindful of the importance of continuing to improve the E-rate

program in order to achieve the goals we adopt herein.

In order to ensure the E-rate program evolves to

meet the connectivity needs of our nation’s schools and libraries, we leave the record open in this

proceeding to allow us to address in the future those issues raised in the E-rate Modernization NPRM that

we do not address today.

We also issue a Further Notice of Proposed Rulemaking (FNPRM) to seek

comment on some additional issues.

II.

BACKGROUND

10.

The E-rate program was authorized by Congress as part of the Telecommunications Act

of 1996 (the Telecommunications Act), and created by the Commission in 1997 to, among other things,

enhance, to the extent technically feasible and economically reasonable, access to advanced

telecommunications and information services for all public and nonprofit elementary and secondary

schools and libraries.11 Since its inception, the E-rate program has provided support for connectivity to

schools and libraries and connectivity within schools and libraries, and it has been instrumental in

providing students and library patrons access to essential communication services. When the

Telecommunications Act was passed, only 14 percent of classrooms had access to the Internet, and most

schools with Internet access (74 percent) used dial-up Internet access.12 By 2005, nearly all schools had

access to the Internet, and 94 percent of all instructional classrooms had Internet access.13 Similarly, by

2006, nearly all public libraries were connected to the Internet, and 98 percent of them offered public

Internet access.14

11.

There are currently five categories of services for which E-rate funding is available to

eligible schools, libraries and consortia: telecommunications, telecommunications services, Internet

11 See 47 U.S.C. § 254(h)(2)(A).

12 See U.S. Department of Education, National Center for Education Statistics, Internet Access in U.S. Public

Schools and Classrooms: 1994-2001 (2002),

http://www.immagic.com/eLibrary/ARCHIVES/GENERAL/US_ED/NCES2018.pdf; U.S. Department of

Education, Institute of Education Sciences, Internet Access in U.S. Public Schools and Classrooms: 1994-2005, at 4-

5, 16 (2006), http://nces.ed.gov/pubs2007/2007020.pdf (NCES 2006 Internet Access in U.S. Schools Report).

13 See NCES 2006 Internet Access in U.S. Schools Report at 4-5.

14 See Information Use Management and Policy Institute, College of Information, Florida State University, Public

Libraries and the Internet 2006: Study Results and Findings, at 7 (2006), http://www.ii.fsu.edu/Solutions/Public-

Libraries-The-Internet/Reports.

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access, internal connections, and basic maintenance of internal connections.15 Within those five broad

categories, the Commission has specified services and products including, but not limited to, voice

services, Internet access services, and digital transmission services, that are eligible for E-rate support.

The Commission publishes an eligible services list (ESL) each funding year for applicants to use as a tool

in determining what services and products are eligible for E-rate support.

12.

Eligible schools, libraries and consortia of schools and libraries apply for E-rate support

every funding year. Each funding year runs from July 1 through June 30. Funding year 2015, for

example, will run from July 1, 2015 through June 30, 2016. The E-rate program is administered by the

Universal Service Administrative Company (USAC). Traditionally, E-rate applicants are required to seek

competitive bids for the services they seek to purchase using E-rate funds.16 Applicants must submit an

FCC Form 470 for posting on USAC’s website, which requests bids for E-rate eligible services.17 The

applicant must describe the requested services with sufficient specificity to enable potential service

providers to submit bids for such services.18 Applicants must then carefully consider all submitted bids,

and the price of eligible products and services must be the primary factor in selecting the winning bid.19

After entering into a contract for E-rate eligible services, applicants request support by submitting an FCC

Form 471 application to USAC.20

13.

Under the Commission’s current rules, eligible schools and libraries may receive

discounts ranging from 20 percent to 90 percent of the pre-discount price of eligible services, based on

indicators of need.21 Specifically, as set forth in Figure 1, and in our rules, schools and libraries in areas

with higher percentages of students eligible for free or reduced price lunch through the NSLP or an

alternative mechanism qualify for higher discounts for eligible services than applicants with low levels of

eligibility for such programs.22 For example, the most disadvantaged schools, where at least 75 percent of

students are eligible for free or reduced price school lunch, receive a 90 percent discount on eligible

services, and thus pay only 10 percent of the cost of those services. Libraries receive funding at the

discount level of the school district in which they are located. Schools and libraries located in rural areas

also may receive an additional 5 to 10 percent discount compared to urban areas.23

15 See generally 47 C.F.R. §§ 54.501 et seq.

16 47 C.F.R. § 54.503.

17 See id; see also Schools and Libraries Universal Service, Description of Services Requested and Certification

Form, OMB 3060-0806 (December 2013) (FCC Form 470).

18 47 C.F.R. § 54.503.

19 See 47 C.F.R. §§ 54.503, 54.511; see also Federal-State Joint Board on Universal Service, CC Docket No. 96-45,

Report and Order, 12 FCC Rcd 8776, 9029, para. 481 (Universal Service First Report and Order) (1997); Request

for Review by Ysleta Independent School District of the Decision of the Universal Service Administrator, CC Docket

Nos. 96-45, 97-21, Order, 18 FCC Rcd 26407, 26429, para. 50 (2003).

20 See 47 C.F.R. § 54.504.

21 47 C.F.R. § 54.505(a)-(b); see also infra Figure 1 (School and Library Discount Matrix).

22 47 C.F.R. § 54.505(b).

23 47 C.F.R. § 54.505(b)(3).

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Figure 1

School and Library Discount Matrix

Percentage of Students

Urban

Rural

Eligible for Lunch Program

Discount

Discount

< 1 %

20 %

25 %

1-19 %

40 %

50 %

20-34 %

50 %

60 %

35-49 %

60 %

70 %

50-74 %

80 %

80 %

75-100 %

90 %

90 %

14.

In 1997, the Commission established an annual funding cap for the E-rate program of

$2.25 billion at the recommendation of the Federal-State Joint Board on Universal Service.24 When the

Commission adopted this cap, it recognized that $2.25 billion was a projection of the needs of schools and

libraries for eligible services, and that it might be necessary to adjust the cap to address changes in the

program, technologies or school and library needs.25 Over the years, the Commission has made some

minor adjustments to the cap. Starting in 2003, the Commission directed USAC to identify unused funds

from previous years and to carry forward those funds in order to issue funding commitment decision

letters (FCDLs) in excess of the annual cap.26 Most recently, in the Schools and Libraries Sixth Report

and Order, the Commission directed that the cap be indexed to inflation beginning in 2010.27 For funding

year 2014, the E-rate fund is capped at just over $2.4 billion.28

15.

Currently, the Commission’s rules provide that requests for all telecommunications,

telecommunications services and Internet connections (commonly referred to as priority one services)

receive first priority for funding.29 The remaining funds are allocated to requests for support for internal

connections and basic maintenance of internal connections (priority two services), beginning with the

most economically disadvantaged schools and libraries, as determined by the schools and libraries

discount matrix.30 Funding for all priority one services is committed first and remaining funding is

committed to priority two requests, beginning with schools and libraries eligible for a 90 percent discount

and descending a single discount percentage, e.g., 89 percent, 88 percent, and so on until the cap is

reached.

24 Universal Service First Report and Order, 12 FCC Rcd at 9054, para. 529.

25 Id. at 9054, para. 530.

26 See Schools and Libraries Universal Service Support Mechanism, A National Broadband Plan for our Future, CC

Docket No. 02-6, GN Docket No. 09-51, Order, 25 FCC Rcd 18762, 18780-83, paras. 35-40 (2010) (Schools and

Libraries Sixth Report and Order).

27 Id.

28 The cap for funding year 2014 is $2,413,817,693. See Wireline Competition Bureau Announces E-rate Inflation-

Based Cap for Funding Year 2014, CC Docket No. 02-6, Public Notice, 29 FCC Rcd 3222 (Wireline Comp. Bur.

2014).

29 47 C.F.R. § 54.507(g)(1)(i).

30 47 C.F.R. § 54.507(g)(1)(ii); 47 C.F.R. § 54.505(c).

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16.

The total demand, including priority two requests, has exceeded the E-rate program’s

available funding almost every year since the program’s inception.31 In the early years, the E-rate

program was able to fund a substantial percentage of the priority two requests that it received, but more

recently, the vast majority of requests for priority two services have gone unfunded. Even with the

Commission allowing USAC to carry forward unused funds from previous years, since funding year

2000, with one exception, priority two funding has been available only for recipients where at least 50

percent of the students are eligible for free or reduced price school lunch.32 In funding year 2012, the

schools receiving the highest ten percent of funding commitments on a per-student basis obtained, on

average, a commitment of more than $1,750 per student for internal connections funding.33

Moreover,

because funding for priority two services has been so variable, schools and libraries do not know from

one funding year to the next whether they will be eligible for priority two funds.

17.

Unlike for priority two requests, E-rate funding has always been sufficient to meet

priority one requests at every discount level. However, for each of the last three funding years, estimated

demand for priority one funding alone exceeded the funding cap.34 Most recently, on May 2, 2014, the

Wireline Competition Bureau (Bureau) announced that, based on USAC’s projections of demand and

administrative expenses, $200 million in unused funds from previous funding years would be carried

forward to ensure sufficient funds are available to provide support for all eligible priority one funding

requests received from schools and libraries in funding year 2014.35 While carry-forward funds may

serve as a stopgap measure, the trend in priority one demand indicates that, absent reforms, the ability to

fund priority one requests at all discount levels will be threatened, and the Commission’s ability to

provide predictable or equitable funding for priority two requests is in doubt.

31 See USAC, Schools and Libraries Program, USAC Automated Search of Commitments,

http://www.usac.org/sl/tools/commitments-search/Default.aspx (last visited June 18, 2014).

32 See, e.g., USAC, Schools and Libraries Program, Schools and Libraries News Brief (dated Apr. 11, 2008),

http://www.usac.org/sl/tools/news-briefs/preview.aspx?id=155 (last visited June 18, 2014) (setting the funding year

2007 denial threshold); USAC, Schools and Libraries Program, Schools and Libraries News Brief (dated July 6,

2007), http://www.usac.org/sl/tools/news-briefs/preview.aspx?id=98 (last visited June 18, 2014) (setting the funding

year 2006 priority two threshold). In funding year 2003, priority two funding was available at the 70 percent

discount level due to a $420 million rollover of unused E-rate funds. For funding year 2010, the Bureau directed

USAC to make funding available at all priority two discount levels. It made this determination in light of USAC’s

announcement that there was additional funding available in the schools and libraries reserve accounts to fund all the

applicants. See Funds For Learning, LLC Petition to Reject the Administrator’s Discount Threshold

Recommendation for Funding Year 2010, Schools and Libraries Universal Service Support Program, CC Docket

No. 02-6, Order, 26 FCC Rcd 11145, 11148-49, para. 9 (Wireline Comp. Bur. 2011); see also USAC Fund Size

Projections for 4Q 2011 at 41 (Aug. 2, 2011),

http://www.usac.org/about/tools/fcc/filings/2011/Q4/4Q2011%20Quarterly%20Demand%20Filing.pdf (USAC

Fourth Quarter 2011 Fund Size Projection).

33 Based on an examination of FCC Form 471 Block 4 and Data Retrieval Tool information. See USAC, Schools

and Libraries Program, Funding Request Data Retrieval Tool,

http://www.slforms.universalservice.org/DRT/Default.aspx (last visited June 18, 2014); USAC, 471 Application

Display, http://www.slforms.universalservice.org/Form471Expert/DisplayExt471_StartSearch.aspx (last visited June

18, 2014).

34 See Funds for Learning, USF for Schools and Libraries, Funding Year 2013 and Beyond, Growing to Meet the

Needs of Students and Library Patrons at 12 (Feb. 2013), http://www.fundsforlearning.com/FFLProposal.php (FFL

Feb. 2013 Rep.); E-rate Central, News for the Week, Dec. 17, 2012, http://www.e-

ratecentral.com/archive/News/News2012/weekly_news_2012_1217.asp#b2 (E-Rate Central Newsletter, Dec. 17,

2012).

35 See Wireline Competitive Bureau Announces Carry-Forward of Unused E-rate Funds for Funding Year 2014, CC

Docket No. 02-6, Public Notice, 29 FCC Rcd 4967 (Wireline Comp. Bur. 2014).

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18.

Over the last sixteen years, the Commission has taken steps to update the program. Most

recently, in 2010, the Commission updated the E-rate program by: (1) providing greater flexibility to

schools and libraries in their selection of the most cost-effective broadband services; (2) streamlining the

E-rate application process; and (3) improving safeguards against waste, fraud, and abuse.36 At that time,

the Commission recognized that modernizing the program would be a multi-stage process, and welcomed

ongoing feedback from stakeholders on how to continue to improve the program.37

19.

In June 2013, President Obama announced the ConnectED initiative aimed at jump

starting learning technology across our nation’s elementary and secondary schools.38 To foster a robust

ecosystem for digital learning, President Obama called on the Commission to modernize the E-rate

program and to connect schools and libraries serving 99 percent of our students to next-generation high-

speed broadband (with speeds of no less than 100 Mbps and a target speed of 1 Gbps) and to provide

high-speed wireless connectivity within those schools and libraries within five years.39 President Obama

also called on the Department of Education to work with states and local governments on teacher training,

and he called on the private sector to assist through public-private partnerships.40 Teachers, local school

officials, state education leaders, digital learning experts, and businesses from across the country endorsed

President Obama’s vision.41

To date, private sector companies have committed to providing more than $2

billion in goods and services to schools and libraries in support of the President’s ConnectEd initiative.42

20.

In July 2013, the Commission released the E-rate Modernization NPRM, proposing to

adopt three goals for the program—(1) ensuring that schools and libraries have affordable access to 21st

Century broadband that supports digital learning, (2) maximizing the cost-effectiveness of E-rate funds,

and (3) streamlining the administration of the program—and seeking comment on a variety of options for

reaching those goals.43 In March 2014, the Bureau issued the E-rate Modernization Public Notice seeking

further focused comment on several issues raised in the E-rate Modernization NPRM, including how best

to focus E-rate funds on high-speed broadband, especially high-speed Wi-Fi and internal connections; and

whether and how the Commission should begin to phase down or phase out support for traditional voice

services in order to focus more funding on broadband.44

In May 2014, the Commission held an E-rate

Modernization Workshop that explored issues at the intersections of schools’ and libraries’ current and

future broadband needs, best practices for meeting those needs, and the Commission’s role in meeting

those needs as it considers how to modernize the E-rate program.45

21.

The Commission has received more than 3,100 comments and ex parte filings.

Individual Commissioners and Commission staff have met with hundreds of stakeholders, and more than

36 Schools and Libraries Sixth Report and Order, 25 FCC Rcd at 18764-65, para. 6.

37 Id. at 18765, para. 7.

38 See The White House, Office of the Press Secretary, ConnectED: President Obama’s Plan for Connecting All

Schools to the Digital Age, http://www.whitehouse.gov/sites/default/files/docs/connected_fact_sheet.pdf (last visited

June 18, 2014) (ConnectED Fact Sheet).

39 Id.

40 ConnectED: Education for K-12 Students, http://www.whitehouse.gov/issues/education/k-12/connected (last

visited June 18, 2014).

41 See E-rate Modernization NPRM, 28 FCC Rcd at 11308 n.19.

42 See ConnectEd Initiative at http://www.whitehouse.gov/issues/education/k-12/connected (last visited June 19,

2014).

43 E-rate Modernization NPRM, 28 FCC Rcd 11304.

44 Id. at 11331-32, para. 95.

45 See Federal Communications Commission, E-rate Modernization Workshop, May 6, 2014,

http://www.fcc.gov/events/e-rate-modernization-workshop.

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1,000 people attended the E-rate Modernization Workshop, either in person or online. The vast majority

of stakeholders support modernizing the E-rate program to focus it on ensuring schools and libraries have

affordable access to high-speed broadband.

III.

PERFORMANCE GOALS AND MEASURES

22.

Based on overwhelming support in the record, and consistent with the Congressional

directives in sections 254(b) and (h) of the Communications Act (the Act),46 we adopt three goals

modeled on those proposed in the E-rate Modernization NPRM: (1) ensuring affordable access to high-

speed broadband sufficient to support digital learning in schools and robust connectivity for all libraries;

(2) maximizing the cost-effectiveness of spending for E-rate supported purchases; and (3) making the E-

rate application process and other E-rate processes fast, simple, and efficient.47 We also adopt associated

performance measures and targets to determine whether we are successfully achieving these goals.

Clearly articulating goals for the E-rate program, along with specific performance measures and targets,

will help us focus our efforts as we modernize the E-rate program, monitor our progress over time, and

adjust course as needed.

In choosing these goals, performance measures, and targets, we also recognize

the need to be sufficiently flexible to accommodate the evolving technological and connectivity needs of

schools and libraries.

23.

Establishing clear performance goals is also consistent with the Government Performance

and Results Act of 1993 (GPRA), which requires federal agencies to engage in strategic planning and

performance measurement.48 In 2007, the Commission adopted measures to safeguard the universal

service fund (USF or Fund) from waste, fraud, and abuse as well as measures to improve the

management, administration, and oversight of the USF generally.49 More recently, the Commission has

adopted goals in the other USF programs it has modernized over the last few years.50 In the E-rate

Modernization NPRM, while the Commission recognized the importance of these measures, it also

acknowledged the subsequent finding by the GAO that the E-rate program, specifically, lacked sufficient

46 See 47 U.S.C. §§ 254(b), 254(h)(1)(B).

47 In the E-rate Modernization NPRM, the Commission proposed three similar goals for the E-rate program: (1)

Ensuring schools and libraries have affordable access to 21st Century broadband that supports digital learning; (2)

maximizing the cost-effectiveness of E-rate funds; and (3) streamlining the administration of the E-rate program.

See E-rate Modernization NPRM, 28 FCC Rcd at 11311, para. 13.

48 Government Performance and Results Act of 1993, Pub. L. No. 103-62, 107 Stat. 285 (1993). Under the GPRA,

federal agencies must develop strategic plans with long-term, outcome related goals and objectives, develop annual

goals linked to the long-term goals, and measure progress toward the achievement of those goals in annual

performance plans and report annually on their progress in program performance reports. See GPRA Modernization

Act of 2010, Pub. L. 111-352, 124 Stat. 3866 (2011).

49 See Comprehensive Review of Universal Service Fund Management, Administration, and Oversight, WC Docket

No. 05-195, Order, 22 FCC Rcd 16372 (2007) (2007 USF Program Management Order). In 2008, the Commission

sought further comment, among other things, on ways to further strengthen management, administration, and

oversight of the USF, how to define more clearly the short-term and long-term goals of the USF, and to identify any

additional quantifiable performance measures that may be necessary or desirable. See Comprehensive Review of

Universal Service Fund Management, Administration, and Oversight, WC Docket No. 05-195, Notice of Inquiry, 23

FCC Rcd 13583 (2008) (USF Program Management Notice of Inquiry).

50 See Connect America Fund et al., WC Docket No. 10-90 et al., Report and Order and Further Notice of Proposed

Rulemaking, 26 FCC Rcd 17663, 17681-17683, paras. 48-59 (2011) (USF/ICC Transformation Order), aff’d sub

nom. In re FCC 11-161, ___ F.3d ___, 2014 WL 2142106 (10th Cir. May 23, 2014); Lifeline and Link Up Reform

and Modernization et al., WC Docket Nos. 12-23, 11-42, 03-109, CC Docket No. 96-45, Report and Order and

Further Notice of Proposed Rulemaking, 27 FCC Rcd 6656, 6671-77, paras. 27-43 (2012) (Lifeline Reform Order);

Rural Health Care Support Mechanism, WC Docket No. 02-60, Report and Order, 27 FCC Rcd 16678, 16696-99,

paras. 34-43 (2012) (Healthcare Connect Fund Order).

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performance goals and measures.51 In its 2009 report, the GAO emphasized that successful performance

measures should be tied to goals, address important aspects of program performance, and provide useful

information for decision making.52 The goals, measures, and targets we adopt today respond directly to

the GAO’s recommendations and place the E-rate program on a clear strategic path, consistent with the

GPRA.

24.

Throughout this Report and Order, we use these three goals as guideposts for our

decisions about how to close the gap between the broadband needs of schools and libraries and their

ability to obtain those services. As part of the performance measures, we set connectivity targets by

which we will evaluate progress towards meeting our goals. We also adopt reporting obligations for

USAC and for E-rate program participants that will enable us to measure progress towards meeting the

goals. While we identify specific reporting obligations, we delegate authority to the Bureau, working

with the Office of the Managing Director (OMD), to finalize the format and timing of those reporting

obligations.

25.

Using the adopted goals and measures, we will, consistent with the GPRA, monitor the

performance of the E-rate program over time, and regularly reassess our rules and policies to ensure that

they are continuing to support our goals.53 If we find that the E-rate program is not making progress

towards meeting the performance goals, we will consider corrective actions. Likewise, to the extent that

the adopted targets and performance measures do not help us assess program performance, we will revisit

them.

A.

Ensuring Affordable Access to High-Speed Broadband Sufficient to Support Digital

Learning in Schools and Robust Connectivity for All Libraries

1.

Goal

26.

We adopt as our first goal ensuring affordable access to high-speed broadband sufficient

to support digital learning in schools and robust connectivity for all libraries.54 This goal is widely

supported by commenters55 and implements Congress’s directive in section 254(h) of the Act that the

Commission “enhance access to advanced telecommunications and information services” to schools and

libraries “to the extent technically feasible and economically reasonable,” and determine a discount level

for all E-rate funded services that is “appropriate and necessary to ensure affordable access to and use of

such services.”56

27.

Our record demonstrates that high-speed broadband is essential for students, teachers,

and library patrons seeking to take advantage of the rapidly expanding opportunities for interactive digital

51 See 2009 GAO E-rate Report; E-rate Modernization NPRM, 28 FCC Rcd at 11312, para. 15.

52 2009 GAO E-rate Report at 44.

53 See 31 U.S.C. §§ 1116, 1120-1121, as amended by GPRA Modernization Act of 2010, Pub. L. No. 111-352 §§ 4-

5 (2010).

54 See E-rate Modernization NPRM, 28 FCC Rcd at 11313, paras. 17-19.

55 See, e.g., ALA NPRM Comments at 10; AT&T NPRM Comments at 3; Butte County NPRM Comments at 2;

CALET NPRM Comments at 1; Cisco NPRM Comments at 15; EdCo NPRM Comments at 16; EdLiNC NPRM

Comments at 17; KDLA NPRM Reply Comments at 2; LEAD NPRM Comments at 5-7; NASUCA NPRM

Comments at 11; NCTA NPRM Comments at 3-6; NHMC NPRM Comments at 1-2, 4; NYCDOE NPRM

Comments at 2; Pamela Tucker NPRM Comments at 3; SC K-12 Initiative NPRM Comments at 6; SIIA NPRM

Comments at 2; Verizon NPRM Comments at 3; ARC NPRM Reply Comments at 2-3; Digital Promise NPRM

Reply Comments at 5; Illinois NPRM Reply Comments at 2; New America NPRM Reply Comments at 31; Santa Fe

NPRM Reply Comments at 1; TETA NPRM Reply Comments at 1.

56 See 47 U.S.C. §§ 254(b)(6), (h)(2)(A), (h)(1)(B).

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learning.57 As the Commission observed in the E-rate Modernization NPRM, the availability of high-

speed broadband in schools transforms learning opportunities and expands school boundaries by

providing all students access to high-quality courses and expert instruction.58 We also agree with

commenters that high-speed broadband connections should be available to students and teachers

throughout a school, enabling them to utilize online materials and blended learning throughout the day

and as part of their curriculum.59

28.

High-speed broadband is also critical in libraries, where it provides patrons with the

ability to access the Internet, search for and apply for jobs, engage with governmental entities, learn new

skills, and engage in life-long learning.60 High-speed broadband to and within libraries is especially

important in communities where many lack home access to broadband, including minority and low-

income communities.61 Libraries in these communities provide broadband access during non-school

hours to students who do not have home access to broadband.62

29.

The record demonstrates that schools and libraries, recognizing the importance of high-

speed broadband to utilize the variety of Wi-Fi enabled devices for educational purposes, are racing to

deploy and upgrade their networks. Specifically, schools and libraries are working to upgrade local area

networks (LANs) and wireless local area networks (WLANs or Wi-Fi networks) to deliver high-speed

broadband to every student and patron device.63 School districts are increasingly implementing one-to-

one student to device initiatives and bring your own device (BYOD) programs that require high-density

Wi-Fi coverage in every classroom and common area. The WLAN upgrades necessary to support one-to-

one digital learning may include upgraded switches, wireless routers, Cat 6 or fiber cabling, and 802.11n

(or better) wireless access points (WAPs).64 Though the increasing number of Wi-Fi-enabled devices in

57 See supra para. 21.

58 See E-rate Modernization NPRM, 28 FCC Rcd at 11306, para. 3.

59 See, e.g., ADTRAN NPRM Comments at 7-8; Amplify NPRM Comments at 3; Boston Renaissance NPRM

Comments at 2; SIIA NPRM Comments at 3-4; SECA NPRM Comments at 11 (indicating that access to the school

is not enough and that each classroom within a school should have access).

60 See, e.g., ALA NPRM Comments 6-10; ULC NPRM Reply Comments 5-11.

61 See, e.g., MMTC NPRM Comments at 2-4; ALA NPRM Comments at 9; ULC NPRM Comments at 2; ULC PN

Reply Comments at 8.

62 See ALA NPRM Reply Comments at 5; ULC PN Reply Comments at 2.

63 See, e.g., Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, at 2-3 (filed Oct. 31, 2013) (Wisconsin Districts Ex Parte);

Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline Competition

Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications

Commission, WC Docket No. 13-184, at 2 (filed Sept. 27, 2013) (Oregon Districts Ex Parte); Letter from Charles

Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline Competition Bureau, Federal

Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket

No. 13-184, at 2-3 (July 30, 2013) (Mississippi Districts Ex Parte); Letter from Charles Eberle, Attorney-Advisor,

Telecommunications Access Policy Division, Wireline Competition Bureau, Federal Communications Commission,

to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184, at 1 (filed June 19,

2014) (Sacramento Library Ex Parte).

64 See, e.g., Cisco NPRM Comments, Attach. 1 at 30-32 (Cisco White Paper); Letter from Charles Eberle, Attorney-

Advisor, Telecommunications Access Policy Division, Wireline Competition Bureau, Federal Communications

Commission, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184, at 2

(filed Aug. 16, 2013) (Georgia Districts Ex Parte); Letter from Charles Eberle, Attorney-Advisor,

Telecommunications Access Policy Division, Wireline Competition Bureau, Federal Communications Commission,

to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184, at 2-3 (filed Nov.

19, 2013) (Virginia Districts Ex Parte).

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schools provides exciting educational possibilities, 57 percent of school districts responding to a recent

survey by the Consortium on School Networking do not believe that they have Wi-Fi capacity capable of

handling a one-to-one deployment.65

30.

Libraries are also seeing a rapid increase in bandwidth demand driven by Wi-Fi-enabled

devices and the public’s need for broadband access.66 The percentage of libraries providing free Wi-Fi to

the public grew from 37 percent in 2006 to 91 percent in 2012.67 Several commenters note that the public

library is sometimes the only place offering free Internet access to the community.68 Many libraries

report that patron-owned devices connected to their network will soon surpass library-provided devices.69

New technologies such as digital media labs, interactive learning tools for adult education, and

videoconferencing services also contribute to increasing bandwidth demand in libraries.70

31.

Finally, it is also crucial that high-speed broadband to schools and libraries be affordable,

consistent with section 254(b)(1).71 The record makes clear that, in some areas today, schools and

libraries are unable to afford high-speed broadband services or the services they can afford provide

insufficient bandwidth to support digital learning or provide their patrons with robust Internet access.72

We have collected voluminous data on the current state of connectivity to schools and libraries, and the

prices schools and applicants are paying for their connectivity. The record reveals a wide variance in the

speed and price of connectivity at schools and libraries nationwide.73 Location, access to fiber

connections, financial resources, access to a research and education network (REN), statewide or regional

coordination, ISP competition, and a well-informed information technology (IT) staff are among the

65 See, e.g., CoSN NPRM Reply Comments at 1, 15.

66 See ALA PN Comments at 18-19; ULC NPRM Reply Comments at 13.

67 See, e.g., ALA NPRM Comments at 10.

68 See, e.g., ULC PN Comments at 6-7; Chicago NPRM Comments at 1; ALA NPRM Comments at 7.

69 See, e.g., ALA PN Comments at 18.

70 See, e.g., ALA PN Comments at 9; ULC PN Comments at 10.

71 47 U.S.C. § 254(b)(1) (“Quality services should be available at just, reasonable, and affordable rates”).

72 See, e.g., ARC NPRM Reply Comments at 3; AT&T NPRM Comments at 3; California SBA NPRM Comments

at 2-3; EdLiNC NPRM Comments at 17; iFiber NPRM Comments at 2; METLA NPRM Comments at 4; MMTC

NPRM Comments at 2-4; NTCA/WTA NPRM Reply Comments at 10-11.

73 Compare SC K-12 Initiative NPRM Comments at 6 (99 percent of South Carolina public schools have fiber WAN

connections), Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, at 1 (filed Sept. 19, 2013) (Massachusetts Districts Ex

Parte) (Burlington, MA schools are connected to a 10 Gbps municipal WAN with no recurring lease or maintenance

costs); Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, Attach. at 8 (filed Oct. 31, 2013) (Rawson Ex Parte) (State

Master Contract rate of $750/month for 1 Gbps WAN circuits), and Letter from Charles Eberle, Attorney-Advisor,

Telecommunications Access Policy Division, Wireline Competition Bureau, Federal Communications Commission,

to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184, at 1 (filed March

13, 2014) (Peninsula Library Ex Parte) ($780/month for 1 Gbps WAN circuits and $3,498/month for a 10 Gbps

Internet access connection), with Oregon Districts Ex Parte at 2 (schools in Mahleur County pay $1,000/month for a

T-1 Internet access connection), and Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access

Policy Division, Wireline Competition Bureau, Federal Communications Commission, to Marlene H. Dortch,

Secretary, Federal Communications Commission, WC Docket No. 13-184, Attach. at 3 (filed March 21, 2014)

(Montana Ex Parte) (identifying 28 schools with no access to a broadband connection); see also Iowa DOE NPRM

Comments at 3-4 (prices for 45 Mbps Internet access connections purchase through Iowa’s statewide consortium

range from $210/month to $3,375/month).

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many factors that can affect a school’s or library’s ability to procure high-speed connectivity at a

reasonable price.74

2.

Measures

32.

We will evaluate progress towards our first goal by comparing connectivity to and within

schools and libraries with widely accepted connectivity targets that are based on digital learning and

library needs. As illustrated in Figure 2 below, the connectivity needs of schools can be divided into three

components:

Internet Access – School districts and some library systems purchase Internet access for the entire

district or system at a single point of aggregation. For the purposes of this measure, we refer to

“Internet access” as the connection or connections that allow traffic to flow from that aggregation

point to the public Internet. As part of the purchase of Internet access, the school district (or

library system) may purchase dedicated connectivity (e.g., dedicated transport) from its point of

aggregation to its Internet Service Provider’s (ISP’s) point of presence.75 For schools and

libraries that are not connected to a district Wide Area Networking (WAN), Internet access

simply refers to the school’s or library’s direct connection to the public Internet.

WAN/Last-Mile – As just described, school districts and library systems frequently connect

individual schools and libraries to a central aggregation point, such as a district, county, or

regional data hub, that hosts the Internet demarcation point for the entire district, county, regional,

or library system. We refer to these connections as WAN or last mile connections.

Internal Connections – This category encompasses the infrastructure necessary to deliver Internet

access from the edge of a school or library to the actual student, faculty, or patron end-user

device. Internal connections include Wi-Fi.

74 See, e.g., Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, at 1 (filed Feb. 3, 2014) (MCNC Ex Parte) (100 percent of

North Carolina public school districts and 94 percent of public schools are connected to fiber through MCNC, the

statewide REN); Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division,

Wireline Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, at 1 (filed Aug. 9, 2013) (Round Rock ISD Ex Parte)

(district owns its 10 Gbps fiber WAN and plans to reduce Internet access costs by more than 50 percent due to

increased competition and decreasing rates in the Austin, TX area) (filed Aug. 9, 2013); Wisconsin Districts Ex

Parte at 2 (regional Cooperative Educational Service Agencies pool technology resources and manage WANs).

75 See, e.g., See Letter from Evan Marwell, CEO, EducationSuperHighway, to Marlene H. Dortch, Secretary,

Federal Communications Commission, at White Paper Attachment at 35-36 (filed Apr. 10, 2014) (EdSuperHighway

White Paper Ex Parte) (subdividing expenses between Internet access and data transport).

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Figure 2 – Taxonomy of Broadband Connectivity for Schools

33.

For each of these three network components, we adopt separate measures of progress,

including distinct connectivity targets.

a.

Internet Access

34.

Connectivity Targets. We adopt the State Education Technology Directors Association’s

(SETDA) target recommendation of Internet access for schools of at least 100 Mbps per 1,000 students

and staff (users) in the short term and 1 Gbps Internet access per 1,000 users in the longer term.76 We

agree with those commenters who support both the shorter and longer-term connectivity SETDA targets

as reflecting schools’ bandwidth needs as they increasingly adopt digital learning strategies and one-to-

one device initiatives.77 SETDA’s long-term targets are also consistent with President Obama’s initiative

to connect 99 percent of students to high-speed broadband within five years.78

35.

We will measure Internet connectivity at the district level for school districts and at the

school level for schools that are not members of a district (e.g., private schools). We recognize that the

SETDA target for Internet access connectivity may not be appropriate for every school or school district,

especially very large or very small districts or individual schools, and will take that into account when

measuring success towards the targets we set today. Large school districts often keep a significant

amount of traffic on their internal networks and are able to oversubscribe Internet connections, thereby

76 See State Educational Technology Director’s Association (SETDA), The Broadband Imperative:

Recommendation to Address K-12 Educational Infrastructure Needs, at 2 (rel. May 21, 2012),

http://www.setda.org/wp-content/uploads/2013/09/The_Broadband_Imperative.pdf (last visited May 20, 2014)

(SETDA Recommendation). Here and in section III.A.2.b, below, we find the connectivity targets we adopt are

justified in the record as reasonable predictions of near-term and longer-term needs, subject to refinement over time

as warranted.

77 See, e.g., Arkansas NPRM Comments at 7; METLA NPRM Comments at 6; NASBE NPRM Comments at 3;

SHLB NPRM Comments at 2; San Jacinto NPRM Comments at 2.

78 ConnectED Fact Sheet.

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requiring less per-student Internet access bandwidth.79 For example, the Los Angeles Unified School

District’s (LAUSD) network has approximately 750,000 total users and LAUSD is implementing a

district-wide one-to-one initiative.80 LAUSD anticipates that 90 Gbps Internet access connectivity, or

approximately 120 Mbps per 1,000 students, will deliver sufficient bandwidth to every classroom and

device with the help of bandwidth optimization measures that compress data and eliminate redundant

traffic.81 We will continue to analyze data on broadband demand.

36.

This ongoing examination of our Internet connectivity targets should include regular

input from schools and libraries. We therefore direct the Bureau to seek, as part of the application

process, feedback from schools and libraries on the sufficiency of their Internet access bandwidth to meet

their needs. The Bureau will consider all responses, in conjunction with usage and demand data, when

refining the Internet connectivity targets.

37.

With respect to libraries, we initially adopt as a bandwidth target the American Library

Association’s recommendation that all libraries that serve fewer than 50,000 people have broadband

speeds of at least 100 Mbps and all libraries that serve 50,000 people or more have broadband speeds of at

least 1 Gbps.82 We agree with commenters that the size of the community served by a library must factor

into the library target.83

38.

Affordability. To measure affordability, we will track pricing as a function of bandwidth.

We direct the Bureau, working with OMD and USAC, to regularly report normalized pricing (e.g., price

per Mbps) for Internet access connectivity and to identify any outliers.

b.

WAN

39.

Connectivity Targets. We adopt as a target for WAN connectivity the total number of

schools that have a connection capable of providing a dedicated data service scalable to the SETDA long-

term WAN target of 10 Gbps per 1,000 students.84 At this time, the vast majority of districts and libraries

that operate WANs do not have demand for, and therefore do not purchase, 10 Gbps circuits. Indeed,

schools and districts have varying broadband needs that will increase at different rates. For example,

some elementary schools may not require the same bandwidth per student as middle or high schools.85

Very small schools with fewer than 100 students, particularly those that are part of small districts, may

79 Network oversubscription refers to the fact that the maximum aggregate demand for capacity at a shared link or

node in the network can exceed the link or node capacity. This common network infrastructure practice is often

expressed using an oversubscription ratio of allocated bandwidth per user to guaranteed bandwidth per user.

Connect America Fund et al., WC Docket No. 10-90 et al., Notice of Inquiry and Notice of Proposed Rulemaking,

25 FCC Rcd 6657, 6841, Appendix C (2010); see also Cisco Systems, Oversubscription and Density Best Practices,

http://www.cisco.com/c/en/us/solutions/collateral/data-center-virtualization/storage-networking-

solution/net_implementation_white_paper0900aecd800f592f.html (last visited June 26, 2014).

80 See Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, at 1 (filed March 4, 2014) (LAUSD Ex Parte).

81 See id. at 1-2.

82 See ALA PN Comments at 5. ALA defines the population served by a library according to the library’s legal

service area as defined by the Institute of Museum & Library Services. Id. at 4.

83 See ALA PN Comments at 5; ULC PN Comments at 8.

84 SETDA did not recommend a short-term WAN connectivity goal. Given the time and expense required to

upgrade to connectivity scalable to 10 Gbps, we decline to adopt a short-term WAN goal.

85 See, e.g., Florida DSM NPRM Comments at 4; Letter from Charles Eberle, Attorney-Advisor,

Telecommunications Access Policy Division, Wireline Competition Bureau, Federal Communications Commission,

to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184, at 1 (filed May 23,

2014) (Palestine ISD Ex Parte).

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not require WAN connections scalable to 1 Gbps (equivalent to 10 Gbps per 1,000 students). However,

in some instances small schools in small districts may require more bandwidth per student because they

may not be able to take advantage of high oversubscription ratios or conserve bandwidth by using

network optimization tools to the same extent as larger schools and larger districts.86 Conversely, large

school districts may be able to optimize their networks to deliver very high speed broadband to the

classroom without having WAN connectivity of 10 Gbps per 1,000 students.87 We therefore adopt a

target that focuses on the scalable capacity of school district WAN connections to 10 Gbps per 1,000

students. In most cases, a 1 Gbps fiber connection can be readily scaled to 10 Gbps with upgraded

networking equipment.88

40.

The WAN connectivity target that we adopt today is the result of careful analysis of the

record and our programmatic experience. Several commenters agree that the SETDA WAN targets

accurately reflect the rapidly increasing broadband demand in schools.89 Others argue that the SETDA

WAN targets are too low given the increasing bandwidth demands of standardized testing, educational

applications, streaming video, and the growing number of Wi-Fi-enabled devices in schools.90 Many

school districts report that they have doubled their WAN bandwidth in recent years and are planning for

future increases.91 Commenters opposed to adoption of the SETDA WAN targets express concerns about

uniform targets for all schools because districts have widely varying student populations, broadband

availability, and financial resources.92 Other commenters recommend that the Commission conduct a

86 See, e.g., Arkansas NRPM Comments at 6-7; WVDE NPRM Comments at 15.

87 See MCNC Ex Parte at 2 (large districts in NC have tiered WANs that provide more capacity to high schools);

Virginia Districts Ex Parte at 2 (Loudon Co. WAN connections range from 10 Mbps for small elementary schools to

1 Gbps for large high schools).

88 See Comcast NPRM Comments at 10; Sunesys NPRM Comments at 2, 5-6.

89 See, e.g., Clark County NPRM Comments at 3; ENA NPRM Comments at 8-9; METLA NPRM Comments at 6;

Knox County NPRM Comments at 6; SC K-12 Initiative NPRM Comments at 5-6.

90 See, e.g., iFiber NPRM Comments at 2-3; Xirrus NPRM Comments at 3; PCIA NPRM Comments at 6; UEN

NPRM Comments at 3. A target of 1 Gbps per 1,000 students will also achieve several of the bandwidth goals

recommended by standardized testing consortia, equipment manufacturers, and digital curriculum providers. See

Partnership for Assessment of Readiness for College and Careers (PARCC), Technology Guidelines for PARCC

Assessments Version 4.0 (February 2014), http://parcconline.org/technology (last visited Apr. 11, 2014)

(recommending minimum connectivity of 100 Kbps/student to support PARCC assessments simultaneously with

regular instructional and administrative activities); Smarter Balanced Assessment Consortium, The Smarter

Balanced Technology Strategy Framework and Testing Device Requirements, p. 16,

http://www.smarterbalanced.org/wordpress/wp-

content/uploads/2011/12/Tech_Framework_Device_Requirements_11-1-13.pdf (last visited Apr. 11, 2014)

(recommending minimum connectivity of 20 Kbps/student to be tested simultaneously); Cisco White Paper at 16

(recommending Internet access connectivity of 500 Kbps/student for 2014 and 2 Mbps/student for 2018, and WAN

connectivity of 10 Mbps/student by 2018); Xirrus NPRM Comments at 3 (concurring with Cisco targets); HP

NPRM Comments at 9 (recommending connectivity of at least 5 Gbps for schools with 500 students and 1 Gbps for

schools with 100 students); Amplify NPRM Comments at 7-8 (recommending 250 Kbps/student connectivity);

McGraw-Hill NPRM Comments at 7-8 (concurring with Cisco targets).

91 See, e.g., Oregon Districts Ex Parte at 2; Letter from Charles Eberle, Attorney-Advisor, Telecommunications

Access Policy Division, Wireline Competition Bureau, Federal Communications Commission, to Marlene H.

Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184, at 1 (filed Sept. 30, 2013)

(Kansas Districts Ex Parte).

92 See, e.g., Florida DSM NPRM Comments at 4; LAUSD NPRM Comments at 11; NCTA NPRM Comments at 6-

7.

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comprehensive analysis of schools’ actual broadband needs before establishing specific bandwidth

targets.93

41.

We find that a WAN connectivity target measured by the capacity of connections

available to schools properly balances the concerns identified by commenters opposed to the SETDA

bandwidth targets with the need to ensure that all schools have affordable access to high-speed broadband

that supports digital learning. Several factors are driving the need to increase bandwidth to and within

schools. School districts across the country are implementing one-to-one and BYOD programs that

require more robust connectivity.94 Cisco notes that the density of devices and demand on the network in

many schools surpasses the demand of other high-density environments such as hotels, restaurants, and

corporate offices.95 The peak bandwidth usage of media-rich curriculum and streaming video applications

far exceeds the usage of basic web browsing and e-mail.96 Online assessments will require high-speed

connections that are also highly reliable and secure.97 A target of ensuring that all schools connected to

WANs have a connection scalable to 10 Gbps per 1,000 students will ensure that schools have access to

bandwidth sufficient to meet growing demand while maintaining the flexibility to purchase the bandwidth

that meets their needs.

42.

We direct the Bureau to continue analyzing data on WAN connectivity. As with the

Internet connectivity targets, this ongoing examination should consider input from schools and libraries.

We therefore direct the Bureau to seek feedback from schools and libraries, as part of the E-rate

application process, on its WAN connectivity and whether its WAN provides sufficient bandwidth to

meet the schools’ and libraries’ needs.

43.

For libraries, our record is not sufficiently developed to establish a performance measure

and a WAN connectivity target at this time. However, to the extent that libraries are connected by a

WAN, similar to our approach with schools, we will measure the total number of libraries that have a

connection capable of providing a data service scalable to at least 10 Gbps.

44.

Affordability. As with Internet access, we will measure affordability of WAN

connections by tracking pricing as a function of bandwidth. We also direct the Bureau, working with

OMD and USAC, to regularly report normalized pricing (e.g., price per Mbps) for WAN connectivity and

to identify any outliers.

c.

Internal Connections

45.

Connectivity Targets. Pending the development of a suitable available bandwidth

measure for internal connectivity, we find that a survey of school districts and libraries is the best method

to gauge the sufficiency of internal connections at this time. Our record is not sufficiently well developed

at this time to allow us to identify the appropriate level of bandwidth per device in either schools or

libraries. We are also concerned that schools and libraries would find such a measure difficult to report,

93 See, e.g., NCTA/WTA NPRM Reply Comments at 15; Nebraska OCIO NPRM Comments at 5; SDDOE NPRM

Comments at 5.

94 See, e.g., Georgia Districts Ex Parte at 2 (Forsyth County estimates that 50,000 unique devices connect to Wi-Fi

every day in a 42,000 student district).

95 See Cisco White Paper at 8, 31.

96 See Letter from Regina M. Keeney, Lawler, Metzger, Keeney & Logan, LLC, to Marlene H. Dortch, Secretary,

Federal Communications Commission, WC Docket No. 13-184, Attach. (filed Jan. 13, 2014) (Amplify Ex Parte);

Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline Competition

Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications

Commission, WC Docket No. 13-184, at 1-2 (filed March 18, 2014) (Summit PS Ex Parte) (network for tech-

saturated charter districts delivers approximately 750 Kbps/student).

97 See Massachusetts Districts Ex Parte at 3.

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as the responsible individuals may not have access to the necessary technical data. We therefore decline

to adopt such a measure at this time, but direct the Bureau to continue to develop the record on this issue.

46.

Several commenters emphasize that Wi-Fi performance is best measured by throughput

to the student or library patron device rather than classroom or library coverage.98 Other commenters

suggest that the high-density Wi-Fi demands of schools require at least one high-capacity wireless access

point (WAP) per classroom.99 Library commenters discuss increasing Wi-Fi demand, but generally did

not endorse specific Wi-Fi targets.100 At this time, we do not think counting the number of WAPs is the

right approach to measuring connectivity within schools and libraries. Several unique considerations

impact WLAN design. For example, some school districts opt for very high-capacity WAPs that deliver

ample bandwidth to multiple classrooms,101 while others have installed multiple lower-speed WAPs per

classroom.102 Distribution of WAPs in libraries depends on specific factors such as user density and

building design.103 Therefore, we agree with commenters that available bandwidth per device is a more

suitable measure to determine whether internal connections are sufficient to support the needs of each

individual user at a school or library.104 However, we need further information from schools and libraries

before we adopt a specific measure. We therefore direct the Bureau to seek feedback from schools and

libraries, as part of the survey, on the sufficiency of their LAN/WLAN capacity and coverage to support

the educational or library activities conducted at their school or library site. The answer to this question

will help provide the Commission with insight on progress towards the stated goal pending the

development of a more technical measure.

47.

Affordability. Consistent with our decision to use a survey to measure internal

connections availability pending the development of a more precise measure, we direct the Bureau, as

part of the survey, to also seek feedback from those schools and libraries that have insufficient WLAN

capacity and coverage to support the educational or library activities conducted at their school or library

site as to the reason for the lack of sufficient capacity and coverage (e.g., affordability of equipment, or

lack of demand for Wi-Fi).

3.

Reporting and Further Development of Measures and Targets

48.

We direct the Bureau to revise the information collections from E-rate applicants and

vendors to collect data regarding the specific measures adopted above.105 The Bureau should analyze data

collected from applicants to track progress toward meeting program goals and to inform revisions to the

performance measures and E-rate program rules, and if necessary, to the goals themselves.106 We also

98 See, e.g., Cisco White Paper at 23; Xirrus NPRM Comments at 2; Jennings NPRM Comments at 1-2.

99 See, e.g., Kansas Districts Ex Parte at 2; MCNC Ex Parte at 2; Round Rock ISD Ex Parte at 2.

100 See, e.g., ALA PN Comments at 19-19, ULC PN Comments at 10.

101 See Georgia Districts Ex Parte at 2 (discussing Forsyth County’s purchase of Xirrus 16-radio WAPs); Palestine

ISD Ex Parte at 2.

102 See LAUSD Ex Parte at 2 (LAUSD installs two WAPs per classroom due to local regulations).

103 See, e.g., Sacramento Library Ex Parte at 1.

104 See Houston ISD NPRM Comments at 2; ALA NPRM Comments at 11-12; ULC PN Comments at 6, Xirrus

NPRM Comments at 2; iFiber NPRM Comments at 4.

105 See, e.g., Florida DMS NPRM Comments at 5; Verizon NPRM Comments at 8.

106 See, e.g., Imperial County NPRM Comments at 6; Cisco White Paper at 26; ISTE NPRM Comments at 9;

Verizon NPRM Comments at 12.

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agree with commenters that data should be publicly accessible so that applicants can make informed

decisions regarding broadband purchasing and network design.107

49.

In addition to the connectivity and affordability measures adopted above, we agree with

commenters who recommend that the Commission evaluate actual bandwidth usage and network

performance statistics to continually refine our connectivity targets over time.108

Digital education and

the technologies that deliver it are rapidly evolving. In such a dynamic environment, it is important that

we understand changes in the bandwidth demands of school and library networks supported by E-rate as

well as the performance of those networks.109

We direct the Bureau to work with school districts and

libraries to develop network measurement methods that gather data on network usage and performance.

B.

Maximizing the Cost-Effectiveness of Spending for E-rate Supported Purchases

1.

Goal

50.

We adopt as our second goal maximizing the cost-effectiveness of spending for E-rate

supported purchases, thereby minimizing the contribution burden on consumers and businesses and

maximizing the benefit of each dollar spent on services for schools and libraries.110 Our rules require that

applicants “select the most cost-effective service offering.”111 Moreover, when evaluating bids, applicants

“may consider relevant factors other than the pre-discount prices . . . , but price should be the primary

factor considered.”112 Commenters broadly support the Commission’s proposal to adopt cost-

effectiveness as a goal of the E-rate program, in recognition of the limited amount of E-rate funds

available to meet the connectivity needs of all schools and libraries throughout the nation.113 This goal is

also consistent with section 254(h)(2)(A) of the Act, which requires that support to schools and libraries

be “economically reasonable.”114 As the Commission recognized in the E-rate Modernization NPRM, we

have a “responsibility to be a prudent guardian of the public’s resources.”115

2.

Measures

51.

We will focus our evaluation of progress towards this goal by measuring the prices paid

for the E-rate services delivered to schools and libraries.

We will separately measure and track the prices

107 See, e.g., New America NPRM Comments at 31; Cisco White Paper at 26; see also infra paras. 158-167

(adopting pricing transparency requirements) and paras. 258-259 (adopting open data requirements).

108 See, e.g., Richmond County NPRM Comments at 2; Xirrus NPRM Comments at 1; Google NPRM Reply

Comments at 9.

109 See E-rate Modernization NPRM, 28 FCC Rcd at 11313, para. 21.

110 See id. at 11318, paras. 41-42; High-Cost Universal Service Support et al., CC Docket No. 96-45, Order on

Remand and Memorandum Opinion and Order, 25 FCC Rcd 4072, 4087, para. 28 (2010) (stating that “if the

universal service fund grows too large, it will jeopardize other statutory mandates, such as ensuring affordable rates

in all parts of the country”). Commenters support this goal as a cornerstone of the E-rate program. See EIN NPRM

Comments at 2; Nebraska OCIO NPRM Comments at 6; WVDE NPRM Comments at 25; COMPTEL NPRM Reply

Comments at 10-11; Illinois CMS NPRM Reply Comments at 1; NTCA/WTA NPRM Reply Comments at 10.

111 47 C.F.R. § 54.511(a).

112 Id.

113 See, e.g., EIN NPRM Comments at 2; Nebraska OCIO NPRM Comments at 6; WVDE NPRM Comments at 26;

COMPTEL NPRM Reply Comments at 10-11; NTCA/WTA NPRM Reply Comments at 10.

114 See 47 U.S.C. § 254(h)(2)(A).

115 E-rate Modernization NPRM, 28 FCC Rcd at 11318, para. 42. See Vermont Pub. Serv. Bd. v. Fed. Commc’n

Comm’n, 661 F.3d 54, 65 (D.C. Cir. 2011) (finding that, in the context of section 254, “as the Commission rightly

observed, it has a responsibility to be a prudent guardian of the public’s resources.”); Universal Service First Report

and Order, 12 FCC Rcd at 8845-46, para. 125.

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paid for the E-rate services delivered to schools and libraries for connections to and for connections

within schools and libraries. Detailed pricing information is essential to our goal of maximizing cost-

effectiveness as well as “affordability” under our first goal. We thus direct the Bureau and OMD working

with USAC, as necessary, to develop the process by which we will measure, track, and report on the

prices paid for E-rate services. In addition, we will continue to monitor the results of USAC’s audits and

other reports to track progress in reducing improper payments and waste, fraud and abuse.

52.

For connectivity to school and library locations, we will measure and report on prices

paid as a function of bandwidth (e.g., dollars per Mbps) and also as a function of number of users (or

unique devices). In addition, we will track pricing as a function of various potential cost drivers, which

may include physical layer type (e.g., fiber, copper, coax, fixed wireless), service type (e.g., DSL, cable

modem, metro Ethernet, Internet access), geography (e.g., rural, urban), carrier, carrier type, and

purchasing mechanism (e.g., individual school, district, regional consortium).

53.

An equally important component of cost-effectiveness is the matching of capacity

purchased with need.116 We direct the Bureau, working with USAC, to develop and maintain best

practices and benchmarks regarding network utilization, network architectures, network performance, and

network optimization and management.

54.

For connectivity within schools and libraries, we will measure and report pricing as a

function of number of users or unique devices. We will track pricing of eligible expenses associated with

LANs and WLANs (e.g., Wi-Fi), including pricing of eligible network components (e.g., switches,

routers, wireless access points, cabling), managed services, and other eligible services associated with

LANs and WLANs. In addition to tracking the pricing and capacity, we will seek to track utilization and

performance of these internal connections to more fully measure the value delivered with E-rate support.

We will also track replacement and upgrade cycles and LAN/WLAN architectures to accurately measure

cost-effectiveness.

C.

Making the E-rate Application Process and Other E-rate Processes Fast, Simple and

Efficient

1.

Goal

55.

We adopt as our third goal making the E-rate application process and other E-rate

processes fast, simple, and efficient.117

Each year, USAC reviews tens of thousands of funding requests

from schools and libraries, and processes thousands of appeals, invoice requests, deadline extension

requests, and additional inquiries from schools, libraries, and other parties requesting information.118

Simplifying and improving these procedures will help applicants receive their funding in a timely fashion,

which will allow them to plan better and maximize the impact of their support. Simplification of the E-

rate application process also eases the administrative burden on applicants—which is particularly

important for smaller schools and libraries that lack extensive administrative support.119 Conversely,

complexity and delay discourage participation and ultimately result in fewer schools and libraries fully

investing in needed high-speed broadband connections.

116 See, e.g., Friday Institute NPRM Comments at 3 (explaining that a schools connection is only upgraded when the

“school consistently reaches 60 percent utilization during the school day”).

117 See E-rate Modernization NPRM, 28 FCC Rcd at 11318-19, paras. 45-46.

118 Id. at 11318-19, para. 45.

119 Some commenters indicate that the administrative complexities have forced applicants to incur the additional

expense of hiring a consultant who has expertise in navigating the E-rate application process. See, e.g., San Mateo

NPRM Comments at 2. While other commenters indicate that consultants provide advice and assistance that goes

well beyond the filing of the FCC forms. See, e.g., New Hope NPRM Reply Comments at 5-6; Houston ISD NPRM

Comments at 5.

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56.

Commenters overwhelmingly agree that making E-rate process fast, simple, and efficient

is critical to the overall success of E-rate.120

Commenters specifically highlight, among other things, the

importance of simplicity and transparency in the application submission and review process,121 and the

need for timeliness in making funding commitments and paying invoices,122 reclaiming unused funds,123

and completion of the application and selective review processes.124 We recognize that there are a

number of considerations that compete with our efforts to simplify the program for applicants, speed

processing of applications and appeals, and minimize overhead costs. For example, we will need to

appropriately balance our need for data to appropriately monitor program performance, with our efforts to

minimize the application burden on applicants.125

Likewise, we must ensure that a simplified E-rate

program does not open the door to waste, fraud, or abuse.

2.

Measures

57.

In 2007, the Commission adopted certain E-rate performance measurements related to the

application and invoicing processes and the resolution of appeals submitted to USAC.126

Building on that

work, in the E-rate Modernization NPRM the Commission sought comment on what additional measures

we should adopt to support the goal of making the E-rate application process and other E-rate processes

120 See, e.g., Arkansas NPRM Comments at 10; Butte County NPRM Comments at 5; California SBA NPRM

Comments at 4; CenturyLink NPRM Comments at 4-5; Eastex/Riviera NPRM Comments at 2; EdLiNC NPRM

Comments at 2; Hawaii NPRM Comments at 11-12; HP NPRM Comments at 17; iFiber NPRM Comments at 4;

Intrafinity NPRM Comments at 6; Imperial County NPRM Comments at 19-20; MDTC NPRM Comments at 5;

Merit NPRM Comments at 6; METLA NPRM Comments at 10; LEAD NPRM Comments at 7; NAFIS NPRM

Comments at 2; Pacifica NPRM Comments at 1; San Mateo NPRM Comments at 2; Verizon NPRM Comments at

19; Vermont DOL NPRM Comments at 1; Visions NPRM Comments at 2; Digital Promise NPRM Reply

Comments at 4-5; Gates NPRM Reply Comments at 5; Kansas Library NPRM Reply Comments at 2; Windstream

NPRM Reply Comments at 3-4.

121 See, e.g., Capistrano USD NPRM Comments at 4; Fairfax PS NPRM Comments at 2; Imperial County NPRM

Comments at 19-20; LEAD NPRM Comments at 7; Merit NPRM Comments at 6; MMTC NPRM Comments at 19;

San Mateo NPRM Comments at 2; Ednetics NPRM Reply Comments at 2; Missouri DOE NPRM Reply Comments

at 1; Vigo County NPRM Reply Comments at 2.

122 See EIN NPRM Comments at 2; ENA NPRM Comments at 15-16; SECA NPRM Reply Comments at 3-4;

VectorUSA NPRM Comments at 2.

123 See Clark County NPRM Comments at 6; Richmond County NPRM Comments at 4; COMPTEL NPRM Reply

Comments at 19; TelePacific NPRM Comments at 3.

124 See UEN NPRM Comments at 3.

125 See, e.g., CenturyLink NPRM Comments at 4-5 (stating that many of the NPRM’s proposals will serve to

increase administrative burdens); Schoolwires NPRM Comments at 9-10 (survey results found that most of its

schools are opposed to additional burdens from the E-rate program and that 60 percent said they would discontinue

the process if burdens were increased).

126 See 2007 USF Program Management Order, 22 FCC Rcd at 16392-94, paras. 44-49; E-rate Modernization

NPRM, 28 FCC Rcd at 11319, para. 47. Specifically, the Commission required USAC to provide data, on a funding

year basis, by reporting the number of applications and funding request numbers (FRNs) submitted, rejected, and

granted, and the processing time for applications and FRNs.

2007 USF Program Management Order, 22 FCC Rcd

at 16392-93, paras. 44-45.

The Commission also required USAC to document the amount of time it takes to make a

billed entity applicant reimbursement payment to the service provider, and the number of paid and rejected

invoices.

Id. at 16393, paras. 46-48.

Additionally, the Commission required USAC to determine the percentage of

appeals resolved by USAC within 90 days from the date of appeal, and how long it takes to process 50 percent, 75

percent, and 100 percent of the pending appeals from the schools and libraries division.

Id. at 16393-94, para.

49.

By “pending appeal” we mean an appeal or request for review filed by an applicant that has not yet been

decided by USAC.

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fast, simple and efficient.127 While commenters are very supportive of streamlining and simplifying the

administrative process, few offer actual performance measures to support this goal.128

58.

Based on our experience with the E-rate program, as an initial measure, we will evaluate

progress towards our third goal by measuring the timely processing of funding commitments to eligible

schools and libraries by USAC by tracking the processing time against an established target.129 Working

with OMD, USAC has dramatically improved its rate of application processing for this funding year

(funding year 2014). In both funding year 2013 and 2014, USAC received applications requesting

between $2.6 and $2.7 billion in priority one E-rate support.130 By July 1, 2013, USAC had only

committed approximately $181 million in support.131

By contrast, as of July 1, 2014, USAC has already

committed approximately $1.22 billion in support.132 In 2013, USAC did not reach $1 billion in

commitments until October.133

59.

We applaud the progress USAC and OMD have made in improving the timeliness of

processing of funding commitments to eligible schools and libraries. In light of this progress, and to

ensure continued progress and further expedite the commitment process and increase the timeliness of

funding commitment decisions, we direct USAC to aim to issue funding commitments or denials for all

“workable” funding requests by September 1st of each funding year.134 A September 1st deadline provides

USAC with approximately five months beyond the application filing window deadline to review all

timely filed and complete funding requests and gives applicants certainty regarding a funding decision for

those timely filed and complete requests by the beginning of the school year. “Workable” means that a

funding request is filed timely and is complete, with all necessary information, to enable a reviewer to

make the appropriate funding decision, and the applicant, provider, and any consultants are not subject to

investigation, audit, or other similar reason for delay in a funding decision. Funding requests from

applicants that decline to respond to USAC inquiries over the summer may be considered “unworkable”

for purposes of this performance goal, though USAC will process these applications as quickly as

possible when school staff return for the year. USAC shall continue to report at least monthly on its

progress toward this goal, based on the dollars of requests processed and the total count of schools and

libraries represented in those requests, as well as any other specific metrics OMD identifies, and on any

obstacles to achieving the application processing target.

60.

In adopting this target, we recognize that even “workable” funding requests may be time

consuming for USAC to process and may, after initial review, require further input from the applicant

127 See E-rate Modernization NPRM, 28 FCC Rcd at 11319-20, paras. 48-51.

128 See supra n.120.

129 See E-rate Central NPRM Comments at 11 (stating that firm USAC deadlines may not be feasible, but the

Commission should at least establish reasonable targets to set expectations).

130 See Letter from Mel Blackwell, Vice President, USAC, to Julie Veach, Chief, Wireline Competition Bureau

(April 22, 2013), http://www.usac.org/_res/documents/sl/pdf/tools/news/FY2013-Demand-Estimate.pdf (last visited

June 20, 2014) (2013 USAC Demand Letter); Letter from Mel Blackwell, Vice President, USAC, to Julie Veach,

Chief, Wireline Competition Bureau (April 17, 2014),

http://www.usac.org/_res/documents/sl/pdf/tools/news/fy2014-demand-estimate.pdf (last visited June 20, 2014)

(2014 USAC Demand Letter).

131 See USAC, Schools and Libraries, Data Retrieval Tool,

http://www.slforms.universalservice.org/DRT/Default.aspx (last visited June 20, 2014).

132 Id.

133 Id.

134 We recognize that USAC may not be able to meet the September 1st deadline for funding year 2015 in light of the

significant changes we are making to the program in this Report and Order, though we direct USAC and OMD to

make every effort to make application processing as fast as possible even during this transitional year.

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before USAC can issue a funding commitment.135 Our adoption of a specific application processing target

should not affect in any way USAC’s contacts with applicants to seek additional information concerning a

funding request and USAC’s thorough review of each application. USAC must continue to provide

applicants with an opportunity to respond to their questions. While we seek to expedite USAC’s

processing of applications, we remain committed to guarding against waste, fraud, and abuse in the E-rate

program. We note that failure of an applicant to timely respond to requested information could constitute

an obstacle to receiving a funding decision by the target date. Therefore, we strongly encourage

applicants to timely respond to USAC requests for information.

61.

We will also evaluate our progress towards the third goal by having USAC survey

applicants and service providers about their experience with the program. A survey will provide useful

and useable information to USAC and to the Commission about what is working and what needs to be

improved.

62.

These performance measurements, taken together, will help provide greater certainty to

applicants and providers, and will assist applicants in more timely deployment of eligible services.

Additionally, these measures will help to ensure that the E-rate program is operated as efficiently as

possible by minimizing the need for the submission and review of other requests, such as service delivery

deadline extensions, service substitutions, service provider identification number (SPIN) changes and

FCC Form 500 filings to change contract expiration dates, which are often necessitated due to the delay in

the issuance of timely funding commitment decisions letters.136

IV.

ENSURING AFFORDABLE ACCESS TO HIGH-SPEED BROADBAND SUFFICIENT

TO SUPPORT DIGITAL LEARNING IN SCHOOLS AND ROBUST CONNECTIVITY

FOR ALL LIBRARIES

63.

Having set our goals for the E-rate program, we now turn to the process of modernizing

the program to meet each of those goals. In this section, we begin to update the E-rate program to ensure

that schools and libraries have affordable access to the high-speed broadband connections needed for

digital learning. The record in this proceeding and our own analysis of the program lead us to a particular

focus on the internal connections, including Wi-Fi, needed for robust broadband connectivity in all

classrooms and libraries.

64.

Wi-Fi is a transformative technology for education, allowing schools and libraries to

transition from computer labs to one-to-one digital learning. Yet, in most funding years, the E-rate

program has been able to provide priority two support for internal connections, including Wi-Fi, only to

schools and libraries entitled to the highest discount levels.137 In funding year 2012, for instance, the

program committed approximately $800 million for internal connections138 and was only able to fund

applicants at the 90 percent discount level. As a result, nearly 60 percent of that funding went to urban

135 See CRW NPRM Comments at 6; Knox County NPRM Comments at 17-21 (stating that USAC should not be

rushed to issue a funding commitment until it has properly reviewed a funding request).

136 See SECA NPRM Reply Comments at 3-4.

137 For example, in funding year 2012, USAC provided support to only the 90 percent discount rate for internal

connections. See USAC, Schools and Libraries, Search Commitments, Funding Year 2012,

http://www.usac.org/sl/tools/commitments-search/default.aspx (showing no support for internal connections below

the 90 percent discount level).

138 See USAC, FCC Filings, 2014 Third Quarter Appendices, Fund Size Projection Summary, at 37,

http://www.universalservice.org/about/tools/fcc/filings/2014/Q3/USAC%203Q2014%20Federal%20Universal%20S

ervice%20Mechanism%20Quarterly%20Demand%20Filing.pdf (last visited June 12, 2014).

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applicants—almost double the share of students in urban schools nationwide.139 In 2013, for the first time

ever, no E-rate support was available for internal connections.140

65.

By contrast, the E-rate program has always been able to meet demand for services that

provide connectivity to schools and libraries.141 However, only about half of the $2.4 billion E-rate

budget is used to support priority one funding requests focused on broadband connectivity to schools and

libraries.142

66.

In short, the E-rate program has become increasingly ill-equipped to meet the demands of

the modern classroom and library. Therefore, we now act to modernize E-rate to ensure more equitable,

reliable support for Wi-Fi networks, and other internal connections supporting broadband services, within

schools and libraries. While we focus in this Report and Order on providing funding for internal

connections, we remain committed to ensuring schools and libraries have high-speed connections to their

buildings. In order to help ensure E-rate funding is available to support high-speed broadband to and

within schools and libraries, we also eliminate support for certain legacy, non-broadband services to help

free up funding for these internal broadband connections. We begin, however, with a short review of our

legal authority to set the list of E-rate supported services and define the mechanisms of E-rate support.

A.

Legal Authority

67.

Sections 254(c)(1), (c)(3), (h)(1)(B), and (h)(2) of the Communications Act collectively

grant the Commission broad and flexible authority to set the list of services that will be supported for

eligible schools and libraries, as well as to design the specific mechanisms of support.143 This authority

reflects Congress’s recognition that technology needs are constantly “evolving” in light of “advances in

telecommunications and information technologies and services.”144

68.

In creating the E-rate program in 1997, in the Universal Service First Report and Order,

the Commission designated all commercially available telecommunications services as services eligible

139 We reviewed and classified the 2012 priority two funding commitments and the associated schools and students

based on NCES district-level urban-centric locale codes. See USAC, Schools and Libraries, Funding Request Data

Retrieval Tool, http://www.slforms.universalservice.org/DRT/Default.aspx (last visited June 17, 2014) (providing

funding year 2012 commitment data for “internal connections” and “basic maintenance,” collectively “priority

two”); NCES, Local Education Agency (School District) Universe Survey Data,

http://nces.ed.gov/ccd/pubagency.asp (last visited June 17, 2014) (providing basic information about public school

districts, including student counts and urban-centric locale codes). “Urban” includes the “City” NCES locale codes,

and “Non-Urban” includes “Suburban,” “Town,” and “Rural” NCES locale codes. See NCES, Identification of

Rural Locales, http://nces.ed.gov/ccd/rural_locales.asp (last visited June 17, 2014) (explaining the urban-centric

locale code system and how it classifies territory into four major types: city, suburban, town, and rural).

140 See USAC, Schools and Libraries, Latest News, 2/27/2014 - Update on Priority 2 Commitments for FY2013,

http://usac.org/sl/tools/news/default.aspx (last visited Apr. 30, 2014).

141 See E-rate Modernization NPRM, 28 FCC Rcd at 11329, para. 83.

142 Letter from Melvin R. Blackwell, Vice President, Schools and Libraries Division, Universal Service

Administrative Company, to Lisa Hone, Deputy Chief, Telecommunications Access Policy Division, Federal

Communications Commission, WC Docket No. 13-184, at Attach. (filed June 12, 2014) (USAC Broadband

Connectivity Data Response FY2012 and 2013). This data was created by USAC’s PIA reviewers’ classification of

each funding request number (FRN) based on the predominant service or product being requested. Because FRNs

can contain multiple products or services, and determination of the predominant service or product requires case-by-

case judgment, these estimates are inevitably imperfect. For any given product or service, the estimates exclude

FRNs where that product or services is listed but judged not to be predominant. The estimates also include funding

for other products or services listed together with the predominant product or service on the same FRN.

143 47 U.S.C. §§ 254(c)(1), 254(c)(3), 254(h)(1)(B), 254(h)(2).

144 47 U.S.C. § 254(c)(1).

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for support (or discounts) under the E-rate program.145 At the same time, the Commission determined

that it could provide E-rate support for additional, non-telecommunications services, particularly Internet

access, email, and internal connections, provided by both telecommunications carriers and non-

telecommunications carriers.146 The Commission reasoned that such services enhance access to advanced

telecommunications and information services for public and non-profit elementary and secondary school

classrooms and libraries.147

69.

Below, we update this eligible services framework for today’s needs. Revisiting our

approach to this issue is consistent with 254(c)(1)’s definition of universal service as an “evolving level”

of service, which the Commission must revisit “periodically,” “taking into account advances in

telecommunications and information technologies and services.” We are also guided by section

254(h)(2)(A)’s directive that we “enhance, to the extent technically feasible and economically reasonable,

access to advanced telecommunications and information services” for schools and libraries.148

70.

Taken together, and considered in light of the Commission’s “responsibility to be a

prudent guardian of the public’s resources,” these provisions lead us to take a more focused approach to

the definition of E-rate eligible services today than was adopted in 1997.149 In particular, based on the

record of this E-rate modernization proceeding, and as described in more detail below, we find that E-rate

support should be transitioned to focus specifically on those telecommunications and information

services, including associated inside wiring, necessary to support broadband to and within schools and

libraries. The Commission has long supported these types of services, and we think it clear that the

statute authorizes their support. Section 254(c)(1) and (c)(3) each provide ample authority for the support

of broadband telecommunications services, and sections 254(c)(3), (h)(1)(B), and (h)(2) provide authority

to support advanced telecommunications and information services, including associated inside wiring.150

71.

At the same time, in order to focus E-rate funding on these services, we must redirect

funding away from services that are less essential to education, less directly tied to educational purposes,

and/or more likely to be affordable without E-rate support than when the program began, including fixed

and mobile voice service.151

The statute also amply supports this decision.

Even if the E-rate fund was

not capped at its current level, we have a responsibility to be prudent stewards of universal service funds,

145 Universal Service First Report and Order, 12 FCC Rcd at 9006-08, paras. 431-434; see also 47 U.S.C. §

254(c)(1) and (c)(3).

146 Universal Service First Report and Order, 12 FCC Rcd at 9008-15, paras. 436-449, and 9084-9090, paras. 589-

600; see also 47 U.S.C. §§ 154(i) and 254(c)(1),(3), (h)(1)(B) and (h)(2).

147 See Universal Service First Report and Order, 12 FCC Rcd at 9008-15, paras. 436-449, and 9084-9090, paras.

589-600.

148 47 U.S.C. §§ 254(h)(1)(b) and 254(h)(2)(A) (emphasis added). See also Texas Office of Public Utility Counsel v.

FCC, 183 F.3d at 444 (the Commission’s “primary directive is to ‘enhance access to advanced telecommunications

and information services’ for schools and libraries”).

149 Vermont Pub. Serv. Bd. v. Fed. Commc’n Comm’n, 661 F.3d 54, 65 (D.C. Cir. 2011).

150 Given that both 254(c)(1) and (c)(3) provide authority to support broadband telecommunication services, we need

not conduct a detailed analysis of the (c)(1) factors here, but we are confident that they amply support our decision

to support broadband telecommunication services within the E-rate program, See, e.g., 254(c)(1)(A) (in determining

what services to support under (c)(1), the Commission “shall consider the extent to which such telecommunications

services are essential to education . . .”).

151 The legislative history of subsection 254(h) of the Act speaks to a legislative purpose that is as relevant today as

it was in 1996: “[T]he provisions of subsection (h) will help open new worlds of knowledge, learning and education

to all Americans—rich and poor, rural and urban. They are intended, for example, to provide the ability to browse

library collections, review the collections of museums, or find new information on the treatment of an illness, to

Americans everywhere via schools and libraries.” H.R. Conf. Rep. 104-458, at 132 (1996), reprinted in 1996

U.S.C.C.A.N. at 144.

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knowing that that those funds are ultimately paid for by consumers.152 Because the amount of available

E-rate funding is finite, we must make thoughtful decisions about what services are not just permissible to

support, but are the most essential to support for schools and libraries. We have relied on the record to

inform these choices.153

72.

As we focus E-rate support on high-speed broadband, we recognize that we will

ultimately reach a point where E-rate no longer supports voice service, which we have defined as the

254(c)(1) supported service for purposes of the High Cost (Connect America Fund) and Lifeline

programs.154 But nothing in section 254(c)(1) or elsewhere bars the Commission from establishing

different supported services for different elements of the overall Universal Service Fund.155

73.

Indeed, in establishing the definition of the telecommunications services that are

supported by the Federal universal service support mechanisms, the Commission is charged with

considering the extent to which the telecommunications services meet the criteria section 254(c)(1)(A)-

(D).156

This list of criteria implies that the definition of supported services can vary depending on the

particular universal service program at issue. For example, section 254(c)(1)(A) requires the

Commission, in designating supported services to consider the extent to which services “are essential to

education, public health, or public safety.”157 Congress recognized that telecommunications services

deemed essential for education (and by extension the E-rate program) may well not be the same as

telecommunications services essential for health (or the Rural Health Care program). Likewise, what is

consistent with the public interest, convenience and necessity in section 254(c)(1)(D) could vary

depending on the specific universal service program at issue.158

74.

Moreover, reading section 254(c)(1) to bar the Commission from establishing different

eligible services for different universal service programs would place section 254(c)(1) in tension with

section 254(b), which requires the Commission to ensure that rates charged to consumers nationwide are

“just, reasonable, and affordable,” and therefore to keep universal service contributions, typically passed

through in customers’ rates, as low as possible.159 We think the better reading of 254(c)(1) provides the

Commission authority to support services in more granular ways, such as only in the specific USF

programs where the Commission concludes that such a definition of supported services is warranted after

considering the (c)(1) factors, and thereby minimize the overall USF burden on consumers who pay into

the Fund.

152 See supra n.115 (citing Vermont Pub. Serv. Bd. v. Fed. Commc’n Comm’n, 661 F.3d 54, 65 (D.C. Cir. 2011)

(finding that, in the context of section 254, “as the Commission rightly observed, it has a responsibility to be a

prudent guardian of the public’s resources.”).

153 Our exercise of authority under section 254 is informed by, and advances the objectives of, section 706 of the

1996 Act, particularly with respect to encouraging deployment of broadband to elementary and secondary schools

and classrooms. 47 U.S.C. § 1302.

154 See, e.g., 47 C.F.R. §§ 54.101, 54.401(a).

155 To the extent any previous Commission decisions could be read to take a different view of our ability to adopt

different definitions of supported services for different elements of the overall Universal Service Fund under

254(c)(1), we reverse those decisions here.

156 47 U.S.C. § 254(c)(1)(A)-(D).

157 47 U.S.C. § 254(c)(1)(A).

158 47 U.S.C. § 254(c)(1)(D).

159 47 U.S.C. § 254(b); see also Vermont Pub. Serv. Bd. v. Fed. Commc’n Comm’n, 661 F.3d at 65 (D.C. Cir. 2011)

(affirming Commission’s interpreting of 254(b) as obligating us to consider consumer impact of increased universal

service fees).

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75.

Finally, in the sections that follow, we change to some extent the mechanisms by which

E-rate support is allocated and the discount levels provided under the program. Sections 254(c) and

254(h) give the Commission broad authority to design these mechanisms and set discount rates at the

level “appropriate and necessary to ensure affordable access to and use of” E-rate supported services.160

This authority amply supports the changes we make here.

B.

Providing More Equitable Funding for Broadband Within Schools and Libraries

76.

In this section, we focus on providing schools and libraries more equitable access to

funding for Wi-Fi networks and other internal connections that allow high-speed connectivity within

schools and libraries. We begin by designating internal connections that support broadband connectivity

as “category two” services, rather than “priority two” services in recognition of the importance of Wi-Fi

networks in connecting students and library patrons. In the short term, in order to provide schools and

libraries more access to category two funds over the next two funding years, we accept the

recommendation of commenters who suggest that we focus the additional E-rate funds identified by the

Bureau earlier this year on internal connections.161 Consistent with this focus, and with the record in this

proceeding on the funding needs for Wi-Fi and other internal connections, we also set an annual budget

target of $1 billion for category two services.162

Next, we increase the minimum contribution rate for

these category two services from 10 to 15 percent to encourage applicants to pursue the most cost-

effective options. For applicants that apply for category two support during the next two funding years,

we also test reasonable maximum per-student and per-library pre-discount budgets for category two

services in order to ensure greater access to category two funding sufficient to deploy robust LANs and

WLANs. Finally, we update our rules regarding eligible services to align with this new focus on

providing E-rate support to services necessary for broadband connectivity and direct the Bureau to update

the ESL accordingly.163

1.

Providing Support for Internal Connections

77.

As an initial matter, we change the E-rate program’s existing priority funding

nomenclature.164 We agree with commenters that schools and libraries should take a “whole network”

approach to planning their purchase of E-rate eligible services that bring connectivity both to the building

and to devices.165 In place of the priority nomenclature, we designate the services needed to support

160 47 U.S.C. § 254(h)(1)(B); see also 47 U.S.C. § 254(h)(1)(B) (“The Commission shall establish competitively

neutral rules . . . to enhance, to the extent technically feasible and economically reasonable, access to advanced

telecommunications and information services for all public and nonprofit elementary and secondary school

classrooms, health care providers, and libraries . . .”).

161 See, e.g., EdLiNC PN Comments at 11-12; AASA PN Comments at 4-5.

162 In adopting a $1 billion target for Wi-Fi and other connections we do not preclude the possibility of spending

more than $1 billion in any funding year in which demand for category two funding exceeds $1 billion and more

than $1 billion is available to be spent on category two services after category one demand has been met.

163 See 47 C.F.R. § 54.502(b) (requiring the Bureau to issue a Public Notice seeking comment on the Eligible

Services List and a final version at least 60 days prior to the opening of the funding year window).

164 See 47 C.F.R. § 54.507, as amended herein (previously setting out rules of priority for internal connections). See,

e.g., ADTRAN NPRM Comments at 22 (supporting); American e-rate NPRM Comments at 8 (supporting the

elimination of priorities); Cox NPRM Comments at 8-9 (supporting more equitable access to internal connections

funding); HITN NPRM Reply Comments at 5 (favoring elimination of the priorities to focus on needs); NCTA

NPRM Reply Comments at 8 (supporting elimination); SmartEdgeNet NPRM Reply Comments at 11-13 (saying

distinction is artificial).

165 See, e.g., Cisco NPRM Comments at 6 (asking that the priority system be abandoned in favor of a whole network

approach); MMTC PN Comments at 3 (stating that eliminating priority one and priority two distinctions would

(continued…)

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broadband connectivity to schools and libraries as “category one” services, and those needed for

broadband connectivity within schools and libraries as “category two” services because we recognize that

deploying internal connections is an important element in connecting schools and libraries to high-speed

broadband.

78.

For category one services, we are confident that the changes we make to the E-rate

program in this Report and Order will ensure that we can continue funding all eligible category one

requests, as we continue to evaluate the long-term, overall program needs.166

For category two services,

the additional funding announced by the Bureau earlier this year will allow the Commission to make $1

billion available over each of the next two years.167 Building on the use of the identified program funds

for the next two years, and to give applicants longer-term visibility into our approach, we also set a

funding target of $1 billion annually for category two services on an ongoing basis.168 In contrast to the

current system, providing a target of $1 billion a year annually for category two services will ensure

greater access to E-rate support for the Wi-Fi networks needed to connect 10 million students a year to

21st Century educational tools. We recognize the concern of some commenters, however, that, in the

absence of a full review of long-term program needs, a hard funding allocation for category two services

(Continued from previous page)

better target access to high-capacity broadband, particularly to low-income urban and rural schools); New America

PN Comments at 17 (stating that all equipment and services needed for broadband connectivity should be

considered priority one).

166 Demand for priority one services in funding year 2014 was $2.63 billion.

Approximately $100 million of this

total was for services that we remove from the Eligible Services List for funding year 2015.

See USAC 2012-13

PIA Funding Request Data Ex Parte (illustrating that for funding year 2013 approximately 4 percent of funding

commitments are associated with web hosting, email, mobile data, distance learning/video conferencing services,

paging, and domain name registration services).

In addition, beginning to phase down the discount rate for voice

services will make approximately another $250 million available for broadband support (i.e., $2.63 billion [priority

one demand] x 33 percent [proportion of demand associated with fixed and mobile voice] x 29 percent [reduction in

funding associated with a 20 percentage point reduction in the average discount rate]).

See USAC 2012-13 PIA

Funding Request Data Ex Parte (illustrating that for funding year 2013 approximately 33 percent of funding

commitments are associated with fixed and mobile voice services); see Submission for the Record from Funds For

Learning, FY2014 E-rate Funding Requests: Telecommunications and Internet Access by Schools & School

Districts, WC Docket No. 13-184, at 3 (filed May 14, 2014) (FFL May 14, 2014 Submission for the Record)

(showing a 69.0 percent average discount nationwide) (stating that the average priority one discount rate is 69

percent).

These demand reductions will likely be offset, at least in part, by increased demand for broadband

category one services in funding year 2015.

From funding year 2009 through funding year 2014, demand for

priority one funding has grown, on average, 5 percent year-over-year (CAGR).

Assuming a continuation of this

trend in 2015, we would expect total category one demand, net of eligible services changes, to be approximately

equal to the funding year 2015 program cap of $2.4 billion: ($2.63 billion - $350 million) * 1.05 = $2.39 billion.

On

top of this cap, the additional funding identified by the Bureau earlier this year will be available to fund $1 billion

for category two services in each of the next two years. See Letter from Mel Blackwell, Vice President, USAC, to

Julie Veach, Chief, Wireline Competition Bureau, WC Docket No. 13-184 (dated April 17, 2014, filed June 20,

2014); Letter from Mel Blackwell, Vice President, USAC, to Julie Veach, Chief, Wireline Competition Bureau, WC

Docket No. 13-184 (dated April 22, 2013, filed June 20, 2013); Letter from Mel Blackwell, Vice President, USAC,

to Sharon Gillett, Chief, Wireline Competition Bureau, WCB Docket No. 13-184 (dated April 20, 2012, filed June

20, 2014); Letter from Mel Blackwell, Vice President, USAC, to Sharon Gillett, Chief, Wireline Competition

Bureau, WC Docket No. 13-184 (dated April 12, 2011, filed June 20, 2014); Letter from Mel Blackwell, Vice

President, USAC, to Sharon Gillett, Chief, Wireline Competition Bureau, WC Docket No. 13-184 (March 10, 2010,

filed June 20, 2014); Letter from Mel Blackwell, Vice President, USAC, to Julie Veach, Chief, Wireline

Competition Bureau, WC Docket No. 13-184 (dated March 10, 2009, filed June 20, 2014).

167 E-rate Modernization Public Notice, 29 FCC Rcd at 2177, para. 7.

168 See infra section IV.B.4.

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could put at risk our ability to provide sufficient support for category one requests.169 For that reason, the

budget we adopt will remain a target, rather than a fixed allocation, as we continue to evaluate the long-

term program needs, and we direct USAC to shift funds targeted for category two services to meet all

eligible requests for category one services, in any funding year in which demand for category one services

exceeds available funds.170 Given the availability of funding for the next two years, the need for

continued analysis of longer-term trends in category one demand, as well as savings from the reforms we

adopt today and future additional reforms,171 we do not increase the overall cap at this time, but seek

additional comment on that issue in the attached FNPRM.172

79.

If demand for internal connections exceeds the available funding for category two

services, we will prioritize access to internal connections funding based on concentrations of poverty.

Those schools and libraries entitled to a higher discount, based on the district-wide discount methodology

described in section VI.B.1., will receive internal connections funding ahead of those entitled to a lower

discount rate. If there is insufficient funding available to meet the need at a particular discount rate for

category two, we will prioritize funding within a discount rate based on the percentage of students that are

eligible for free and reduced school lunches within each applicant’s school district. Funding for libraries

will be prioritized based on the percentage of free and reduced lunch eligible students in the school

district that is used to calculate the library’s discount rate. Funding for individual schools that are not

affiliated financially or operationally with a school district, such as private or charter schools that apply

individually, will be prioritized based on each school’s individual free-and-reduced student lunch eligible

population.

80.

This prioritization method maintains the core of the existing system that E-rate

applicants are familiar with, and gives applicants serving the highest poverty populations first access to

funds, while allowing us to fund within a discount band even where funding is not sufficient to reach all

schools in that band. As explained below, however, and unlike the existing system, we adopt additional

measures in an effort to provide the opportunity for a broader range of applicants to obtain funding for

category two services.173

81.

In the event that requests for category one services are less than the available funding and

demand for category two services is higher than the $1 billion target for category two services at the close

of the funding year window, the Bureau, working with OMD and USAC, may redirect the excess funding

to category two services in the same funding year. If USAC does not commit the entire category two

budget for a funding year, or committed funds are not used or returned, such funds may be carried

forward to be used in subsequent funding years.174 Each year such funds are available, we direct the

Bureau, working with OMD and USAC, to determine the proportion of carry-forward funds to be used for

category one and category two services.

169 See, e.g., Letter from AASA, AFT, AESA, Council, ISTE, NAESP, NAFIS, NCEA, NEA, NPTA, NREAC, and

NREA, to Chairman Wheeler et.al, Federal Communications Commission, WC Docket No. 13-184, at 1 (filed June

20, 2014).

170 For any given funding year, “available funds” will consist of the annual cap, as adjusted annually for inflation,

and any unused funds from previous funding years.

171 See infra section VIII.A.

172 See, e.g., EdLiNC NPRM Comments at 10-11; AASA PN Comments at 2; ALA NPRM Comments at 4; 21st

Century Skills PN Comments at 4-5; Council PN Comments at 5; CoSN PN Comments at 9-10; NAESP PN

Comments at 5; SECA PN Comments at 2-3.

173 See infra paras. 82-105.

174 See 47 C.F.R. § 54.507, as amended herein.

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2.

Increasing the Minimum Applicant Contribution Rate for Category Two

Services

82.

In order to ensure more equitable access to limited internal connections funds, we will

increase the minimum contribution applicants must make towards E-rate supported category two

purchases from 10 to 15 percent. We agree with commenters that requiring applicants to pay a larger

share of the cost of E-rate supported category two purchases will spread available universal service funds

more widely and increase the incentive for applicants to find the most cost-effective options that meet

their internal connection needs.175

83.

In deciding to reduce the top discount rate for internal connections from 90 percent to 85

percent, as with other changes we are making to the E-rate program, we remain mindful of the challenges

faced by our most vulnerable schools and libraries in areas with the highest levels of poverty.

Taken

together, the changes we make in this Report and Order should benefit all schools and libraries, including

those receiving the highest discount rate.

At the same time, we have taken a measured approach in

making changes that could negatively impact applicants entitled to the highest discount rates.

For

example, we reduce the top discount rate only for category two services, and only by five

percent.

Likewise, we phase down support for voice services over several years, to give applicants time

to adjust to the loss of support for such services.

We also seek to counterbalance potential reductions in

funding by adopting proposals aimed at driving down the prices all applicants will pay for E-rate supports

services, including increased pricing transparency and encouraging consortia purchasing and bulk buying.

84.

We expect that requiring higher matches will lead applicants that have been eligible for

90 percent discounts for priority two services to pursue lower prices for eligible category two services

more aggressively. Commenters note that applicants in the highest discount level spend more in pre-

discount dollars than those that have a larger required match.176 Consistent with this analysis, E-rate

Central, a member of USAC’s 2003 Task Force on Waste, Fraud, and Abuse, observes “many examples

of excessive spending by applicants at the highest discount levels, often driven by overly aggressive sales

efforts by vendors targeting the poorest schools and libraries.”177 Thus, as the Iowa Department of

Education argues, requiring applicants to “[h]av[e] more ‘skin in the game’ … will guard against waste,

fraud, and abuse.”178 We therefore set the highest discount level for category two services at 85 percent.

Applicants that would have been eligible for discounts of 86 to 90 percent will now be eligible for an 85

percent discount, and those eligible for a discount of 85 percent or less will see no change. This decision

is consistent with a similar change to the Rural Health Care program that requires recipients of the new

Healthcare Connect fund to contribute 35 percent of the costs of the support services, which the

Commission found “appropriately balances the objectives of enhancing access to advanced

175 See, e.g., EdLiNC PN Comments at 12 (suggesting a temporary reduction to spread funds more widely); SECA

PN Comments at 9-13; California DOE PN Comments at 3; METLA NPRM Comments at 17 (noting it would

encourage more frugal spending); Wisconsin DPI PN Comments at 3-4.

176 See, e.g., E-Rate Central NPRM Comments at 5 (stating they see too many examples of excessive spending by

applicants at the highest discount levels), Letter from John D. Harrington, Chief Executive Officer, Funds for

Learning, LLC, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184,

Attach. at 32 (filed June 17, 2014) (FFL June 21, 2014 Ex Parte) (showing higher spending per building at the 90

percent level for priority two services).

177 See, e.g., E-Rate Central NPRM Comments at 5.

178 See, e.g., Iowa DOE NPRM Reply Comments at 10. See also E-Rate Central NPRM Comments at 5; METLA

NPRM Comments at 18; TIES NPRM Comments at 2; Kentucky DOE NPRM Comments at 4; Riverside USD

NPRM Comments at 10; San Jacinto NPRM Comments at 2; CenturyLink NPRM Comments at 8-9, 13; CRW

NPRM Comments at 2; eDimension NPRM Comments at 3-4.

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telecommunications and information services with ensuring fiscal responsibility and maximizing the

efficiency of the program.”179

85.

Although some commenters recommend even higher minimum applicant contribution

rates – 20, 25 or even 30 percent (80, 75 or 70 percent maximum discount rates, respectively)180 – we

recognize the concerns voiced by some stakeholders that we not raise the net cost to the most

disadvantaged schools and libraries above levels that they can afford.181 Therefore, in order to minimize

the impact of this change on these schools and libraries, we reduce the maximum discount rate only by

five percent and only for category two services as a first step. We note that the per-student and per square

foot applicant budgets for funding year 2015 and 2016 described below mitigate some of the concerns

about overspending at this time. Other commenters agree that the discount level should be changed, but

ask for it to be a temporary change.182 We see no reason, however, why the greater incentives for cost-

effective purchasing introduced by a slightly higher applicant match would be appropriate in the near

term but less so in the future; to the contrary, we believe such incentives will remain important over time,

whereas changing the discount rate from year-to-year could distort efficient decision making.183

Finally,

because we are only reducing the maximum discount rate by five percentage points, and only for category

two services, we make this change fully effective for funding year 2015 rather than phasing it in over

multiple years.

3.

Setting Applicant Budgets

86.

In order to provide broader and more equitable support for category two services, we

adopt budgets for applicants who apply for category two discounts during the next two funding years, as

we continue to evaluate long term program needs. Under this approach, schools in districts that seek

category two funding during funding years 2015 or 2016 will be eligible to request E-rate discounts on

purchases of up to $150 (pre-discount) per student for category two services over a five-year period.

Likewise, library systems and libraries that seek category two funding in funding years 2015 or 2016 may

request E-rate discounts on purchases of up to $2.30 (pre-discount) per square foot over a five-year

period. If an applicant receives funding for category two services in funding year 2015 or 2016, the five-

year budget will apply in the subsequent five funding years, in lieu of the existing “two-in-five” rule.

179 See Healthcare Connect Fund Order, 27 FCC Rcd at 16717-19, paras. 84, 91.

180 See, e.g., San Jacinto NPRM Comments at 2; eDimension NPRM Comments at 2; TIES NPRM Comments at 2;

Capistrano USD NPRM Comments at 4; SECA PN Comments at 9-10; Wisconsin DPI PN Comments at 3-4; see

also E-rate Modernization NPRM, 28 FCC Rcd at 11337-38, nn.169, 171.

181 See, e.g., Council PN Comments at 2-3; Hawaii NPRM Reply at 4; LAUSD PN Reply Comments at 6-7. The

revised minimum applicant contribution rate we adopt today already is contained in scope in certain respects, among

other things because it is limited to the context of category two services for which we adopt the most significant

reforms in this Report and Order. The Commission more broadly sought comment in the E-rate Modernization

NPRM on possible changes to applicant contribution requirements under the E-rate program more generally. See,

e.g., E-rate Modernization NPRM, 28 FCC Rcd at 11337-39, 11347, 11349, paras. 117-25, 156, 165. As explained

above, in addition to adopting the accompanying FNPRM, “[i]n order to ensure the E-rate program evolves to meet

the connectivity needs of our nation’s schools and libraries, we leave the record open in this proceeding to allow us

to address in the future those issues raised in the E-rate Modernization NPRM that we do not address today.” Supra

para. 9. While some have advocated reforming applicant contributions’ more broadly, we do not resolve those

issues at this time, but can do so if warranted based on the pending E-rate Modernization NPRM and informed by

our experience in this context. See, e.g., FCC v. Fox Television Stations, Inc., 556 U.S. 502, 522 (2009) (“Nothing

prohibits federal agencies from moving in an incremental manner.”).

182 See, e.g., EdLiNC PN Comments at 12; AASA PN Comments at 5 (endorsing only a temporary change to the

highest discount levels).

183 See, e.g., AASA NPRM Comments at 4; SECA PN Comments at 11.

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87.

We agree with commenters that E-rate must maintain its historic focus on poverty in

distributing support.184 Therefore, as described above, we will continue to use the discount matrix to

calculate applicants’ E-rate support on their eligible costs, and applicants that have a higher percentage of

students eligible for NSLP will continue to receive a larger proportion of support.185 For example, over a

five-year period, schools or districts at the 80 percent level will be able to request up to $120 in E-rate

support per student (an 80 percent discount on $150 in services) and be required to pay 20 percent of the

cost of eligible category two services that they purchase. Districts at the 20 percent level will be able to

seek up to $30 per student over a five-year period, and be required to pay 80 percent of the costs of the

eligible category two services that they purchase. Similarly, a library with 10,000 square feet would be

eligible for discounts on purchases of up to $23,000, so a library at the 80 percent discount level could

request up to $18,400 in E-rate funding, while a library at the 20 percent discount level could request up

to $4,600 over a five-year period.186

88.

We recognize that this approach represents an important change to our handling of

applicant requests, and we are committed to ensuring that the new five-year budgets not in any way

compromise the program’s fundamental commitments to providing sufficient support and to permitting

local flexibility to address localized conditions, even as they expand access to program funds.

Therefore

we will consider funding years 2015 and 2016 to be a two-year test period, subject to further review by

the Commission.

a.

Methodology

89.

It would be impossible to identify, building-by-building, the precise amount of funding

each eligible school and library will require in a given year to deploy or upgrade LANs and WLANs

necessary to support broadband services within their buildings. As commenters note, building size,

construction characteristics, where applicants are in their upgrade cycle, and other factors make each

deployment unique.187 We can, however, establish a multi-year budget for category two services that will

serve our goal of ensuring affordable access to high-speed broadband for schools and libraries by

ensuring that (a) eligible schools and libraries have greater access to E-rate funding for internal

connections necessary to distribute high-speed broadband within their buildings and (b) that category two

budgets will be sufficient to ensure that eligible schools and libraries will be able to afford the

deployment or upgrade of those internal connections. In setting such a budget, and the related budget-

cycle, to fund internal connections, we find support from a broad array of cost data in our record.

90.

Budget Cycle. As an initial matter, for applicants that receive support in funding years

2015 or 2016, we establish a five-year budget cycle for category two services. The record demonstrates

that most category two equipment has a typical lifecycle of approximately five years.188 After that point,

184 See, e.g., AASA PN Comments at 4; Council PN Comments at 5-6; EdLiNC PN Comments at 9; Stoneberger PN

Comments at 9.

185 See, e.g., South Texas PN Comments at 9 (agreeing that decisions should be made giving preference to schools

with high levels of socio-economic disadvantaged students).

186 Consequently, while the budget we adopt during this test period does not vary for particular schools or particular

libraries, the E-rate program will provide more support for higher poverty schools and libraries. For purposes of the

rules adopted here we are not persuaded that it makes sense to vary the budget based on other considerations,

particularly in the absence of evidence quantifying the nature and extent of such variations and enabling us to

develop specific, administrable distinctions on those bases.

187 See, e.g., Council PN Comments at 6; EdLiNC PN Comments at 9.

188 See, e.g., CoSN PN Comments at 8 (stating that a five year upgrade cycle is consistent with what many school

districts use); EdSuperHighway NPRM Comments at 13 (stating that LAN and Wi-Fi networks have a five to seven

year upgrade timeline); Intelagent PN Comments at 3 (agreeing that a five-year equipment replacement cycle is

“warranted and acceptable”); Gray Salada PN Comments at 1 (saying that a seven year lifecycle is appropriate

because recent equipment is “capable and robust”); SECA PN Comments at 14 (stating that “five years is

(continued…)

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schools and libraries likely will need additional support to upgrade their networks. This five-year budget

cycle will give applicants the flexibility to determine when to make upgrades or changes.

91.

School Budget. We set a pre-discount budget of $150 per student over five years for

schools.

The record demonstrates that $2,500 per classroom, which is equal to just under $150 per

student based on a ratio of 17 students per classroom, should be a sufficient budget to deploy

LANs/WLANs to elementary and secondary school classrooms and common areas across the nation.189

States and districts submitted into our record specific cost data for recent upgrades to state-of-the-art

deployments that were largely under this per-classroom amount.190 Likewise, participants at the E-rate

Modernization Workshop described spending differing amounts per classroom below this $2,500 range,

from $1,300 to an average of $1,900 per classroom.191

North Carolina, which is in the middle of a

statewide upgrade to Wi-Fi in its schools and libraries, originally estimated the upgrade cost at $2,200 per

classroom, and has found actual deployment costs below this initial estimate, ranging from approximately

$2,100 per classroom for a comprehensive high school upgrade to $900 per classroom for a more limited

high school upgrade.192 In some parts of Mississippi, the $500 cost per classroom is well below this

budget.193

92.

Based on NCES data for average class sizes and other sources, commenters estimate that

there are 18 to 20 students per classroom in the United States, an estimate supported by consultations with

district technology officials and equipment vendors.194 Data in the record from a sample of states and

(Continued from previous page)

commensurate with the industry-wide standard”). See also Letter from Charles Eberle, Attorney-Advisor,

Telecommunication Access Policy Division, Wireline Competition Bureau, Federal Communications Commission,

to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184, at 2 (filed May 21,

2014) (Friday Institute Ex Parte) (describing lifecycles for switches and cabling).

189 See infra para. 92.

190 See, e.g., Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, at Attach. (filed May 21, 2014) (Emer Ex Parte); see also

Letter from Ross Randall, Director of Technology, Lamar County School District, to Marlene H. Dortch, Secretary,

Federal Communications Commission, WC Docket No. 13-184, at 1 (filed May 12, 2014) (Mississippi Technology

Coordinators Ex Parte).

191 See Letter from Michael J. Jacobs, Legal Advisor to the Chief, Wireline Competition Bureau, Federal

Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket

No. 13-184, Attachment at 36, 38 (filed May 14, 2014) (E-rate Workshop Ex Parte) (describing costs for the

Hampton Town School District, Pennsylvania, to be $1,300 and for Arlington Heights, Illinois, to average $1,900,

though estimating the costs would likely increase to $2,500 to $3,000 if starting from scratch).

192 Emer Ex Parte at Attach.

193 Mississippi Technology Coordinators Ex Parte at 1-2. To the extent that particular schools and libraries can

make upgrades for less than the amount of the budget, other reforms adopted in this Report and Order help ensure

that they have the incentive and ability to do so. See, e.g., supra section IV.B.2 (applicant contribution); see infra

section V (maximizing cost-effectiveness).

194 The ESH/CoSN Ongoing Cost Model assumes 2,500,000 classrooms in the United States. See EdSuperHighway

Ongoing Cost Model, http://www.fcc.gov/wcb/LAN_Wi-Fi_Ongoing_Cost_Model.xlsx (Totals and Aggregation

tab, cell B44) (EdSuperHighway/CoSN Ongoing Cost Model); Letter from Evan Marwell, CEO, EdSuperHighway,

to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184, at 8 (filed May 28,

2014) (EdSuperHighway/CoSN OngoingCost Model) (describing classroom count and consultation process with

district technology officials and equipment vendors). We derived an average student per classroom figure by

dividing the total number of public school students reported in 2011-2012 NCES data (49,521,669) by ESH/CoSN’s

estimated classroom count, for a figure of 19.8 students per classroom. U.S. Department of Education, National

Center for Education Statistics, Common Core of Data (CCD), "State Nonfiscal Survey of Public

Elementary/Secondary Education," 1990-91 through 2011-12; and State Public Elementary and Secondary

Enrollment Projection Model, 1980 through 2023, http://nces.ed.gov/programs/digest/d13/tables/dt13_203.20.asp

(continued…)

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districts suggests that the true number is slightly lower, however. In particular, statewide data from three

states representing almost five million students (approximately 10 percent of all students in the country)

give an average of 17.8 students per classroom, likely because not all classrooms are in use at all times of

the day.195 Several individual districts also submitted classroom counts, both rural and urban, with an

average of 19.6 students per classroom.196 Combined, the state and district data provide information on

schools serving over 5.6 million students, with an average of 18 students per classroom. We believe it

makes sense to use a relatively conservative estimate to ensure support levels are sufficient for schools

with smaller class sizes, such as smaller rural schools. Accordingly, in translating the various per-

classroom cost estimates in our record into per-student costs (and vice-versa), we use an estimate of 17

students per classroom.197 Dividing $2,500 by 17 gives a per-student budget of $147, which we round up

to $150 for simplicity of administration.

(Continued from previous page)

(U. S. Dept. of Ed Survey and State Public Elementary and Secondary Enrollment Projection Model) (total Fall

2011 public school student count of 49,521,669) (last visited July 10, 2014). The Cisco Model estimates the total

number of classrooms in the country as 2,679,121, which they state they derived from NCES 2006-2007 data. See

Letter from Jeffrey A. Campbell, Vice President, Government Affairs, Cisco, to Jon Wilkins, Managing Director,

Federal Communications Commission, WC Docket No. 13-184 (filed May 30, 2014) (Cisco Model). We derived an

average student per classroom figure by dividing the total number of students reported in 2006-2007 NCES data by

Cisco’s estimated classroom count, for a figure of 18.3 students per classroom. See U. S. Dept. of Ed Survey and

State Public Elementary and Secondary Enrollment Projection Model (total Fall 2006 public school student count of

49,315,842). NCES reports that the average class size for teachers in public elementary and secondary schools is

21.2 (elementary) and 26.8 (secondary). See U.S. Department of Education, National Center for Education

Statistics, Schools and Staffing Survey (SASS), "Public School Teacher Data File," 2011-12,

http://nces.ed.gov/programs/digest/d13/tables/dt13_209.30.asp (last visited June 26, 2014) (U. S. Dept. of Ed. Public

Teacher Data File). The EdSuperHighway/CoSN Ongoing Cost Model was placed in the record on June 16, 2014.

See Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, at 2 (filed June 16, 2014) (June 16, 2014 Requested Data

Ex Parte) (listing submissions that have been added to the E-rate Modernization Data Page because their document

formats were not compatible with the Commission’s Electronic Comment Filing System).

195 We obtained state student per classroom values by dividing the most recent total enrollment figures available for

each state (Fall 2011) by the number of classrooms reported by each state. See Letter from Charles Eberle, Attorney-

Advisor, TAPD, FCC, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-

184, at 2 (filed June 16, 2014) (Additional Data Sources Ex Parte) (classrooms of four states and five school

districts); U.S. Department of Education, National Center for Education Statistics, Common Core of Data (CCD),

"State Nonfiscal Survey of Public Elementary/Secondary Education," 1990-91 through 2011-12; and State Public

Elementary and Secondary Enrollment Projection Model, 1980 through 2023,

http://nces.ed.gov/programs/digest/d13/tables/dt13_203.20.asp (last visited July 10, 2014).

196 We obtained district student per classroom values by dividing the most recent total enrollment figures available

for each district (Fall 2011) by the number of classrooms reported by each district. See Additional Data Sources Ex

Parte, at 2 (classrooms of four states and five school districts); Los Angeles USD Network Equipment Pricing,

http://www.fcc.gov/wcb/LAUSD_Pricing.xlsx (last visited July 10, 2014) (total classrooms in the Los Angeles USD

obtained by summing column D (“Classrooms”) of the “All School Info” tab); National Center for Education

Statistics, Search for Public School Districts, http://nces.ed.gov/ccd/districtsearch/ (last visited July 10, 2014)

(providing student counts as of Fall 2011 for each district).

197 We note that this is slightly higher than the national average pupil to teacher ratio published by NCES. See U.S.

Department of Education, National Center for Education Statistics, Common Core of Data (CCD), "Public

Elementary/Secondary School Universe Survey", 2011-12 v.1a.,

http://nces.ed.gov/pubs2013/2013441/tables/table_02.asp (last visited July 10, 2014). The pupil to teacher ratio may

more accurately indicate the number of classrooms in a school because there are instructional spaces used by

teachers that are not classrooms (e.g., computer labs, art rooms). NCES reports that the average class size for

teachers in public elementary and secondary schools is 21.2 (elementary) and 26.8 (secondary). See U. S. Dept. of

Ed. Public Teacher Data File.

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93.

A pre-discount budget of $150 per student over five funding years, or $30 per student

annually, is also consistent with the market rate for elementary and secondary school managed Wi-Fi

solutions, described below. Because these costs include installation and maintenance, we find them to be

a strong, market-driven representation of all-inclusive, per-student LAN/WLAN deployment costs. For

example, Education Networks of America (ENA) currently provides managed Wi-Fi to 82 percent of

public and charter high schools in Idaho for $21 per student and teacher per year, including installation,

management, maintenance, and content filtering.198 C-Spire Fiber has several deployments in Mississippi

that average an annual cost of $19 to $29 per student for the managed Wi-Fi product it is piloting.199 In

Ohio, several Information Technology Centers offer a managed Wi-Fi service to member school districts

for $9-15 per student per year plus vendor installation charges.200

94.

Commenters also submitted three different Wi-Fi cost models into our record: the

EdSuperHighway/CoSN ConnectED Cost Model,201 the EdSuperHighway/CoSN Ongoing Cost Model,202

and the Cisco Model.203 The first of these, the EdSuperHighway/CoSN ConnectED Cost Model,

produces the lowest estimate of required costs, producing a nationwide, average cost of approximately

$21 per student per year, well below the budget we set here.204 This model assumes substantial existing

infrastructure however, the extent of which will vary greatly between districts, so it is poorly suited to

setting reasonable, nationwide budgets that will be sustainable on an ongoing basis.205 We thus do not

rely on this model.

95.

The remaining models confirm our conclusion based on the record evidence discussed

above that a pre-discount $150 per student five-year budget we adopt here is reasonable. In contrast to

198 See Letter from John Windhausen, Jr., to Marlene H. Dortch, Secretary, Federal Communications Commission,

WC Docket No. 13-184, at 1 (filed May 6, 2014) (ENA Ex Parte).

199 See Letter from Jeffrey A. Mitchell, Counsel for Telepak Networks, Inc. d/b/a C Spire Fiber, to Marlene H.

Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184, at 2 (filed May 21, 2014); Letter

from Jeffrey A. Mitchell, Counsel for Telepak Networks, Inc. d/b/a C Spire Fiber, to Marlene H. Dortch, Secretary,

Federal Communications Commission, WC Docket No. 13-184, at 5 (filed June 12, 2014).

200 See Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, at 2 (filed Feb. 25, 2014) (describing a call regarding Ohio

Information Technology Centers).

201 See EdSuperHighway ConnectED Cost Model, http://www.fcc.gov/wcb/LAN_Wi-

Fi_ConnectED_Cost_Model.xlsx. This model was placed in the record on June 16, 2014. See June 16, 2014

Requested Data Ex Parte at 2.

202 See EdSuperHighway/CoSN Ongoing Cost Model.

203 See id.; Cisco Model.

204 See EdSuperHighway/CoSN ConnectED Cost Model (estimating $2,875,642,700 in E-rate subsidy (Base Case

Totals tab, cell N46) at an assumed base discount of 70 percent (Base Case Totals tab, cell J3), which implies a pre-

discount requirement of $4.1 billion needed for LAN/WLAN deployment. The EdSuperHighway/CoSN ConnectED

Cost Model was designed with the intent of identifying the funding required to meet the ConnectED five-year goals,

which were established in June 2013. See Letter from Evan Marwell, CEO, EducationSuperHighway, to Marlene

Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184 , Attach. at 3 (filed Apr. 10,

2014) (including a report entitled Connecting America’s Students: Opportunities for Action, which notes the June

2013 establishment of the ConnectED five-year goals and which the included the EdSuperHighway/CoSN

ConnectED Cost Model in its analysis). $4.1 billion divided by four years remaining to achieve the ConnectED

five-year goals, divided by the approximately 50 million public school students in the U.S., is approximately $21 per

student).

205 See EdSuperHighway/CoSN ConnectED Cost Model (Base Case Totals tab, Column L, showing “% [of

classrooms] Requiring Upgrades” at less than 60% for all categories of equipment),

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the EdSuperHighway/CoSN ConnectED Cost Model, the EdSuperHighway/CoSN Ongoing Cost Model

and the Cisco Model each attempt to estimate the full, ongoing costs of internal connections deployments,

averaged over the lifecycle of the equipment used. Both models consist of two basic components: an

overall framework for estimating costs and a set of inputs for various costs and equipment lifecycles.

Although they differ somewhat, the frameworks of both models appear to provide generally reasonable

approaches to estimating Wi-Fi deployment costs. With respect to the inputs, Appendix C provides the

staff’s comparison of the approaches, and a summary of the most significant input values in each model,

along with ranges supported in our record for each of these inputs. As illustrated in the first two columns

of Appendix C, the deployment and maintenance cost estimates generated by the EdSuperHighway/CoSN

Ongoing Cost Model and the Cisco Model differ, with EdSuperHighway/CoSN estimating an annual

average cost of $869 per classroom, or $44 per student, and Cisco estimating an annual average of $1,081

per classroom, or $59 per student.206 The staff’s sensitivity analysis of the key cost drivers, however,

shows that the range of reasonable cost estimates that can be produced by the basic model frameworks is

quite a bit wider than shown by these two data points. Specifically, with plausible changes to a small

number of inputs, the models could support annual cost estimates ranging from approximately $22 all the

way to $75 per student. The $150 per student five-year budget we adopt here falls comfortably within

this range, albeit toward the lower end. The EdSuperHighway/CoSN Ongoing Cost Model and the Cisco

Model thus help confirm the conclusions we draw from the diverse data on real world deployment costs

and the market-driven costs of managed Wi-Fi services, and, based on these data sets, we are comfortable

choosing an estimate toward the lower end of the range produced by the models.

96.

In sum, the record suggests $150 per student is a reasonable budget, with many schools

able to complete Wi-Fi deployments or upgrades for less than that amount. Some schools may still

choose to spend more than $150 per student on their wireless deployments based on individual design

decisions, and nothing in the approach we adopt prevents these decisions. Because the evidence shows

that $150 per student has proven sufficient in numerous deployments over several geographic areas,

however, we limit E-rate discounts to this budget.

97.

In finding that $150 per student over five years should provide sufficient support for

category two services, we acknowledge that some cost variation exists across or even within LAN or Wi-

Fi networks. For example, different building construction materials and variations in labor costs can

affect upgrade costs.207 However, in contrast to some other costs, such as the costs of digging trenches for

fiber deployment, the majority of the costs of LAN and Wi-Fi networks are commodity equipment costs,

and therefore cost variation for efficient upgrades is far less than that for connectivity to schools and

libraries. For the same reason, schools’ costs for LAN or Wi-Fi networks generally should scale linearly

by the number of classrooms (and therefore the number of students).208 We therefore conclude that a per-

student system of setting budgets for category two funding (combined with a poverty-based discount rate

and subject to the funding floor, as discussed below) reasonably suits the manner in which category two

costs are incurred.

98.

Library Budget. We set a pre-discount budget of $2.30 per square foot over five years for

libraries. Square footage provides a simple to calculate, predictable, and reasonably accurate method of

setting budgets.209

Some commenters suggest that we should use patron counts, average daily users, peak

206 See Appendix C.

207 See, e.g., Council PN Comments at 6; EdLiNC PN Comments at 9.

208 See, e.g., ACA PN Reply Comments at 5 (stating that these costs are “relatively easy to determine and tend to be

more predictable”); HP PN Comments at 7 (agreeing that costs generally scale by student population); Jive PN

Comments at 5 (stating that it is correct that prices for LAN and Wi-Fi deployments do not vary widely and should

scale by number of students).

209 See ENA Ex Parte at 1 (public libraries typically calculate needs based on square footage).

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hour users, or other metrics to help set reasonable internal connections budgets for libraries.210

We

decline to adopt any of these other suggested metrics at this time because (a) we have identified no

available sources of data on these metrics for all libraries, and (b) patron count, average daily users, and

peak hour users may vary dramatically and could be difficult to measure. As a result, using these metrics

at this time could reduce predictability, complicate the application process, and slow down application

reviews.211

99.

We choose $2.30 per square foot over five years as the budget amount based on three

data sets in our record. First, Vermont libraries submitted state data showing the average equipment cost

for deploying wireless networks in 35 libraries in the state to be approximately $0.81 per square foot.212

Second, the Urban Libraries Counsel (ULC) urged the adoption of a budget of $4 per square foot for

libraries,213 which was supported by a number of libraries.214 Finally, the ALA filed an analysis reporting

per square foot costs for a variety of libraries in the range of $1.79 to $2.29, which focused more

specifically on E-rate eligible costs.215

100.

Considering the range of all the cost data in the record and recognizing that the $2.30

budget is a cap, not a grant, we find that ALA’s recommendation of $2.30 per square foot, taken with the

$9,200 funding floor over five years as set below, is a reasonable budget level. The ALA

recommendation is based on a more thorough analysis and specifically limited to E-rate eligible costs.

While we note that a number of libraries supported the ULC proposal, in general these commenters did

not provide sufficiently detailed data for the Commission to ensure that the estimates included only E-rate

210 See, e.g., ALA NPRM Comments at 19 (noting range of building size from a few hundred feet to tens of

thousands); E-Rate Central NPRM Reply Comments at 5; SECA PN Comments at 20 (asking how patrons would be

counted); ULC PN Reply Comments at ii-iii (seeking a survey of average and peak users).

211 See Letter from Marijke Visser, Assistant Director, Office of Information Technology Policy, American Library

Association, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 13-184 (filed

July 7, 2014) (ALA Formula Ex Parte) (supporting a square footage metric with a floor as having distinct benefits

because (1) libraries already submit this data to IMLS, (2) it is readily normalized across libraries, and (3) a user

model could lead to unnecessary delays during the administrative review process); see also Letter from Larry P.

Neal, President, Public Library Association, to Chairman Wheeler et al., Federal Communications Commission, WC

Docket No. 13-184 (filed July 7, 2014) (supporting the formula as reflecting the needs of public libraries of all

sizes).

212 We calculated this using the total floor area and the total cost of equipment of all 35 libraries. See Letter from

Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline Competition Bureau,

Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC

Docket No. 13-184 (filed June 16, 2014) (Vermont Library Data Page Ex Parte) (at spreadsheet entitled “Vermont

Library Network Equipment Costs”).

213 See Letter from John M. Beahn, Counsel to Urban Libraries Council, to Marlene Dortch, Secretary, FCC, WC

Docket No. 13-184 (filed July 7. 2014). The ULC suggested an alternative budget of $150 per average daily visitor.

Id. We decline to adopt this recommendation for the reasons set forth in para. 96.

214 See, e.g., Letter from Jon Worona, Manager of Technology and Innovation, San Jose Public Library, to Chairman

Wheeler et al., WC Docket No. 13-184 (filed July 3, 2014); Letter from Jim Loter, Director, Information

Technology, Seattle Public Library, to Chairman Wheeler et al., WC Docket No. 13-184 (filed July 1, 2014), Letter

from Sam Rubin, Special Assistant to the President, New York Public Library, to Jonathan Chambers, Chief, Office

of Strategic Planning and Policy Analysis, FCC, WC Docket No. 13-184 (filed July 9, 2014) (proposed internal

connection upgrades for Bronx Library Center (BLC) and the Mid-Manhattan Library (MML) average $4 per square

foot).

215 See Letter from Marijke Visser, Assistant Director, Office of Information Technology Policy, American Library

Association, to Chairman Wheeler et al., WC Docket No. 13-184 at 1 (filed July 7, 2014) (ALA Budget

Recommendation Ex Parte).

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eligible services.216 Further, four ULC member libraries that did provide more specific cost data in

response to requests from Commission staff indicate a range of $0.82 to $3.08 per square foot.217 Even

so, we consider ULC’s data in evaluating all the cost data in the record and selecting the $2.30 per square

foot funding budget.

101.

Finally, we note that nationwide, schools have a median of approximately 150-175 square

feet per student.218

The $150 per student budget we adopt therefore equals about $0.86 to $1.00 per

square foot for schools. The budget we select for libraries today is substantially above this amount.

Therefore, we believe that $2.30 represents a generous figure that will not unnecessarily restrict library

funding. Since our record suggests that usage density is unlikely to be substantially higher in libraries

than it is in schools,219 the school costs in our record provide additional support for our finding that

ALA’s proposed $2.30 per square foot funding budget will provide sufficient support for library

deployments.

102.

Notwithstanding this analysis, we recognize that the library data are less robust than that

for schools. Accordingly, in the accompanying Further Notice we seek additional comment on these

issues.

103.

Funding Floor. To ensure the category two budgets we set are sufficient to meet the

minimum demand that certain schools and libraries might have regardless of size, we also establish a pre-

discount funding floor of $9,200 in category two support available for each school or library. While

WLAN costs tend to scale by classroom size, schools and libraries will need the baseline funding to

216 See, e.g., Letter from Barbara A.B. Gubbin, Director, Jacksonville Public Library, to Chairman Wheeler et al.,

WC Docket No. 13-184 (filed July 7, 2014); Letter from Michael K. Bollinger, Director, Information Technology,

Kansas City Public Library, to Chairman Wheeler et al., WC Docket No. 13-184 (filed July 7, 2014).; Letter from

Ramiro Salazar, Director, San Antonio Public Library, to Chairman Wheeler et al., WC Docket No. 13-184 (filed

July 7, 2014); Letter from Melinda S. Cervantes, Executive Director, Pima County Public Library, to Chairman

Wheeler et al., WC Docket No. 13-184 (filed July 7, 2014) (estimates were for “delivering access to digital

information”); Letter from Gary Wasdin, Executive Director, Omaha Public Library, to Chairman Wheeler et al.,

WC Docket No. 13-184 (filed July 7, 2014) (estimate to “provide internet service”).

217 See Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, Attach. (filed July 8, 2014) (showing equipment cost for

recent Cuyahoga County (OH) Public Library building projects of $1.01, $0.82, and $1.07); Letter from Charles

Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline Competition Bureau, Federal

Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket

No. 13-184, (filed July 10, 2014) (budget for upgrading Chattanooga Public Library main library of $1.79 per square

foot; recent branch library WLAN upgrade at approximately $2 per square foot); Letter from Charles Eberle,

Attorney-Advisor, Telecommunications Access Policy Division, Wireline Competition Bureau, Federal

Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket

No. 13-184,. (filed July 8, 2014) (Boston Public Library WLAN upgrades in 2011-2012 cost approximately $1.69

per square foot); Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division,

Wireline Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184 (filed July 8, 2014) (WLAN upgrades for Richland County

main library and ten branch locations budgeted at $3.08 per square foot).

218 See Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184 (filed June 19, 2014) (June 19, 2014 Requested Data Ex

Parte) (linking to 19th Annual School Construction Report, SCHOOL PLANNING & MANAGEMENT, February 2014, at

21, Table 5) (showing that new school construction has a median floor are per student of 149.6 square feet per

elementary school student, 173.3 square feet per middle school student, and 174.2 square feet per high school

student).

219 See Cisco White Paper at 8, 31.

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purchase a router and/or switch, at least one small wireless access point, and cabling necessary to deploy

WLANs in even the smallest buildings.220

Our record is not, however, as well developed on this point as

we would like, and so we take the conservative approach of adopting ALA’s recommended floor of

$9,200, based on ALA’s consultation with its library members.221 Our record indicates that $9,200

should be sufficient to cover the costs to purchase necessary equipment, cabling, and installation for these

libraries.222 We set the floor for schools at the same level to ensure equity and because the costs of

deployment in small schools and libraries should be similar.223 Increasing the floor by this amount has a

minimal budget impact. Therefore, all schools and libraries, including smaller schools and libraries, will

be eligible to request pre-discounted support for up to at least $9,200 for category two services over any

given five-year period.224

104.

Per-Entity Basis. Applicants will be required to seek support for category two services

on a school-by-school and library-by-library basis, although school districts will use a single district-wide

discount rate for all of their schools, as will library systems for all of their libraries. Under this approach,

school districts, whether public or made up of more than one independent school under central control,225

will have the flexibility to request support for any school or group of its schools each funding year, using

the number of students in any school getting LAN/WLAN upgrades to determine the maximum eligible

pre-discount amount in a given funding year for that school.226 This flexibility will allow districts to

decide how to sequence deployment of LANs/WLANs based on their individual needs.227 For example, a

large district may choose to upgrade one fifth of its schools in each of the five funding years, while a

small district may request support to upgrade all of its schools in one funding year. To the extent that a

district seeks or receives funding commitments for less than the category two budget for E-rate support

220 See, e.g., Vermont Library Data Page Ex Parte. The spreadsheet entitled “Vermont Library Network Equipment

Costs” provides detailed internal connection purchases for the Vermont libraries that included a router, switch, and

wireless access point needed for all libraries.

221 See ALA Budget Recommendation Ex Parte at 2.

222 See, e.g., Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline

Competition Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, Attach.: “Vermont WLAN Upgrade Budget” (filed May 21,

2014) (Vermont Library Ex Parte) (setting a $4,900 budget for the cost of routers, wireless access points, switches,

and equipment for each library in Vermont, but excluding cabling). We note that EdSuperHighway recommended a

budget floor of $14,000 for schools of 100 students or less, based on a modeled deployment cost of $13,800 for a

typical 100 student school. See Letter from Evan Marwell, CEO, EdSuperHighway, to Marlene Dortch, Secretary,

Federal Communications Commission, WC Docket No 13-184 at 1 Attach (filed July 9, 2014). Our per student

budget of $150, which would provide a budget of $15,000 for a 100 student school, is sufficient to accommodate

this model. The EdSuperHighway filing does not, however, provide information on the costs for even smaller

schools, which is the relevant question here.

223 See supra para. 97.

224 See, e.g., AASA NPRM Comments at 4 (stating that per-student caps can shortchange small schools); ALA PN

Comments at 22 (seeking a threshold for smaller libraries).

225 See infra section VI.B.1. (“Independent charter schools, private schools, and other eligible educational facilities

that have more than one school building should factor all students in facilities under the control of the central

administrative agency into the discount calculation.”).

226 For example, a small district with 2,000 students and 10 schools may request all of its funding in the first year, up

to its discounted portion of $300,000. On the other hand, a large metropolitan district with 100,000 students and 200

schools may request support for 40 schools each year for five years, calculating the number of students in each of

the 40 schools to determine the eligible pre-discount total per school each funding year.

227 See, e.g., Chicago PN Comments at 2 (requiring flexibility and phasing of work across multiple funding years);

Knox County PN Reply Comments at 8 (“district cannot afford nor manage to address all facilities in the same

funding cycle”); Wisconsin DPI PN Comments at 5 (asking for three years to use available support).

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available to a school, it may request additional category two E-rate support up to that budget in the

following four funding years.228 The costs for services shared by multiple entities shall be divided

between the entities for which support is sought in that funding year.229 Likewise, library systems that

include multiple libraries will have the flexibility to request support for all or a portion of their library

branches each year, using the floor area of the libraries being updated to determine the maximum budget

available each year.

105.

Similarly, eligible schools that operate independently of a public school district, such as a

private or charter school, are eligible for E-rate discounts on the purchase of eligible internal connections

services up to $150 per student (or a minimum of $9,200). If an independently operated school seeks or

receives less than the maximum amount of internal connections E-rate support available to that school in

year one, it may request additional internal connections E-rate support up to that maximum in the

following four funding years. Likewise, libraries that are not part of a library system may request E-rate

support for a pre-discount purchase of up to the greater of $9,200 or $2.30 per square foot, and any

amount less than that will be available in the following four funding years. For example, a 10,000 square

foot library may request support for a purchase of up to $23,000 over five years. If it seeks E-rate support

for a purchase of $13,000 in the first funding year, it may request discounted support for another $10,000

in eligible services over the next four years.

106.

Application of Budgets to Funding Years 2015 and 2016 and Five-Year Funding Cycle.

The question of applicant budgets is closely linked to the question of the long-term funding levels for

category two services. As described above, at this time we set funding for category two as a budget target

rather than a firm allocation. In light of the funding identified by the Bureau earlier this year, we are

confident we can meet this target for the next two funding years, and therefore we apply the budget

approach adopted here to those two funding years. We will evaluate the longer-term application of this

approach in conjunction with our evaluation of the overall, longer-term program needs.

107.

While the budget approach will only apply to applicants that receive funding in funding

years 2015 and 2016, we clarify that the budget themselves are five-year budgets. In other words, for

schools in districts seeking funding in years 2015 and 2016, we adopt a rolling funding cycle of five years

for category two services and remove the two-in-five rule that applied to priority two internal

connections.230 As explained above, Wi-Fi equipment has a lifecycle of approximately five years.231

Therefore, excluding any priority two support received before funding year 2015, schools in districts that

seek category two support in funding years 2015 or 2016 will calculate their available support budget as

$150 per student, multiplied by their discount, less any E-rate support received in the prior four years. In

228 A district may calculate the amount of E-rate support available to a particular school in a given funding year

based on the following formula. E-rate support available = [(number of students at the time of the discount level

calculation) x ($150) x (discount level) - (E-rate funding received in prior four funding years)]. An 80 percent

discount school with 1,000 students that purchased all of the internal connections equipment in one funding year for

$60,000 would therefore use the following formula: (1,000 x $150 x 0.80) = $120,000 – $60,000 = $60,000 in E-rate

support available to request in the next funding year if necessary.

229 See 47 C.F.R. § 54.502 as amended herein.

We note that discounts are generally not available for non-

instructional facilities (NIFs) or administrative buildings of a library.

Shared costs for deploying internal

connections to ineligible NIFs – such as the shared cost of a central switch that routes traffic to both schools and

NIFs – must be cost allocated.

If category two services “are essential for the effective transport of information to or

within one of more instructional buildings of a school or non-administrative building of a library or the Commission

has found that the use of those services meets the definition of educational purpose,” the services are eligible for E-

rate support notwithstanding that they are located within a NIF.

For example, the costs of a central switch that is

located within a NIF, but routes traffic only to instructional facilities, would be eligible for support.

230 See 47 C.F.R. § 54.502(a)(4)(iii) (providing that schools and libraries shall be eligible for internal connections

support no more than twice every five years).

231 See supra para. 90.

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the first funding year that an applicant requests category two support, the full amount of the pre-discount

$150 per student budget will be available to request. In later years, applicants will calculate the available

budget based of $150 per student less any support received in the prior four funding years. Applicants

that receive support in funding year 2015 will have $150 per student available divided over funding years

2016, 2017, 2018, and 2019. Applicants that receive support in funding year 2016, but not in funding

year 2015, will have a budget of $150 per student divided over funding years 2017, 2018, 2019, and 2020.

Likewise, libraries in library systems that receive support in funding years 2015 or 2016 will calculate

support over the five-year funding cycle using the number of square feet less any support received in the

prior four funding years. This approach will allow schools and libraries to plan for how best to upgrade

their facilities, and plan for future upgrades based on their own prior spending. In contrast, adopting a

shorter budget, such as a two-year budget, would create a mismatch between the budget cycle and real

equipment lifecycles, and would likely encourage applicants to inefficiently front-load expenses in the

next two years.

b.

Reasons for a Multi-Year Budget Approach

108.

Our decision to limit applicants’ total category two requests based on a five-year budget

reflects broad consensus in the record that some reasonable limits on requests are necessary to spread

support more broadly than under the current system.232 In the E-rate Modernization Public Notice, the

Bureau outlined three options for such limits, and invited comments on alternatives.233 The five-year

budget that we adopt here is a middle course between two of these options – an annual per-student

allocation and a one-in-five rotating funding schedule.234 After carefully evaluating the arguments for

these and other options, we conclude that the approach we adopt today will bring several important

benefits to applicants and the program.235

109.

First, the approach we take to distribute category two funding provides greater

predictability. Since funding year 1999, applicants have had no certainty from year-to-year that category

two services would be supported.236 As such, administrators, budget managers, and technology planners

232 See, e.g., CETF PN Comments at 11; C-Spire Fiber NPRM Reply Comments at 4; EdCo PN Comments at 3; EPS

PN Comments at 13; E-Rate Reform NPRM Reply Comments at 5; FFL PN Comments at 1; Illinois CMS PN

Comments at 8; KDLA PN Comments at 2; SECA PN Comments at 17; Weslaco ISD PN Comments at 4-5.

233 See, e.g., ALA PN Comments at 19-22 (supporting a rotating model with some adjustments); EdLiNC PN

Comments at 5 (arguing that a limit will either be too high or too low for most schools); E-Rate Central PN Reply

Comments at 4-6 (outlining concerns with all approaches, but determining overall that an annual allocation is more

predictable); NAESP PN Comments at 6 (opposing a structural overhaul as impeding efforts to connect classrooms

and libraries at this time and arguing a one-in-five rule would exacerbate the two-in-five problems); NEA PN

Comments at 4-5 (siphoning funds for internal connections undermines program); MMTC PN Comments at 3-5

(arguing that none of the Public Notice proposals would accomplish the goals); SECA PN Comments at 13-22

(acknowledging that all options have benefits and drawbacks, even their initial suggestion for rotating support);

Steven Kaplan PN Comments at 5 (stating that too low of a limit may be inadequate for the majority of applicants);

Valerie Oliver PN Comments at 4 (encouraging a mixture of lowering the discount level and rotating support).

234 See E-rate Modernization Public Notice, 29 FCC Rcd at 2179, paras. 14-19.

235 According to a survey by the Consortium on School Networking, 57 percent of responding school districts

believe they have insufficient Wi-Fi capacity for one-to-one digital learning. See CoSN NPRM Reply Comments at

3.

See also, e.g., KDLA PN Reply Comments at 1 (citing the ALA Public Funding & Library Technology Access

Survey that 74.4 percent of Kentucky libraries offer the only no-fee computer and internet access in their

communities); KDLA PN Comments at 4 (seeing “skyrocketing demands on their wireless networks”); The Quilt

PN Comments at 3 (stating that even when schools have access to fiber, they lack access to internal wiring necessary

to reach students). See also, e.g., EdSuperHighway PN Reply Comments at 13; Cox PN Comments at 9-10; Jive PN

Comments at 4-5; SDDOE PN Comments at 5.

236 See USAC, Schools and Libraries, Search Commitments, http://www.usac.org/sl/tools/commitments-

search/default.aspx (excluding funding year 2010, funding year 1999 was the last year that applicants below the 70

percent discount level received support for internal connections).

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have been discouraged from planning for E-rate support for Wi-Fi in their schools and libraries because

annual funding was far from assured.237 Some commenters express concern regarding the predictability

of other approaches, such as a rotating approach238 or a one-in-five approach.239 On the other hand, some

commenters support an allocation approach in order to provide needed certainty.240 Unlike in previous

years, when there was no funding for internal connections, or funding went to connect a small percentage

of the nation’s students and library patrons, the approach we adopt today provides greater predictability

and will be able to provide support for 10 million students and thousands of libraries each year.

110.

Second, the approach we adopt today maintains the E-rate program’s priority for the

highest poverty schools and libraries.241 We continue to use poverty measures when distributing support

under this approach. Applicants with the highest percentage of students eligible for free and reduced

lunch will receive a greater proportion of E-rate support and be eligible earlier in the five-year cycle if

demand exceeds the annual budget for category two services.

111.

At the same time, this approach guarantees a broader distribution of funding for internal

connections – adjusted as appropriate to reflect greatest levels of poverty – by setting reasonable limits on

category two requests in order to deploy Wi-Fi networks to a far greater number of eligible applicants.

Many applicants debate the costs and benefits of different distribution approaches, but focus on a core

principle that distribution must be made more equitable.242 As we noted earlier, the existing priority two

methodology has resulted in E-rate funding for priority two services being distributed only to schools and

libraries with the highest discount levels.243 Additionally, a disproportionate amount of available funding

has gone to urban schools.244 Commenters point out that some proposals, like a one-in-five limitation,

would not help to achieve a more equitable distribution of support.245 Similarly, an increase in the cap

without these additional measures to encourage efficient purchasing would not achieve more equitable

distribution.246 This five-year budget approach should provide sufficient support per student or per square

foot for far more schools and libraries to access needed funding, but places a limit on less cost-efficient

spending requests.

112.

Importantly, this approach to funding category two connectivity also provides flexibility

to districts, schools, and libraries to deploy and maintain Wi-Fi as best suits their own circumstances.

237 See, e.g., ALA PN Comments at 11; EdLiNC NPRM Comments at 14; SECA PN Comments at 19; Wisconsin

DPI PN Comments at 3.

238 See, e.g., California DOE PN Comments at 3-4 (liking rotating in concept, but finding it unpredictable); Chicago

PN Comments at 2-3 (rotating eligibility would be ideal, but it is unlikely to provide any additional certainty).

239 See Letter from John D. Harrington, CEO, Funds for Learning, LLC, to Marlene H. Dortch, Secretary, Federal

Communications Commission, WC Docket No. 13-184, at 1 (filed Apr. 7, 2014) (stating that a one-in-five approach

would be very uncertain and would be difficult to plan effectively).

240 See, e.g., Illinois CMS PN Comments at 8 (stating an allocation that provides some certainty represents the best

approach); EdCo PN Comments at 3 (noting this could assist with budget planning, which have challenges under the

two-in-five rule); KDLA PN Comments at 3 (saying this will provide convenience for budgeting).

241 See supra section IV.B.1.

242 See, e.g., SECA PN Comments at 13-14 (noting that all approaches have issues, but believing that applicants

must be able to obtain sufficient support at all discount levels); SDDOE PN Comments at 5 (explaining positive and

negative attributes of different approaches and emphasizing need to improve chances that all applicants get funding

periodically).

243 See supra para. 64.

244 Id.

245 See, e.g., NAESP PN Comments at 6 (arguing a one-in-five rule would exacerbate the two-in-five problems).

246 See, e.g., EdLiNC NPRM Comments at 10-11; AASA NPRM Comments at2; CoSN PN Comments at 9.

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Many commenters argue that flexibility is essential for setting reasonable budgets each year,247 and this

five-year budget approach allows applicants to decide the rate at which school networkss are updated.

This approach allows applicants to plan how to deploy their networks over five years, whether by

requesting support for all or just a portion of entities each year, or by purchasing a managed Wi-Fi service

through which a third party provider installs and manages the necessary LAN and WLAN.248

113.

Finally, the approach we take today promotes cost-effective purchasing by applicants

while providing support that the record demonstrates should be sufficient to support these badly needed

deployments.249 In the past, applicants at the top discount levels had an incentive to overbuy or use less

cost-effective network design.250 A limit on category two support will encourage more cost-efficient

purchasing.

114.

In contrast to the approach we adopt here, we find the alternative approaches that

commenters suggest, as well as those outlined by the Bureau in the E-rate Modernization Public Notice,

such as maintaining the existing system but temporarily eliminating support for applicants that have

recently received support,251 a rotating schedule of funding for different discount bands,252 or single-year

budgets, implemented with or without the existing discount matrix,253 would each be less effective at

solving the structural problems with how the E-rate program has historically funded internal connections.

For instance, as pointed out by commenters, both the rotating eligibility approach and the one-in-five

approach outlined by the Bureau in the E-rate Modernization Public Notice lack certainty for schools and

libraries absent incentives for more cost-efficient purchasing in the highest discount bands, and would

likely fail to distribute support more broadly than is the case today.254 In contrast, providing applicants

247 See, e.g., EdCo PN Comments at 2; HP PN Comments at 2-3; Wisconsin DPI PN Comments at 5; Chicago PN

Comments at 2; KDLA PN Comments at 2.

248 See, e.g., The Quilt PN Comments at 4; Verizon PN Comments at 5; WVDE PN Comments at 6.

249 See, e.g., iNACOL PN Comments at 5 (stating that limited funds will encourage good stewardship); South Texas

PN Comments at 9 (agreeing that an allocation would shift the focus on cost-efficient purchasing, rather than over-

purchasing).

250 See, e.g., Amplify NPRM Reply Comments at 6 (explaining that priorities encourage schools to focus on priority

one services that they do not need); Cisco NPRM Comments at 7-8 (stating that changes are needed to prevent

inefficient incentive to purchase more Internet access rather than more cost-effective internal network equipment);

Cox NPRM Reply Comments at 9-10 (stating that priority system can create uneconomic incentives to purchase

more expensive services rather than less expensive Wi-Fi networks to achieve the same result); EdLiNC PN

Comments at 6-7 (noting that one-in-five exacerbates two-in-five, which gives applicants an incentive to apply all at

once for everything needed over five years); EPS NPRM Comments at 2 (stating that the priority system is skewing

the market and preventing innovation); E-Rate Reform NPRM Comments at 11, Exhibit F (demonstrating that

market distortion occurs because applicants make purchasing decisions based on the priority classification);

iNACOL PN Comments at 3 (stating two-in-five was ineffective); Miami-Dade NPRM Comments at 10 (stating that

two-in-five has done the opposite of what was intended , which was to curtail excessive funding requests);

SmartEdgeNet NPRM Reply Comments at 11-13 (eliminating priorities will reduce inefficient use of E-rate by

getting rid of incentive to use more expensive means to meet needs); Weslaco ISD NPRM Comments at 10

(eliminating priorities will eliminate incentive to purchase higher priced priority one services when priority two

services would be a better use of funds).

251 See, e.g., AASA PN Comments at 4-5; EdLiNC PN Comments at 11-12.

252 See, e.g., SECA NPRM Comments at 9-15; Nebraska OCIO PN Comments at 8 (supporting rotating eligibility,

but only if begins with those applicants that have not received funding in recent years).

253 See, e.g., FFL NPRM Comments at 6; E-rate Reform NPRM Comments at 5.

254 See, e.g., California DOE PN Comments at 3-4 (liking rotating funding in concept, but finding it unpredictable);

NEA PN Comments at 4-5.

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with a constant, single-year budget would fail to account for the reality that individual applicants will

have different needs in different years, depending on where they are in their upgrade cycle.

c.

Other Applicant Budget Issues

115.

Student Count. Below we move to a district-wide calculation of applicants’ discount

rates. In order to determine the budget available each funding year, districts should calculate the number

of students per school at the time that they calculate their district-wide discount rate annually.255 We

recognize that there will be some instances, such as the construction of a new school, that will make

calculating the number of students more difficult for districts.256 We will permit schools and school

districts to provide a reasonable estimate of the number of students who will be attending a school under

construction during a particular funding year and seek support for the estimated number of students.

However, if an applicant overestimates the number of students who enroll in that school, it must return to

USAC by the end of the next funding year any funding in excess of that to which it was entitled based on

the actual number of enrolled students. This means a school at the 80 percent discount level, which

estimates that it will have 1,000 students, may request E-rate support of up to $120,000. If, however,

enrollment after the school opens is only 750 students, the school will have to return any committed

support exceeding $90,000.257 We note, however, that there may be funding years in which an entity

loses students and therefore spent more than its available budget in the prior four funding years.258 In

these instances, we will not require repayment of any E-rate support, but there will be no available

funding for that funding year. Students who attend multiple schools, such as those that attend educational

service agencies (ESAs) part-time, may be counted by both schools in order to ensure appropriate

LAN/WLAN deployment for both buildings.259

116.

Cost-Effective Purchasing. Our goal in setting a per-student limit is to ensure schools

and libraries can purchase the internal connections they need while discouraging them from purchasing

unnecessary equipment or using an inefficient network design. At the same time, we emphasize that the

pre-discount $150 budget per student is not a block grant. Applicants may only request funding for

discounts on eligible category two services, and schools must continue to pay the non-discounted portion

of the supported services. These requirements remain in place. We will not, however, second guess

schools’ and libraries’ decisions to purchase additional equipment or services with other sources of

funding if they determine that it is the most cost-effective service offering for what they have decided

they need.260

117.

Rural Remote Applicants. We decline to adopt the request made by some commenters

that we provide additional category two funding or a rebuttable presumption allowing USAC or the

Bureau to waive the budget for applicants in rural remote areas at this time.261 As described above, we

255 The current instructions for FCC Form 471 state to “[p]rovide the number of students eligible for NSLP as of the

October 1st prior to the filing of this form, or use the most current figure available.” See USAC, Schools and

Libraries, Forms, FCC Form 471 Instructions, http://www.usac.org/sl/tools/forms/default.aspx (last visited June 20,

2014).

256 See, e.g., SECA PN Comments at 19; South Texas PN Comments at 5.

257 1,000 students x $150 x 0.8 = $120,000. 750 students x $150 x 0.8 = $90,000. Any committed support over

$90,000 must be returned to USAC.

258 For example, the 80 percent discount level school with 1,000 students requests E-rate discounted support of

$120,000. In the next funding year, if enrollment is down to 750 students, there is no obligation to repay the E-rate

support made for the purchase in excess of $90,000.

259 See, e.g., SECA PN Comments at 19.

260 See 47 C.F.R. § 54.511(a).

261 See, e.g., Integrated Logic PN Comments at 2-3 (stating that all aspects of broadband cost more in Alaska);

SECA PN Comments at 17 (arguing for a presumption that could be rebutted for those applicants that have

(continued…)

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find that LAN/WLAN costs are largely based on the costs of equipment, and therefore tend to have

consistent prices nationwide.262 To the extent there are price variations, it is often the case that internal

connections upgrades are less expensive in rural areas because labor costs are lower, permitting is easier,

and buildings are newer and/or easier to renovate.263 Therefore, we conclude that the benefits of

additional funding for rural remote areas are outweighed by the added administrative burden and the

additional costs to the Fund of providing such additional support.

4.

Setting an Annual Funding Target for Internal Connections

118.

Based on the five-year school and library budgets we find sufficient above, total category

two pre-discount requests over the next five-years will amount to no more than $8.8 billion to deploy

LANs and WLANs in schools and libraries throughout the country.264

After accounting for the non-

discounted share paid by applicants, with a 15 percent minimum applicant contribution, we estimate that

E-rate discounts will support approximately 67 percent of the total pre-discount cost of $8.8 billion for

eligible category two services.265 In addition, we estimate that there will be schools and libraries that do

not seek funding or request less than the full budgeted amount to upgrade and maintain their

LANs/WLANs over time.

We therefore reduce the five-year budget by approximately 15 percent to

avoid over-budgeting and set the five-year budget at $5 billion, plus annual inflation adjustments. We

adopt an annual target of $1 billion, plus any annual inflationary changes, for category two services,

which is equal to one-fifth of the five-year estimate of E-rate support. In addition to this annual budget,

the Bureau may allocate any available carry forward funding to meet category two demand.

(Continued from previous page)

extenuating circumstances); Valerie Oliver PN Comments at 5 (seeking additional support for areas outside the

continental United States).

262 See, e.g., HP PN Comments at 7 (confirming that prices for internal wireless networks generally scale

proportionally with student body size).

263 See, e.g., Mississippi Technology Coordinators Ex Parte at 1 (filed May 12, 2014) (explaining that costs in Lamar

County, Mississippi are three to five time less than some in other areas of the nation); Council PN Comments at 6.

264 ($150 x ~53.5 million public and private students) + $245 million for the schools funding floor + ($2.30 x ~185

million square feet of library space) + ~61.2 million for the library funding floor = ~$8.8 billion. See Institute of

Museum and Library Services, Public Libraries Survey: Fiscal Year 2012: Public Library Outlet Data File (2014),

http://www.imls.gov/research/pls_data_files.aspx (last visited July 3, 2014) (totaling approximately 200 million

square feet of library space in the Puout12a.xls data file); see also U.S. Department of Education, National Center

for Education Statistics, Institute of Education Statistics, Enrollment and percentage distribution of enrollment in

public elementary and secondary schools, by race/ethnicity and region: Selected years, fall 1995 through fall 2023,

Table 203.50, http://nces.ed.gov/programs/digest/d13/tables/dt13_203.50.asp (last visited July 10, 2014) and Private

elementary and secondary enrollment, number of schools, and average tuition, by school level, orientation, and

tuition: Selected years, 1999–2000 through 2011-12, Table 205.50,

http://nces.ed.gov/programs/digest/d13/tables/dt13_205.50.asp (last visited July 10, 2014) (total Fall 2011 public

school student count of 49,521,669 and private school count of 4,479,530). Approximately 15 million square feet of

library space and 500,000 students are accounted for by the funding floors.

265 See Submission for the Record from Funds For Learning, FY2014 E-rate Funding Requests: Telecommunications

and Internet Access by Schools & School Districts, WC Docket No. 13-184, at 3 (filed May 14, 2014) (FFL May 14,

2014 Submission for the Record) (showing a 69.0 percent average discount nationwide). We estimate that the

national average will be 1.5 percent less as a result of the increase to the minimum discount level contribution from

10 to 15 percent. See supra section IV.B.2.

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5.

Focusing Support on Broadband

a.

Core Components of Broadband Internal Connections

119.

In order to help deploy LANs/WLANs necessary to permit digital learning in schools and

libraries throughout the nation, we focus the category two ESL on broadband.266 With one narrow

exception,267 we limit internal connections support to those broadband distribution services and equipment

needed to deliver broadband to students and library patrons: routers, switches, wireless access points,

internal cabling, racks, wireless controller systems, firewall services, uninterruptable power supply, and

the software supporting each of these components used to distribute high-speed broadband throughout

school buildings and libraries. Some form of each of these services has previously been designated as

eligible for E-rate support, and we find they are necessary to ensure delivery of high-speed broadband

services to students and library patrons via LANs/WLANs.268 We do not limit these eligible services by

form, and therefore agree that equipment that combines functionality, like routing and switching, is also

eligible.269 Similarly, we recognize that some functionalities can be virtualized in the cloud, such as cloud

wireless controllers, and therefore will permit such services to be eligible for purchase by schools and

libraries.270

120.

To focus support on only those internal connections necessary to enable high-speed

broadband connectivity, beginning in funding year 2015, we eliminate E-rate support for the priority two

components that had been in the following ESL entries: Circuit Cards/Components; Interfaces, Gateways,

Antennas; Servers;271 Software; Storage Devices; Telephone Components, Video Components, as well as

voice over IP or video over IP components, and the components, such as virtual private networks, that are

listed under Data Protection other than firewalls and uninterruptible power supply/battery backup. In

recognition of our need to be a “prudent guardian of the public’s resources,”272 we find that eliminating

these priority two components from the ESL ensures that there is more E-rate support available to deploy

the LANs/WLANs needed to improve digital learning in schools and libraries. It is also consistent with

section 254(h)(2)(A) of the Act, which requires that support to schools and libraries improve access to

advanced services in a manner that is “technically feasible” and “economically reasonable.”273 We direct

266 See, e.g., SDDOE PN Comments at 2; SECA PN Comments at 3-5 (only essential broadband equipment should

be funded and all other equipment and services in the current priority two category should be ineligible; these other

services may be important but not integral to the availability of broadband connectivity); American E-rate PN

Comments at 7 (supports the removal of priority two telephone components from the ESL because it seems

redundant to have these available as a purchase and these components are very expensive to purchase and maintain);

PAIU NPRM Comments at 7 (only routers, switches, WAPs, and internal data cabling and the associated installation

should remain eligible; all other internal connections such as VoIP equipment, video equipment, UPSs and servers

should be ineligible); The Quilt PN Comments at 4; Valerie Oliver PN Comments at 2-3; WVDE PN Comments at

6. But see Alaska EED NPRM Comments at 9 (the FCC should recognize that videoconferencing equipment, in

areas that rely upon distance delivery of highly qualified instructors, is vital to transporting information).

267 See infra para. 130 (designating caching functionality as eligible for internal connections support).

268 See, e.g., Jive PN Comments at 3; Nebraska OCIO PN Comments at 8; The Quilt PN Comments at 4; SDDOE

PN Comments at 2.

269 See, e.g., Free Library PN Comments at 2.

270 See, e.g., SHLB PN Comments at 3, n.7.

271 We eliminate support for servers except to the extent that we, or the Bureau, determine that certain servers may

be necessary for the provision of caching. See infra paras. 130-131.

272 See supra n.115 (citing Vermont Pub. Serv. Bd. v. Fed. Commc’n Comm’n, 661 F.3d 54, 65 (D.C. Cir. 2011)

(finding that, in the context of section 254, “as the Commission rightly observed, it has a responsibility to be a

prudent guardian of the public’s resources.”)).

273 See 47 U.S.C. § 254(h)(2)(A).

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the Bureau to release for comment a draft ESL for funding year 2015 consistent with this Report and

Order, and encourage applicants to carefully review the eligible components included in the modernized

category two section in that draft ESL. Some components that had been listed in the ESL as priority two

may be relocated or described in updated or more generic terminology.274

121.

Also, despite support from some commenters,275 we decline at this time to designate

further network security services and other proposed services in order to ensure internal connections

support is targeted efficiently at the equipment that is necessary for LANs/WLANs. Many commenters

agreed that a limited list of eligible services would help ensure available funds are targeted and therefore

available to more applicants.276 As we noted above, we leave the record open on these services to allow

for further comment as we evaluate the changes in the first funding year.277

b.

Basic Maintenance, Managed Wi-Fi, and Caching

122.

Basic Maintenance.

For funding years 2015 and 2016, we will continue to provide

support for basic maintenance services subject to each school or library’s overall budget on E-rate eligible

category two services. In the E-rate Modernization NPRM, the Commission proposed phasing out

support for basic maintenance because the same high-discount school districts received ample funding,

while most school districts received none.278 Commenters point out however, that basic maintenance is

needed to ensure networks operate properly, particularly as networks become more complicated.279 We

believe that we can achieve the stated goal of broader funding distribution through other means, including

a reasonable and equitable limit on the total amount of E-rate support available per student and per square

foot which will discipline districts and libraries in basic maintenance purchasing decisions. In particular,

applicants are unlikely to seek support for unnecessary basic maintenance given these limits on the total

amount available, but providing support to ensure these networks function effectively may aid those

districts with limited resources. Support will only be available for maintenance on equipment and

services on the ESL and not for any of the legacy services phased out in this Report and Order.

123.

Managed Wi-Fi. In light of the applicant budgets for funding years 2015 and 2016, we

are persuaded by commenters who argue that managed Wi-Fi, which we call managed internal broadband

services in the rules to cover the operation, management, or monitoring of a LAN or WLAN, should be

274 For example, the category “Interfaces, Gateways, Antennas” names some components in outdated terms such as

“bridges”, or terms such as “cable modem” that are interchangeable or subsumed by other components such as

“routers” or “switches” that were in the Data Distribution entry, but remain eligible for E-rate funding in funding

year 2015.

275 See, e.g., Amplify PN Comments at 6-7; Bright House PN Comments at 4 (arguing support for be provided for

network protection, including intrusion protection and detection, malware protection, application control, content

filters, DDoS mitigation, and Unified Threat Management technology); CenturyLink PN Comments at 4 (stating that

DDOS, cybersecurity services, and cloud storage should be eligible); South Texas PN Comments at 6-7 (seeking

support for traffic shaping appliances, network security management, and more).

276 See, e.g., Nebraska OCIO PN Comments at 8; Valerie Oliver PN Comments at 3-4 (stating that providing support

for only the essential components helps the program provide greater access to support).

277 See supra para. 9.

278 E-rate Modernization NPRM, 28 FCC Rcd at 11334, para. 101.

279 See, e.g., Cisco PN Reply Comments at 6 (stating basic maintenance is needed to ensure E-rate investments are

not wasted when networks experience problems); Council PN Comments at 7 (stating basic maintenance is a

“critical component”); Sheri Callen PN Comments at 1 (explaining basic maintenance is needed to keep the network

robust and healthy); TIA NPRM Comments at 3 (finding that basic maintenance is needed to “ensure reliable

networks and reduce the need for costly equipment replacement”).

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eligible for internal connections support.280 In the past, applicants could seek internal connections support

only for the purchase of internal connections and basic maintenance. Unlike the traditional approach to

internal connections, for managed Wi-Fi service contracts, schools and libraries obtain LANs/WLANs as

a service for a period of three to five years from a third party who manages the entire system, providing

operations and maintenance for the life of the contract.281 In other cases, the school or library may own

the equipment, but have a third party manage it for them.

124.

The record demonstrates that applicants would benefit from greater flexibility to choose

among managed Wi-Fi options. In particular, the variations of managed Wi-Fi services can provide

substantial benefits and cost savings to many schools and libraries, particularly small districts and

libraries without a dedicated technology director available to deploy and manage advanced

LANs/WLANs quickly and efficiently.282 Therefore, pursuant to our authority under section 254 of the

Act, we find that providing support for managed internal broadband services, including managed Wi-Fi,

will “enhance…access to advanced telecommunications and information services” for schools and

libraries,283 and we direct the Bureau to include managed internal broadband services on the ESL for

funding years 2015 and 2016.

125.

Under the five-year applicant budget approach we adopt above, a district, school, or

library will be able to seek annual support for a managed Wi-Fi service, up to an average pre-discount

rate cost of $30 per student per year or one-fifth of the budget available to libraries based on floor area.284

This is consistent with the price of managed Wi-Fi services in the market today and limits the likelihood

of waste or abuse in these managed Wi-Fi contracts. As noted below, we will allow districts and libraries

to sign multi-year contracts, but we will not make multi-year commitments.285 Our short-term budget will

be sufficient to fund these smaller multi-year contracts and we will continue to evaluate whether

additional changes are needed in the long-term, but emphasize that there is no guarantee of funding.

126.

We disagree with commenters who argue that managed Wi-Fi should be a category one

service.286 Despite our recognition that virtualization and management may send some amount of

information beyond the walls of the school or library building in order to manage the internal networks,

we find that services used to distribute bandwidth throughout the school are internal connections services.

We therefore remove the presumption in our rules that such a service is not an internal connection.287

127.

Competitive bidding rules still apply to procurement of managed Wi-Fi services. We

encourage districts to request bids in technologically neutral ways and compare the cost-effectiveness of

bids for self-provisioned networks with those for managed Wi-Fi contracts. We also encourage schools

280 See, e.g., ADTRAN NPRM Comments at 22-23; Bright House PN Comments at 2-3; C-Spire Fiber PN Reply

Comments at 2-4; EPS PN Comments at 9; ENA PN Comments at 1; The Quilt PN Comments at 4; Sprint PN

Comments at 2; Verizon PN Comments at 5; WVDE PN Comments at 8-9.

281 See, e.g., C-Spire Fiber PN Comments at 5, 8.

282 See, e.g., SHLB PN Comments at 3 n.7; WVDE PN Comments at 8-9.

283 47 U.S.C. § 254(c)(3), (h)(1)(B), (h)(2)(A); see also Universal Service First Report and Order, 12 FCC Rcd at

9009, paras. 436-37.

284 Managed Wi-Fi services often spread the costs of any necessary equipment and the management of the network

over a five-year contract. See, e.g., C-Spire Fiber PN Comments at 5, 8.

285 See infra para. 196.

286 See, e.g., Ohio ERC PN Comments at 2-3 (arguing wireless access service fulfills the requirements of the

Tennessee Order).

287 See 47 C.F.R. § 54.502(a)(4)(i) (“There is a rebuttable presumption that a connection does not constitute an

internal connection if it crosses a public right-of-way.”).

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and libraries considering managed Wi-Fi to evaluate the value of joining a consortium of schools and

libraries to increase their buying power and drive down costs.288

128.

We also clarify that E-rate support for managed Wi-Fi is limited to those expenses or

portions of expenses that directly support and are necessary for the broadband connectivity within schools

and libraries. Eligible managed Wi-Fi expenses include the management and operation of the

LAN/WLAN, including installation, activation, and initial configuration of eligible components, and on-

site training on the use of eligible equipment.289 Eligible managed Wi-Fi expenses do not include a

managed voice service, for example. For bundled pricing that includes eligible and ineligible expenses,

applicants are required to cost allocate eligible from ineligible services to ensure only eligible services are

supported.290

129.

Finally, we delegate to the Bureau the authority to determine how best to interpret

managed services for the purposes of the ESL as we gain experience with funding of these services

through the E-rate program.291

Wireless access as a managed service is a market that is still being

developed, and we believe it will facilitate the efficient and effective support of these services to provide

the Bureau flexibility to adjust our approach as this market develops. As always, parties may appeal any

Bureau decision to the full Commission.

130.

Caching. Due in part to the applicant budgets for funding years 2015 and 2016 limiting

waste or abuse, we agree with commenters who argue that caching functionality should be eligible for

internal connections support.292 Caching functionality enables the local storage of information so that the

information is accessible more quickly than if it is transmitted across a network from a distant server. By

placing previously requested information in temporary storage, caching functionality can, in certain

circumstances, optimize network performance, and potentially result in more efficient use of E-rate

funding.293 The record indicates that caching functionality can be an integral component of some LANs

and WLANs.294 As commenters point out, caching can provide a more affordable way to achieve

288 See, e.g., Letter from John Windhausen, Jr., to Marlene H. Dortch, Secretary, Federal Communications

Commission, WC Docket No. 13-184, at 1 (filed May 6, 2014) (discussing how Idaho has a contract for $21 per

user).

289 Installation, activation, and initial configuration of eligible components, and on-site training on the use of eligible

equipment are also eligible for E-rate funding when purchased as part of the contract or agreement for the equipment

outside of the managed Wi-Fi context.

290 See 47 C.F.R. § 54.504(e).

291 This delegation is not intended to expand the Bureau’s delegated authority to add or remove other eligible

services to or from the ESL, except as consistent with Commission decisions.

292 Chicago NPRM Reply Comments at 4 (“Providing caching will allow for more efficient use of WAN links,

which will result in reduced circuit costs.”); LAUSD Ex Parte at 1; SIIA NPRM Comments at 6 (“SIIA agrees that

funding for caching servers should be a higher priority to enable increased student access for any given broadband

speed.”); Comments of High School District 214, WC Docket No. 13-184, at 15 (filed June 4, 2014); Amplify PN

Comments at 6-7; Microsoft PN Comments at 2.

293 See, e.g., ACS PN Comments at 4 (technology can help the affordable available bandwidth “punch above its

weight.”); Microsoft PN Comments at 3-4; Letter from Deborah K. Broderson, Counsel to TV Band Service, LLC,

to Marlene H. Dortch, Federal Communications Commission, WC Docket No. 13-184, at attachment entitled

“Caching Service Report” at 1 (filed May 29, 2014); but see, e.g., CoSN PN Comments at 8 (stating that services

like caching are excellent, but should be addressed through non E-rate funds in order to maximize support for

necessary connections).

294 See, e.g., Wisconsin Districts Ex Parte at 1 (stating that Wisconsin’s member-based, Internet provider for

research and educational institutions provides caching services for all network users); SIIA NPRM Comments at 6

(stating that some schools are now requiring caching to address their bandwidth limitations); Microsoft PN

Comments at 3-4; LAUSD Ex Parte at 1.

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bandwidth goals.295 This is consistent with the goal we adopt in this Report and Order, as well as the

Commission’s authority to ensure affordable access to E-rate supported services.296 As such, we disagree

with commenters who argue that caching functionality should not be supported by E-rate funds.297

Instead, we designate caching functionality as an eligible service that “enhance(s), to the extent

technically feasible and economically reasonable, access to advanced telecommunications and

information services” for schools and libraries.298 As with the core components of broadband internal

connections,299 we agree that equipment that combines caching functionality with other functionalities is

also eligible.300 However, equipment that combines caching functionality with an ineligible functionality

must be cost allocated. We therefore delegate to the Bureau the authority to define caching functionality,

as well as the necessary software or equipment, such as caching servers,301 for the purposes of the funding

years 2015 and 2016 Eligible Services List. As always, parties may appeal any Bureau decision to the

full Commission.

131.

Eligibility After Funding Years 2015 and 2016. We make these determinations about

eligibility in light of the applicant budgets we set out above that mitigate some of our concerns about

waste or abuse.302 We therefore direct the Bureau to include basic maintenance, managed internal

broadband services, and caching functionality on the ESL for funding years 2015 and 2016. The

Commission will evaluate the benefits and drawbacks of these eligibility determinations in future

funding years as it continues its work modernizing the program. Absent Commission action, in funding

year 2017 and in subsequent funding years, support for basic maintenance, managed internal broadband

services, and caching functionality, as an internal connection, will be available only to those applicants

that received support in funding years 2015 and 2016 and are operating under a five-year applicant

budget.303

6.

Other Issues

132.

Category Two Installation Can Begin on April 1. We also amend our rules for category

two non-recurring services to permit applicants to seek support for category two eligible services

purchased on or after April 1, three months prior to the start of funding year on July 1.304

This will

provide schools with the flexibility to purchase equipment in preparation for the summer recess and

provide the maximum amount of time during the summer to install these critical networks. We agree with

commenters who note that the last day of school is often in May or June and schools need to be able to

use the entire summer recess to ensure the networks are ready when students return to school.305 This is

295 See, e.g., Massachusetts Districts Ex Parte at 4 (stating that purchasing caching equipment, as opposed to

purchasing additional bandwidth, would save school districts money over the long term); Microsoft PN Comments

at 3-4.

296See 47 U.S.C. § 254(h)(1)(B).

297 See, e.g., CoSN PN Comments at 8; PAIU PN Comments at 4.

298 See 47 U.S.C. § 254(h)(2)(A).

299 See supra paras. 119-121.

300 See, e.g., Free Library PN Comments at 2.

301 See supra n.292.

302 See section IV.B.3.

303 See section IV.B.3.

304 We clarify that disbursements will not be made until July 1.

305 See, e.g., SECA PN Comments at 30.

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also consistent with our previous decision to allow advance installation and construction under certain

conditions.306

133.

Administration. In accordance with this section, we make necessary changes to sections

54.500, 54.502, 54.505, and 54.507 of our rules, as outlined in Appendix A. We recognize that these

represent major changes to the structure and distribution of support for internal connections. Because

unanticipated technical or operational issues may arise that require prompt action, we reaffirm the

delegation of authority to the Bureau to interpret our rules “as necessary to ensure that support for

services provided to schools and libraries… operate to further our universal service goals.”307

C.

Phasing Down and Ending Support for Legacy and Other Non-Broadband Services

134.

In funding year 2013, approximately 50 percent of priority one E-rate funding was

committed to high-speed broadband services, while approximately one third went to fixed voice and

mobile services.308 Phasing down support for voice services and eliminating support for certain legacy

services will allow us to focus E-rate program funding on the high-speed broadband needed by schools to

enable digital learning and by all libraries to meet the broadband needs of their patrons. After the first

two years of the phase down, the Bureau will issue a report evaluating the impact of the reduction in

support for voice services. If the Commission takes no further action, the voice services phase down will

continue.

1.

Phasing Down Support for Voice Services

135.

Many commenters support reducing E-rate support for voice services to focus the E-rate

program on broadband.309 We agree that voice services, while important for schools and libraries, are not

as essential as high-speed broadband is for meeting the educational needs of students and library patrons.

Instead of immediately eliminating support for voice services, we will reduce voice support each funding

year by subtracting the discount rate applicants receive for voice services by 20 percentage points every

funding year. In funding year 2015, the discounts applicants receive for voice services will be reduced by

20 percentage points from their discount rates for other eligible services, and in funding year 2016, the

discounts applicants receive for voice services will be 40 percentage points lower than their discount rates

for other eligible services. In each subsequent funding year, the discounts applicants receive for voice

services will be reduced by an additional 20 percentage points. Over the first two years of the phase

down for voice services support, we direct the Bureau to evaluate the impact of the phase down on

eligible schools and libraries and study the transition of eligible schools and libraries to VoIP services and

306 Currently, while the service start date stays the same, applicants can start installation for special construction or

build-outs up to six months prior to July 1, as long as four early funding conditions are met. See Request for Review

of the Decision of the Universal Service Administrator by Nassau County Board of Cooperative Educational

Services, Westbury, Schools and Libraries Universal Service Support Mechanism, CC Docket Nos. 96-45 and 97-21,

Order, 17 FCC Rcd 24584 (Wireline Comp. Bur. 2002); see also USAC, Schools and Libraries, Advance

Installation, http://www.usac.org/sl/applicants/step06/installation.aspx (last visited June 10, 2014).

307 Federal-State Joint Board on Universal Service, Third Report and Order, CC Docket No. 96-45, 12 FCC Rcd

22485, 22488-89, para. 6 (1997) (Universal Service Third Report and Order).

308 See USAC Broadband Connectivity Data Response FY2012 and 2013. In funding years 2012 and 2013, as of

May 13, 2014, USAC committed approximately $675,000,000 and $667,000,000, respectively, in support of voice

and voice-related services. Id.

309 See, e.g., Illinois CMS NPRM Comments at 9-10 (recognizing voice service as an application that can be

delivered over broadband platforms and that funding for applications should be phased out in order to direct funding

towards high-capacity broadband to and within schools); Weslaco ISD NPRM Comments at 8; EdCo NPRM Reply

Comments (supports the transition from a voice-focused E-rate program to a broadband-centric enabler of digital

learning as soon as possible); ACA NPRM Comments at 12; Alaska EED NPRM Comments at 7-8; CSM NPRM

Comments at 12; GCI NPRM Comments at 14; CWA NPRM Comments at 4 (supporting phase down for non-

broadband services such as voice telephony).

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issue a report to the Commission as we continue to reduce voice support by 20 percentage points each

year. If, by the opening of the funding year window for funding year 2018, the Commission takes no

further action, the voice phase down will continue.

136.

Voice services have been eligible for E-rate program funding since the Commission

determined that the E-rate program should support all commercially available telecommunications

services in the Universal Service First Report and Order.310 When the Commission established the E-rate

program in 1997, the goal was to provide schools and libraries discounts on the broadest class of

telecommunications services and advanced services available at that time, and to provide schools and

libraries the flexibility to purchase new technologies as they became available.311 However, the options

for Internet access then were generally limited to dial up modem services offered over POTS lines, and

the data links provided by T-1 and T-3 lines.

137.

Today, a much broader array of high-speed broadband services are available to and

needed by schools and libraries to support modern digital learning initiatives.312 Moreover, support for

voice services today consumes approximately one third of E-rate commitments while many schools and

libraries are unable to access the funding they need for internal connections to provide high-speed

broadband throughout schools and libraries.313 In order to meet our goal of funding high-speed broadband

services to support digital learning in schools and robust connectivity for all libraries, we conclude that

we can no longer continue to fund voice services at the same discounts rates as applied to other eligible

services that provide broadband access. Instead, we will gradually reduce E-rate funding for voice

services and shift these funds to support those services that provide high-speed broadband. Accordingly,

we remove the reference to E-rate supporting “all commercially available telecommunications services”

in section 54.502(a) of our rules so that it is clear to applicants that the telecommunications services that

are supported by E-rate are listed in the ESL, rather than potentially sending a confusing message that any

telecommunications service available on the market is eligible for E-rate discounts. This is important

now that we are phasing down support for voice services and eliminating support for some of the services

associated with telephone service as explained herein. We also add to the rules our schedule for phasing

down support for voice services.314

138.

We recognize that many schools and libraries consider E-rate support for voice services

an important part of their overall budgets.315 However, several factors should help ameliorate the impacts

310 Universal Service First Report and Order, 12 FCC Rcd at 9006, para. 431. See also 47 C.F.R. §

54.502(a)(1)(2011).

311 Universal Service First Report and Order, 12 FCC Rcd at 9006-07, paras. 431-33 (making all commercially

available telecommunications services eligible for E-rate to provide applicants with flexibility to meet their

individual needs, but also to ensure that schools and libraries could obtain discounted “state-of-the-art

telecommunications technologies as those technologies [became] available”).

312 The E-rate program currently supports a variety of high-capacity broadband transmission services including but

not limited to fiber, DSL, wireless, and satellite services. See, e.g., 2014 ESL at 2-3 (listing eligible digital

transmission services).

313 See infra n.324.

314 See Appendix A.

315 See, e.g., New Hope PN Reply Comments at 2 (“if phone service is eliminated from the program, we have school

districts that will absolutely have to make a choice between funding infrastructure and keeping teachers”); Kellogg

& Sovereign PN Reply Comments at 3 (a large number of school districts have traditionally redirected the discounts

received for voice to their technology budgets to support broadband); a loss of voice support will require a reduction

in broadband services); Julie Shook PN Comments at 1 (losing funding for local and long distance telephone service

would leave us to try to find money to pay our phone bill without the help we have been receiving for 16 years);

SDDOE NPRM Comments at 10 (voice phone service is in many instances the only service for which applicants

seek E-rate funding; this funding then offsets these costs and allows them to use other budgeted funds for equipment

and other technology purchases); Chicago NPRM Reply Comments at 5 (phasing out funding for voice

(continued…)

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of gradually phasing down support for these services. First, voice is now a competitive offering in many

areas, and the availability of VoIP services, particularly for those with broadband, provides a cost-

effective option for many schools and libraries.316

This expansion of competition, particularly from VoIP

offerings, represents a substantial shift since the E-rate program was created in 1997. Whereas changes in

the voice market are reducing the costs of voice service over time, the shortage of funding for broadband

services has increasingly become an impediment to balancing all of the Commission’s requirements under

section 254(h). Second, because we will initially reduce the maximum discount available for voice

services to 70 percent in 2015, and 50 percent in 2016,317 our approach strikes a balance between those

commenters supporting elimination of discounts for voice services with those school and library

commenters that stressed the importance of retaining some level of support over a defined period of

time.318 Third, as a result of the other measures we take in this Report and Order, the applicants affected

(Continued from previous page)

communication services would have a huge impact on Chicago Public Schools as the services associated with these

funds are used in a variety of areas and cost over $20 million annually); Hawaii NPRM Comments at 9-10 (Hawaii

DOE currently requires more than three million dollars per year in E-rate support for voice services and relies on

these services); WVDE NPRM Comments at 42 (WV districts use the savings from priority one eligible services to

cover the difference for the costs of increasing bandwidth to faster speeds); Carnegie Library NPRM Comments at

7, 8 (if funding for VoIP service is eliminated, we would face a major budget crisis, requiring the potential

elimination of programs and outreach); FFL NPRM Comments at 29-32 (eliminating POTS, cell phone service,

email and webhosting would dramatically hurt the 9,100 individual schools (about half of all applicants, seeking

$180 million in support that applied for E-rate in funding year 2013, reducing their monthly discounts from $1,621

by $1,030). But see SDDOE PN Comments at 3 ([t]he fact of the matter is, schools and libraries had voice

telephone lines in their buildings prior to E-rate and they will continue to have these services after E-rate funding is

eliminated; [b]ut they do need and deserve advance notice to plan for this change.”).

316 See, e.g., iNACOL PN Comments at 6-7 (seventy percent of iNACOL members report being able to transition

their traditional telephone services to IP based solutions without negative impact on student learning); CenturyLink

PN Comments at 16 (voice service will gradually transition to a broadband application in most areas); San Diego

County NPRM Comments at 4 (the convergence of voice and data now allows for increased efficiencies through

VoIP); Hawaii NPRM Comments at 9-10 (Hawaii DOE envisions a gradual transition to a predominantly broadband

VoIP system over time); Illinois CMS NPRM Comments at 9-10 (recognizing voice service as an application that

can be delivered over broadband platforms and that funding for applications should be phased out in order to direct

funding towards high-capacity broadband to and within schools). See USF/ICC Transformation Order, 26 FCC Rcd

at 17688, para. 68 (“interconnected VoIP service is increasingly used to replace analog voice service.”) See also

Letter from Charles Eberle, Attorney-Advisor, Telecommunications Access Policy Division, Wireline Competition

Bureau, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications

Commission, WC Docket No. 13-184 (filed June 16, 2014) (June 16, 2014 Requested Data Ex Parte) (presenting

data from three school districts on the cost of transition to hosted VoIP and a comparison of monthy recurring costs

before and after transition; monthly recurring costs for voice service appears to be lower for all three districts after

transitioning to VoIP, but transition and installation costs vary).

317 SECA’s and PAIU’s initial comments in this proceeding recommended a flat rate discount for voice services of

50 percent, and 40 percent, respectively. SECA NPRM Comments at 22-24; PAIU NPRM Comments at 2.

318 Although many commenters agree that it is appropriate to refocus E-rate funding on broadband, a large subset of

these commenters assert that as we make this transition, our phase down of support for voice services should be

gradual enough to allow applicants time to adjust to the loss of funding. See, e.g., AASA PN Comments at 4 (does

not support reductions in E-rate funding for voice services but should support be reduced “it must be a gradual ramp

down of support over no fewer than three years”); Nebraska OCIO NPRM Comments at 11 (recommends retaining

support for voice services but if the Commission defunds such services it should do so over a determined period of

time); KDLA PN Comments at 4 (phase out voice services over time, and provide at least one year's notice before

any action is taken); Illinois CMS PN Comments at 7 (“we are flexible on the mechanism of phase out but the

approach of gradually reducing the discount rate seems reasonable”). See also Cox PN Comments at 7 (the target

funding level for voice should be the cost of reliable managed voice products delivered over broadband networks

and to reach these reduced support levels, the Commission could phase-down support for voice services to 50

percent of current levels over the next five years at 10 percent per year); Bright House PN Comments at 8 (supports

limiting funding for voice services to a benchmark rate set at the same price as a corresponding VoIP service);

(continued…)

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