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Wheeling School District 21, Wheeling, IL, et al.

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Released: September 12, 2013

Federal Communications Commission

DA 13-1891

Before the

Federal Communications Commission

Washington, D.C. 20554

In the Matter of
)
)

Requests for Review of
)
Decisions of the
)
Universal Service Administrator by
)
)

Net56, Inc.
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File Nos. SLD-676247, 749004, 806960
Palatine, IL
)
)

Wheeling School District 21
)
Wheeling, IL
)
)

Schools and Libraries Universal Service
)
CC Docket No. 02-6
Support Mechanism
)

ORDER

Adopted: September 12, 2013

Released: September 12, 2013

By the Chief, Telecommunications Access Policy Division, Wireline Competition Bureau:
1.
Consistent with precedent,1 we deny one request from Net56, Inc. (Net56) for funding
year 2009, one request from Wheeling School District 21 (Wheeling) for funding year 2010,2 and deny in


1 See, e.g., Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Report and Order, 12 FCC Rcd
8776, 8794, para. 30 (1997) (Universal Service First Report and Order) (subsequent history omitted) (holding that
schools and libraries must seek competitive bids for all services eligible for discounts and that “competitive bidding
is the most efficient means for ensuring that schools and libraries are informed about all of the choices available to
them”). See also Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Third Report
and Order and Second Further Notice of Proposed Rulemaking, 18 FCC Rcd 26912, 26939, para. 66 (stating that a
fair and open competitive bidding process is critical to preventing waste, fraud, and abuse of program resources);
Request for Review of the Decision of the Universal Service Administrator by Ysleta Independent School District,
CC Docket Nos. 96-45, 97-21, Order, 18 FCC Rcd 26407, 26429, para. 50 (2003) (Ysleta Order) (stating that
applicants may consider factors other than pre-discount prices, but price of eligible products and services must be
the primary factor in determining whether a vendor is the most cost-effective); Requests for Review of Decisions of
the Universal Service Administrator by Allendale County School District et al.
, CC Docket No. 02-6, Order, 26 FCC
Rcd 6109 (Wireline Comp. Bur. 2011) (Allendale County) (finding that the petitioners used price of eligible
products and services as the primary consideration when selecting the most cost-effective vendor and, therefore,
they did not violate the E-rate program rules).
2 See Request for Review by Net56, Inc. of Decision of the Universal Service Administrator at 1 (filed Oct. 31,
2011) (Net56 Funding Year (FY) 2009 Appeal); see also Supplement to Request for Review by Net56, Inc. of
Decision of the Universal Service Administrator (filed Dec. 11, 2012) (Net56 FY 2009 Supplement); Request for
Review of Decision of the Universal Service Administrator by Wheeling School District 21, at 2 (filed Feb. 5, 2011)
(Wheeling FY 2010 Red-light Appeal).

Federal Communications Commission

DA 13-1891

part and grant in part one request from Wheeling for funding year 2011,3 all of which seek review of
decisions by the Universal Service Administrative Company (USAC) under the E-rate program (more
formally known as the schools and libraries universal service support program).4
2.
Background. Under the E-rate program, eligible schools, libraries, and consortia that
include eligible schools and libraries may apply for discounts for eligible services.5 The Commission’s
rules provide that these entities must seek competitive bids for all services eligible for support.6 In
accordance with the Commission’s competitive bidding rules, applicants must submit for posting on
USAC’s website an FCC Form 470 requesting discounts for E-rate eligible services.7 Applicants must
describe the requested services with sufficient specificity to enable potential service providers to submit
bids for such services.8 Applicants must provide this description on their FCC Forms 470 or indicate on
the form that they have a request for proposal (RFP) available providing detail about the requested
services.9 After submitting an FCC Form 470, applicants must wait 28 days before making commitments
with the selected service provider.10 Applicants must select the most cost-effective service offering, and
price of eligible products and services must be the primary factor in determining whether a particular
vendor is the most cost-effective.11 Once an applicant has selected a service provider, it must enter into a
contract and then file an FCC Form 471 requesting support for eligible services.12 Requiring a signed
contract for eligible services helps to avoid waste, fraud and abuse by ensuring that the applicant has a
fixed provider ready to offer discounted services and defined terms of services and prices.
3.
Funding Year 2009. Based on our review of the record, we deny the request of Net56
with respect to Wheeling’s funding year 2009 E-rate application.13 Specifically, we uphold USAC’s
determination that Wheeling violated the Commission’s competitive bidding rules for funding year 2009
by entering into a contract with Net56 without conducting a competitive bidding process.14 In funding


3 See Request for Review by Wheeling School District 21 of the Funding Decision of the Universal Service
Administrator, 2011 Funding Year, funding request numbers (FRNs): 2189778, 2189782, 2189789, 2189795, at 3
(filed Dec. 17, 2012) (Wheeling FY 2011 Request for Review).
4 Section 54.719(c) of the Commission’s rules provides that any person aggrieved by an action taken by a division of
USAC may seek review from the Commission. 47 C.F.R. § 54.719(c).
5 47 C.F.R. §§ 54.501-502. In this Order, we describe the requirements of the E-rate program as they currently exist,
but because the Order involves applications from funding years 2009, 2010, and 2011, and the Commission has re-
organized the E-rate rules since then, where the Commission’s rules have changed, we also cite to the relevant rules
as they existed during the relevant funding years.
6 47 C.F.R. § 54.503 (2013). See also 47 C.F.R. § 54.504 (2009).
7 Id.
8 See Universal Service First Report and Order, 12 FCC Rcd at 9078-79, para. 575; 47 C.F.R § 54.503 (2013). See
also
47 C.F.R. § 54.504 (2009).
9 See, e.g., Schools and Libraries Universal Service, Description of Services Requested and Certification Form,
OMB 3060-0806 (Oct. 2004).
10 47 C.F.R. § 54.503 (2013). See also 47 C.F.R. § 54.504 (2009).
11 47 C.F.R. §§ 54.503(c)(2)(vii), 54.511(a). See also 47 C.F.R. §§ 54.504 (b)(2)(vii), 54.511 (a) (2009). See
Universal Service First Report and Order
, 12 FCC Rcd at 9029, para. 481 (finding that applicants may also consider
relevant factors other than the pre-discount prices submitted by providers, such as prior experience, personnel
qualifications, management capability, and environmental objectives).
12 See 47 C.F.R. § 54.504(a) (2013). See also 47 C.F.R. § 54.504(c) (2009).
13 See generally Net56 FY 2009 Appeal.
14 See Letter from USAC, Schools and Libraries Division, to Paul B. Hudson, Counsel to Net56, Inc., at 2 (dated
Sept. 1, 2010) (Administrator’s Decision on Appeal – Funding Year 2009-2010). See also Letter from USAC,
(continued...)
2

Federal Communications Commission

DA 13-1891

year 2008, Wheeling submitted an FCC Form 470 to USAC indicating its intent to enter into a multi-year
contract or a contract with voluntary extensions.15 However, after conducting a competitive bidding
process and selecting Net56 as its service provider, Wheeling entered into a one-year contract without any
provision in the contract for voluntary extensions.16 For funding year 2009, Wheeling entered into a one
year contract with Net56 without posting an FCC Form 470.17
4.
Net56 argues that Wheeling was not required to post an FCC Form 470 for funding year
2009 because Wheeling was voluntarily extending its funding year 2008 E-rate services contract.18 Net56
admits that the parties’ funding year 2008 E-rate services contract did not contain any provision for
voluntary extensions,19 but argues that there was another document that proved the parties’ intent to allow
for voluntary extensions to the 2008 E-rate services contract.20 Specifically, Net56 explains that after the
parties signed their 2008 E-rate services contract, they entered into an agreement, called the Master
Services Agreement that established a continuing relationship between Wheeling and Net56.21 Net56
explains that the MSA contained provisions describing long-term payments to Net56 and therefore,
proves that the parties intended for their 2008 E-rate services contract to be extended.22
5.
We are not persuaded by Net56’s argument. Net56 does not claim that the MSA was the
2008 E-rate services contract for Wheeling. Moreover, in other E-rate appeals, involving different school
districts but very similar fact patterns, Net56 has consistently argued that its MSAs are not contracts for
E-rate purposes.23 Here, Net56 concedes that the E-rate services contract for funding year 2008 did not
contain any language allowing for the voluntary extensions.24 Therefore, Wheeling should have
(Continued from previous page)


Schools and Libraries Division, to Jason Klein, Wheeling School District 21, at 2-6 (dated Apr. 27, 2010) (regarding
Wheeling FY 2009 FCC Form 471 application number 676247, FRNs 1859569,1859578, 1859583, 1859585, and
1859586)(FY 2009 Further Explanation of Administrator’s Funding Decision); Letter from USAC, Schools and
Libraries Division, to Net56, Inc. (dated Apr. 27, 2010) (regarding Wheeling FY 2009 FCC Form 471 application
number 676247, FRNs 1859569, 1859578, 1859583, 1859585, and 1859586) (Wheeling FY 2009 Funding
Commitment Decision Letter, denying funds for FY 2009).
15 See FCC Form 470, Wheeling School District 21 (posted Nov. 9, 2007) (When filing its FCC Form 470 in 2007,
under “Services for which a new written contract is sought,” Wheeling checked the boxes for “a multi-year contract”
and a “contract featuring voluntary extensions”).
16 See Net56 FY 2009 Supplement at Exh. D (Internet Access Quote Contract, dated Feb. 6, 2008).
17 See Net56 FY 2009 Supplement at Exh. G (Internet Access Quote Contract, dated Feb. 9, 2009).
18 See Net56 FY 2009 Supplement at 3.
19 See id. at 4.
20 See id. at 3-4.
21 See Net 56, Inc. – Community Consolidated School District 21, Master Service Agreement (dated Dec. 15, 2008)
(MSA).
22 See id. at 3 (Section 4 Payments).
23 See Request for Review of Decisions of the Universal Service Administrator by Net56, Inc., CC Docket No. 02-6,
Order, 27 FCC Rcd 15799, 15800, para. 2 (Wireline Comp. Bur. 2012); Request for Review of Decisions of the
Universal Service Administrator by Net56, Inc.
, CC Docket No. 02-6, Order, 27 FCC Rcd 13606, 13609, para. 6
(Wireline Comp. Bur. 2012); Request for Review of Decisions of the Universal Service Administrator by Net56, Inc.,
CC Docket No. 02-6, Order, 27 FCC Rcd 15071, 15072-73, para. 3 (Wireline Comp. Bur. 2012).
24 See supra para. 4; Net56 FY 2009 Supplement at 4-5 & Exh. D.
3

Federal Communications Commission

DA 13-1891

submitted an FCC Form 470 to USAC to initiate a competitive bidding process for funding year 2009.25
Because Wheeling failed to do so, we find that Wheeling violated the Commission’s competitive bidding
rules.26 As the Commission has previously indicated, we are deeply concerned about practices that
undermine the framework of the competitive bidding process.27 When an applicant circumvents the
Commission’s competitive bidding requirements by failing to submit an FCC Form 470, the applicant
suppresses fair and open competitive bidding and ultimately damages the integrity of the program. We
therefore deny Net56’s appeal for funding year 2009. Given our determination that Wheeling violated the
Commission’s competitive bidding requirements, we need not address the other issues raised on appeal by
Wheeling concerning funding year 2009.
6.
Funding Year 2010. Upon review of the record, we also deny Wheeling’s request for
review of USAC’s denial of Wheeling’s request for support for funding year 2010.28 Here, USAC denied
Wheeling’s funding year 2010 requests because Wheeling owed a debt to USAC. By way of background,
as a result of an audit, USAC found that Wheeling miscalculated its discount percentage and owed USAC
a debt of $21,558.33 for funding years 2006 and 2007.29 By letter dated October 27, 2010, USAC
notified Wheeling that it owed the debt to USAC and that it had 30 days to make payment.30 Commission
rules specify that entities must pay debts within 30 days of receiving notice of the debt and that failing to
do so results in the dismissal of applications (“red light rules”).31 When Wheeling appealed USAC’s
initial denial of FY 2010 funding support to USAC, the debt from funding years 2006 and 2007 had been
pending for more than 30 days.32 Therefore, USAC denied Wheeling’s appeal based on Wheeling’s


25 See 47 C.F.R. § 54.503(a) (2013) (requiring that all applicants conduct a competitive bidding process for E-rate
services). See also 47 C.F.R. § 54.504(a) (2009).
26 See 47 C.F.R. §§ 54.503(a), 54.511 (2013); see also 47 C.F.R. §§ 54.504(a), 54.511 (2009). But cf. Request for
Review of a Decision of the Universal Service Administrator by Paterson School District; Schools and Libraries
Universal Service Support Mechanism
, CC Docket No. 02-6, Order, 21 FCC Rcd 13101, 13104-05, para. 7
(Wireline Comp. Bur. 2006) (Paterson Order) (finding that an applicant had a valid contract in place before filing
its FCC Form 471). In the Paterson Order, the applicant selected the State Master Contract for New Jersey for its
internal connections. See id. The State of New Jersey solicited bids for a multi-year contract, subsequently entered
into a multi-year contract with provisions for extensions, and continued to extend the contract as permitted under
New Jersey state procurement law. See id. at 13104, paras. 4-5. In the instant case, while Wheeling filed an FCC
Form 470 on which it indicated its intent to sign a multi-year contract or a contract with voluntary extensions, it
subsequently signed a one-year contract with no provisions for voluntary extensions.
27 Universal Service First Report and Order, 12 FCC Rcd at 9076-80, paras. 570-80 (requiring applicants to conduct
a fair and open competitive bidding process when seeking support for eligible products and services); Federal-State
Joint Board on Universal Service; Access Charge Reform; Price Cap Performance Review for Local Exchange
Carriers; Transport Rate Structure and Pricing; End User Common Line Charge
, CC Docket Nos. 96-45, 96-262,
94-1, 91-213, and 95-72, Report and Order and Fourth Order on Reconsideration, 13 FCC Rcd 5318, 5425-26, para.
185 (1997) (stating that competitive bidding is a key component of the Commission’s effort to ensure that universal
service funds support services that satisfy the precise needs of an institution, and that the services are provided at the
lowest possible rates).
28 See generally Wheeling FY 2010 Red-light Appeal.
29 See Letter from USAC, Schools and Libraries Division, to Jason Klein, Wheeling School District 21, at 1 (dated
Oct. 27, 2010) (Notice of Withholding Action Letter).
30 See id.
31 See 47 C.F.R. §1.1910(b)(3).
32 See Letter from USAC, Schools and Libraries Division, to Daniel B. Schuler, Community Consolidated School
District 21, at 1 (dated Dec. 21, 2010) (Administrator’s Decision on Appeal – Funding Year 2010-2011, denying the
applicant’s appeal for failure to satisfy debt associated with October letter).
4

Federal Communications Commission

DA 13-1891

violation of the red-light rules.33 Wheeling did not pay its debt until February 8, 2011.34 Wheeling’s only
justification for its failure to timely pay the debt associated with funding years 2006 and 2007 is that the
Notice of Withholding Action Letter was addressed to a contact person who had retired.35
7.
We find no basis in the record for waiving the Commission’s “red-light” rule. Generally,
waiver is appropriate if good cause is shown36and the Commission has waived the “red-light” rule only
rarely.37 In this instance, no special circumstances exist to justify a waiver and we therefore decline to
waive section 1.1910 of the Commission’s rules.38 Moreover, even if Wheeling had timely paid its debt
associated with funding years 2006 and 2007, we find that Wheeling violated the Commission’s
competitive bidding rules by failing to conduct a competitive bidding process for funding year 2010.39
Just as it did for funding year 2009, Wheeling signed a one year contract with Net56, without conducting
a competitive bidding process.40 We therefore deny Wheeling’s request with respect to its funding year
2010 application.
8.
Funding Year 2011. We grant in part and deny in part Wheeling’s request with respect to
its funding year 2011 application.41 USAC found that Wheeling violated sections 54.503 and 54.511 of
the Commission’s rules, which require applicants to use price as the primary factor when evaluating
vendor bids.42 In its request for review, Wheeling argues that it did consider price as the primary factor
and in support of its claim asserts that it ultimately selected the lowest-cost provider, which was Net56.43


33 See id.
34 See Letter from USAC, Schools and Libraries Division, to Larry Cline, Wheeling School District 21 (dated Feb.
14, 2011) (acknowledging that the full fund recovery amount has been repaid by Wheeling School District 21).
35 See Wheeling FY 2010 Red-light Appeal at 1.
36 See 47 C.F.R. § 1.3. The Commission may exercise its discretion to waive a rule where the particular facts make
strict compliance inconsistent with the public interest. Northeast Cellular Telephone Co. v. FCC, 897 F.2d 1164,
1166 (D.C. Cir. 1990) (Northeast Cellular). In addition, the Commission may take into account considerations of
hardship, equity, or more effective implementation of overall policy on an individual basis. WAIT Radio v. FCC,
418 F.2d 1153, 1159 (D.C. Cir. 1969); Northeast Cellular, 897 F.2d at 1166. Waiver of the Commission’s rules is
appropriate only if both (i) special circumstances warrant a deviation from the general rule, and (ii) such deviation
will serve the public interest. Northeast Cellular, 897 F.2d at 1166.
37 See, e.g., Application for Consent to Assignment of PCS Licenses KNLH637 and KNLH638 from Northstar
Technology, LLC to Bellevue Wireless, LLC; Applications of Northstar Technology, LLC for Renewal of Licenses
for PCS Stations KNLH637 and KNLH638
, File Nos. 0003694576, 0002985324, 0002985321, Memorandum
Opinion and Order, 24 FCC Rcd 13476 (Wireless Telecom. Bur., Office of Managing Dir. 2009); Application for
Consent to Assignment of PCS Licenses KNLH651 and KNLH653 from Northstar Technology, LLC to Banana
Communications, LLC; Applications of Northstar Technology, LLC for Renewal of Licenses for PCS Stations
KNLH651 and KNLH653
, File Nos. 0001941306, 0002985320, 0002985315, Memorandum Opinion and Order, 23
FCC Rcd 9122, 9128, para. 14 (Wireless Telecom. Bur., Office of Managing Dir. 2008).
38 See 47 C.F.R. §1.1910(b)(3).
39 See supra para. 5. See also 47 C.F.R. § 54.503(a), 54.511.
40 See Wheeling FY 2011 Request for Review at 5.
41 See generally Wheeling FY 2011 Request for Review.
42 See Letter from USAC, Schools and Libraries Division, to Jason Klein, Wheeling School District 21, at 2-3 (dated
Nov. 14, 2012) (regarding Wheeling FY 2011 FCC Form 471 application number 806960, FRNs 2189778, 2189782,
2189789, and 2189795) (denying funds for FY 2011). See also 47 C.F.R. §§ 54.503(c)(2)(vii), 54.511(a) (requiring
applicants to use price as the primary factor in the vendor selection process).
43 See Wheeling FY 2011 Request for Review at 5.
5

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9.
We cannot determine from the record whether Wheeling did, in fact, use price as the
primary factor in selecting service providers with respect to its funding requests for Internet Access, Wide
Area Network (WAN), and web hosting services.44 However, with respect to those funding requests, the
record is clear that Wheeling did select the lowest price vendor.45 Therefore, consistent with precedent,
with respect to those funding requests, we waive the Commission’s competitive bidding rules.46 Further,
at this time, we find no evidence of waste, fraud or abuse in the record.
10.
We deny, however, Wheeling’s appeal with respect to funding for email hosting services
for funding year 2011.47 The record shows that, with respect to Wheeling’s email hosting services,
Wheeling failed to consider price as the primary factor and rejected the lowest bidder.48 In fact, there was
a significant price difference between the lowest bidder and Net56 and Wheeling fails to provide any
justification or rationale for its decision to select a vendor with a cost proposal higher than competing
bids. 49 Therefore, in this instance, we do not find that Wheeling has shown good cause to waive the
Commission’s competitive bidding rules for the email hosting services.50
11.
In light of our decision above, on our own motion, we also waive section 54.507(d) of the
Commission’s rules for Wheeling’s funding year 2011 funding requests for Internet Access, WAN, and
web hosting services, and direct USAC to waive any procedural deadline, such as the invoicing deadline,
that might be necessary to effectuate our ruling.51 We find good cause to waive section 54.507(d) because
filing an appeal of a denial of support is likely to cause the applicant to miss the program’s subsequent
procedural deadlines in that funding year.
12.
To ensure that the underlying applications are resolved expeditiously, we direct USAC to
complete its review of the application listed in Appendix B and issue an award or a denial based on a
complete review and analysis no later than 90 calendar days from the release date of this Order. In
remanding these applications to USAC, we make no finding as to the ultimate eligibility of the services or
the underlying applications. Further, for Wheeling’s funding year 2011 application, we direct USAC to
process Wheeling’s funding request for Internet Access, WAN, and web hosting services using the
pricing found in Wheeling’s contract with Net56 signed March 4, 2011, and reduce the funding request or
requests by the amount of any ineligible charges consistent with this Order.


44 See id. at 4-5.
45 See id. at 5.
46 See, e.g., Allendale County, 26 FCC Rcd at 6116, para. 10 (finding that a waiver of the Commission’s
competitive bidding rules was in the public interest where the petitioners did not assign the highest weight to price
when evaluating bids, but ultimately selected the vendor with the least expensive service offering); Requests for
Review of the Decisions of the Universal Service Administrator by Euclid City School District et al
., CC Docket No.
02-6, Order, 27 FCC Rcd 14169, 14170-71, para. 2 (Wireline Comp. Bur. 2012). We stress that under the
Commission’s rules, applicants need not select the lowest-priced service provider, but must assign the greatest
weight to price when evaluating competing bids. See 47 C.F.R. §§ 54.503(c)(2)(vii), 54.511(a) (2013). See also 47
C.F.R. §§ 54.504(c)(xi), 54.511(a) (2008); Ysleta Order, 18 FCC Rcd at 26429, para. 50.
47 See Wheeling FY 2011 Request for Review at 5-6.
48 See id. at 3.
49 See id. at 6.
50 See 47 C.F.R. §§ 54.503(c)(2)(vii), 54.511(a).
51 47 C.F.R. § 54.507(d) (2013) (requiring non-recurring services to be implemented by September 30 following the
close of the funding year).
6

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13.
ACCORDINGLY, IT IS ORDERED, pursuant to the authority contained in sections 1-4
and 254 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151-154 and 254, and sections
0.91, 0.291, 1.3 and 54.722(a) of the Commission’s rules, 47 C.F.R. §§ 0.91, 0.291, 1.3 and 54.722(a),
that the requests for review filed by Net56, Inc. and Wheeling School District 21 as listed in Appendix A
ARE DENIED, the request for review filed by Wheeling School District 21 as listed in Appendix B IS
GRANTED IN PART and DENIED IN PART, and the underlying application listed in Appendix B IS
REMANDED to USAC for further consideration in accordance with the terms of this Order.
14.
IT IS FURTHER ORDERED, pursuant to the authority contained in sections 1-4 and 254
of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151-154 and 254, and sections 0.91,
0.291, 1.3 and 54.722(a) of the Commission’s rules, 47 C.F.R. §§ 0.91, 0.291, 1.3 and 54.722(a), that
sections 54.503(c)(2)(vii), 54.507(d), and 54.511(a) of the Commission’s rules, 47 C.F.R. §§
54.503(c)(2)(vii), 54.507(d), 54.511(a), ARE WAIVED to the limited extent provided herein.
FEDERAL COMMUNICATIONS COMMISSION
Kimberly A. Scardino
Chief
Telecommunications Access Policy Division
Wireline Competition Bureau
7

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DA 13-1891

APPENDIX A (Denied)

Petitioner

Application

Funding

Date Request for

Number

Year

Review Filed

Net56, Inc.
676247
2009
Oct. 31, 2011
Palatine, Illinois
Dec. 11, 2012 (Supp.)
(Wheeling School District 21, Wheeling, Illinois)
Wheeling School District 21
749004
2010
Feb. 5, 2011
Wheeling, Illinois

APPENDIX B (Granted in Part and Denied in Part)

Petitioner

Application

Funding

Date Request for

Number

Year

Review Filed

Wheeling School District 21
8069601
2011
Dec. 17, 2012
Wheeling, Illinois


1 The FRN to which the denial pertains is 2189795 (email hosting services). The FRNs to which the grant pertains
are 2189778 (Internet access services), 2189782 (WAN services), and 2189789 (web hosting services).
8

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