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Wireline Bureau grants E-rate appeal

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Released: January 8, 2013

Federal Communications Commission

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Before the

Federal Communications Commission

Washington, DC 20554

In the Matter of
)
)
Request for Review of
)
Decisions of the
)
Universal Service Administrator by
)
)
Consorcio de Escuelas y Bibliotecas )
de Puerto Rico
)
File Nos. 327608, et al.
)
Schools and Libraries Universal Service
)
CC Docket No. 02-6
Support Mechanism
)

ORDER

Adopted: January 8, 2013

Released: January 8, 2013

By the Chief, Telecommunications Access Policy Division, Wireline Competition Bureau:

I. INTRODUCTION

1.
In this order, we grant a consolidated appeal filed by Consorcio de Escuelas y Bibliotecas
de Puerto Rico (Consorcio) on behalf of 52 schools and libraries (collectively, the applicants) seeking
review of decisions by the Universal Service Administrative Company (USAC) denying funding under
the E-rate program (more formally known as the schools and libraries universal service support program)
for funding year 2002.1 USAC found that 32 of the applicants violated the Commission's competitive
bidding rules by seeking E-rate support for services pursuant to a contract that included a right-of-first-
refusal provision.2 USAC also found that some of the applicants violated the Commission’s rules
concerning the use of equipment, eligibility of services, and the availability of funding.3 Upon review of
the record, we find that right-of-first-refusal provisions violate the Commission's competitive bidding
requirements, but that a limited waiver of the relevant competitive bidding rules is warranted in this


1 The school and library applicants and the relevant application numbers are identified in Appendices A-C. In this
order, we use the term “appeals” to generally refer to requests for waiver and requests for review of decisions issued
by USAC. 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).
2 See Letter from USAC, Schools and Libraries Division, to Jose Rodriguez, Hispanic Information and
Telecommunications Network, Inc., at Ex. A (dated Nov. 24, 2003) (Funding Commitment Decision Letter
(FCDL)); Letter from Ramsey L. Woodworth and Michelle A. McClure, Counsel to Consorcio de Escuelas y
Bibliotecas de Puerto Rico, to Marlene H. Dortch, Secretary, Federal Communications Commission, CC Docket No.
02-6 (filed Jan. 23, 2004) (Request for Review). See also Appendix A (identifying as Petitioner Group A those
Consorcio members whose applications were denied because of perceived competitive bidding violations).
3 See Request for Review; Appendix B (identifying as Petitioner Group B those Consorcio members whose
applications were denied because of improper use of equipment); Appendix C (identifying as Petitioner Group C
those Consorcio members whose applications were denied because of issues concerning eligibility of services or
availability of funding); 47 C.F.R. §§ 54.502, 54.503, 54.505, 54.507, 54.511 (2012). See also 47 C.F.R. §§ 54.504,
54.505, 54.507, 54.511, 54.517 (2002). In its Request for Review, Consorcio asked that the Commission also
address an earlier appeal filed by three of the Petitioners in Group C. See Request for Review at 11. Because the
legal issues are the same as the other applications identified in Group C, we agree that it makes sense to resolve that
appeal through this order, and have therefore included those applications among those listed in Appendix C.

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instance given the circumstances presented.4 With respect to USAC's findings concerning the use of
equipment, eligibility of services, and the availability of funding, we find that USAC improperly denied
the applicants’ requests for support, and we remand the underlying applications to USAC for further
consideration.

II. BACKGROUND

2.
E-rate Program Rules and Requirements. 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 an eligible school, library, or consortium that includes
eligible schools and libraries must seek competitive bids for all services eligible for support.6
Specifically, applicants must submit for posting on USAC’s website an FCC Form 470 requesting
discounts for E-rate eligible services, such as tariffed telecommunications services, month-to-month
Internet access, or any services for which the applicant is seeking a new contract.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 The RFP must be available to all potential bidders for the duration of the bidding process.10 A
service provider participating in the competitive bidding process cannot be involved in the preparation of
the entity’s FCC Form 470.11
3.
After submitting an FCC Form 470, applicants must wait 28 days before making
commitments with the selected service providers.12 An applicant must carefully consider all submitted


4 See 47 C.F.R. §§ 54.503, 54.511 (2012). See also 47 C.F.R. §§ 54.504, 54.511 (2002). In this order, we describe
the requirements of the E-rate program as they currently exist, but because the order involves applications from
2002, 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 rule as it existed in 2002.
5 47 C.F.R. §§ 54.501-502 (2012). See also 47 C.F.R. §§ 54.501-54.502 (2002).
6 47 C.F.R. §§ 54.503 (2012). See also 47 C.F.R. § 54.504 (2002). The Commission’s rules provide an exception to
the competitive bidding requirement for existing, binding contracts signed on or before July 10, 1997. See 47 C.F.R.
§ 54.511(c) (2002). A contract signed after July 10, 1997, but before the date on which the universal service
competitive bidding system became operational, is exempt from the competitive bidding requirements only with
respect to services that are provided under such contract between January 1, 1998 and December 31, 1998. Id.
Thus, the exemption from the competitive bidding requirements does not apply to Consorcio applications submitted
in funding year 2002.
7 47 C.F.R. § 54.503 (2012). See also 47 C.F.R. § 54.504 (2002).
8 See Federal-State Joint Board on Universal Service, CC Docket No.96-45, Report and Order, 12 FCC Rcd 8776,
9078-79, para. 575 (1997) (Universal Service First Report and Order) (subsequent history omitted); 47 C.F.R. §
54.503 (2012). See also 47 C.F.R. § 54.504 (2002).
9 See, e.g., Schools and Libraries Universal Service, Description of Services Requested and Certification Form,
OMB 3060-0806 (September 1999) (FCC Form 470); Schools and Libraries Universal Service, Description of
Services Requested and Certification Form, OMB 3060-0806 (October 2004) (current FCC Form 470).
10 See FCC Form 470.
11 See Request for Review by Mastermind Internet Services, Inc., Federal-State Joint Board on Universal Service,
Changes to the Board of Directors of the National Exchange Carrier Association, Inc.,
CC Docket No. 96-45,
Order, 16 FCC Rcd 4028, 4033 (2000) (Mastermind Order).
12 47 C.F.R. § 54.503 (2012). See also 47 C.F.R. § 54.504 (2002). See, e.g., Request for Review of the Decision of
the Universal Service Administrator by Approach Learning and Assessment Center, et al., Schools and Libraries
Universal Service Support Mechanism
, CC Docket No. 02-6, Order, 23 FCC Rcd 15510 (2008) (Approach Learning
Order
).
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bids prior to entering into a contract, and price must be the primary factor in selecting the winning bid.13
Once an applicant has selected a provider and entered into a service contract, the applicant must file an
FCC Form 471 requesting support for eligible services.14 USAC assigns a funding request number (FRN)
to each request for discounted services and issues funding commitment decision letters (FCDLs)
approving or denying the requests for discounted services.15
4.
Applicants may obtain discounts on Internet access and internal connections irrespective of
whether they purchase those offerings from telecommunications or non-telecommunications carriers.16
To receive E-rate discounts on “telecommunications services,” however, applicants must purchase those
services from entities that are “telecommunications carriers.”17 In order to be considered a
“telecommunications carrier” eligible to receive E-rate support for the provision of “telecommunications
services,” a provider must “offer telecommunications on a common carrier basis.”18 The Commission has
articulated a two-part test to determine whether an entity is offering telecommunications on a common
carrier basis: first, whether the provider holds itself out “to serve indifferently all potential users” and,
second, whether the provider “allows customers to transmit intelligence of their own design and
choosing.”19
5.
E-rate Program’s Discount Mechanism. In accordance with the Commission’s rules, the
discount available to a particular applicant is determined by the level of economic disadvantage based on
indicators of poverty and high cost.20 The level of poverty for schools and school districts is measured by
the percentage of student enrollment that is eligible for a free or reduced price lunch under the National
School Lunch Program (NSLP) or a federally-approved alternative mechanism, such as a survey.21
Libraries’ discount percentages are based on the public school district in which they are physically
located.22 A school’s discount level status is derived from rules that classify it as urban or rural.23 The
rules provide a matrix reflecting both a school’s urban or rural status and the percentage of its students


13 47 C.F.R. § 54.503 (2012). See also 47 C.F.R. § 54.504 (2002).
14 See Schools and Libraries Universal Service, Services Ordered and Certification Form, OMB 3060-0806 (October
2000) (FCC Form 471); Schools and Libraries Universal Service, Services Ordered and Certification Form, OMB
3060-0806 (November 2004) (current FCC Form 471).
15 See USAC website, Schools and Libraries, Application Review, available at
http://www.universalservice.org/sl/applicants/step05/ (last visited Dec. 13, 2012).
16 See 47 C.F.R. §§ 54.501, 54.502 (2012). See also 47 C.F.R. §§ 54.501, 54.503, 54.517 (2002).
17 See 47 U.S.C. § 254(h)(1)(B); Universal Service First Report and Order, 12 FCC Rcd at 9177-78, 9005-23, 9084-
90, paras. 589-600; 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, 95-72, Fourth Order on Reconsideration, 13 FCC Rcd 5318,
5413-14, paras. 163-164 (1997) (Universal Service Fourth Reconsideration Order). Applicants may receive E-rate
support if they use non-telecommunications providers for the provision of voice mail, Internet access, and
installation and maintenance of internal connections, but not for the provision of telecommunications services. See
47 C.F.R. § 54.502 (2012). See also 47 C.F.R. § 54.517 (2002).
18 In the Matter of Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Order on Remand, 16
FCC Rcd 571, 572, para. 2 (2000) (Iowa Communications Network (ICN) Order on Remand).
19 Id. at para. 5.
20 See 47 C.F.R. § 54.505(b) (2012). See also 47 C.F.R. § 54.505(b) (2002).
21 See 47 C.F.R. § 54.505(b) (2012). See also 47 C.F.R. § 54.505(b) (2002).
22 See 47 C.F.R. § 54.505(b) (2012). See also 47 C.F.R. § 54.505(b) (2002).
23 See 47 C.F.R. § 54.505(b)(3)(i), (ii) (2012). See also 47 C.F.R. § 54.505(b)(3)(i), (ii) (2002). USAC’s website
provides a table of rural areas by state. See USAC website, Schools and Libraries, Urban/Rural Status, available at
http://www.usac.org/sl/applicants/step04/urban-rural.aspx (last visited Dec. 13, 2012).
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eligible for the school lunch program to establish a school’s discount rate, ranging from 20 percent to 90
percent, to be applied to eligible services.24 The United States Department of Agriculture (USDA) has
created an exception for Puerto Rico and the U.S. Virgin Islands regarding the reporting of NSLP data.25
In accordance with a USDA survey of the private schools within Puerto Rico, USAC considered such
schools in funding year 2002 to qualify for the 80 percent discount, unless the schools requested a
different discount percentage.26
6.
As part of the application process, schools and libraries are required to provide information
that establishes their appropriate discount rate.27 Pursuant to its operating procedures, USAC performs a
program integrity assurance (PIA) review to verify information contained in each application.28 During
this process, USAC may ask for additional documentation to support the statements made on the
application. For example, USAC routinely requests that applicants provide documentation supporting
their assertions regarding their student bodies’ eligibility for the NSLP or alternative methods permitted
by the rules governing the discount calculation.29 If USAC finds during PIA review that the applicant
does not have the supporting documentation to justify its discount rate, then USAC will lower the
discount rate requested by the applicant and approve the discount rate based on the supporting
documentation available.


24 See 47 C.F.R. § 54.505(c) (2012). See also 47 C.F.R. § 54.505(c) (2002).
25 Because Puerto Rico and the U.S. Virgin Islands “provide free meals or milk to all children in schools under their
jurisdiction, regardless of the economic need of the child’s family, they are not required to make individual
eligibility determinations or publicly announce eligibility criteria.” 7 C.F.R. § 245.4. The rule permits Puerto Rico
and the U.S. Virgin Islands to conduct a statistical survey to determine the number of students eligible for free or
reduced price meals under the NSLP. In accordance with this rule, a different percentage is calculated for public
and private schools. Id.
26 See Letter from Robert J. Freiler, United States Department of Agriculture, Food and Nutrition Service, to Cesar
Ray Hernandez, Department of Education Puerto Rico (dated Feb. 14, 2001). The letter established that the
statistical survey results for private schools in Puerto Rico showed that 30.42% of students qualified for free lunch
and 21.88% qualified for reduced lunch in FY 2002. This resulted in 52.3% of students qualifying for free or
reduced price lunch in funding year 2002. Thus, based upon the Commission’s discount matrix, the private school
discount for the territory of Puerto Rico was 80 percent in funding year 2002. See 47 C.F.R. § 54.505(c) (2012).
See also 47 C.F.R. § 54.505(c) (2002) (providing that, if the percentage of students eligible for the national school
lunch program is between 50 and 74 percent, whether urban or rural, the eligible discount level is 80 percent).
27 Block 4 of the FCC Form 471 application asks the school to provide information regarding the school’s status
such as whether the applicant is rural or urban, the number of students enrolled in the school, the number of students
eligible for the NSLP, and the discount rate. See Schools and Libraries Universal Service, Services Ordered and
Certification Form, OMB 3060-0806 (October 2010) (FCC Form 471). Schools choosing not to use an actual count
of students eligible for the NSLP may use only the federally-approved alternative mechanisms contained in the
Elementary and Secondary Education Act of 1965, as amended by the No Child Left Behind Act of 2001 (Pub. L.
No. 107-110). This rule states, in relevant part, that private schools without access to the same poverty data that
public schools use to count children from low-income families may use comparable data “(1) [c]ollected through
alternative means such as a survey” or “(2) [f]rom existing sources such as AFDC [Aid to Families with Dependent
Children] or tuition scholarship programs.” See 34 C.F.R. § 200.78(a)(2). Schools using a federally approved
alternative mechanism may use participation in other income-assistance programs, such as Medicaid, food stamps,
or Supplementary Security Income (SSI), to determine the number of students that would be eligible for the NSLP.
See Instructions for Completing the Schools and Libraries Universal Service, Services Ordered and Certification
Form (FCC Form 471), OMB 3060-0806, at 12-13 (October 2010) (Form 471 Instructions).
28 See USAC website, Schools and Libraries, Application Review, available at
http://www.universalservice.org/sl/applicants/step05/default.aspx (last visited Dec. 13, 2012).
29 See 47 C.F.R. § 54.505(b)(1), (2) (2012). See also 47 C.F.R. § 54.505(b)(1), (2) (2002).
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7.
E-rate program funding is based on demand up to an annual Commission-established cap of
approximately $2.3 billion.30 E-rate funds are allocated according to rules of priority, with first priority
provided to requests for telecommunications services and Internet access (priority 1 services).31 The
remaining available funds are allocated to requests for support for internal connections and basic
maintenance of internal connections (priority 2 services).32 Requests for priority 2 services are allocated
first to applicants whose applications are eligible for 90 percent discount levels, then to those eligible for
89 percent discount levels, and so on, until the available funds are exhausted.33
8.
Consorcio’s Request for Review. The applicants are members of Consorcio, a consortium
of schools and libraries in Puerto Rico.34 On January 29, 1998, Consorcio entered into a master services
agreement (Agreement) with Hispanic Information and Telecommunications Network, Inc. (HITN)
pursuant to which the applicants were to obtain telecommunications services, Internet access, and internal
connections.35 On November 24, 2003, USAC denied the applicants’ funding year 2002 applications for
several reasons.36 First, USAC determined that by purchasing services from HITN pursuant to the
Agreement, 32 applicants violated the Commission’s competitive bidding requirements.37 Second, USAC
found that, in some instances, the applicants did not use the requested services or products in accordance
with program rules.38 Third, USAC found that, for some applicants, funding was not available for
internal connections at the requested discount level.39 In its request for review, Consorcio argues that
USAC erred in denying the applicants’ funding requests.40

III. DISCUSSION

9.
In this order, we grant one consolidated appeal of decisions denying 49 applications
seeking E-rate funding based on competitive bidding violations, improper use of equipment, and failure to
qualify for funding for internal connections due to the discount rate. We also waive, to the extent set
forth herein, sections 54.504 and 54.511 of the Commission’s competitive bidding requirements.41 We


30 See Universal Service First Report and Order, 12 FCC Rcd at 9054-55, paras. 529-31. Starting in 2011, the
Commission began to adjust the $2.3 billion annual cap for inflation. 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,
Sixth Report and Order, 25 FCC Rcd 18762 (2010).
31 See 47 C.F.R. § 54.507(g) (2012). See also 47 C.F.R. § 54.507(g) (2002).
32 See 47 C.F.R. § 54.507(g) (2012). See also 47 C.F.R. § 54.507(g) (2002).
33 See 47 C.F.R. § 54.507(g) (2012). See also 47 C.F.R. § 54.507(g) (2002).
34 See Request for Review.
35 Id. at 4. The Agreement was for a five-year term. Id.
36 See FCDL.
37 See FCDL (for specific funding request numbers (FRNs) involving competitive bidding violations).
38 See FCDL, Ex. A at 11, 16, 21, 26, 36, 41, 46, 51, 56, 61, 66, 71, 76, 81, 96, 101, 106, 112, 117, 122, 127, 132,
147, 157, 162, 172, 183, 188, 198, 203, 208, 213, 218, 223, 233, 243, and 248 (concerning FRNs 879917, 887499,
887617, 887647, 887992, 888174, 888183, 888209, 888241, 888261, 888350, 888361, 888461, 888526, 888846,
888979, 888438, 888454, 889550, 889625, 889715, 889781, 889807, 889859, 890097, 890116, 890397, 890426,
890662, 890726, 890901, 890911, 890930, 890950, 890975, 891158, 892964, 898093, 900039).
39 See FCDL, Ex. A at 90, 92, 176, 178, 192, 193, 194, 227, 228, 229, and 237 (concerning FRNs 890453, 890455,
893387, 891578, 891579, 891580, 888698, 8886960, 890882, 890883, and 890884).
40 Request for Review at 3, 12-13.
41 See 47 C.F.R. §§ 54.503, 54.511 (2012). See also 47 C.F.R. §§ 54.504, 54.511 (2002).
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remand these applications to USAC and make no finding as to the ultimate eligibility of the services or
the petitioner’s applications.42 We consider the three groups of funding requests separately below.
10.
Competitive Bidding Issues. Consorcio challenges USAC’s decision to deny 32
applications on the ground that the Agreement gave HITN a right of first refusal in violation of the
Commission’s competitive bidding rules (hereinafter referred to as Petitioner Group A). Specifically,
USAC found that Section 3 of the Agreement harms competition because it contains a right-of-first-
refusal provision that compromises the selection of vendors.43 Section 3 provides, in pertinent part:
In the event that USF competitive bidding requirements necessitate at
any time during the Term of the Agreement it is subject to competitive
bidding, [Consorcio] and the Schools and Libraries agree that if the
Agreement does not result in the lowest bid price for Services similar to
those provided for under the Agreement, HITN has a right of first refusal
to offer a bid lower than the lowest price bid, which [Consorcio] and the
Schools and Libraries agree they will accept.44
11.
In its appeal, Consorcio argues that the right-of-first-refusal provision does not violate the
Commission’s competitive bidding rules, but rather provides a balance between its objective to obtain the
lowest price for its members with the service provider’s reasonable expectation to provide continuing
services over the term of the five-year Agreement.45 Consorcio explains that the service provider retained
the ability to continue to provide services for the agreed term, but only if it was prepared to meet a lower
bid received in response to the FCC Forms 470 that are posted in each funding year.46 Consorcio states
that it is illogical to penalize applicants that desire the benefit of a long-term service agreement with the
additional potential for an annual cost adjustment downward, if the service provider matches any lower
bid received from another party.47 Consorcio further argues that the existence of the provision is not
known to other bidders until the competitive bidding process is completed.48 Thus, Consorcio argues that
the provision comes into play after the bid evaluation and selection process has been completed, if at all.49
According to Consorcio, HITN has never exercised its right of first refusal, as no other entities
demonstrated an interest in servicing Consorcio members during the first five years of the program.50


42 Additionally, nothing in this order is intended: (1) to authorize or require payment of any claim that previously
may have been released by a service provider or applicant, including in a civil settlement or plea agreement with the
United States; or (2) to authorize or require payment to any person or entity that has been debarred from
participation in the E-rate program.
43 FCDL, Ex. A.
44 Request for Review at 4, Ex. B.
45 Id. at 5.
46 Id. According to Consorcio, all services under the contract were subjected to the FCC Form 470 competitive
bidding process in every program year to ensure that Consorcio members obtained the lowest price for the services
each year. Id. at 4-5. We note that the Commission’s rules do not require applicants to post a new FCC Form 470
every funding year if they have a multi-year contract that was initiated by a competitive bidding process. See USAC
website, Schools and Libraries, Selecting Service Providers, available at
http://www.usac.org/sl/applicants/step03/contracts.aspx (last visited Dec. 13, 2012).
47 Request for Review at 6-7.
48 Id. at 6.
49 Id. at 5-6.
50 See Letter from Adrianne E. Arnold, RJGLaw, LLC, on behalf of Hispanic Information and Telecommunications
Network, Inc., to Marlene H. Dortch, Secretary, Federal Communications Commission, CC Docket No. 02-6, at 5
(dated Dec. 23, 2004) (Dec. 24, 2004 Ex Parte).
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12.
A fair and open competitive bidding process is fundamental to the integrity of the E-rate
program.51 As the Commission has observed, competitive bidding is vital to limiting waste and assisting
schools and libraries in receiving the best value for their limited funds.52 Because of the importance of
the competitive bidding process to the program, the Commission has consistently required that all bidders
be treated equally, and that no bidders receive an unfair advantage.53 By their very nature, right-of-first-
refusal provisions give the holder of the right of first refusal an unfair advantage in the bidding process by
enabling it to wait until all of the bids have been submitted to match the lowest bid. None of the other
potential bidders have the same opportunity. We recognize that in commercial contexts, right-of-first-
refusal provisions may be widely accepted and frequently incorporated in many types of contracts
involving the purchase, sale, or lease of assets, goods, or services, especially where there are long-
standing relationships between customers and suppliers. These provisions benefit suppliers by giving
them the opportunity to match the lowest price that their customer can get elsewhere. They also benefit
customers, by providing a ceiling, but not necessarily a floor, for the price of the product or service the
customer wants to purchase. But such provisions are not appropriate for contracts between service
providers and applicants seeking funding under the E-rate program where fair and open competitive
bidding is required. These provisions create an uneven playing field among prospective service providers
and can deter entities from submitting bids on eligible products or services thus undermining the
competitive bidding process. Potential bidders who know or suspect the existence of a right of first
refusal could reasonably decide not to expend time and resources to enter into the bidding process
knowing that their bids will be undercut by the entity holding the right of first refusal. Therefore, we
conclude that these provisions distort the competitive bidding process required under the Commission’s
E-rate rules and make it difficult to determine whether the applicant has obtained the lowest price for the
eligible products or services. 54
13.
As HITN notes, USAC approved other Consorcio requests in previous funding years that
relied on service provider agreements containing such provisions.55 The fact that USAC did not deny
those requests, however, does not limit our discretion and obligation to evaluate in this case whether
right-of-first-refusal provisions harm the competitive bidding process. We now conclude that these
provisions undermine the competitive bidding process and violate sections 54.504 and 54.511 of the
Commission’s rules.56 Notwithstanding this finding, we decline to penalize Consorcio. As Consorcio
argued, having a contract with HITN that included a specific price for telecommunications, Internet
access and internal connections, coupled with a right of first refusal should another provider offer a lower


51 See Universal Service First Report and Order, 12 FCC Rcd 8776, 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) (Schools and Libraries Fourth Order on Reconsideration) (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).
52 Universal Service First Report and Order, 12 FCC Rcd 8776, 9076, para. 480. See also Schools and Libraries
Fourth Order on Reconsideration
, 13 FCC Rcd 5318, 5425-26, para. 185.
53 See, e.g., Schools and Libraries Universal Service Support Mechanism, Third Report and Order and Second
Further Notice of Proposed Rulemaking, CC Docket No. 02-6, 18 FCC Rcd 26912, 26939, para. 66 (2003) (stating
that a fair and open competitive bidding process is critical to preventing waste, fraud, and abuse of program
resources).
54 Id. We note further that such right-of-first-refusal provisions may also be in conflict with state and local
competitive bidding requirements.
55 See Dec. 24, 2004 Ex Parte.
56 See 47 C.F.R. § 54.503, 54.511 (2012). See also 47 C.F.R. §§ 54.504, 54.511 (2002).
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price, gave Consorcio’s members certainty about the maximum price they would have to pay for those
services, while also giving them the opportunity to pay an even lower price (and therefore seek less E-rate
support) should another provider decide to offer Consorcio the same services at a lower price.57
Therefore, Consorcio may have reasonably believed that such provisions were permissible. Furthermore,
in this case, the record reveals that the right-of-first-refusal provision would not have been known to other
bidders until the competitive bidding process was completed, and that HITN was the only bidder during
the funding years at issue. Thus, the right-of-first-refusal-provision was not exercised nor is there reason
to believe that its existence actually deterred bidders in this specific instance. Given these circumstances,
we find that a limited waiver of the Commission’s competitive bidding rules is in the public interest.58
Moreover, in the record at this time, we find no other improper behavior on the part of the applicants or
HITN during the bidding process. Thus, rejecting Petitioner Group A’s funding requests is not warranted
in this instance. We therefore waive the Commission’s competitive bidding rules with regard to
Petitioner Group A’s FRNs that were previously denied because their contract contained a right-of-first-
refusal provision and remand these FRNs to USAC for further consideration.59 Given our finding that
right-of-first-refusal provisions violate the E-rate competitive bidding rules, we expect Consorcio to
ensure that such provisions are removed from any existing agreements and, not included in, any future E-
rate service provider agreements.60
14.
Use of Equipment. Consorcio challenges USAC’s decision to deny several of the
applicants’ funding requests on the ground that the service or product requested is not being used in
accordance with program rules (hereafter referred to as Petitioner Group B).61 In their funding year 2002
applications, each member of Petitioner Group B applied for funding for internal connections.62
Specifically, the applicants requested three coaxial cable connections to be used for distance learning.63
15.
On November 24, 2003, USAC denied Petitioner Group B’s funding requests for the
coaxial cable connections, stating that the service or product requested was not being used in accordance
with program rules.64 Specifically, USAC denied Petitioner Group B’s request because it determined that
the distance learning wiring was intended to support telecommunications services for distance learning


57 See Consorcio Request for Review.
58 The Commission may waive any provision of its rules on its own motion and for good cause shown. 47 C.F.R. §
1.3. A rule may be waived 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, 1157, (D.C. Cir. 1969), aff’d, 459 F.2d
1203 (D.C. Cir. 1972). In sum, waiver is appropriate if special circumstances warrant a deviation from the general
rule, and such deviation would better serve the public interest than strict adherence to the general rule. Northeast
Cellular
, 897 F.2d at 1166.
59 See Appendix A.
60 Moreover, we encourage Consorcio and all other applicants to obtain a legally binding determination from the
Commission or seek informal guidance from USAC in the event of uncertainty about whether certain contractual
approaches would be consistent with E-rate competitive bidding requirements.
61 See Request for Review at 8-9; see also Appendix B.
62 See, e.g., FCC Form 471, Biblioteca Municipal De Juncos (filed Jan. 17, 2002); FCC Form 471, Biblioteca
Electronica Dr. Carlos Hernandez Rodrig (filed Jan. 17, 2002).
63 See, e.g., FCC Form 471, Biblioteca De La Ciudad Rosa M. Sanchez (filed Jan. 17, 2002); FCC Form 471,
Biblioteca Publica Coamo (filed Jan. 17, 2002).
64 See FCDL at 5.
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from a provider that was not a telecommunications carrier in funding year 2002.65 Petitioner Group B
filed the instant request for review, arguing that the coaxial cable connections were necessary to provide
connections to HITN’s on-premises equipment that would be installed to deliver distance-learning
telecommunications services.66
16.
Upon review of the record, we find that USAC improperly denied Petitioner Group B’s
funding requests. Distance learning is a telecommunications service and therefore eligible for E-rate
discounts only if it is provided by a telecommunications carrier.67 While USAC initially determined that
HITN was not a telecommunications carrier in funding year 2002, it later reversed its initial determination
and found that HITN was, in fact, eligible to provide telecommunications in funding year 2002.68 We
therefore grant the requests for review for Petitioner Group B and remand the underlying applications to
USAC with instructions to process these funding requests consistent with USAC’s determination that
HITN was a telecommunications carrier in funding year 2002. If USAC requires any additional
information from the applicant, it shall request the information in writing and provide the applicant with a
30-day window to submit the information.
17.
Eligibility of Services and Availability of Funding. Consorcio challenges USAC’s
decisions regarding the funding requests for internal connections by certain applicants (hereafter referred
to as Petitioner Group C).69 The applicants are private schools that requested a 90 percent discount rate in
their funding year 2002 applications for internal connections.70 USAC requested that Petitioner Group C
provide documentation to support the requested discount rate.71 In response to USAC’s request,
Petitioner Group C submitted a letter explaining that the applicants were entitled to a 90 percent discount
due to the eligibility of all students for free lunch in Puerto Rico.72 Consorcio’s consultant then
negotiated an extension with USAC to allow the applicants to conduct surveys to support their requested
discount level.73 Prior to the completion of the surveys, USAC informed Petitioner Group C that the
consultant no longer represented Consorcio and gave the applicants seven days to submit survey
documentation.74 When Petitioner Group C failed to submit the surveys, USAC reduced the applicants’
discount level to 80 percent because, in funding year 2002, all private schools in Puerto Rico


65 See, e.g., USAC, Schools and Libraries Division, Exceptions and PIA Comments, Biblioteca Publica Loiza,
Entries for Sept. 24, 2002 (stating that this FRN is for wiring for distance learning from an ineligible service
provider; therefore, all FRNs associated with the request for distance learning from this provider are denied).
66 Request for Review at 8-9. Petitioner Group B also argued that it was “virtually impossible to conceive of how a
very basic piece of internal connection equipment like this could be used in a manner not in accordance with
program rules” and that USAC provided no explanation as to how it made this determination. Id. at 8.
67 See USAC website, Schools and Libraries, Funding Year 2002 Eligible Services List, available at
http://www.usac.org/_res/documents/sl/pdf/ESL_archive/EligibleServicesList_101802.pdf (last visited Dec. 13,
2012) (listing distance learning as a telecommunications service); 47 C.F.R. §§ 54.501-54.502 (2012). See also 47
C.F.R. §§ 54.501-54.503 (2002)
68 See, e.g., Letter from USAC, Schools and Libraries Division, to Antonio Lopez, Consorcio de Escuelas y
Bibliotecas de Puerto Rico, at 4-5 (dated Jun. 24, 2004)
69 See Request for Review at 11-12; see also Appendix C.
70 See, e.g., Request for Review at Exhibit E.
71 See, e.g., Letter from USAC, Schools and Libraries Division, to Hector Valentin, Consorcio de Escuelas y
Bibliotecas de Puerto Rico (dated Aug. 17, 2002); supra para. 6.
72 See, e.g., Letter from Ramsey L. Woodworth, counsel to Consorcio de Escuelas y Bibliotecas de Puerto Rico, to
USAC, Schools and Libraries Division (dated Oct. 2, 2002) (Woodworth Letter).
73 See Letter from USAC, Schools and Libraries Division, to Carlos Padilla, Consorcio de Escuelas y Bibliotecas de
Puerto Rico (dated Feb. 21, 2003).
74 Id.
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automatically qualified for a minimum 80 percent discount.75 Because funding for internal connections in
funding year 2002 was not disbursed to applicants that qualified for a discount rate below 81 percent,
however, this decision effectively denied these applicants’ funding request.76 In addition, USAC denied
the funding requests of two applicants in this group, Academia Alexandria and Liceo Aguadillano, on the
ground that these two applicants failed to provide sufficient documentation to determine the eligibility of
the services requested.77
18.
Based on our review of the record, we find that USAC improperly denied Petitioner Group
C’s funding requests. Consistent with precedent, we find that the seven-day notice USAC gave to the
applicants was insufficient under the circumstances.78 It appears that Petitioner Group C was relying on
its consultant to handle the completion of the surveys to support the requested discount level.79 It also
appears that members of Petitioner Group C did not realize that its consultant was no longer representing
them until USAC informed them of that fact.80 Taking these factors into consideration, we believe that
seven days did not provide sufficient time for Petitioner Group C to complete and submit the surveys. In
addition, with regard to Academia Alexandria and Liceo Aguadillano, it does not appear from the record
that USAC requested documentation to determine the eligibility of the services requested. We therefore
grant the request for review for Petitioner Group C and remand the underlying applications to USAC with
instructions to reconsider the claim that the applicants were entitled to a 90 percent discount rate and, in
the case of Academia Alexandria and Liceo Aguadillano, that the services were eligible. Specifically,
USAC must review each application and inform the applicants of any errors that are detected in their
applications, and, if appropriate, provide a specific explanation of how the applicants can remedy such
errors. USAC shall provide the applicants with a limited 30-day opportunity to file additional
documentation, if necessary. Except that, if Petitioner Group C chooses to provide surveys to support the
requested discount level, USAC shall direct the applicants to submit the completed surveys no later than
120 days from the release date of this order.

IV. ORDERING CLAUSES

19.
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


75 See Letter from USAC, Schools and Libraries Division, to Ines O’Neill, Consorcio de Escuelas y Bibliotecas de
Puerto Rico, on behalf of Colegio Catolico Notre Dame Secundario (dated Nov. 24, 2003); Letter from USAC,
Schools and Libraries Division, to Ines O’Neill, Consorcio de Escuelas y Bibliotecas de Puerto Rico, on behalf of
Colegio Marrimee, Inc. (dated Nov. 24, 2003); Letter from USAC, Schools and Libraries Division, to Ines O’Neill,
Consorcio de Escuelas y Bibliotecas de Puerto Rico, on behalf of Colegio Presbiteriano San Sebastian (dated Nov.
24, 2003); Letter from USAC, Schools and Libraries Division, to Ines O’Neill, Consorcio de Escuelas y Bibliotecas
de Puerto Rico, on behalf of Colegio San Jose (dated Nov. 24, 2003); Letter from USAC, Schools and Libraries
Division, to Ines O’Neill, Consorcio de Escuelas y Bibliotecas de Puerto Rico, on behalf of Piaget Bilingual
Academy of Manati, Inc. (dated Nov. 24, 2003) (collectively, Petitioner Group C FCDLs); see also supra para 5.
76 Funding for priority 2 services in funding year 2002 was capped at the 81 percent discount level. See USAC
website, Schools and Libraries, March 2003 Announcements, available at
http://www.sl.universalservice.org/whatsnew/2003/032003.asp#033103a (last visited Dec. 13, 2012).
77 See Letter from USAC, Schools and Libraries Division, to Ines O’Neill, Academia Alexandra (dated Nov. 24,
2003) (Academia FCDL); Letter from USAC, Schools and Libraries Division, to Ines O’Neill, Liceo Aguadillano,
Inc. (dated Nov. 24, 2003) (Liceo FCDL).
78 See Request for Review of the Decision of the Universal Service Administrator by Alpaugh Unified School
District, Schools and Libraries Universal Service Support Mechanism,
File Nos. SLD-523576, et al., CC Docket
No. 02-6, Order, 22 FCC Rcd 6035, 6037, para. 5 (2007) (granting petitioners additional time to provide information
after they were unable to meet USAC’s seven-day deadline for filing additional information).
79 See Request for Review.
80 Id.
10

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0.91, 0.291, and 54.722(a) of the Commission’s rules, 47 C.F.R. §§ 0.91, 0.291, and 54.722(a), that the
request for review filed by Consorcio de Escuelas y Bibliotecas de Puerto Rico, on January 24, 2004, IS
GRANTED and the applications as listed in the Appendices ARE REMANDED to USAC for further
consideration to the extent provided herein.
20.
IT IS FURTHER ORDERED that, 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, and 1.3 of the Commission’s rules, 47 C.F.R. §§ 0.91, 0.291, and 1.3, that sections 54.504 and
54.511 of the Commission’s rules, 47 C.F.R. §§ 54.504, 54.511, ARE WAIVED to the limited extent
described herein.
21.
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, that USAC SHALL
COMPLETE its review of each remanded application listed in the Appendix and ISSUE an award or a
denial based on a complete review and analysis no later than 150 calendar days from the release date of
this order.
FEDERAL COMMUNICATIONS COMMISSION
Trent B. Harkrader
Chief
Telecommunications Access Policy Division
Wireline Competition Bureau
11

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Appendix A

Petitioner Group A – Competitive Bidding

Applicant

City

Application Number

Biblioteca Municipal de Juncos,
Juncos, PR
327616
Jose M. Gallado
Biblioteca Electronica, Dr.
Carolina, PR
329122
Carlos Hernandez Rodrig
Biblioteca Publica Aguada
Aguada, PR
329147
Biblioteca de la Ciudad, Rosa M. San Juan, PR
329153
Sanchez
Biblioteca Publica Coamo, Julio
Coamo, PR
329245
Rivera Bermudez
Biblioteca Publica Gurabo, Jose
Gurabo, PR
329315
Emilio Gonzales
Biblioteca Publica Loiza
Loiza, PR
329318
Biblioteca Municipal Mayagüez,
Mayagüez, PR
329323
El Mani
Biblioteca Publica Ceiba,
Ceiba, PR
329330
Alejandrina Quiñónez
Biblioteca Publica Hatillo
Hatillo, PR
329336
Biblioteca Publica Humacao,
Humacao, PR
329357
Antonia A. Roig
Biblioteca Publica Maunabo,
Maunabo, PR
329361
Rafael Rodriguez Gonza
Biblioteca Publica Rio Grande
Rio Grande, PR
329400
Biblioteca Publica Javana,
Javana, PR
329404
Nemesio R. Canalas
Biblioteca Publica Sabana
Sabana Grande, PR
329491
Grande, Augusto Malaret
Biblioteca Publica Lajas, La
Lajas, PR
329519
Parguera
Biblioteca Municipal Caguas, Dr. Caguas, PR
329584
Pedro Alivios Campo
12

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Applicant

City

Application Number

Biblioteca Publica Santa Isabel,
Santa Isabel, PR
329590
Pedro M. Alomar
Biblioteca Municipal de Cayey
Cayey, PR
329609
Biblioteca Publica Adjuntas
Adjuntas, PR
329630
Biblioteca Publica Anasco
Anasco, PR
329656
Biblioteca Publica Municipal
Naranjito, PR
329675
Computadorizada
Biblioteca Municipal de Corozal, Corozal, PR
329683
Teofilo Maldonado
Biblioteca Publica de Area Ciales Ciales, PR
329707
Biblioteca Municipal de
Mayagüez, PR
329773
Mayagüez
Biblioteca Publica Yauco
Yauco, PR
329778
Biblioteca Publica de Area
Arecibo, PR
329863
Arecibo
Biblioteca Municipal Las Piedras Las Piedras, PR
329870
Aurea M. Perez
Biblioteca Publica Toa Baja
Toa Baja, PR
329928
Biblioteca Publica Pennuelas
Pennuelas, PR
329940
Biblioteca Publica Aguas Buenas
Aguas, PR
329975
Biblioteca Publica Arroyo
Arroyo, PR
329978
Biblioteca Electronica Municipa
Aibonito, PR
329982
de Aibonito
Biblioteca Municipal de
Hormigueros, PR
329986
Hormigueros
Biblioteca Municipal de
Bayamon, PR
329990
Bayamon Pilar Barboza
Biblioteca Municipal Publica Toa Toa Baja, PR
330045
Baja Jaime Fonalledas Garr
Biblioteca Publica Villalba
Villalba, PR
330454
13

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Applicant

City

Application Number

Biblioteca Publica Salinas,
Salinas, PR
331495
Clemencia Philemon Vida
Biblioteca Publica Guayanilla
Guayanilla, PR
331546
Colegio Catolico Notre Dame
Caguas, PR
329881
Secundario
Colegio Marrimee, Inc.
Guaynabo, PR
330580
Colegio Presbiteriano San
San Sebastián, PR
330178
Sebastián
Colegio San Jose
Lares, PR
329454
Piaget Bilingual Academy of
Manati, PR
329967
Manati, Inc.
Biblioteca Municipal Rincón,
Rincón, PR
327608
Luis Murioz Marin
Biblioteca Publica Camuy,
Camuy, PR
329226
Barrio Quebrada
Academia Alexandra
Ponce, PR
329415
Liceo Aguadillano, Inc.
Aguadilla, PR
329700
Biblioteca Publica Isabela,
Isabela, PR
329741
Candido Bernal
14

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Appendix B

Petitioner Group B – Use of Equipment

Applicant

City

Application Number

Biblioteca Municipal de Juncos,
Juncos, PR
327616
Jose M. Gallado
Biblioteca Electronica, Dr.
Carolina, PR
329122
Carlos Hernandez Rodrig
Biblioteca Publica Aguada
Aguada, PR
329147
Biblioteca de la Ciudad, Rosa M. San Juan, PR
329153
Sanchez
Biblioteca Publica Coamo, Julio
Coamo, PR
329245
Rivera Bermudez
Biblioteca Publica Gurabo, Jose
Gurabo, PR
329315
Emilio Gonzales
Biblioteca Publica Loiza
Loiza, PR
329318
Biblioteca Municipal Mayagüez,
Mayagüez, PR
329323
El Mani
Biblioteca Publica Ceiba,
Ceiba, PR
329330
Alejandrina Quiñónez
Biblioteca Publica Hatillo
Hatillo, PR
329336
Biblioteca Publica Humacao,
Humacao, PR
329357
Antonia A. Roig
Biblioteca Publica Maunabo,
Maunabo, PR
329361
Rafael Rodriguez Gonza
Biblioteca Publica Rio Grande
Rio Grande, PR
329400
Biblioteca Publica Javana,
Javana, PR
329404
Nemesio R. Canalas
Biblioteca Publica Sabana
Sabana Grande, PR
329491
Grande, Augusto Malaret
Biblioteca Publica Lajas, La
Lajas, PR
329519
Parguera
Biblioteca Municipal Caguas, Dr. Caguas, PR
329584
Pedro Alivios Campo
15

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DA 13-13

Applicant

City

Application Number

Biblioteca Publica Santa Isabel,
Santa Isabel, PR
329590
Pedro M. Alomar
Biblioteca Municipal de Cayey
Cayey, PR
329609
Biblioteca Publica Adjuntas
Adjuntas, PR
329630
Biblioteca Publica Anasco
Anasco, PR
329656
Biblioteca Publica Municipal
Naranjito, PR
329675
Computadorizada
Biblioteca Municipal de Corozal, Corozal, PR
329683
Teofilo Maldonado
Biblioteca Publica de Area Ciales Ciales, PR
329707
Biblioteca Municipal de
Mayagüez, PR
329773
Mayagüez
Biblioteca Publica Yauco
Yauco, PR
329778
Biblioteca Publica de Area
Arecibo, PR
329863
Arecibo
Biblioteca Municipal Las Piedras Las Piedras, PR
329870
Aurea M. Perez
Biblioteca Publica Toa Baja
Toa Baja, PR
329928
Biblioteca Publica Penuelas
Penuelas, PR
329940
Biblioteca Publica Aguas Buenas
Aguas Buenas, PR
329975
Biblioteca Publica Arroyo
Arroya, PR
329978
Biblioteca Electronica Municipa
Aibonito, PR
329982
de Aibonito
Biblioteca Municipal de
Hormigueros, PR
329986
Hormigueros
Biblioteca Municipal de
Bayamon, PR
329990
Bayamon Pilar Barboza
Biblioteca Municipal Publica Toa Toa Baja, PR
330045
Baja Jaime Fonalledas Garr
16

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Applicant

City

Application Number

Biblioteca Publica Villalba
Villalba, PR
330454
Biblioteca Publica Salinas,
Salina, PR
331495
Clemencia Philemon Vida
Biblioteca Publica Guayanilla
Guayanilla, PR
331546
17

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Appendix C

Petitioner Group C – Eligibility of Services and Availability of Funding

Applicant

City

Application Number

Academia Alexandra
Ponce, PR
329415
Colegio Catolico Notre Dame
Caguas, PR
329881
Secundario
Colegio Marrimee, Inc.
Guaynabo, PR
330580
Colegio Presbiteriano San
San Sebastián, PR
330178
Sebastián
Colegio San Antonio
Isabela, PR
329300
Colegio San Jose
Lares, PR
329454
Colegio San Tomas Alva Edison
Caguas, PR
329371
Escuela Evangelica Unida de
Fajardo, PR
329287
Fajardo
Liceo Aguadillano, Inc.
Aguadilla, PR
329700
Piaget Bilingual Academy of
Manati, PR
329967
Manati, Inc.
18

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