Federal Communications Commission DA 08-2366 Before the Federal Communications Commission Washington, DC 20554 In the Matter of ) ) Request for Review of a Decision of the ) Universal Service Administrator by ) ) Hillsboro Independent School District ) File No. SLD-529671 Richmond, Texas ) ) Schools and Libraries Universal Service ) CC Docket No. 02-6 Support Mechanism ) ORDER Adopted: October 30, 2008 Released: October 30, 2008 By the Acting Chief, Telecommunications Access Policy Division, Wireline Competition Bureau: I. INTRODUCTION 1. In this order, we grant a request by Hillsboro Independent School District (Hillsboro) for review of a decision by the Universal Service Administrative Company (USAC) that denied funding to Hillsboro under the schools and libraries universal service support mechanism, also known as the E-rate program, for Funding Year 2006.1 Specifically, USAC denied Hillsboro’s funding requests because: (1) Hillsboro did not have valid contracts in place prior to filing its FCC Form 471; (2) Hillsboro requested telecommunications services from a service provider that was not a telecommunications carrier; and (3) Hillsboro failed to notify bidders that a request for proposal (RFP) was issued.2 As discussed below, we find that Hillsboro had valid contracts in place when it filed its FCC Form 471, and it properly posted and competitively bid for its Internet access service, consistent with the Commission’s competitive bidding rules.3 We thus grant the Request for Review and remand the underlying application to USAC for further action consistent with this order. To ensure that the underlying application is resolved expeditiously, we direct USAC to complete its review of the application and issue an award or a denial based on a complete review and analysis no later than 60 calendar days from the release date of this order. 4 1 Letter from Lee Ulrich, Hillsboro Independent School District, to Office of the Secretary, Federal Communications Commission, CC Docket Nos. 96-45, 02-6 (dated Feb. 26, 2007) (Request for Review). 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). Funding Year 2006 started on July 1, 2006, and ended on June 30, 2007. 2 Letter from Schools and Libraries Division, USAC, to Lee Ulrich, Hillsboro Independent School District (dated Jan. 17, 2007) (Administrator’s Decision on Appeal). 3 47 C.F.R. § 54.504(a)-(c). 4 In performing a complete review and analysis of each underlying application, USAC shall either grant the underlying application before it, or, if denying the application, provide the applicant with any and all grounds for denial. Federal Communications Commission DA 08-2366 2 II. BACKGROUND 2. Under the E-rate program, eligible schools, libraries, and consortia that include eligible schools and libraries may apply for discounts for eligible telecommunications services, Internet access, and internal connections.5 The Commission’s rules provide that an eligible school, library, or consortium that includes eligible schools or libraries must seek competitive bids for all services eligible for support.6 In accordance with the Commission’s rules, an applicant must file with USAC, for posting to USAC’s website, an FCC Form 470 requesting discounted services.7 The applicant must describe the desired services with sufficient specificity to enable potential service providers to submit bids for E-rate eligible services.8 The applicant must provide this description on its FCC Form 470 or indicate on the form that it has a 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 3. The applicant must then wait 28 days before entering into an agreement with a service provider for the requested services.11 Once the school or library has complied with the Commission’s competitive bidding requirements and entered into an agreement for eligible services, it must file an FCC Form 471 application to notify USAC of the services that have been ordered, the service providers with whom the applicant has entered into an agreement, and an estimate of the funds needed to cover the discounts to be given for eligible services.12 The Commission’s rules state that the FCC Form 471 requesting support for the services ordered by the applicant shall be submitted “upon signing a contract for eligible services.”13 Specifically, the instructions state that applicants must have a “signed contract” or a “legally binding agreement” with the service provider “for all services” ordered.14 5 47 C.F.R. §§ 54.501-54.503. 6 47 C.F.R. § 54.504. There is one limited exception for existing, binding contracts signed on or before July 10, 1997. See 47 C.F.R. § 54.511(c). 7 47 C.F.R. § 54.504(b); see also Schools and Libraries Universal Service, Description of Services Requested and Certification Form, OMB 3060-0806 (October 2004) (FCC Form 470). 8 47 C.F.R. § 54.504(b); see also Federal-State Joint Board on Universal Service, CC Docket 96-45, Report and Order, 12 FCC Rcd 8776, 9077-80, paras. 572-579 (1997) (Universal Service First Report and Order) (describing sequence of designing detailed technology plan and subsequently submitting detailed description of services sought). 9 See, e.g., FCC Form 470. 10 Id. 11 47 C.F.R. § 54.504(b)(4). Applicants must also comply with any applicable state and local competitive bidding requirements. See 47 C.F.R. § 54.504(a). Applicants can enter into agreements of any length, as long as all providers have had the opportunity to compete for the same multi-year contract. Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Order, 15 FCC Rcd 6732, 6736, para. 10 (1999). 12 47 C.F.R. § 54.504(c); see Schools and Libraries Universal Service, Services Ordered and Certification Form, OMB 3060-0806 (November 2004) (FCC Form 471). 13 47 C.F.R. § 54.504(c); see also Request for Review of Waldwick School District, Schools and Libraries Universal Service Support Mechanisms, CC Docket No. 02-6, Order, 18 FCC Rcd 22994, 22995, para. 3 (Wireline Comp. Bur. 2003); Request for Review of St. Joseph High School, Schools and Libraries Universal Service Support Mechanisms, CC Docket Nos. 96-45, 97-21, Order, 17 FCC Rcd 22499, 22500-01, para. 4 (Wireline Comp. Bur. 2002). 14 Instructions for Completing the Schools and Libraries Universal Service, Services Ordered and Certification Form, OMB 3060-0806 (November 2004) (FCC Form 471 Instructions). Federal Communications Commission DA 08-2366 3 4. Applicants may obtain discounts on Internet access and internal connections irrespective of whether they purchase those offerings from telecommunications or non-telecommunications carriers.15 To receive E-rate discounts on “telecommunications services,” however, applicants must purchase those services from entities recognized as “telecommunications carriers.”16 The term “telecommunications carrier” includes only “provider[s] of telecommunications service,” which Congress defined as “the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available to the public, regardless of the facilities used.”17 5. Hillsboro’s Request for Review. Hillsboro seeks review of USAC’s decision denying funding for its Funding Year 2006 application.18 For Funding Year 2006, Hillsboro filed three FCC Forms 470 for posting to USAC’s website.19 On February 16, 2006, Hillsboro filed its FCC Form 471.20 On October 24, 2006, USAC issued a Funding Commitment Decision Letter (FCDL) to Hillsboro, approving four of Hillsboro’s funding requests in the amount of $23,258.52 and denying ten of Hillsboro’s funding requests in the amount of $176,298.75.21 Five of the funding requests were denied because Hillsboro did not have valid contracts in place prior to filing its FCC Form 471.22 One funding request was denied because Hillsboro requested telecommunications services from a service provider that was not a telecommunications carrier.23 Finally, four funding requests were denied because Hillsboro failed to inform bidders that an RFP was issued.24 Thus, on November 14, 2006, Hillsboro filed an appeal with USAC regarding the denial of its 10 funding requests as part of its Funding Year 2006 application.25 15 See 47 C.F.R. §§ 54.501(a), 54.503 (eligibility for services provided by telecommunications carriers); 54.517(b) (services provided by non-telecommunications carriers). 16 See 47 U.S.C. § 254(h)(1)(B); Universal Service First Report and Order, 12 FCC Rcd at 9005-23, paras. 431-63, 9084-90, paras. 589-600, 9177-79, paras. 785-86; 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) (Fourth Reconsideration Order). Non-telecommunications providers are eligible for support for providing voice mail, Internet access, and installation and maintenance of internal connections but are not eligible to provide telecommunications services under the universal service support mechanism. See 47 C.F.R. § 54.517. 17 47 U.S.C. §§ 153(44), (46); Fourth Reconsideration Order, 13 FCC Rcd at 5413-14, paras. 163-164. 18 See Request for Review at 1. 19 See FCC Form 470 No. 488450000565477, Hillsboro Independent School District (posted Dec. 17, 2005) (Hillsboro Dec.17 FCC Form 470); FCC Form 470 No. 977800000578136, Hillsboro Independent School District (posted Jan. 16, 2006) (Hillsboro Jan. 16 FCC Form 470); FCC Form 470 No. 27510000057880, Hillsboro Independent School District (posted Jan. 17, 2006) (Hillsboro Jan. 17 FCC Form 470). 20 FCC Form 471 No. 529671, Hillsboro Independent School District (filed Feb. 16, 2006) (Hillsboro FCC Form 471). 21 Letter from Schools and Libraries Division, USAC, to Lee Ulrich, Hillsboro Independent School District (dated Oct. 24, 2006) (Funding Commitment Decision Letter). 22 See Funding Request Numbers (FRN) 1461704, 1462477, 1462639, 1462736, and 1462862. 23 See FRN 1465436. 24 See FRNs 1461197, 1461267, 1465602, 1469729. 25 Letters from Lee Ulrich, Hillsboro Independent School District, to USAC, Schools and Libraries Division, USAC (dated Nov. 14, 2006). Hillsboro filed five separate appeals on November 14, 2006, each transmitting a properly signed and dated contract corresponding to the five FRNs. See Hillsboro-SBC Contract for FRN 1461704 (signed Feb. 16, 2006); Hillsboro-SBC Contract for FRN 1462477 (signed Feb. 16, 2006); Hillsboro-SBC Contract for FRN 1462639 (signed Feb. 16, 2006); Hillsboro-SBC Contract for FRN 1462736 (signed Feb. 16, 2006); Hillsboro-SBC Contract for FRN 1462862 (signed Feb. 16, 2006) (collectively, Hillsboro Contracts). Federal Communications Commission DA 08-2366 4 On January 17, 2006, USAC denied Hillsboro’s appeal.26 Subsequently, on February 26, 2007, Hillsboro filed the instant request for review with the Commission.27 6. In its appeal to the Commission, Hillsboro argues that all of the denials were due to inadvertent, correctible errors on the part of Hillsboro’s new technology director, who was unfamiliar with the complexities of the E-rate program.28 First, Hillsboro claims that the five funding requests denied for lacking a valid contract were improperly denied because the technology director inadvertently provided USAC copies of the contract that were signed only by Hillsboro and not the service provider.29 On appeal to USAC, however, Hillsboro provided copies of the contracts that were signed by both parties.30 Thus, Hillsboro requests that the Commission accept the signed contracts as valid.31 Second, for the one funding request denied for seeking telecommunications from a non-telecommunications carrier, Hillsboro claims that it mistakenly marked “Telecommunications” instead of “Internet Access” on its FCC Form 470.32 Hillsboro argues that, consistent with the Commission decision in the Bishop Perry Order, the Commission should allow Hillsboro to correct this error.33 Finally, for the remaining four funding requests denied for failing to inform bidders that an RFP was issued, Hillsboro claims that its technology director “inadvertently included Telecommunications on the RFP . . . without realizing that an RFP is not usually released for Telecomm because there is only one service provider in [Hillsboro’s] geographical area.”34 Thus, Hillsboro seeks waiver of all the relevant rules to allow it to receive the funding it would receive but for its technology director’s mistakes.35 III. DISCUSSION 7. We grant Hillsboro’s Request for Review. Specifically, as discussed below, we find that Hillsboro had valid contracts in place when it filed its FCC Form 471, and it properly posted and competitively bid for its Internet access service, consistent with the Commission’s competitive bidding rules.36 26 Letter from USAC, Schools and Libraries Division, USAC, to Lee Ulrich, Hillsboro Independent School District (dated Jan. 17, 2007). 27 Request for Review. 28 Id. at 1. 29 Id. 30 Id.; see also Hillsboro Contracts. 31 Request for Review at 1. 32 Id. at 2. 33 Id.; see also Request for Review of the Decision of the Universal Service Administrator by Bishop Perry Middle School, et al., Schools and Libraries Universal Service Support Mechanism, CC Docket No. 02-6, Order, 21 FCC Rcd 5316 (2006) (Bishop Perry Order) (finding that, under certain circumstances, rigid adherence to certain E-rate rules and requirements that are “procedural” in nature does not serve the public interest, but cautioning applicants to comply fully with the Commission’s procedural rules, which are vital to the efficient operation of the E-rate program). 34 Request for Review at 2. Applicants must describe on their FCC Forms 470 the specific services or functions for which funding will be sought, but have the option to file an RFP in addition to an FCC Form 470. See USAC Website, Step 3: Open a Competitive Bidding Process (Form 470), http://www.usac.org/sl/applicants/step03/ (retrieved Aug. 11, 2008). 35 Request for Review at 2. 3647 C.F.R. § 54.504(a)-(c). Federal Communications Commission DA 08-2366 5 8. Valid Contracts Prior to Filing the FCC Form 471. USAC denied five of Hillsboro’s funding requests because Hillsboro did not have valid contracts in place prior to filing its FCC Form 471.37 Consistent with precedent and current USAC guidance, we find that Hillsboro did in fact have valid contracts in place at the time it filed its FCC Form 471.38 As indicated above, Hillsboro explains that its technology director mistakenly provided copies of the contracts signed only by Hillsboro to USAC during the application review process.39 Current USAC guidance does not second-guess the validity of a contract that contains only the applicant’s signature and the contract date so long as the applicable state and/or local contract law requirements for establishing a valid, binding contract are met.40 Moreover, on appeal to USAC, Hillsboro provided copies of the contracts that were signed by both parties.41 We therefore find that Hillsboro submitted valid contracts to USAC. 9. Non-Telecommunications Provider. We find that Hillsboro made a clerical error on its FCC Form 471.42 USAC denied one of Hillsboro’s funding requests because Hillsboro requested telecommunications services from a service provider that was not a telecommunications carrier.43 Based on a review of Hillsboro’s FCC Form 470, Hillsboro properly posted and competitively bid a request for both Internet access and telecommunications service.44 The relevant eligible services list allowed E-rate participants to receive Internet access through T-1 lines from an Internet service provider, as well as telecommunications services through T-1 lines.45 The service provider it selected, EDLINK12, for the funding request at issue, FRN 1465436, was in fact providing Hillsboro with Internet access and two T-1 lines rather than just telecommunications service.46 After reviewing Hillsboro’s FCC Form 471 and the Item 21 attachment, which describes the products and services for which discounts are being sought, we find that Hillsboro mistakenly listed FRN 1465436 as requesting telecommunications service instead of Internet access on its FCC Form 471.47 As in the Aberdeen School District Order, this appeal involves a clerical error on the part of Hillsboro when it selected the wrong classification of service on its FCC Form 471.48 As the Commission has previously noted, we do not believe that such minor mistakes warrant the 37 See Funding Request Numbers (FRN) 1461704, 1462477, 1462639, 1462736, and 1462862. 38 See Request for Review of Adams County School District 14, CC Docket No. 02-6, Order, 22 FCC Rcd 6019 (2007) (finding good cause to grant a limited waiver of the Commission’s contract rules and procedures for several applicants) (Adams County Order); USAC website, Contract Guidance, http://www.usac.org/sl/applicants/step04/contract-guidance.aspx (retrieved Aug. 11, 2008). 39 See supra para. 6; Request for Review at 1. 40 See USAC website, Contract Guidance, http://www.usac.org/sl/applicants/step04/contract-guidance.aspx (retrieved Aug. 11, 2008). 41 See Hillsboro Contracts. 42 Request for Review at 2. 43 See FRN 1465436. 44 See Hillsboro Dec. 17 FCC Form 470. 45 Hillsboro requested district-wide T-1 lines. Id. at 2-3. The Funding Year 2006 Eligible Services List allows E- rate participants to receive Internet access through T-1 lines from an Internet service provider, as well as telecommunications services through T-1 lines. See Eligible Services List, Schools and Libraries Support Mechanism for Funding Year 2006, at 17, 65 (rel. Nov. 18, 2005). 46 Hillsboro-EDLINK12 Contract for FRN 1465436 at 2. 47 Hillsboro FCC Form 471. 48 Application for Review of the Decision of the Universal Service Administrator by Aberdeen School District, Schools and Libraries Universal Service Mechanism, CC Docket No. 02-6, Order, 22 FCC Rcd 8757, 8761-62, para. 6 (2007). Federal Communications Commission DA 08-2366 6 complete rejection of an applicant’s E-rate application.49 Therefore, to the extent necessary, we also grant Hillsboro a waiver of section 54.504(c) of the Commission’s rules, which requires applicants to submit a completed FCC Form 471 to USAC.50 10. Request for Proposal. USAC denied four of Hillsboro’s funding requests because Hillsboro failed to inform bidders that an RFP was issued.51 The Commission has previously found that the FCC Form 470 is the only “posting” necessary to fulfill the Commission’s competitive bidding requirement.52 Here we find the FCC Forms 470 at issue contained sufficient information to allow service providers to bid on the services sought. Most importantly, any service provider that might have received the one page long RFP would not have had more information than a service provider that did not receive the RFP.53 Therefore, we find no indication in the record that the competitive bidding process was harmed. We find that Hillsboro posted and competitively bid for the services it sought, consistent with the Commission’s competitive bidding rules.54 Furthermore, at this time, there is no evidence of waste, fraud or abuse, misuse of funds, or a failure to adhere to core program requirements. 11. Accordingly, we grant Hillsboro’s appeal and remand the underlying application to USAC for further processing consistent with this order. 55 To ensure that the underlying application is processed expeditiously, we direct USAC to complete its review of the underlying application and issue a decision based on a complete review and analysis no later than 60 calendar days from release of this order.56 In remanding this application to USAC, we make no finding as to the ultimate eligibility of the 49 Bishop Perry Order, 21 FCC Rcd at 5321, para. 11. 50 47 C.F.R. § 54.504(c). 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), affirmed by WAIT Radio v. FCC, 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. 51 See FRNs 1461197, 1461267, 1465602, 1469729. 52 Request for Review of the Decision of the Universal Service Administrator by Objective Communications, Inc., CC Docket Nos. 96-45 and 97-21, Order, 15 FCC Rcd 8395, 8397, para. 7 (1999). As required by section 54.504(a) of the Commission’s rules, these competitive bidding requirements apply in addition to state and local competitive bidding requirements. 47 C.F.R. § 54.504(a). 53 We note that, of the two relevant FCC Forms 470 that Hillsboro filed in Funding Year 2006, only one did not notify bidders that an RFP was issued. See FCC Form 470 No. 488450000565477, Hillsboro Independent School District (posted Jan. 3, 2006) (notifying bidders of the RFP); FCC Form 470 No. 977800000578136, Hillsboro Independent School District (posted Jan. 16, 2006) (not notifying bidders of the RFP). 54 47 C.F.R. § 54.504(b). 55 We estimate that the appeals granted in this order involve approximately $176,298 in funding. We note that USAC has already reserved sufficient funds to address outstanding appeals. See, e.g., Universal Service Administrative Company, Federal Universal Service Support Mechanisms Fund Size Projections for the Fourth Quarter 2008 (Aug. 1, 2008). Thus, we determine that the action we take today should have minimal impact on the universal service fund as a whole. 56 In performing a complete review and analysis of each underlying application, USAC shall either grant the underlying application before it, or, if denying the application, provide the applicant with any and all grounds for denial. Federal Communications Commission DA 08-2366 7 services or the petitioner’s application.57 We remind USAC of its obligation to independently determine whether the disbursement of universal service funds would be consistent with program requirements, Commission rules and orders, or applicable statutes and to decline to disburse funds where this standard is not met. 12. We emphasize the limited nature of this decision. The Commission’s competitive bidding rules serve as a central tenet of the E-rate program. They ensure more efficient pricing for telecommunications and other eligible services purchased by schools and libraries and help deter waste, fraud and abuse.58 Although we grant the subject appeal before us, our action here does not eliminate any of our competitive bidding requirements or the obligations of participants in the E-rate program to comply with the Commission’s rules. 13. Finally, we emphasize that the Commission is committed to guarding against waste, fraud, and abuse and ensuring that funds disbursed through the E-rate program are used for appropriate purposes. Although we grant the appeal addressed herein, the Commission reserves the right to conduct audits and investigations to determine compliance with the E-rate program rules and requirements. Because audits and investigations may provide information showing that a beneficiary or service provider failed to comply with the statute or Commission rules, such proceedings can reveal instances in which universal service funds were improperly disbursed or in a manner inconsistent with the statute or the Commission’s rules. To the extent the Commission finds that funds were not used properly, the Commission will require USAC to recover such funds through its normal processes. We emphasize that the Commission retains the discretion to evaluate the uses of monies disbursed through the E-rate program and to determine on a case-by-case basis that waste, fraud, or abuse of program funds occurred and that recovery is warranted. The Commission remains committed to ensuring the integrity of the program and will continue to aggressively pursue instances of waste, fraud, or abuse under the Commission’s procedures and in cooperation with law enforcement agencies. IV. ORDERING CLAUSES 14. ACCORDINGLY, IT IS 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 pursuant to authority delegated in 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), the Request for Review filed by Hillsboro Independent School District IS GRANTED, as described herein. 15. 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 pursuant to authority delegated in 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), section 54.504(c), 47 C.F.R. § 54.504(c), IS WAIVED to the limited extent provided herein. 16. 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 pursuant to authority delegated in sections 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), USAC SHALL COMPLETE its review of the remanded application and ISSUE an 57 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. 58 See Adams County Order, 22 FCC Rcd at 6022, para. 8. Federal Communications Commission DA 08-2366 8 award or denial based on a complete review and analysis no later than 60 calendar days from the release date of this order. 17. IT IS FURTHER ORDERED that, pursuant to authority delegated under sections 0.91, 0.291 and 1.102 of the Commission’s rules, 47 C.F.R. §§ 0.91, 0.291, 1.102, this order SHALL BE EFFECTIVE upon release. FEDERAL COMMUNICATIONS COMMISSION Jennifer K. McKee Acting Chief Telecommunications Access Policy Division Wireline Competition Bureau