On-Premise Priority 1 Equipment
Equipment located at the applicant site can receive funding as part of a telecommunications or Internet access service in certain limited conditions. In general, equipment that is located at the applicant site is considered for funding under the eligibility requirements for internal connections. However, if the on-premise equipment is an integral part of an end-to-end Priority 1 service (i.e., telecommunications services or Internet access), recurring or non-recurring charges for that service may include the cost of on-premise equipment used by the provider to provide that Priority 1 service.
Strict conditions apply to the provision of support for Priority 1 services that include on-premise equipment.
The conditions set forth below for eligibility of on-premise Priority 1 equipment are based on an order released by the Federal Communications Commission (FCC) involving a challenge by the state of Tennessee (FCC 99-216, released August 11, 1999). USAC uses the principles set forth in the Tennessee Order as a processing standard for funding requests that include service provider charges for the use of on-premise equipment.
It is important to understand what characteristics distinguish on-premise equipment eligible as part of an end-to-end Priority 1 service from internal connections equipment (Priority 2).
Components of internal connections are "necessary" to transport information within a school campus or library branch. Internal connections do not include connections extending beyond a school campus or library branch. FCC rules indicate that "(t)here is a rebuttable presumption that a connection does not constitute an internal connection if it crosses a public right of way." Thus, connections beyond an applicant's premises are presumed to be a part of Priority 1 services (either telecommunications services or Internet access) and connections within an applicant's premises are presumed to be internal connections.
In the normal application of this rule, the actual demarcation point between the local network and the Priority 1 services is typically at a wiring closet or computer room within the facilities. This is consistent with historical precedent of network systems, which traditionally rely on a specific dividing line or "demarcation" between a location's inside facilities and outside facilities. (A demarcation at the exact property boundary line would not be practical.)
In the Tennessee Order, the FCC affirmed that components located at the applicant site were presumed to be internal connections, but also discussed the basis by which this presumption could be overcome. The specific conditions relied upon by the FCC are described in the next section. In addition, several underlying requirements are an integral part of the approach and these are described in Section 3.
The FCC has indicated that support may be provided for basic termination equipment, such as a CSU/DSU, cable modem, network interface device, or copper-to-fiber converter. In the case of such a single basic termination component at the applicant's site, the requirement to meet all conditions as provided in this document does not apply. The term "single" is used to apply to no more than one component per site. Configurations of more than a single basic termination component, such as configurations utilizing routers or other complex equipment, must meet the requirements indicated in the following sections.
The on-premise Priority 1 equipment must be an integral component of the telecommunications or Internet access service. Support for services that includes charges for on-premise Priority 1 equipment is permissible when all of the following conditions are met:
- Same Service Provider: The on-premise equipment will be provided by the same service provider that provides the eligible telecommunications or Internet access service of which it is a part. The on-premise Priority 1 equipment is part of the service provider's infrastructure that is used to provide an eligible telecommunications or Internet access service. All parts of this eligible telecommunications or Internet access service must be obtained from a single service provider.
- Requests for services on the FCC Form 471 (Services Ordered and Certification Form) require the applicant to identify a single service provider for each funding request, so this provision is automatically enforced when the full service is described by a single funding request (i.e., a single FCC Form 471, Block 5).
- An applicant is allowed to describe a single telecommunications or Internet access service with on-premise equipment in more than one funding request of an FCC Form 471, but only if the applicant provides clear information in the attachments required by Item 21 of FCC Form 471, so that USAC understands the nature of the complete configuration. These multiple funding requests must be featured on a single FCC Form 471. Each separate funding request that is comprised of such a complete telecommunications or Internet access service must specify the same service provider. In other words, the same Service Provider Identification Number (SPIN) must be indicated in each request.
- Maintenance Is the Responsibility of the Service Provider. Since the on-premise components are merely a part of service provider infrastructure used to provide a telecommunications or Internet access service, then the service provider must maintain the components as part of the service provided. The charges of the service provider can include a separate maintenance fee. The applicant may not contract with a different party for maintenance of the service provider facilities, nor may the applicant provide its own maintenance of service provider components.
- No Transfer of Ownership or Lease-Purchase Option. The on-site components cannot be owned by the applicant at any time now or in the future. If an explicit or implicit option for the applicant to purchase the components exists and the applicant chooses to exercise this option, they will no longer be in compliance with the rules of the program. However, the presence of an option, in and of itself, would not make the applicant non-compliant with program rules.
- If a transfer of ownership is discovered at a future date, USAC will require the return of any funds improperly obtained. Criminal penalties may also apply.
- Initial Capital Costs Cannot Exceed Certain Thresholds. Service providers are limited in their ability to recoup the initial costs of construction or installation. Such upfront reimbursements must be limited to less than 67 percent of total charges. This 67 percent limit is evaluated by dividing the initial capital costs by all charges of the service over the funding year, subject to these further criteria: Initial capital costs include costs for equipment and its installation, but not costs for maintenance.
- The initial capital costs comprising the numerator for this calculation include only the costs for on-site equipment and its related installation. Initial capital costs for equipment and installation located outside of applicant facilities need not be included.
- An applicant cannot avoid requirements regarding upfront charges by merely spreading what would otherwise be a one-time charge over multiple recurring payments in a single funding year. USAC will compare monthly charges during the first year of a contract with monthly charges in subsequent years when making this evaluation.
- Additionally, contracts that require applicants to pay most or all of the cost of service provider infrastructure over an abbreviated time period raise the issue of whether the most cost-effective service has been selected.
- Note that an additional program rule may require that initial capital costs be amortized. This additional requirement applies regardless of whether any service provider infrastructure is located at the applicant site. See Wide Area Networks (WAN).
- On-site Components Cannot Be Used for Any Other Purpose. Since the on-premise Priority 1 components are a part of the service provider's infrastructure, and not the applicant's, the components cannot be used by the applicant for any purpose beyond the telecommunications or Internet access service being obtained from that service provider.
- For example, assume that a network router located at the applicant site is part of a telecommunications or Internet access service under the on-premise provisions. This router cannot be used to distribute any other information, such as local area network traffic, beyond the Priority 1 telecommunications or Internet access service. The on-premise Priority 1 service must have a single demarcation point to the applicant's local network. However, in the case of multiple on-premise Priority 1 services, there may be a single demarcation point to the applicant's local network for each service (i.e., voice, video or data).
- Further, assume that routers at multiple school or library locations are interconnected in order to provide Internet access to these locations. Funding for Priority 1 Internet access may include recurring or non-recurring charges for the routers only if those routers are used exclusively to provide Internet access. If information is exchanged directly among the school or library locations across the WAN links, the routers would not be eligible to lease as part of a Priority 1 Internet access service. WAN links used to provide Internet access also must be the most cost-effective means for obtaining Internet access.
- The Local Network Is not Dependent on the Equipment. The internal network at the site must continue to function without connection to the service provider on-premise equipment. Applicants cannot overcome this requirement by installing redundant components because that would be contrary to the requirement to select the most cost-effective service. For instance, on-premise components such as network hubs and network switches that are used to distribute transmissions to multiple locations within a local area network would not meet this requirement because if they were removed then the communication paths among the various network points would be broken. Similarly, a PBX that routes calls within a school or library would not be eligible for support as Priority 1 on-premise equipment.
- Must Allow Sharing of Facilities. The underlying concept of the on-premise Priority 1 approach is that service providers can choose to locate some of their own infrastructure at the applicant site if certain conditions are met. The FCC Order indicates that service providers must have the flexibility to make this infrastructure available on a shared basis to other customers, since such sharing arrangements can result in reduced costs. The applicant may be the only party using the equipment, but there can be no contractual, technical, or other limitation that would prevent the service provider from using equipment that would normally be shared in other similar arrangements with other customers. Applicants must be willing to accept the possibility that the service provider would use the on-premise Priority 1 equipment for additional customers.
Fundamental Eligibility Requirements
The conditions described above have several implications. Additionally, overall program rules and eligibility requirements apply regardless of whether on-premise components are included.
- Limited to WAN Components. The FCC's Tennessee Order involved the demarcation between local area network and wide area network. Components that are a part of a local area network are not included.
- On-premise equipment must be essential to provision of Priority 1 service. The on-premise equipment must be an integral part of the Priority 1 telecommunications service or Internet sccess service, such that the service could not be provided without the component in question.
- Must have a Specific Demarcation. A single dividing line between a Priority 1 service and the local network components is a fundamental part of the FCC's Tennessee Order. Internal wiring (or wireless capability) that connects multiple locations within a school or library is inherently a part of the local network. A single demarcation is allowable for each service.
- Must be Continuous. The components that make up the end-to-end service must be directly connected and cannot have cabling, network hubs, or other components within this directly connected architecture, unless these other components are also part of end-to-end service and meet all other requirements.
- Must be Economically Justifiable. Configurations that attempt to meet the conditions by including redundant components or components that do not provide reasonable functional utility are contrary to program requirements to choose the most cost-effective service.
- Must Meet Program Definitions for Telecommunications or Internet Access Service. A telecommunications service is defined as "the offering of telecommunications for a fee directly to the public, or to such classes of users as to be effectively available directly to the public, regardless of the facilities used." Telecommunications is defined as "the transmission, between or among points specified by the user, of information of the user's choosing, without change in the form or content of the information as sent and received." Eligible Internet access is limited to "basic conduit access" to the Internet, including email. See FCC 97-157, released May 8, 1997. Separate charges for content or additional information services and capability are not eligible.
USAC may evaluate three initial areas when determining the eligibility of an on-premise Priority 1 funding request:
- Has the applicant demonstrated compliance with each specific condition?
- Is cost information sufficient to confirm compliance with the requirement that upfront, capital charges are less than 67 percent of total charges in the funding year?
- Is the location and configuration of equipment consistent with the requirements for on-premise Priority 1 equipment? A diagram that shows how the components are interconnected with an applicant's internal connections components may be required to confirm that the proposed configuration is acceptable.
Additional information also may be requested, if appropriate, for the funding request at hand.
The FCC Form 471 Item 21 attachment is used to provide information required in the above review. Applicants can speed the review process by including clear and sufficient information in this attachment including an indication of which portions of the funding request are on-premise (both the lease of on-premise equipment and installation of on-premise equipment).
During USAC's review process, if any on-site components are determined not to qualify as part of Priority 1 services, they will be evaluated as internal connections. Thus, a funding request could be found to contain a combination of a Priority 1 service and internal connections. In this circumstance, the funding request is evaluated based on the procedure described in Service Category Adjustments.
This adjustment of service categories may result in the denial of all or part of the funding request. For this reason, applicants should ensure that the requests for funding for on-premise Priority 1 services are consistent with the administrative procedures.
The following diagrams have been created to assist applicants and service providers in understanding the acceptable and unacceptable configurations for on-premise Priority 1 equipment (the diagrams will open in separate browser windows):
- Example 1: Router No
Router that does not meet the on-premise Priority 1 conditions
- Example 2: Router Maybe
Router that might meet the on-pemise Priority 1 conditions
- Example 3: Multiple Service No
Multiple service request with a router that does not meet the on-premise Priority 1 conditions
- Example 4: Multiple Service Maybe
Multiple service request with a router that might meet the on-premise Priority 1 conditions
- Example 5: WAN Maybe
Wide area network configuration that might meet the on-premise Priority 1 conditions