June 1998 Announcements

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June 24, 1998

Dear School, Library, and Telecommunications Industry Leaders:

I am certain you have closely followed the recent press reports about the Federal Communications Commission (FCC) decisions regarding the size, timing, and structure of the Universal Service Fund for Schools and Libraries -- commonly known as the E-rate – and have attempted to assess what impact these decisions might have on your applications. We understand the frustration many of you have experienced due to the uncertainties surrounding the E-rate. On behalf of the Schools and Libraries Corporation (SLC), I am writing to you today to summarize the changes contained in the FCC’s formal Order released on June 22, and to discuss what happens next.

Although the funding for the 1998 program year as set in the FCC’s new Order will disappoint some applicants, other revisions may make the E-rate more manageable for you in the months ahead. The FCC has worked hard to put the E-rate on stable footing operationally and financially, and the SLC has made constructive suggestions during this process based in large part on feedback we have received from you.

Funding Levels Set for 1998

Although an annual funding cap of $2.25 billion remains in place, the FCC acted last winter to limit collections from the telecommunications industry to $625 million for the first six months of 1998, with funding level for the remainder of the year to be determined. In their recent Order, the FCC set collections and disbursements for the program at $325 million per quarter for the next four quarters. Together with the $625 collected in the first six months of 1998, this equals $1.925 billion over the 18 month period from January 1, 1998 to June 30, 1999.

The 18-Month Year

As a result of suggestions from the SLC, the FCC extended the 1998 program year through June 30, 1999. This shift in the program schedule allows all of us sufficient time to implement properly the first program year, and synchronizes the E-rate funding cycle with the most common fiscal year among schools and libraries. Approved discounts for ongoing telecommunications and Internet access costs will be extended for six months. While the amount for approved internal connections discounts will not be augmented, discount recipients will have until June 30, 1999 to use these discounts. The second funding year will begin July 1, 1999, and will run through June 30, 2000.

This 18-month transition for 1998 has several benefits. In addition to maximizing our ability to fund applicants to the fullest extent possible within the collection levels described above, it will give schools and libraries the time they need to properly roll out their 1998 technology projects while carefully developing their applications for 1999. In addition, the funding schedule should make budgeting and planning much more workable for E-rate applicants. The 18-month transition will allow E-rate applicants several additional months of planning time before the second cycle begins.

Rules of Priority Revised

The FCC’s order has established a new method of assuring that the poorest schools and libraries get the greatest E-rate benefits while honoring the needs of all other applicants as well. For applications received within the 75-day window, available funding will be allocated first to fulfill all approved requests for telecommunications services and Internet access. Remaining funds will then be allocated for internal connections, beginning with the schools and libraries in the highest need categories (those that qualify for the greatest discounts) and continuing as long as funds remain.

Effect on Other Program Rules

To permit the six-month extension of ongoing telecommunications and Internet access discounts, the FCC has revised program rules to allow the voluntary extension of contracts to June 30, 1999, for contracts that would otherwise have expired between December 31, 1998 and June 30, 1999. The rules governing retroactivity will remain in place.

Application Cycle for 1999

The FCC’s Order states that the second year application cycle should begin no later than October 1, 1998, rather than July 1, 1998. This will give schools and libraries more time to plan for their second year requests. Application materials will be distributed well before the application cycle begins. While we expect that the FCC Forms will remain unchanged, the accompanying explanatory materials are being improved based on first-year experience and your comments and suggestions. A "window" period, during which all correctly completed applications received will be treated as if they had arrived simultaneously, will be established and its length will be determined soon. Funding commitments for the second program year will be made in the spring, and discounts will take effect July 1, 1999.

Funding Commitments for 1998

The SLC is making substantial progress on processing the 30,000 applications received from schools and libraries during the 75-day window. As you probably know, the application review process got off to a slower start than planned as accommodations were made to process the unexpectedly large number of applications requiring time-intensive problem resolution. The SLC made a conscious choice to provide as much hands-on customer assistance as possible to assure that schools and libraries had the greatest opportunity to properly complete the applications. And, the SLC needed to improve some of our initial problem resolution procedures once the process was underway. In addition, the FCC’s new Order will require some revisions to our computer systems and to application processing procedures.

All of this adds up to a longer than hoped for lead time on funding commitments for 1998. Clearly, we will not be able to commit funds before many applicants’ fiscal years end on June 30, 1998, and probably will not be able to do so in a manner that enables you to undertake installations during this summer. Although the 18-month schedule should alleviate some time pressure for implementation of E-rate projects, we recognize the importance of giving you a timetable for funding commitments as soon as a reliable date is available, and then starting the actual funding as quickly as possible. You have our commitment to do both. Also, once again, please remember that the FCC Order reconfirms that funding commitments will be retroactive in accordance with our existing guidelines on this issue.

FCC Form 486

This "start payment" Form, which applicants will file AFTER they have been notified of funding commitments and AFTER contracted services have begun to flow, is in the process of being finalized in light of the FCC Order. This fairly simple 3-page (no, I am not kidding) form will be made available directly to applicants at the same time they are being notified of funding commitments.

Special Thanks

Start-ups are always challenging, and, as you know, so has been the launch of the E-rate. Rarely has such a multi-faceted, sizable operation been rolled out in so short a time, only to be buffeted by so many uncertainties beyond our collective control. Each step along the way, we have asked for your guidance in improving the way we do business, and you have been very generous and properly candid with your feedback. We think you will be pleased to see your suggestions reflected in our improved program materials and application processes for the second program year. As further details become available on these issues and others, the SLC will disseminate them widely.

In the meantime, please accept our apology for not being able to provide more regular information updates to you over the past several weeks. While open communication and excellent client service are among the SLC’s highest priorities, we could not responsibly share information about recent developments until the FCC had acted definitively. Now, although Congress may yet act to further revise the E-rate, we wanted to take this opportunity to bring you up to date and to thank you for your continued patience and assistance.

Sincerely,

Ira Fishman
CEO, Schools and Libraries Corporation

Following several weeks of intense debate in Congress and at the Federal Communications Commission, the FCC last Friday released its decision concerning 1998 funding for the E-rate and a new schedule for deploying those funds. The following questions and answers provide basic information about the FCC’s decision. More detailed explanations of each aspect—including how funds will be allocated and how the new schedule will work—will be released by the Schools and Libraries Corporation over the coming days. In addition, applicants should be aware that additional Congressional action on the E-rate remains a possibility.

1. What was the FCC’s recent decision about the E-rate?

On Friday, June 12, the Federal Communications Commission voted to set funding for the 1998 E-rate program at $1.925 billion over an 18-month period ending June 30, 1999.

2. Wasn’t funding for the E-rate supposed to be $2.25 billion a year?

$2.25 billion was the annual cap for the program, the most that could be collected from the telecommunications industry and provided as discounts to schools and libraries. The FCC has stated that it wants to meet the needs of schools and libraries without causing consumer phone bills to rise. It believes that this revised funding level will accomplish this for 1998.

3. Is $1.925 billion enough to fund all of the applications the SLC has received?

We will not know until all applications are processed and reviewed, but our initial estimates show the total requests for applications received within the 75-day window for 1998 at $2.02 billion. Our goals for allocating funds are now to assure that all approved school and library applicants see benefits of the E-rate; to make certain that greatest benefits go to those in greatest need; and to maximize available funding in most equitable and manageable way.

4. So how will the SLC now allocate these funds?

The FCC decision also re-ordered our allocation process. Approved requests for telecommunications services and Internet access will be funded first. Remaining funds will then be allocated to approved requests for internal connections beginning with those from neediest applicants (for example, those with 90% discounts, then 80%, and so on).

5. Does this mean that if I’m not one of those 80-90% applicants, my internal connections probably won’t get funded this year?

Until all applications are completely reviewed, we won’t know precisely how far the funds will stretch, but we are not optimistic about being able to meet many applicants’ internal connections needs. Therefore, we encourage all applicants to begin considering alternate or additional sources of funding for internal connections.

6. How does the 18-month year work?

Originally, the 1998 program year was to have ended December 31, 1998. The FCC has now directed the SLC to extend approved 1998 telecommunications and Internet access discounts through June 30, 1999, and to allow those with approved internal connections discounts to take until June 30, 1999 to expend these funds. Applications for the 1999 program year will begin being accepted in late fall 1998, with funding commitments in place before the new program year begins on July 1, 1999. More details about the 18-month transition, including the process for extending contracts through June 30, will be available soon.

7. What are the reasons for adopting this 18-month cycle?

The FCC and SLC want the E-rate program year to more closely reflect applicants’ fiscal years, which typically begin July 1. In addition, because of all the uncertainties of this initial application cycle, we wanted to give applicants sufficient time to implement 1998 projects and develop their applications for 1999. This 18-month cycle makes 1998 a transitional year; funding will be annual beginning in 1999.

8. Will this decision change the rules regarding retroactivity? Will discounts for qualified pre-existing contracts still be retroactive to January 1, 1998, or the service start date, whichever is later?

The rules regarding retroactive discounts will not change under this new plan.

9. When will we know what our funding commitment will be for 1998?

The SLC is moving ahead with processing of all applications. As you know, problem resolution and program integrity review can be time-consuming. In addition, the FCC decision requires SLC to make significant adjustments in our processing and computer systems. We hope to provide an exact schedule for funding commitments in the near future. Meanwhile, we urge applicants to continue monitoring your phone, fax, and e-mail for contacts from our review staff. (If you will not be reachable during some portion of the summer, we will collect alternate contact information for you via the Summer Contact data base available on the SLC Web site within the week.)

10. When will applications begin being accepted for 1999?

The SLC expects to begin accepting applications for 1999 late this fall—NOT July 1, 1998, as originally planned. Application guidance materials are being revised and updated now and will be made available over the next several months. Application packages will be distributed to school districts, library systems, and non-public schools two to four weeks in advance of the application launch date.

A joint meeting of the Boards of USAC, SLC and RHCC is scheduled to begin at 10:00 A.M. EST on Friday, June 26, 1998, at the International Trade Center & Ronald Reagan Building, 1300 Pennsylvania Avenue, N.W, Room Meridian D&E, Washington, D.C. The purpose of the meeting is to discuss the Report due to the FCC on the Reorganization of USAC, SLC and RHCC.

Immediately following the joint USAC/SLC/RHCC Board Meeting, there will be a special meeting of the SLC at 11:30 EST to consider the Report on the reorganization of SLC, RHCC and USAC. The meeting will be held at the International Trade Center & Ronald Reagan Building, Room Meridian D&E, Washington, D.C.

As some of you may be aware from press accounts over the past few days, the size and shape of the Schools and Libraries Universal Service Fund, better known as the E-rate, is currently the subject of serious debate within the FCC and on Capitol Hill. At issue are the level and source of funding, how the program should be administered, and whether the fund should be suspended or continued for 1998. Decisions are expected over the next three to five days that will affect current applications for 1998 discounts as well as the schedule for 1999 applications.

As decisions are made, the SLC will inform applicants through all available means what impact the decisions may have on them and what specific steps they should take in the weeks ahead. We wish that we could provide more definitive information at this time, but the FCC has not yet completed its decisions.

Until we can offer definitive answers on the size and shape of the program going forward, the SLC wants the E-rate community to know that processing of 1998 applications is moving ahead. Our Problem Resolution and Program Integrity Assurance Teams are continuing to contact applicants for the additional information needed to move applications to the funding commitment stage.

Please watch the SLC Web Site and your e-mail for program news as it becomes available, and also be certain to monitor your phone, fax, and mail for contacts from our application reviewers.