The default comment period is good news for those who seek to speed the pace of USF appeals. Few appeals generate any comments, and this proposal will significantly shorten the amount of time it takes to compile a record in cases for which there is a significant question. But it remains to be seen whether the Bureau will be able to generate orders resolving appeals more quickly. One of our biggest complaints is that certain issues -- MPLS, private line jurisdiction, etc. -- appear repeatedly in USF appeals. If the Bureau could provide some clarity on these types of issues (like it did with reseller certification issues in 2012), it will go a long way toward reducing the backlog of appeals.

In this case, the applicant, Fall River School District, evaluated bids using criteria that weighed price equally to another factor, "knowledge of infrastructure" (both factors were weighed 25% in the bid evaluation). This violates the FCC's rule, which requires that price be given more weight than any other single factor. Thus, the Bureau denied the school district's appeal.

Significantly, the Bureau also refused to grant a waiver to the school district. Unlike in other cases, where the FCC concluded that the school had selected the lowest cost provider, the Bureau concluded here that it could not be sure that the vendor was the lowest cost provider. It also found that there was no way to tell whether, if the school district had properly given price the greatest weight, the outcome of its bid evaluations would have been the same. Therefore, the Bureau denied the appeal and the waiver request.

Finally, it is notable that the Bureau acted with unusual speed in resolving this appeal. Whereas many appeals take years to resolve, this appeal was filed only on February 28 of this year. Perhaps the Bureau acted quickly to emphasize the importance of complying with the competitive bidding procedures.

This case involves a Missouri service provider, Synergetics Diversified Computer Services. The Bureau found that Synergetics assisted the school in submitting the request for services (Form 470), including the fact that the Form 470 was submitted from the service provider's IP address. While limited service provider assistance is permitted after a contract is signed (in submitting the Form 471), service providers are not permitted to assist a school in drafting or submitting its Form 470, which starts the competitive bidding process. In a caution that all service providers should heed, the Bureau declared that

any direct involvement by the service provider in the preparation and submission of the FCC Form 470, even clerical or data entry assistance, is a violation of the Commission’s competitive bidding rules

The decisions highlight three elements of the competitive bidding rules: (1) that the selection of vendors be based on the bid process itself, (2) that all information be disclosed to all potential bidders and (3) that price be the primary factor in selecting vendors.

Collectively, the cases serve as a reminder to schools and service providers alike that the bid process must be fair and open in order to receive funding from the program. Both school districts and service providers need to be vigilant to avoid inadvertent violations of the e-rate program's competitive bidding rules.

The three cases involve different violations of competitive bidding requirements.

Pennsauken Township School District (service provider selection). In Pennsauken Township, the school district instituted a funding request (Form 470) for funding year 2009. Only one provider bid for the service, and the school selected the provider. The school district contends that the selected provider was unable to provide requested documentation before the Form 471 deadline, so the school informally requested a quote from another provider and named this new provider in the funding request.

During the funding review process, USAC requested documentation for the selection of the new provider. The school district did not provide any documentation to support its vendor selection process, however, and not surprisingly, USAC rejected the funding request. In the appeal, the school district did not offer any new documentation and the FCC denied the appeal. The Bureau noted that the applicant failed to meet its burden to demonstrate compliance with the rules and "also appears to have violated applicable document retention requirements."

Spokane School District 81 (RFP availability). In the first of two cases dealing with Spokane School District 81, the school district was found to have violated the rules for posting requests for proposals (RFPs). The school district posted a funding request (Form 470) for internal connections (an eligible service). The Form 470 did not indicate that a written RFP was available, even though the school district had prepared such a document. The RFP, moreover, contained a more detailed description of the type of equipment sought, and warned that compliance with the RFP was a required qualification for the award.

The Bureau denied the school district's appeal for two reasons. First, it concluded that by failing to indicate that an RFP was available, the district "artificially constricted the potential pool of applicants that could meet its specific requirements." Second, the RFP specified a particular vendor's equipment and warned that "no substitutions" would be permitted. The Bureau noted that this "no substitutions" policy is contrary to the rules. If a specific service provider's products or services are mentioned, the applicant must state that this product "or equivalents" are acceptable.

Spokane School District 81 (Price as a primary factor). In the second Spokane case (regarding a different funding year), the school district received multiple competitive bids for the requested services. The school's evaluation criteria weighed price as the primary factor, but evaluated the "capital and life cycle costs" of the entire bid, including the cost of ineligible services. Upon appeal, the Bureau determined that, by considering the cost of both eligible and ineligible services together, the school district did not comply with its competitive bidding rules. The Bureau concluded that, "when determining whether a particular offering is the most cost-effective, applicants must use the price of eligible services as the primary factor." (emphasis added).

MPLS is a technology that enables Internet protocol networks to make routing decisions based on user-assigned labels. MPLS is employed in many advanced data networks in order to provide users with highly-flexible, secure "virtual" networks. Unfortunately, several controversies have developed over whether an MPLS-based service is a regulated "telecommunications service" or an unregulated "information service."

The coalition carriers acknowledge this issue, and urge the FCC to initiate a rulemaking to address the proper treatment going forward:

we explained that as a class of services, many MPLS-enabled services in fact have the characteristics of information services and are treated as such. Regardless, we said that to settle uncertainty the Commission should address the treatment of MPLS-enabled services in either its expected upcoming Notice of Proposed Rulemaking regarding universal service contributions or a different rulemaking proceeding in order to establish clear rules and expectations should the Commission decide to seek contributions on services based on MPLS. We suggested it would be appropriate for the Commission to address MPLS-enabled services going forward in order to ensure consistent prospective treatment throughout the industry.

This is not the first MPLS-related request to be submitted to the FCC. The Commission has a USF appeal that presents the issue (available in parts here: part 1, part 2, part 3, part 4) and has a Petition for Clarification regarding statements it made in its FCC Form 499-A (for USF revenue reporting).

FULL DISCLOSURE: Kelley Drye represents XO Communications Services in its MPLS-related USF appeal.

Prepaid card providers should take note. This decision carries implications for all "carrier" responsibilities, including 214 authorizations, tariffing, CPNI obligations and responsibility for marketing claims, not just for USF contributions.

Wholesale carriers and resellers also should take note. This represents the first time since Global Crossing that the FCC has addressed the obligations of wholesale carriers to qualify their resellers -- a persistent point of contention in USF auditing and reporting.

In Network Enhanced Telecom LLC, the Wireline Competition Bureau considered an appeal of an audit of NetworkIP's USF reporting. In the audit, USAC determined that NetworkIP's platform service was a prepaid card service subject to universal service contribution assessment. USAC also rejected NetworkIP's claim that its customers were "resellers" and thus that NetworkIP could report the revenue as wholesale revenue, rather than end user revenue for USF purposes. USAC determined that NetworkIP had not followed the Form 499-A Instructions in qualifying its customers as resellers.

Prepaid Service. The Bureau described NetworkIP's service as a "web-based software solution that provides the switching and processing capability needed to manage and provision calling cards." However, the Bureau agreed with NetworkIP that NetworkIP "does not create or sell calling cards to end users, retailers or its carrier customers." Instead, it is NetworkIP's customers who perform the activities that constitute the provision of prepaid card service -- principally, establishing PINs and setting the price of cards, the number of minutes available, and the rate at which value is decremented from the card.

Reseller Revenue. In addition to its platform service, NetworkIP provides "ordinary long distance transport" for at least some of its customers. This unquestionably is telecommunications service, so the question becomes whether NetworkIP is providing wholesale or retail service to its customers. This implicates the vexing reseller question that underlies Global Crossing and so many other USF audits and appeals. In this instance, the Bureau remanded the issue to USAC for further analysis. Notably, however, it disagreed with NetworkIP on two of the three issues it raised regarding reseller qualifications.

First, the Bureau affirmed that NetworkIP was required to maintain evidence in addition to the reseller certification that demonstrates a "reasonable expectation" the reseller is contributing to the Fund. The Bureau emphasized that NetworkIP, as the wholesale carrier, has the burden to demonstrate a "reasonable expectation." Its failure to collect Filer IDs (as explicitly addressed in the Instructions) "undermines" NetworkIP's claim of a reasonable expectation. Further, training that NetworkIP conducts with its resellers on their compliance obligations has no bearing on the "reasonable expectation" standard, the Bureau held.

Second, the Bureau dismissed out of hand NetworkIP's claim that the instruction to maintain qualifying information on resellers is optional because the Instructions state that carriers "should" rather than "must" maintain this information. The Bureau again reaffirms that the Instructions are "guidance" (not rules) but asserts that compliance with the Instructions is relevant to determining whether the wholesale carrier met its burden to demonstrate a reasonable expectation.

Where the Bureau agreed with NetworkIP concerned the date of the reseller certifications. In a year when the Instructions did not yet direct carriers to obtain annual certifications, the Bureau agreed that USAC could not reject a certification merely because it was more than a year old. This holding, however, will have little impact on the current environment, since the Instructions now contain a direction to obtain the certification annually.

NetworkIP's case will now return to USAC to determine whether NetworkIP had a reasonable expectation in exempting its customers from USF.