**Before the**

**Federal Communications Commission**

**Washington, DC 20554**

In the Matter of )

)

Requests for Review by )

)

Macomb Intermediate School District ) File No. SLD-441910

Technology Consortium )

Clinton Township, MI )

)

Schools and Libraries Universal Service ) CC Docket No. 02-6

Support Mechanism )

**order**

**Adopted: April 19, 2007 Released: May 8, 2007**

By the Commission:

**I. INTRODUCTION**

1.  In this Order, we grant in part and deny in part an appeal filed by
    Macomb Intermediate School District Technology Consortium, Clinton
    Township, Michigan (Macomb ISD) of a decision by the Universal
    Service Administrative Company (USAC) denying Macomb ISD funding for
    discounted services under the schools and libraries universal
    service support mechanism (E-rate program).[^1] We find that Macomb
    ISD violated section 54.511 of the Commission's rules by not
    selecting the most cost-effective service offering among the bids
    considered.[^2] We note, however, that Macomb ISD is entitled to
    E-rate program funding in an amount associated with the least
    expensive of the duplicative services. We therefore remand Macomb
    ISD's Request for Review to USAC for further review consistent with
    this Order and, to ensure it is resolved expeditiously, direct USAC
    to issue an award or denial based on a complete review and analysis
    of the underlying application no later than 60 days from release of
    this Order.

    **II. BACKGROUND**

2.  Under the schools and libraries universal service support mechanism,
    also known as 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.[^3] The Commission's rules provide that,
    with one limited exception for existing, binding contracts, an
    eligible school, library, or consortium that includes eligible
    schools or libraries must seek competitive bids for all services
    eligible for support.[^4] 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.[^5] The applicant must
    then wait 28 days before entering into an agreement with a service
    provider for the requested services.[^6] An applicant\'s request for
    discounts should be based on the reasonable needs and resources of
    the applicant, and bids for services should be evaluated based on
    cost-effectiveness.[^7]

3.  Applicants may only seek support for services eligible for
    support.[^8] Each year, the Commission releases a revised list of
    eligible services to assist applicants in their efforts to request
    only eligible services.[^9] When USAC reviews an application and
    identifies an ineligible service it will deny funding for that
    service. In addition, if the total requested for ineligible services
    exceeds 30 percent of the total for any individual funding request,
    the Commission's rules require USAC to deny the entire funding
    request.[^10] The Commission has also found that applicants must
    select the most cost-effective service offering, and price should be
    the primary factor considered when determining which service
    offering is the most cost-effective.[^11] Pursuant to this
    requirement, requests for duplicative services, described as
    services that provide the same functionality for the same population
    in the same location during the same period of time, will be
    rejected.[^12]

4.  Macomb ISD has requested review of USAC's decision to deny funding
    for Macomb ISD's Funding Year 2005 application because USAC found
    Macomb ISD requested duplicative T3 connections to provide Internet
    access for its school district.[^13] On November 1, 2004, Macomb ISD
    posted an FCC Form 470 seeking bids for one or more T3 internet
    connections, indicating that it was possibly seeking multiple
    contracts.[^14] On February 17, 2005, Macomb filed an FCC Form 471
    for four Funding Request Numbers (FRNs) for Internet access.[^15]
    Two of the funding requests were for three T3 Internet connections
    for the entire funding year: two of the T3 connections from XO
    Michigan, Inc., and the third T3 connection from Sprint
    Communications Co., L.P. [^16] The other two funding requests were
    for two T3 Internet connections for the second half of the year from
    Sprint Communications Co., L.P. and Qwest Communications Corp.[^17]
    On September 21, 2005, USAC issued a funding commitment decision
    letter denying all four FRNs because the "service/product is not
    being used in accordance with program rules."[^18] USAC did not
    mention which program rule was at issue in the funding denial.[^19]
    Macomb ISD then filed an appeal with USAC assuming, based on earlier
    USAC information requests, that its funding was denied because USAC
    believed that its services were duplicative.[^20]

5.  In its appeal to USAC, Macomb ISD argued that it did not violate the
    Commission's rule on duplicative services when it requested Internet
    access from three separate service providers because it was only
    seeking support for the services it needs.[^21] Instead of seeking
    to purchase all of the T3 connections from a single service
    provider, Macomb ISD sought identical services from different
    providers to reduce the reliance of the school district on any
    single provider's network during an outage---a practice called
    "multihoming."[^22] USAC denied Macomb ISD's appeal, stating that
    multihoming "is not an eligible use of service according to program
    rules."[^23] USAC also determined that, because more than 30 percent
    of Macomb ISD's funding request was for ineligible "redundant
    \[I\]nternet service providers," the entire funding request would be
    denied.[^24] Macomb ISD subsequently filed the instant Request for
    Review with the Commission.[^25]

    **III. DISCUSSION**

6.  We deny in part and grant in part Macomb ISD's Request for Review.
    We uphold USAC's determination that Macomb ISD violated program
    rules by not selecting the most cost-effective service offering. We
    find, however, that the 30 percent rule is inapplicable in this
    instance and Macomb ISD is entitled to the E-rate reimbursement
    associated with the T3 connections that are the most cost effective.

7.  As noted above, the Commission has found that discounts be awarded
    to meet the "reasonable needs and resources" of applicants.[^26] In
    the instant case, we find it would have been more cost effective for
    Macomb ISD to seek the T3 services it needed from a single, lowest
    bidder. Macomb ISD's application for funding shows that the services
    it received from XO Michigan, Inc. were less expensive than the same
    service offered by the other two providers.[^27] Based on the costs
    submitted in its application, had Macomb ISD purchased all of its T3
    connections from XO Michigan, Inc., it would have saved more than
    \$36,000 on its Internet connections.

8.  In its Request for Review, Macomb ISD cites to the 2006 Eligible
    Services List as evidence that the practice of seeking Internet
    connections from multiple providers is permissible under E-rate
    program rules.[^28] The 2006 Eligible Services List states that
    although services that are duplicative will not be funded,
    "\[s\]ervices that provide necessary bandwidth requirements
    consistent with the applicant's Technology Plan, such as multiple
    T-1 lines when appropriate for the population served and the
    services to be received, are not duplicative."[^29] We do not find
    fault with Macomb ISD's request for multiple T3 lines, provided that
    the services are needed. Commission rules, however, do not permit
    applicants to seek T3 lines from multiple service providers when the
    additional service providers' bids were not the most
    cost-effective.[^30] Macomb ISD did not provide any evidence that
    the lowest-cost bidder was unable to provide the additional services
    requested. We find, therefore, that Macomb ISD violated section
    54.511 of the Commission's rules and deny its request for review.

9.  We also find, however, that in this case the 30 percent rule should
    not have been applied because the services themselves were not
    ineligible, just not the most cost-effective. Furthermore, we do not
    find any evidence of fraud or abuse. Therefore, we find that in this
    particular case, Macomb ISD should be entitled to E-rate funding for
    its Internet connections at a rate associated with the least
    expensive of the duplicative services. [^31] To ensure these issues
    are resolved expeditiously, we direct USAC to complete its review of
    Macomb ISD's application and process the application in accordance
    with this Order no later than 60 calendar days from release of this
    Order.

10. Finally, we are committed to guarding against waste, fraud, and
    abuse, and to ensuring that funds disbursed through the E-rate
    program are used for appropriate purposes. Although we grant the
    appeal addressed here, this action in no way affects the authority
    of the Commission or USAC to conduct audits or investigations to
    determine compliance with the E-rate program rules or 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 we find that funds were not used properly, we will
    require USAC to recover such funds through its normal process. We
    emphasize that we retain 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. We remain committed to
    ensuring the integrity of the program and will continue to
    aggressively pursue instances of waste, fraud, or abuse under our
    own procedures and in cooperation with law enforcement agencies.

## IV. ORDERING CLAUSES

11. 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),
    that the Request for Review filed by Macomb Intermediate School
    District Technology Consortium, Clinton Township, Michigan, IS
    DENIED in part and GRANTED in part and IS REMANDED to USAC for
    further consideration in accordance with the terms of this Order.

12. 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), USAC SHALL ISSUE an
    award or a denial based on a complete review and analysis of the
    underlying applications no later than 60 calendar days from release
    of this Order.

13. IT IS FURTHER ORDERED that this Order SHALL BE EFFECTIVE upon
    release, in accordance with section 1.103 of the Commission\'s
    rules, 47 C.F.R. § 1.103.

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch

    Secretary

[^1]: Letter from Mark Cummins, Macomb Intermediate School District, to
    Federal Communications Commission, filed Feb. 24, 2006 (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 the
    Universal Service Administrative Company may seek review from the
    Commission. 47 C.F.R. § 54.719(c).

[^2]: 47 C.F.R. § 54.511.

[^3]: 47 C.F.R. §§ 54.501-54.503.

[^4]: 47 C.F.R. §§ 54.504, 54.511(c).

[^5]: 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).

[^6]: 47 C.F.R. § 54.504(b)(4). Applicants can enter into agreements of
    any length, as long 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).

[^7]: *Federal-State Joint Board on Universal Service,* CC Docket No.
    96-45, Report and Order, 12 FCC Rcd 8776, 9029-9030, 9078, paras.
    481, 574 (1997) (*Universal Service Order*); s*ee also Request for
    Review by Ysleta Independent School District of the Decision of the
    Universal Service Administrator*, CC Docket Nos. 96-45, 97-21,
    Order, 18 FCC Rcd 26406, 26429, para. 50 (2003); *Schools and
    Libraries Universal Support Mechanism*, CC Docket No. 02-6, Second
    Report and Order and Further Notice of Proposed Rulemaking, 18 FCC
    Rcd 9202 (2003) (codifying 47 C.F.R. § 54.511(a)) (*Second Report
    and Order*); *School and Libraries Universal Support Mechanism*, CC
    Docket No. 02-6, Fifth Report and Order and Order, 19 FCC Rcd 15808
    (2004) (*Fifth Report and Order*) (codifying 47 C.F.R. §
    54.504(b)(2)(vii) and 47 C.F.R. § 54.504(c)(1)(xi)).

[^8]: *See* 47 C.F.R. § 54.504; Instructions for Completing the Schools
    and Libraries Universal Service, Services Ordered and Certification
    Form, OMB 3060-0806, at 17 (October 2000) (FCC Form 471
    Instructions) (stating that applicants may not seek support for
    ineligible services, entities and uses); s*ee also Request for
    Review by C**helmsford* *Public Schools, Federal-State Joint Board
    on Universal Service, Changes to the Board of Directors of the
    National Exchange Carrier Association, Inc.*, File No. SLD-121771,
    CC Dockets No. 96-45 and 97-21, Order, 17 FCC Rcd 761, 762, para. 3
    (Com. Car. Bur. 2002).

[^9]: *See* 47 C.F.R. § 54.522.

[^10]: *See* 47 C.F.R. § 54.504(d).

[^11]: 47 C.F.R. § 54.511; s*ee also* *Second Report and Order,* 18 FCC
    Rcd at 9210-11, para. 24

[^12]: *Universal Service Second Report and Order,* 18 FCC Rcd at
    9209-10, paras. 22-23.

[^13]: *See* Request for Review at 2.

[^14]: FCC Form 470, Macomb Intermediate School District Technology
    Consortium, posted Nov. 1, 2004 (Macomb FCC Form 470).

[^15]: FCC Form 471, Macomb Intermediate School District Technology
    Consortium, certified Feb. 17, 2004 (Macomb FCC Form 471).

[^16]: *Id.*

[^17]: *Id.*

[^18]: Letter from Schools and Libraries Division, Universal Service
    Administrative Company, to Thomas R. Juett, Macomb Intermediate
    School District Technology Consortium, dated Sep. 21, 2005 (Funding
    Commitment Decision Letter).

[^19]: *Id.* Macomb ISD said USAC's helpline provided no additional
    information on the nature of the alleged rule violation. Request for
    Review at 3.

[^20]: Letter from Mark Cummins, Macomb Intermediate School District, to
    Schools and Libraries Division, Universal Service Administrative
    Company, dated Oct. 31, 2005 (Appeal to USAC).

[^21]: *Id.* at 4.

[^22]: *Id.* at 4-5.

[^23]: Letter from Schools and Libraries Division, Universal Service
    Administrative Company, to Mark Cummins, Macomb Intermediate School
    District Technology Consortium, dated Dec. 28, 2005 (Administrator's
    Decision on Appeal).

[^24]: *Id.*

[^25]: *See* Request for Review.

[^26]: *See* *Second Report and Order,* 18 FCC Rcd at 9209-10, para. 23.

[^27]: Macomb FCC Form 471. When calculated for yearly intervals, one T3
    connection from XO Michigan, Inc. cost \$76,086, one T3 connection
    from Sprint Communications Corp., L.P., cost \$93,258 and one T3
    connection from Qwest Communications Corp. cost \$99,000. Macomb ISD
    purchased more T3 connections from XO Michigan than the other
    service providers, which may explain the lower rate. It purchased
    the least amount of T3 capacity from Qwest, which had the highest
    rate. *Id*.

[^28]: Request for Review at 5.

[^29]: Eligible Services List, Schools and Libraries Support Mechanism
    for Fund Year 2006,
    http://www.universalservice.org/\_res/documents/sl/pdf/els_archive/2006-eligible-services-list.pdf.

[^30]: 47 C.F.R. § 54.511; s*ee also* *Second Report and Order,* 18 FCC
    Rcd at 9210-9211, para. 24.

[^31]: *Cf. Fifth Report and Order,* 19 FCC Rcd at 15816-17, para. 25
    (in cases of improperly disbursed funding, the Commission found the
    amount associated with the most expensive of the duplicative
    services would be recovered).