**Before the**

**Federal Communications Commission**

**Washington, DC 20554**

In the Matter of )

)

Request for Review of the )

Decision of the )

Universal Service Administrator by )

)

Eureka Unified School District 389 ) File No. SLD-182840

Eureka, Kansas )

)

Federal-State Joint Board on ) CC Docket No. 96-45

Universal Service )

)

Changes to the Board of Directors of the ) CC Docket No. 97-21

National Exchange Carrier Association, Inc. )

**order**

**Adopted: August 8, 2002 Released: August 9, 2002**

By the Telecommunications Access Policy Division, Wireline Competition
Bureau:

1.  The Telecommunications Access Policy Division has under
    consideration a Request for Review filed by the Eureka Unified
    School District 389 (Eureka), Eureka, Kansas, seeking review of a
    decision issued by the Schools and Libraries Division (SLD) of the
    Universal Service Administrative Company (Administrator).[^1] Eureka
    seeks review of SLD's denial of its application for discounts for
    Internet access under the schools and libraries universal service
    support mechanism.[^2] For the reasons set forth below, we deny
    Eureka's Request for Review.

2.  Under the schools and libraries universal service support mechanism,
    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] In order to receive discounts on eligible services,
    the Commission's rules require that the applicant submit to the
    Schools and Libraries Division (SLD) of the Universal Service
    Administrative Company (Administrator) a completed FCC Form 470, in
    which the applicant sets forth its technological needs and the
    services for which it seeks discounts[^4][^5] Once the applicant 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 the Administrator of the services
    that have been ordered, the carrier with whom the applicant has
    entered an agreement, and an estimate of funds needed to cover the
    discounts to be given for eligible services.[^6]

3.  Applicants may only seek support for eligible services.[^7] The
    instructions for the FCC Form 471 clearly state: "YOU MAY NOT SEEK
    SUPPORT FOR INELIGIBLE SERVICES."[^8] The instructions further
    clarify that "\[w\]hile you may contract with the same service
    provider for both eligible and ineligible services, your contract or
    purchase agreement must clearly break out costs for eligible
    services from those for ineligible services."[^9] Although SLD
    reduces a funding request to exclude the cost of ineligible services
    in circumstances where the ineligible services represent less than
    30 percent of the total funding request, SLD will deny a funding
    request in its entirety if ineligible services constitute thirty
    percent or more of the total.[^10] An applicant can avoid denial by
    subtracting out, at the time of its initial application, the cost of
    ineligible services.

4.  Eureka filed its Funding Year 2000 FCC Form 471 on January 19,
    2000.[^11] In Funding Request Number (FRN) 406031, Eureka sought
    discounts for Internet access to be provided by Twotrees
    Technologies, LLC, for a pre-discount total of \$19,200. Attached to
    its Form 471 was a description of services to be provided in this
    FRN. The attachment described the pre-discount costs as \$7,200 for
    yearly district management fees and \$12,000 for "1-512K frame relay
    with Internet Access." By letter dated April 21, 2000, SLD denied
    FRN 406031.[^12] SLD explained that 30% or more of the FRN included
    requests for filtering and management services, which are ineligible
    products based on program rules.

5.  Eureka then filed an appeal with SLD.[^13] Eureka indicated that no
    filtering services were included in the FRN, rather the cost of the
    filtering service had been deducted prior to the funding request.
    With respect to ineligible management fees, Eureka argued that the
    total cost was for management fees was \$7,200, where \$3,000
    represented the cost for firewall services and \$4,200 for e-mail,
    webpage hosting, and domain name system (DNS).[^14] Eureka
    maintained that the only part of the management fee that was
    ineligible was the firewall services, which constitutes only 15.6%
    of the total FRN prediscount value. Eureka therefore maintained that
    SLD improperly applied the 30% percent rule in denying its funding
    request.

6.  SLD issued its decision on the appeal on February 5, 2001.[^15] SLD
    agreed that FRN 406031 did not include filtering services.[^16]
    However, SLD disagreed with Eureka's explanation of the eligibility
    of the management fees.

7.  In its decision, SLD noted that Eureka's requested services were
    broken down into two separate invoices, one for frame relay Internet
    access in the amount of \$12,000 per year and the other for
    management fees (including e-mail, web hosting, firewall service,
    and DNS), in the amount of \$7,200 per year. SLD determined that
    since the management fees were not bundled within Eureka's request
    for frame relay Internet access, the fees were ineligible under
    program rules.[^17] SLD also noted that firewall services would be
    considered ineligible even if bundled with Internet access.[^18] SLD
    stated that program rules provide that, if 30% or more of an
    applicant's funding request includes ineligible services, the
    funding request must be denied. SLD concluded that because Eureka
    failed to demonstrate that its application did not include less than
    a 30% request for ineligible services, the FRN was denied.[^19]

8.  Eureka then filed the instant appeal with the Commission.[^20]
    Eureka maintains that its application consists of a single request
    that was filed with one service provider and one FRN.[^21] Eureka
    explains that it receives and pays one invoice to Twotrees for
    Internet access, but Twotrees separated the filtering costs because
    filtering costs are ineligible under program rules. Finally, Eureka
    concedes that firewall services are ineligible, but argues that the
    cost for firewall services included in its funding request
    constitutes only 15.6% of the total request.[^22]

9.  We have carefully reviewed the record before us in this matter. With
    its FCC Form 471, Eureka attached a copy of a quote prepared by
    Twotrees for Internet access. The quote stated that Twotrees would
    provide a frame relay network to professionally monitor and manage
    email, proxy DNS, and firewall servers.[^23] The quote indicated
    that Twotrees would provide unlimited internal and external web page
    space, filtering, monitoring, and domain name service
    management.[^24] The total price of the service provided by Twotrees
    was listed at \$24,000 per year, with \$7,200 of this fee for
    "yearly district management fees," \$4,800 for filtering, and
    \$12,000 for frame relay Internet access.[^25] Based on this
    information, SLD denied Eureka's funding request as a violation of
    the 30% rule.

10. We determine that the record supports SLD's determination that the
    requested services are ineligible under program rules based on the
    30% policy. As Eureka noted in its Request for Review, firewall
    services are ineligible under program rules. In addition, the
    management fees for which Eureka seeks discounts are also ineligible
    under program rules. Since at least March 27, 1998, network
    management systems have been clearly identified on SLD's website as
    ineligible.[^26] Thus, of the \$19,200 pre-discount amount requested
    in FRN 406031, \$7,200 of the cost (or 37.5% of the total request)
    was for ineligible services. SLD therefore properly denied Eureka's
    funding request because more than 30% of the request was for
    ineligible services. We thus uphold SLD's funding decision and deny
    Eureka's Request for Review.

11. ACCORDINGLY, IT IS ORDERED, pursuant to authority delegated under
    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), that the Request for Review
    filed by the Eureka Unified School District 389, Eureka Kansas, on
    February 16, 2001, IS DENIED.

    FEDERAL COMMUNICATIONS COMMISSION

    Mark Seifert, Deputy Chief

    Telecommunications Access Policy Division Wireline Competition
    Bureau

[^1]: Letter from Leo Davis, Eureka Unified School District 389, to
    Federal Communications Commission, filed February 16, 2001 (Request
    for Review).

[^2]: Section 54.719(c) of the Commission's rules provides that any
    person aggrieved by an action taken by a division of the
    Administrator may seek review from the Commission. 47 C.F.R. §
    54.719(c).

[^3]: 47 C.F.R. §§ 54.502, 54.503.

[^4]: ^?^ 47 C.F.R. §§ 54.504(b)(1), (b)(3).

[^5]: ^4^

[^6]: 47 C.F.R. § 54.504(c).

[^7]: 47 C.F.R. § 54.504 *et seq.*

[^8]: Instructions for Completing the Schools and Libraries Universal
    Service Services Ordered and Certification Form (September 1999), at
    18 (FCC Form 471 Instructions).

[^9]: FCC Form 471 Instructions at 23.

[^10]: *See Request for Review of the Decision of the Universal Service
    Administrative Company by Ubly Community Schools*, *Federal-State
    Joint Board on Universal Service, Changes to the Board of Directors
    of the National Exchange Carrier Association, Inc*., CC Docket Nos.
    96-45 and 97-21, Order, 15 FCC Rcd 23267 (Com. Car. Bur. rel. 2000);
    *Request for Review of the Decision of the Universal Service
    Administrator by Anderson School*, *Federal-State Joint Board on
    Universal Service, Changes to the Board of Directors of the National
    Exchange Carrier Association, Inc*., File No. SLD-133664, CC Docket
    Nos. 96-45 and 97-21, Order, 15 FCC Rcd 25610, para. 8 (Com. Car.
    Bur. rel. 2000). The \"30 percent policy\" is not a Commission rule,
    but rather is an SLD operating procedure established pursuant to FCC
    policy. *See Changes to the Board of Directors of the National
    Exchange Carrier Association, Inc., Federal-State Joint Board on
    Universal Service*, CC Docket Nos. 97-21 and 96-45, Third Report and
    Order in CC Docket No. 97-21 and Fourth Order on Reconsideration in
    CC Docket No. 97-21 and Eighth Order on Reconsideration in CC Docket
    No. 96-45, 13 FCC Rcd 25058 (1998). This operating procedure, used
    during SLD\'s application review process, enables SLD to efficiently
    process requests for funding for services that are eligible for
    discounts but that also include some ineligible components. If less
    than 30 percent of the request is for funding of ineligible
    services, SLD normally will consider the application and issue a
    funding commitment for the eligible services. If 30 percent or more
    of the request is for funding of ineligible services, SLD will deny
    the funding request in its entirety. The 30 percent policy allows
    SLD to efficiently process requests for funding that contain only a
    small amount of ineligible services without expending significant
    fund resources working with applicants that are requesting funding
    of ineligible services.

[^11]: FCC Form 471, Eureka Unified School District 389, filed January
    19, 2000. In prior years, this funding period was referred to as
    Funding Year 3. Funding years are now described by the year in which
    the funding period starts. Thus the funding period which begins on
    July 1, 2000 and ends on June 30, 2001, previously referred to as
    Funding Year 3, is now called Funding Year 2000. The funding period
    which begins on July 1, 2001 and ends on June 30, 2002 is now known
    as Funding Year 2002, and so on.

[^12]: Letter from Schools and Libraries Division, Universal Service
    Administrative Company, to Leo Davis, Eureka Unified School District
    389, dated April 21, 2000.

[^13]: Letter from Leo Davis, Eureka Unified School District 389, to
    Federal Communications Commission, filed May 1, 2000 (SLD Appeal).

[^14]: *Id.*

[^15]: Letter from Schools and Libraries Division, Universal Service
    Administrative Company, to Leo Davis, Eureka Unified School District
    389, dated February 5, 2001.

[^16]: *Id.* The total to be paid to Twotrees was \$24,000 annually,
    however, the \$4,800 for filtering services had been deducted and
    the pre-discount amount for FRN 406031 was listed as \$19,200
    (\$24,000 minus 4,800).

[^17]: *Id.*

[^18]: *Id.*

[^19]: *Id.*

[^20]: Request for Review.

[^21]: *Id.*

[^22]: *Id.*

[^23]: Eureka FCC Form 471 Attachment, letter from Twotrees to Eureka
    Unified School District, dated December 29, 1999.

[^24]: *Id.*

[^25]: *Id.*

[^26]: *See* SLD web site, Eligible Services List (March 27, 1998)
    \<[http://www.sl.universalservice.org/reference/
    eligible.asp](http://www.sl.universalservice.org/reference/eligible.asp)\>.
    The March 27, 1998 eligible services list on the SLD website defined
    network management services as "\[a\] system of equipment used in
    monitoring, controlling, and managing a data communications
    network."