**Before the**

**Federal Communications Commission**

**Washington, DC 20554**

In the Matter of )

)

)

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. )

)

Total Communications, Inc. )

)

Site Link Communications, Inc. )

)

Requests for Review of )

Decisions of the Universal Service )

Administrator )

)

**order**

**Adopted: July 19, 2001 Released: July 20, 2001**

By the Common Carrier Bureau:

1.  In this Order, we address Requests for Review filed by more than 150
    schools and libraries ("Consolidated Applicants") seeking support
    from the Commission's universal service support mechanism for
    eligible schools and libraries.[^1] The Consolidated Applicants all
    appeal the denial of their Funding Year 3 applications by the
    Schools and Libraries Division (SLD) by the Universal Service
    Administrative Company (USAC or Administrator)[^2]. For the reasons
    discussed herein, we remand all of the Requests for Review of the
    Consolidated Applicants for individual review by SLD in accordance
    with the guidance set forth in this Order.

# BACKGROUND

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 on eligible
    telecommunications services, Internet access, and internal
    connections.[^3] The Commission's rules require eligible schools and
    libraries to seek competitive bids for all services eligible for
    discounts.[^4] To comply with the competitive bidding requirement,
    the Commission's rules first require that an applicant submit to the
    Administrator a completed FCC Form 470, in which the applicant sets
    forth its technological needs and lists the services for which it
    seeks discounts.[^5] The Administrator must post the FCC Form 470 to
    its web site, where all potential service providers can consider
    it.[^6] Once the FCC Form 470 has been posted for 28 days and the
    applicant has signed a contract for eligible services with a service
    provider, the applicant must then submit a completed FCC Form 471
    application to notify the Administrator of the services that have
    been ordered, the service provider with which the applicant has
    signed a contract, and an estimate of the funds needed to cover the
    discounted portion of the price of the eligible services.[^7] The
    competitive bidding requirement is important to the integrity of the
    schools and libraries support mechanism "because it implements the
    principle of competitive neutrality by allowing all providers access
    to information about particular schools' and libraries' needs and
    because it helps to ensure that schools and libraries will receive
    the lowest possible pre-discount price."[^8]

3.  All of the Consolidated Applicants applied for universal service
    funding for funding Year 3 of the universal service program for
    eligible schools and libraries, which runs from July 1, 2000, to
    June 30, 2001. All of the Consolidated Applicants apparently entered
    into business relationships with Total Communications, Inc. (Total
    Com), wherein Total Com agreed to serve as a "consultant" to the
    applicant and assist them in obtaining supported services and
    vendors to provide such services for Year 3 of the schools and
    libraries universal services support program.[^9] The record shows
    that all of the Consolidated Applicants eventually selected Site
    Link Communications, Inc. (Site Link) as their service vendor.[^10]

4.  Each of the Consolidated Schools received identical letters from SLD
    dated October 13, 2000, denying their requests for universal service
    funding.[^11] In this Explanatory Letter, SLD stated its reasons for
    its denial of funding to all of the Consolidated Applicants. First,
    SLD stated that all of the affected applicants had entered into
    agreements with Total Com under which Total Com would locate grants
    to cover the non-discount portion of funding that the applicant was
    required to pay, and if Total Com were unable to locate such grants,
    the applicant would not be responsible for its obligation.[^12]
    Second, SLD stated that the contracts between Site Link and the
    applicants made Total Com a third-party beneficiary of the
    contracts, and consequently, when Total Com reviewed the contracts
    submitted by Site Link, it had a direct financial interest in the
    contract.[^13] Third, SLD stated that a comparison of competing bids
    showed that Total Com selected the Site Link proposals even when
    comparable or updated equipment was offered in the competing bids at
    roughly half the price of that in the Site Link proposals, and some
    of these competing bids indicated that Total Com did not provide the
    detail necessary to enable bidders to formulate adequate bids.[^14]
    Fourth, SLD stated that there was no evidence that Total Com
    evaluated competing bids.[^15] Finally, SLD stated that the
    "guarantor" arrangement, whereby Total Com assumed responsibility
    for covering the non-discount portion of an applicant's costs,
    "raises a strong inference that the Site Link proposals were
    inflated to ensure that Site Link would not lose the value of the
    applicant's contribution." [^16]

5.  On appeal, the Consolidated Applicants raise several challenges to
    SLD's decision. In general, the Consolidated Applicants argue that
    SLD has failed to consider each application individually, misstated
    the facts relating to the individual applications, and failed to
    apply any standards of law.[^17] For example, the Consolidated
    Applicants point out that 24 of the Consolidated Applicants never
    entered into a "guarantor" relationship with Total Com because those
    24 schools had the resources to cover their non-discount portion of
    the funding.[^18] The Consolidated Applicants also argue that, for
    the remainder of the applicants, SLD fails to state why as a matter
    of law this arrangement raises concern.[^19]

6.  The Consolidated Applicants acknowledge that vendors were required
    to pay Total Com's "consulting fees" via a third-party interest in
    their service contracts, amounting to three percent of the contract
    price, but argue that there is no rule preventing any such
    arrangement.[^20] Furthermore, the Consolidated Applicants argue
    that such an arrangement does not conflict with the goals of the
    applicants or the schools and libraries universal service program,
    and cannot be abused in Total Com's favor.[^21] Finally, the
    Consolidated Applicants strongly object to SLD's allegation of
    competitive bidding irregularities, noting that these allegations
    are unfounded because SLD has provided few factual details or
    examples to substantiate this allegation.[^22] The Consolidated
    Applicants also object to SLD's stated "inference" of improper
    bidding practices as one basis for its decision to deny funding to
    the Consolidated Applicants.

# DISCUSSION

7.  As an initial matter, we conclude that the Consolidated Applicants
    have sufficiently demonstrated that there may be enough factual
    disparities between each of the applications that justify
    individualized review. We recognize that there are many similar
    elements linking each of the applications of the Consolidated
    Applicants. For example, each and every one of the Consolidated
    Applicants entered into a "consulting" agreement with Total Com, and
    eventually selected Site Link as their primary service provider. We
    also recognize that SLD believed that its decision to dispose of all
    of the applications of the Consolidated Applicants in a single
    determination letter was within the scope of its affirmative duty to
    prevent instances of fraud, waste, and abuse in the universal
    service support mechanism.

8.  On appeal, however, the Consolidated Applicants have demonstrated
    the need for review on a case-by-case basis. It is unclear from the
    record to what extent SLD analyzed each of the schools' unique facts
    and circumstances, prior to rendering its decision. Without reaching
    conclusions on the merits of each application, therefore, we remand
    all of the Requests for Review to SLD for individual processing, and
    direct SLD to review each application and determine whether, based
    on the individual facts, each application complies with program
    requirements. In the event that any applications fail to comply with
    program requirements, SLD shall state the specific factual basis for
    its determination.

9.  In particular, we note that some of the factors outlined by SLD as
    reasons for its mass denial of the Consolidated Applicants'
    applications require an examination of each school's individual
    facts and circumstances. For example, consulting fees in general are
    not eligible for funding through the universal service support
    mechanism.[^23] SLD, however, customarily applies its "30 percent
    rule" in determining whether the amount of requested funding for
    ineligible services amounts to such a degree that denial of the
    entire funding request is necessary.[^24] Thus, while consulting
    fees are ineligible for funding, the question of whether such fees
    in a funding request exceed the 30 percent threshold is a factual
    question that must be determined for each individual applicant.

10. On remand, therefore, we direct SLD to assess each of the
    Consolidated Applicants' applications to determine the exact degree
    to which any ineligible "consulting fees" were present in funding
    requests. We furthermore direct SLD to specify, in concrete terms,
    the factual basis for any other finding it makes for each of the
    Consolidated Applicants. While we believe that SLD has identified
    potentially serious issues surrounding the applications of the
    Consolidated Applicants, we believe that each of the Consolidated
    Applicants is entitled to individualized review. We recognize that
    SLD, after further review, may still be able to identify applicants
    whose applications share common material facts and raise identical
    substantive issues. In the interest of administrative efficiency,
    SLD shall, within its discretion, be permitted to issue identical
    determination letters to "groups" of the Consolidated Applicants,
    provided that the factual and substantive similarities between the
    applicants in a group are clearly explained.

# ORDERING CLAUSE

11. Accordingly, IT IS ORDERED, pursuant to sections 1-4, and 254 of the
    Communications Act of 1934, as amended, 47 U.S.C. §§ 151-154 and
    254, and sections 54.719 and 54.722 of the Commission's rules, 47
    C.F.R. §§ 54.719 and 54.722, that the Letters of Appeal filed by the
    named parties to this Order ARE REMANDED to the Schools and
    Libraries Division for further consideration as provided herein.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Carol Mattey
>
> Deputy Chief, Common Carrier Bureau

**APPENDIX A**

**LIST OF REQUEST FOR REVIEW REMANDED**

[Applicant]{.underline} [Application Number]{.underline}

Number range CHAPTERAbiline SDA School 170188

Adelphian Jr. Academy 162828

Advent Home Youth Services 190343

Advent Home Youth Services 181367

All Saints School 161536

Alpine Christian School 190476

Amarillo Junior Academy 171630

Amazing Grace Christian School 187002

Aqsa School 189192

Ariel Dear Academy 159471

Auburn Adventist Academy 160045

Auburn Adventist Academy 171216

Battle Creek Academy 163677

Berea Elem. Junior High School 160744

Berea Elem. Junior High School 162782

Berkshire Hills 160968

Bethany Junior Academy 159652

Bethany Lutheran School 181741

Bethel Junior Academy 159981

Bethel SDA Elem. School 195367

Betty Shabazz International 162294

Betty Shabbazz International 160429

Bishop Adventist School 184915

Brewster Adventist School 167832

Broadview Academy 196271

Bronx-Manhattan SDA School 186498

Brooklyn SDA Elem School 160964

Brooklyn SDA Elem. School 161886

Brooklyn Temple SDA Elem. School 159273

Buena Vista SDA School 159046

Coble Elementary School 167583

Carmel Christian School 172670

Cerebral Palsy Center School 192530

Chicago SDA Academy 159772

Choir Academy of Harlem 160158

Christ The King Catholic School 165807

Christ The King School 15971

Columbia Seventh Day Adventist 162640

Community Catholic School 181453

Community Leadership Academy 195873

Crescent City SDA School 195709

Crestview SDA Elem. School 171569

Dade Marine Institute-South 171381

Daystar Christian Academy 194920

Deamude SDA Elementary School 196444

Dexterville SDA Church Schoo 181294

Dr. Brumfield Johnson Christian Academy 183535

Eagle SDA School 196080

Eastside Multi-Cultural Community 162041

Excelsior Elementary 160159

Faith Family Academy of Oak Cliff 161571

Faith Family Academy of Oak Cliff 158781

Feather River SDA 160083

Flatbush SDA 163396

Forest City SDA 159818

Forest Park Adventist 169581

Fort Smith Christian School 162873

Fresno Adventist Academy 175834

Friends of Avalon Prep School 163059

Frontenac SDA 164074

Georgia Cumberland 185017

Glennville Christian Academy 182588

Greater Grace Christian Academy 196292

Greater Miami Academy 159426

Hanford Christian School 167386

Hartford Area School 163791

Heart of the Earth Center 162303

Hebron SDA School 161527

Hixson SDA School 159271

Holy Cross Catholic Elem School 166765

Holy Rosary Elementary School 165763

Immaculate Conception School 165423

Indianapolis Junior Academy 158880

James Valley Christian School 190409

Jasper Adventist Christian School 160240

Khamit Institute 162584

Kirkland SDA School 188681

Kirkland SDA School 163143

La Vida Mission 190793

Lakeland Adventist Jr. Academy 164011

Laurel Hall 196164

Madison Academy 195424

Maplewood Academy 161365

Maplewood Academy 159950

McMinnville SDA 159821

McMinnville SDA School 191729

Melrose Community School 165093

Midway Christian Academy 163822

Milo Elementary School 194767

Milwaukee SDA 173417

Mitchell Catholic Schools 167434

Mt. Aetna Adventist Elementary 168396

Murphy Adventist School 171635

Nelson Crane Christian School 160193

New Life Christian Academy 160953

New Vistas Christian School 196010

Normative Services Inc. 159047

Northeastern Academy 160161

Oakwood Academy 159345

O\'Gorman High School 164999

O\'Gorman Junior High School 166063

Optimal Christian Academy 163994

Our Lady of Blessed Sacrament 167265

Our Lady of Lourdes School 163787

Pacific Coast Christian School 185037

Paradise SDA School 194718

Pathfinder Village School 161424

Peninsula Marine Institute 163819

Platte Valley SDA Academy 171247

Reading SDA Junior Academy 163153

Reading SDA Junior Academy 163153

Redding SDA School 189974

Rio Grande Charter School of Excellence 162484

Rocky Knoll Elementary School 182594

Roncalli High School 165059

Sacred Heart School 166720

San Antonio Junior Academy 161324

Sheenway School & Culture Ctr. 161823

Sheenway School & Culture Ctr. 159704

Southwest Christian Academy 196250

SS Cyril Methodius School 172685

St Timothy Episcopal 163366

St. Agnes School 165148

St. Anthony School 166467

St. Dominick\'s School 194014

St. Joseph Cathedral School 169556

St. Joseph School 165619

St. Joseph\'s Indian School 166815

St. Lambert School 165127

St. Laurence O\'Toole School 160519

St. Lawrence School 166694

St. Malachy Elementary School 159270

St. Martin School 166708

St. Mary\'s Elementary School 166485

St. Mary\'s Grade School 165556

St. Mary\'s High School 165885

St. Mary\'s School 165146

St. Matthews Lutheran School 184847

St. Michael School 195591

St. Michael School 165169

St. Peter School 166831

St. Thomas School 165170

Standifer Gap School 188035

Tampa Junior Academy 192778

Taylor Christian Academy 162381

Temple of Truth School 159653

The Cathedral School of Brooklyn 171413

The Intervention Group 160121

The Varnett Charter School 159929

Three Angels Academy 195686

Tri City Junior Academy 160088

Trinity Lutheran School 190490

Trinity Lutheran School 209257

Trinity Temple Academy 159774

Triumphant Charter School 171228

Tuolumne 170473

Waxahachie Faith Family Academy 186430

Westchester Area School 185216

Westcoast School 162507

Wisconsin Academy 159576

[^1]: *See* Appendix A, *infra,* for a list of specific Requests for
    Review remanded to SLD pursuant to this Order. All of the
    Consolidated Applicants were joined in a consolidated Request for
    Review filed on their behalf by Schwaninger & Associates, P.C. *See*
    Letter from Benjamin Aron to Office of the Secretary, Federal
    Communications Commission, filed November 13, 2000 (Consolidated
    Appeal); *see also* Letter from Benajmin Aron to Mark Seifert and
    Andy Firth, Federal Communications Commission, filed March 6, 2001.

[^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.

[^5]: 47 C.F.R. § 54.504(b)(1), (b)(3).

[^6]: 47 C.F.R. § 54.504(b)(3).

[^7]: 47 C.F.R. § 54.504(c).

[^8]: *Federal-State Joint Board on Universal Service,* Order on
    Reconsideration, CC Docket No. 96-45, 12 FCC Rcd. 10095, 10098, at
    para. 9 (1997).

[^9]: *See* letter of SLD to Consolidated Schools ("Further Explanation
    of Administrator's Funding Decision"), dated October 13, 2000, at 1
    (Explanatory Letter).

[^10]: Explanatory Letter at 1.

[^11]: Explanatory Letter, *passim.*

[^12]: Explanatory Letter at 1.

[^13]: Explanatory Letter at 1

[^14]: Explanatory Letter at 2.

[^15]: Explanatory Letter at 2.

[^16]: Explanatory Letter at 2.

[^17]: Consolidated Appeal at 3, 17-21.

[^18]: Consolidated Appeal at 3.

[^19]: Consolidated Appeal at 3.

[^20]: Consolidated Appeal at 9.

[^21]: Consolidated Appeal at 9-10.

[^22]: Consolidated Appeal at 10-17.

[^23]: Universal service support is provided to eligible schools and
    libraries for telecommunications services, Internet access, and
    internal connections. *See* 47 C.F.R. § 54.502 --505. SLD literature
    provides notice to applicants that consulting services are not
    eligible for universal service support. *See* Schools and Libraries
    Division, Eligible Services List,
    http://www.sl.universalservice.org/data/pdf/eligibleserviceslist.pdf
    at 37 (January 24, 2001).

[^24]: The "30-percent policy" is not a Commission rule, but rather is
    an internal SLD benchmark utilized during its application review
    process, to enable SLD to approve funding requests for eligible
    services without having to spend an excessive amount of time working
    with an applicant that for the most part is requesting funding of
    ineligible services. If 30 percent or less of the request is for
    funding of ineligible services, SLD normally will approve the
    portion that is for eligible services. If more than 30 percent of
    the request is for funding of ineligible services, SLD will deny the
    application in its entirety. *See, e.g., Request for Review of the
    Decision of the Universal Service Administrator by New
    Kensington-Arnold School District New Kensington, Pennsylvania,
    Federal-State Joint Board on Universal Service, Changes to the Board
    of Directors of the National Exchange Carrier Association, Inc*.,
    Order, File No. SLD-28754, CC Dockets No. 96-45, 97-21, 1999 WL
    1216147 (F.C.C., Dec 21, 1999); *Request for Review of the Decision
    of the Universal Service Administrator by Western Heights Public
    School District*, *Federal-State Joint Board on Universal Service,
    Changes to the Board of Directors of the National Exchange Carrier
    Association, Inc*., Order, File No. SLD-54054, CC Dockets No. 96-45,
    97-21, 15 FCC Rcd 8502 (Com. Car. Bur. 1999).