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 Federal  Communications  Commission  DA  01-  1721 
 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  Commissions  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. 

 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  Commissions  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). 
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 I.  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 
 Commissions  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  Commissions 
 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 

 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  Administrators  Funding  Decision),  dated 
 October  13,  2000,  at  1  (Explanatory  Letter). 
 10  Explanatory  Letter  at  1. 
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 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  applicants  costs, 
 raises  a  strong  inference  that  the  Site  Link  proposals  were  inflated  to  ensure  that  Site  Link 
 would  not  lose  the  value  of  the  applicants  contribution.  16 

 5.  On  appeal,  the  Consolidated  Applicants  raise  several  challenges  to  SLDs  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 
 Coms  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 

 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. 
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 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  Coms  favor.  21  Finally,  the  Consolidated  Applicants  strongly  object  to  SLDs 
 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  SLDs  stated  inference  of  improper  bidding  practices  as 
 one  basis  for  its  decision  to  deny  funding  to  the  Consolidated  Applicants. 

 II.  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  schools 
 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, 

 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 
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 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. 

 III.  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  Commissions  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 

 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). 
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 APPENDIX  A  LIST  OF  REQUEST  FOR  REVIEW  REMANDED 
 Applicant  Application  Number 
 Abiline  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 
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 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 
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 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 
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 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 
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