TR Daily FCC Proposes Eliminating Dormant E-Rate Amortization Requirement
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Thursday, January 31, 2019

FCC Proposes Eliminating Dormant E-Rate Amortization Requirement

The FCC today unanimously proposed eliminating its requirement for schools and libraries that receive funding from the E-rate program to amortize upfront, non-recurring charges of $500,000 or more over three years, and it waived the requirement for the duration of the rulemaking proceeding.

Commissioner Mike O’Rielly supported the decision but expressed a wish for more extensive reforms in E-rate funding policy.

The FCC imposed the amortization requirement in 2000 out of concern that large up-front charges associated with new or upgraded network infrastructure could “drain available E-Rate funding by diverting large sums to a limited number of applicants,” and it suspended the requirement in 2014 through the 2018 (current) funding year to lower barriers to broadband infrastructure investment and increase funding certainty for program applicants, the agency recalled in a notice of proposed rulemaking and order adopted Tuesday and released today in WC dockets 19-2 and 13-184.

“Our experience over the past few years suggests that allowing the amortization requirement to be restored would decrease broadband investment while increasing administrative burdens, and that eliminating the requirement would not create a drain on E-Rate funding,” the FCC said.

“Based on the information before us, it appears that suspending the amortization requirement has: (1) decreased administrative burdens associated with applying for E-Rate support; (2) allowed applicants and service providers to receive disbursements for the full E-Rate supported portion of projects sooner; and (3) reduced uncertainty regarding the availability of funding. Under the suspension, rather than filing funding requests in each year of the amortization cycle, applicants have had to file only a single funding request to receive E-Rate support for a project, thereby reducing the administrative effort and costs associated with filing funding requests. Moreover, during the suspension, service providers have recouped their buildout costs in one funding year rather than over the three-year amortization cycle, which, in turn, has likely made special construction a more attractive option for service providers,” it added.

The Commission asked for comment on its view of the effects of suspending the amortization requirements and the likely effects of restoring it.

“Does paying buildout charges upfront increase USF expenditures in the short term but decrease USF expenditures in the long term because it reduces monthly recurring charges? We also seek comment on whether an amortization requirement would conflict with the economic realities of special construction projects. Would requiring service providers to wait several years to recover their investments for high sunk cost, low marginal cost undertakings such as special construction make them less likely to build out to unserved areas? If applicants were forced to amortize certain special construction projects, would service providers have to seek financing for part of the project, and would that increase the overall cost of the project?” it asked.

“[F]unding requests from funding years 2015 through 2017 that would have been amortized if the requirement had been in place represented less than 5% of all E-Rate funding commitments during that period,” it noted.

“Are commenters nevertheless concerned that large special construction funding requests could deplete all E-Rate funds available under the cap and leave insufficient funding available for category two services? If so, we seek data to support commenters’ concerns. And to the extent that commenters believe that large special construction funding requests could create a drain on E-Rate funding, how would requiring amortization of such requests alleviate this concern?,” the FCC said.

Comments will be due 30 days after publication of a notice in the “Federal Register.” Reply comments will be due 15 days later.

In a separate statement, Commissioner O’Rielly said, “This item considers the limited question of whether the Commission ought to eliminate E-Rate applicants’ requirement to amortize large upfront, non-recurring costs over multiple years. While I would have been interested in delving into broader E-Rate reform ideas, I am open to examining whether the proposal would improve administration of the program and look forward to reviewing the record on this matter.

“A related but equally significant question is whether the current universe of eligible special construction costs — which are subject to our amortization policy — ought to include self-provisioned networks. As I have expressed in the past, spending E-Rate funds on applicant-constructed broadband networks can be a recipe for wasteful overbuilding, especially given the overly broad parameters for self-provisioning adopted by the previous Commission. It would make sense, in my opinion, for the Commission to review the impact of the 2014 rules as they pertain to self-construction, to ensure ratepayers are fully protected and that broadband investment is not being undermined. Further, we should consider examining the effects of the 2014 order’s dark fiber policy and the track record of E-Rate applicants as network operators. I look forward to working with my colleagues on these matters in due course,” Commissioner O’Rielly added.

Commissioner Jessica Rosenworcel said, “A few years ago, at my urging, this agency embarked on a process to update E-Rate — because the program appeared stuck in the dial-up era. This work brought the program forward and produced results — tens of millions of students now have the broadband they need in their classrooms and libraries. Libraries have seen dramatic increases in support. Rural schools and libraries have benefitted.

“Today, we look to extend the impact of our policies in connection with one discrete aspect of the E-Rate program — eliminating the need to amortize large construction costs in order to make it easier to connect schools and libraries. This is the right call and it has my support,” she concluded.

In a statement, John Windhausen Jr., executive director of the SHLB (Schools, Health, & Libraries Broadband) Coalition, said, “The SHLB Coalition is thrilled that Chairman Pai and the FCC have suspended the E-rate amortization requirement for FY 2019 applicants and proposed to eliminate it altogether. Uncertainty over the amortization rule has been one of the biggest disincentives to building high-capacity broadband to our nation’s schools and libraries. As the FCC points out, the concern that special construction might overwhelm the E-rate program has dissipated over time. Reinstating the amortization requirement would have been costly for schools, libraries, and broadband providers, and would have jeopardized several state matching programs. Special construction has proven to benefit thousands of schools and libraries, and has reduced the demand for E-rate dollars by allowing applicants to obtain lower-cost broadband services. We encourage the FCC to eliminate the amortization rule altogether.” —Lynn Stanton, [email protected]

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