Self-provisioned network construction cost sharing requirements between school districts and libraries, municipalities and other E-rate ineligible third-parties clarified by the FCC in Park Hill Order.
The FCC issued a long-awaited clarification on self-provisioned networks and the terms of sharing, resale, and exclusive use. The FCC issued a decision on April 27, 2020, Park Hill Order, overturning a USAC denial of a school district that requested special construction charges for a self-provisioned network that it would share with a municipality, which is a non-eligible third party entity. In granting the appeal, the FCC found that school districts could partner with municipalities and other non-eligible for-profit or not-for-profit third party entities as long as the non-eligible entity paid for its non-E-rate share and the school district could provide sufficient documentation demonstrating the reasonableness of the methodology as to how it arrived at the cost allocation for the ineligible third-party’s fair share.
The 2014 E-rate Modernization Order & Self-Provisioned Networks
In the 2014 Modernization Order, the Commission made self-provisioned networks eligible for E-rate funding only when demonstrated to be the most cost-effective option of the competitive bid process. [i] In addition, the Commission required that the E-rate applicant seek bids for a leased lit/dark fiber service and self-provisioned network on the same FCC Form 470 application and RFP application and that the cost effectiveness of the proposals be evaluated over the useful life of the network.
Park Hill Project
In January 2016, Park Hill School District (“Park Hill”) entered into a cooperative agreement with Kansas City, where Kansas City would provide conduit and locate responsibilities, such as marking and locating the conduit, and all permitting and rights of way access to construct a 72-fiber strand network and 12 strand buffer tube through certain portions of the city. Park Hill submitted its E-rate FCC Form 471 to only cover the costs for Park Hill School District and not the municipality. Park Hill also noted that Kansas City does not have access to its network and its network is separate from the fiber strands and network elements utilized by Kansas City for public safety.
USAC denied Park Hill on the basis that its cooperative agreement with the city constituted a resale of its services and, therefore, was not allowed under FCC rules. The FCC disagreed and found that the agreement between the city and Park Hill was more akin to a “sharing” arrangement, where both parties share the services and equipment to construct the network and was, therefore, permissible as long as the ineligible third-party entity paid its fair share of the pro-rata portion of the non-E-rate eligible costs of the network.
The FCC Issues Decision
The Commission based its decision on the following facts: “Park Hill is sharing 72 single mode fiber strands with Kansas City in a portion of its network and one 12-count single mode fiber buffer tube with Kansas City in the remainder of its network. In return, Kansas City is providing Park Hill with free ongoing access to Kansas City’s conduit to install, operate, maintain, and repair Park Hill’s network, is assuming the locate responsibilities for the portion of Park Hill’s network housed in Kansas City’s conduit, is securing all permits required for Park Hill’s network, along with future extensions of Park Hill’s network, and, if feasible, is providing Park Hill access to 12 strands of single mode fiber from a designated portion of Kansas City’s existing fiber network.” (See Para. 15 of the Park Hill Order).
In sum, this is a welcome and clear FCC holding that sets forth the requirements to allow E-rate applicants to enter into agreements with municipalities and other non-E-rate third parties to share in the costs to build a self-provisioned network and makes clear that the school district or library is not required to have exclusive use over such network.
[i] Modernizing the E-Rate Program for Schools and Libraries; Connect America Fund, WC Docket Nos. 13-184, 10-90, Second Report and Order and Order on Reconsideration, 29 FCC Rcd 15538, 15552, para. 36 (2014) (2014 Second E-Rate Order).