USAC Turns up the Heat on E-Rate Price Requirement

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USAC Turns up the Heat on E-Rate Price Requirement

The Universal Service Administrative Company has begun issuing Payment Quality Assurance assessments to E-Rate service providers in the Schools and Libraries Program.  E-Rate is a federal program that provides eligible K-12 public schools and libraries discounts on approved telecommunications services, broadband Internet access, and internal network connections.

Although PQAs are generally common, the circumstances surrounding this round of PQAs warrants special attention. That’s because this round requires service providers to certify compliance with the lowest corresponding price requirement – a requirement that is a well-documented source of confusion.

The LCP is “the lowest price that a service provider charges to non-residential customers who are similarly situated to a particular school, library, or library consortium for similar services.” The LCP rule states: “Providers of eligible services shall not charge schools, school districts, libraries, library consortia, or consortia including any of these entities a price above the lowest corresponding price for supported services, unless the Commission, with respect to interstate services or the state commission with respect to intrastate services, finds that the lowest corresponding price is not compensatory.”

Although the LCP requirement is not new, there is little regulatory guidance available and as a result, there is significant confusion on how to comply. Even the Federal Communications Commission, under whose direction USAC administers the program, acknowledges this lack of clarity. 

In March 2013, the FCC (News - Alert) raised the question of LCP certification, when it released a Public Notice seeking comment on proposed revisions to certain E-Rate forms, including Form 473, the Service Provider Annual Certification Form. The FCC proposed adding the following certification: “I certify that this Service Provider is in compliance with and has taken reasonable steps to implement the lowest corresponding price rule as required by the Commission’s rules at 47 C.F.R. § 54.511(b).”  Interestingly, the FCC ultimately decided against adding this express certification, and the current Form 473 does not include it.

On July 23, 2013, the FCC released a Notice of Proposed Rulemaking seeking comments on E-Rate topics in an effort to modernize the program. Significantly, the NPRM addressed the LCP requirement. 

For example, the FCC sought comments on

• whether to measure compliance with the LCP rule as a measure of affordability;

• the extent to which the LCP rule helps ensure that service providers charge cost-effective prices and its role in competitive bidding; and

• if clarification of the LCP rule is needed regarding (1) whether the obligation applies only to competitive bids submitted in response to a Form 470, (2) whether compliance is a continuing obligation throughout the contract term, (3) whether there are procedures to ensure compliance, (4) how the LCP requirement applies to service bundles, and (5) whether, if challenged, the initial burden falls on the challenger to demonstrate noncompliance.  

Other issues the FCC has not addressed include the geographic scope of the requirement, any distinctions between Priority 1 and Priority 2 services, and whether state master contract prices are presumptively compliant. Hundreds of comments were received, but the FCC has not issued a final rule.

Meanwhile, USAC has issued requests for LCP certifications to service providers, apparently for the first time. The PQA Program is essentially an auditing program under which USAC reviews funding payments to determine if they were accurate, properly documented, and in compliance with regulations.

Having elected not to issue formal guidance on the LCP rule or modify Form 473 to include an LCP certification, it appears that USAC is using the PQA process, and a formal certification of LCP compliance, to test LCP requirements, despite the unanswered questions. This is especially curious given that USAC’s website states that PQAs will be directed only at applicants, and the PQA document request list relates to applicants, not service providers.

Although these PQAs may appear innocuous, they could pose a major risk for service providers and expose them to liability for already-paid invoices. We advise all service providers to scrutinize their pricing practices – even in the face of aggressive E-Rate competitions – to ensure a good faith basis exists for each price invoiced to the applicant and USAC.

Jeffrey A. Belkin is a partner & Jessica L. Sharron is a senior associate with Alston & Bird LLP (

Edited by Maurice Nagle