FCC’s O’Rielly: Network overbuilds are a misuse of E-Rate funding

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FCC Commissioner Michael O’Rielly said he’s concerned that E-Rate funds are being used by applicants to overbuild networks in areas where privately owned providers already offer service. 

O’Rielly dissented on the Second E-Rate Modernization order, which authorized the use of E-Rate funding by applicants, in December 2014.

One of his chief concerns was that the order put in place a cost-effectiveness review, but rejected the recommendation that the option not be permitted in areas where broadband is already available.

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His interest in E-Rate spending follows his appointment by new FCC Chairman as the Chair of the Federal-State Joint Board on Universal Service, Federal-State Joint Board on Jurisdictional Separations and Federal-State Joint Conference on Advanced Services.

During meetings with outside parties, O’Rielly said in a letter (PDF) to USAC President Chris Henderson that concerns have been raised that E-Rate applicants are overbuilding existing networks.

“Overbuilding is especially problematic when those networks are subsidized by other federal funding, such as the high cost program,” O’Rielly said. “In those instances ratepayer dollars are being used to support artificial competition potentially jeopardizing service to the broader community.”

To get a better handle on the scope of overbuilding in the program, O'Rielly asked USAC to provide information on how E-Rate funds are being spent by Feb. 17. 

Specifically, O'Rielly asked that since the Second E-Rate Modernization Order was passed in 2014 how many applicants have sought E-Rate funding for self-construction and the amount of funding. 

He also asked how many of the applicants' requests would result in overbuilding another provider's network in whole or part?

O’Rielly cited an article about how the Arlington Public School system (APS) has an open request for proposals (RFP) to build another fiber network.

“Even more troubling, I recently read a news article in which a suburban county school system discussed its plans to seek E-Rate funding to pay for a backup fiber network for its schools,” O’Rielly said.

APS said in an ARLnow article that the network is a “contingency plan.”

The school district says the additional fiber network is a contingency plan and ConnectArlington, the operator of a new middle mile fiber provider, still will be its primary network provider.

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