FCC Rescinds 2010 Cost Allocation Guidance for Bundled Services

Late last Friday, the FCC's Wireline Competition Bureau released an Order rescinding prior guidance that permitted E-rate applicants to request full funding for  certain bundles that included service or equipment components that are not eligible for E-rate funding.  The prior guidance, issued in 2010, had departed from past FCC decisions that required service providers and schools and libraries to deduct from their funding requests any price reductions, promotional offers, "free" services or equipment, and any ineligible components of a service or equipment.  In 2010, however, the Bureau said that schools and libraries would not have to deduct the cost of free or reduced-price cell phones from a cell phone service if the phones or reductions on phones were offered to all subscribers of the service.  Examples of other permissible arrangements, however, were not provided, leading many in the industry to question which arrangements would be deemed appropriate.

Effective for the 2015 funding year, the new order reverses the prior guidance and reinstates the rule that E-rate funding requests must include cost allocation deductions for all ineligible components unless such components are "ancillary," which is defined as a component for which a price cannot be determined separately and independently from the price of the eligible components, and the specific offering remains the most cost-effective without regard for the ineligible component.  The full definition can be found at 47 CFR sec. 54.504(e)(2).