Bureau Issues E-Rate Guidance on Cost Allocation of Ineligible Components

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The FCC’s Wireline Competition Bureau (Bureau) has issued an Order that revises its guidance on how E-Rate program applicants must deduct from their funding requests the value of ineligible services and equipment that are bundled with services that are eligible for E-Rate support.  When E-Rate applicants contract for a bundle of services that include ineligible services or equipment, they must make sure that they differentiate or break out separate costs for eligible and ineligible services and equipment (a process known as cost allocation), so that E-Rate support is ultimately provided only for the eligible portion of the bundle.  In a 2010 Order, the Bureau allowed, under limited circumstances, E-Rate applicants to seek E-Rate support for purchases of eligible services bundled with ineligible components without separating out the value of the ineligible components.  The Bureau’s revised guidance prohibits the practices allowed under the 2010 Order.  To be clear, effective beginning in funding year 2015, E-Rate applicants must cost allocate “nonancillary” ineligible components that are bundled with eligible products or services, including those components that previously would have fallen within the scope of components not requiring cost allocation as described in the 2010 Order.  However, Section 54.504(e)(2) of the FCC’s rules is not affected by the revised guidance.  It provides that E-Rate applicants do not have to deduct the value of ineligible components bundled with eligible services when the ineligible components qualify as “ancillary” to the eligible services.

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