Can a school use E-rate to build a fiber optic broadband network ? From funding year 2016 the answer is yes. When I say funding year 2016 I mean from July 1st 2016 to June 30th 2017. However, if you want to start building a fiber optic network you need to start planning now, since you are going to have to issue an RFP with the form 470. The RFP will need to state a request for lit service, as well as the request for network construction. The lit service request allows you to then make a decision as to which solution is the most cost effective. We will get into the details of how to make a decision using cost effectiveness as the most important factor in an upcoming post.
If you choose the network construction option, then you will be the owner of a fiber optic network and all that entails. Luckily, the outsourcing of most of the activities is possible, and E-rate will reimburse you for this. An example of some responsibilities you will have if you own a fiber optic network include:
- routine maintenance
- non-routine or emergency maintenance
- network operation, i.e. operating the electronics that light the fiber
- relocates, for example due to road widening projects
- locates, paying for locate services
- marketing, selling or otherwise making use of the excess fiber strands
Luckily though, these activities can be outsourced via a competitive bid process using the E-rate form 470. E-rate will then reimburse you for the costs, based on your E-rate discount. Note, that if you do any of these activities yourself you cannot get E-rate reimbursement. You can only get reimbursement if you competitively bid out the work.
Having to deal with outsourcing the above activities is a hassle I agree. However, there is a key benefit to owning a fiber optic network. First is that you own the network. You have complete control over the fiber optic network. Another benefit, is that when you lay the fiber optic cable, you should lay plenty of fiber strands, more than you need, for example, you may only need 4 strands to connect your school. However, you should lay, for example, 144. E-rate will reimburse you for the cost of constructing a 4 strand network – this includes the digging up of the road, or placing the fiber on poles. This is by far most of the cost of construction. The cost of the incremental fiber is minimal when compared to the total network construction cost. You will need to pay for the incremental strands out of pocket, but then, you will be able to do whatever you like with those strands. Since, now they fall outside the purview of E-rate. For example, you could sell or lease the fiber to other parties and potentially make back a lot more than the incremental cost of the fiber strands you had to pay.
A quick example should make this clearer. Lets say you issue an RFP that requests:
1) Cost of constructing a 4 strand network, from the Internet access point 10 miles away to the school premises
2) Cost of constructing a 144 strand network, from the Internet access point 10 miles away to the school premises
You may see a response along the lines of (1) costing $470K and (2) costing $500K. This means the incremental cost of fiber strand #5 to #144 is $30K. E-rate will reimburse you, based on the $470K cost. You will need to pay the $30K cost out of pocket.
If you are at a 80% discount level, you have
E-rate will reimburse you 80% of $470K = $376K.
School match is 20% of $470K which is $94K
School needs to pay out of pocket for the incremental strands, ie. $30K
Hence, total monies payable by the school is $124K.
However, note, that another rule introduced in December 2014 order is that the $94K (the 20% school match) can be paid over 4 years to the vendor (if agreed to by the vendor). Hence, rather than $94K in one lump sum, the amount would be $1958.33 per month for 4 years. The $30K for the incremental fiber strands is payable either upfront or perhaps via a monthly payment plan, since payment of this money is outside the scope of E-rate.
I hope I haven’t confused you here. If you have any question on this please leave a comment or drop me an email.