A. Eligible Services
7. Upfront Charges for Service Provider Deployment of New or Upgraded Facilities to
151. Background. In this section, we address the issue of upfront charges for service provider deployment of new or upgraded facilities in order to serve eligible HCPs. As discussed in the National Broadband Plan, lack of availability of broadband services can be a challenge for some small rural HCPs.409 In the NPRM, the Commission recognized that service providers may deploy new facilities to serve eligible HCPs in some situations, and seek to recover all or part of those costs through non-
recurring charges when service is initiated.410 The Commission proposed to limit upfront support for such non-recurring charges consistent with policies adopted in the E-rate program. Specifically, the
Commission proposed that if non-recurring charges are more than $500,000, they must be part of a multi- year contract, and must be prorated over a period of at least five years.411
152. Discussion. Eligible consortia may obtain support for upfront charges for service provider deployment of new or upgraded facilities to serve eligible HCP sites that are applying as part of the consortium, including (but not limited to) fiber facilities as discussed in section V.A.3 above.
Although the Pilot Program has helped thousands of HCPs to obtain broadband services, many HCPs in more remote, rural areas still lack access to broadband connections that effectively meet their needs.412
406See USAC Nov. 16 Data Letter at 2 (based on experience in the Pilot and Primary Programs, normal and reasonable undiscounted installation costs for broadband services should be no more than $5,000).
407See RNHN Comments at 18 (stating reasonable and customary installation charges for broadband access should be eligible for support because they are an integral component of providing broadband services); HHS Comments at 11; UAMS Comments at 8; TeleQuality Comments at 5; ACS Comments at 12-13; IRHN Comments at 16;
WNYRAHEC PN Comments at 6.
408ACS Comments at 13.
409See National Broadband Planat 211 (noting that small physician offices in rural areas are disproportionately affected by a lack of high bandwidth broadband services).
410In some cases, telecommunications providers may choose to recover the cost of deploying or upgrading facilities by simply incorporating those costs into monthly recurring charges. As Geisinger notes, however, this can make the recurring costs unaffordable. Geisinger PN Comments at 4.
411NPRM, 25 FCC Rcd at 9411, para. 102.
412See AHA PN Comments at 3 (“[f]or many of the AHA’s rural members, the ability to ensure access to ‘last mile’
broadband connections to rural health care facility locations is a fundamental problem restricting broadband access”); Letter from Craig Davis, Vice President, Rural Health Care Division, Universal Service Administrative Company, to Sharon Gillett, Chief, Wireline Competition Bureau, Federal Communications Commission, WC Docket No. 02-60, at 13 (filed Apr. 12 2012)(USAC Apr. 12, 2012 Letter) (noting an instance in which a 10 Mbps
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The Pilot Program demonstrated that many HCPs prefer not to own the physical facilities comprising their networks, but can still assemble a dedicated health care network if funds are available for service provider construction and upgrades where broadband facilities are not already available.413 In a number of instances, Pilot projects found that support for upfront charges for deployment of service provider facilities allowed them to find the most cost-effective services to meet their needs while obtaining the benefits of connecting to existing networks.414
153. Commenters recommend that the Healthcare Connect Fund support service provider build-out charges, arguing that will result in cost-effective pricing,415which in turn reduces the cost to the Fund. This solution may be particularly useful when a health care network covers a large region served by multiple vendors, because the network can maximize the use of existing infrastructure and seek funding for build-out only where necessary. For example, OHN’s multi-vendor leased line network utilized 151.06 miles of existing infrastructure, and stimulated 86.41 miles of new middle-mile connectivity.416
154. We adopt a rule to provide support for service provider deployment of facilities up to the
“demarcation point,” which is the boundary between facilities owned or controlled by the service provider, and facilities owned or controlled by the customer.417 In other words, the demarcation point is the point at which responsibility for the connection is “handed off” to the customer. Thus, charges for
“curb-to-building installation” or “on site wiring” are eligible if they are used to extend service provider (Continued from previous page)
Ethernet service was available and preferred by the HCP, but the HCP ended up bonding 8 T-1s due to a $30,000 construction expense for the 10 Mbps service).
413Pilot Evaluation, 27 FCC Rcd at 9443-44, paras. 91-92; Letter from Linda L. Oliver, Attorney Advisor, Federal Communications Commission, to Marlene H. Dortch, Secretary, Federal Communications Commission, WC Docket No. 02-60 (filed Mar. 26, 2012) at 2 (Pilot Conference Call Mar. 26 Ex ParteLetter (AEN et al.)) (noting that most stakeholders prefer not to own the physical facilities comprising their network, but would rather defer to service providers that have experience and expertise in these matters to complete any build out, and stating that in cases where construction is necessary, the HCP may issue one RFP for construction and a second RFP for an experienced entity to manage the network on behalf of the HCP); Pilot Conference Call Mar. 16 Ex Parte Letter (ARCHIE et al.) at 3 (stating that while the Pilot Program helped prompt the deployment of fiber or other high capacity facilities to many HCP sites where such facilities were not previously available, HCPs do not want to own the network
facilities); Avera Comments at 5 (stating that support for non-recurring costs is reasonable because it allows service providers to recover costs for installing last-mile fiber to a HCP, and it makes more sense for the SP to own the entire circuit because having the provider own the last mile could lead to “finger-pointing” if something went wrong); UTN PN Comments at 4.
414For example, the Indiana Telehealth Network utilized funding for infrastructure and plant upgrades by telecommunications providers to serve participating HCPs with fiber connections. Several HCPs in the network required construction builds of over 20 miles of fiber to reach the nearest fiber node.See ITN PN Comments at 3 (noting that in such cases, “rural health care providers and their surrounding communities would continue to be without adequate broadband services if not for the assistance of the [Pilot Program]”).
415IRHN PN Comments at 12 (recommending that the latitude allowed in the Pilot Program be continued in the Broadband Services Program (e.g., purchase/own or lease equipment, IRUs, purchase pre-paid bandwidth, non- traditional and traditional service providers); allowing non-recurring costs is a critical tool for obtaining cost- effective pricing); Geisinger PN Comments at 2.
416Letter from Kim Klupenger et al., Oregon Health Network, to Christianna Lewis Barnhart, Attorney Advisor, Federal Communications Commission, WC Docket No. 02-60, at 1-2 (filed Feb. 28, 2012) (OHN Feb. 28 Ex Parte Letter).
417Such customer facilities may include, for example, terminal equipment, protective apparatus, or wiring. Cf. 47 C.F.R. § 68.3 (defining “demarcation point” for purposes of telephone networks).
facilities to the point where such facilities meet customer-owned terminal equipment or wiring.418 If the additional build-out is not owned or controlled by the service provider, it will not be eligible as service provider deployment costs under this section. In contrast, consistent with current RHC program rules,
“inside wiring”419and “internal connections”420are not eligible for support.421
155. Because upfront charges for build-out costs can be significant, we limit eligibility for such upfront charges to consortium applications. Our experience of over a decade with the RHC Telecommunications Program suggests that individual HCPs are unlikely to attract multiple bids, which would constrain prices.422 As HCPs themselves acknowledge, and as we learned in the Pilot Program, consortium applications are more likely to attract multiple bidders, due to the more significant dollar amounts associated with larger projects.423 Furthermore, we anticipate that individual HCPs will benefit from participating in a consortium in numerous ways, including pooling administrative resources (e.g. for the competitive bidding process), and increased opportunities for cooperation with other HCPs within their state or region.424 Consortia seeking funding for build-out costs must apply and undergo the competitive bidding process through the consortium application process described below.425 As in the
418See UTN PN Comments at 4 (noting that leased services often have non-recurring costs for installation, including curb-to-building installation charges); CTN PN Comments at 10-12 (“CTN recommends that the Broadband Services Program allow funding to include on site wiring and technical assistance . . . just as the circuits and routers are covered in the Pilot Program. In CTN’s experience, if we do not complete the installation so that the HCP is fully operational in a turnkey fashion, sites are less likely to utilize the broadband connection.”).
419“Inside wiring” is customer-owned or controlled wire on the customer’s side of the demarcation point. See 47 C.F.R. § 68.3.
420“Internal connections” is a concept used in the context of the E-rate mechanism, and refers to services used for internal networks within school or library premises – more specifically, services “necessary to transport information within one or more instructional buildings of a single school campus or within one or more non-administrative buildings that comprise a single library branch.” 47 C.F.R. § 54.502(a)(4).
4212003 Order and Further Notice, 18 FCC Rcd at 24562, para. 30 (finding that there is insufficient information in the record to provide support for internal connections, and expressing concern that providing support for internal connections may place an undue burden on the rural health care support mechanism); 2007 Pilot Program Selection Order, 22 FCC Rcd at 20398, para. 75 (concluding that “inside wiring” is an ineligible cost “except for equipment that terminates a carrier’s or other provider’s transmission facility and any router/switch that is directly connected to either the facility or the terminating equipment”); USAC RHC web site, available at
http://www.universalservice.org/rhc/health-care-providers/step01/eligible-services.aspx (equipment and “wiring”
not supported in the RHC Primary Programs) (last visited Nov. 15, 2012).
422Pilot Evaluation, 27 FCC Rcd at 9436-37, para. 81 (only an estimated 16 percent of funding requests received even a single bid in the Primary Program, whereas 94 percent of Pilot projects received multiple bids).
423Pilot Evaluation, 27 FCC Rcd at 9437, para. 82; see also NCTN PN Comments at 2; Testimony of Rebecca Sanders, Director, Indiana Telehealth Network, Before the House Small Business Committee, Subcommittee on Healthcare and Technology, at 10-11 (Feb. 15, 2012), available at
smallbusiness.house.gov/uploadedfiles/sanders_testimony.pdf (last visited Nov. 15, 2012) (Pilot Program funding allowed the service provider to accelerate planned deployment of fiber to certain areas); USAC Apr. 12, 2012 Letter at 14-15 (experience is showing that rural and frontier health care facilities must partner with larger organizations for economies of scale).
424See, e.g., Geisinger PN Comments at 2 (consortium applications will take the administrative burden off small HCPs who do not have the time or resources to apply for funds in a new program); NCTN PN Comments at 2 (the consortium approach allowed NCTN to “leverage [its] buying leverage with telecom companies and to create an operations model that leverages the consortium’s consumer focus to assure that individual customers get better service than they could expect to get working alone as a single small customer”).
425See infra section VI.C.
Pilot Program, an RFP that includes a build-out component need not be limitedto such costs (for example, some HCPs included in the RFP may not need any additional build-out to be served, but rather only need discounts on recurring services). We expect HCPs to select a proposal that includes carrier build-out costs only if that proposal is the most cost-effective option.426In addition, upfront charges for build-out are subject to the limitations in section V.D below.