Cost Allocations for Ineligible Entities

Schools and libraries as well as service providers should consider the guidelines below when:

  • Schools, libraries and service providers negotiate their contracts for contracted services or agreements for tariffed or month-to-month services;
  • Schools and libraries complete and submit their FCC Form 471 applications;
  • Service providers prepare their bills for services to eligible schools and libraries; and
  • Service providers submit their invoices to USAC for payment.

Allocation of Discounts

When eligible and ineligible entities share services, discounts can only be provided for that portion of the service that eligible entities are receiving. Documentation establishing any cost allocations and related information must be retained for at least 10 years after the last day of service delivered in a particular funding year.

The following guidelines should be followed:

1. Service or Connections Where Usage Is Tracked

Service providers and customers must itemize the services for which the customers plan to apply for discounts in their contracts/agreements. Where usage of eligible services is tracked by the service provider, the service provider should itemize the bill so that costs attributable to eligible schools and libraries are separate. The bill submitted by the service provider must identify the pre-discount price of eligible services.

2. Service or Connections Where Usage Is Not Tracked

Eligible entities can receive discounts for eligible services that are shared with ineligible entities where it may not be feasible to track usage in order to allocate costs among these entities. In those cases, the consortium members cooperating to purchase the common service or connections have to agree in advance among themselves on how to allocate costs, based on their estimated relative use of the resulting service.

The cost allocation methodology chosen must be based on a usage measure. Examples of such measures are:

  • Number of connections (trunks, lines or wireless connections) operated by each consortium member; and
  • Number of connections (trunks, lines or wireless connections) operated by each consortium member and periods of time of operation for the trunks, lines or wireless connections (a proxy for minutes of use).

The cost allocation methodology should be set forth in the contract/agreement for services executed with the service provider. If there is no contract for services (as may be the case for tariffed or month-to-month services), the customer should provide the service provider with a copy of its cost allocation methodology.

The cost allocation methodology may be established permanently, or it may be reviewed periodically. This methodology must be documented as part of the record keeping responsibilities of the FCC Form 471 applicant, who must maintain records of how the costs of services shared with ineligible entities are allocated.

In those situations where the service provider remits one bill to the consortium for all the services rendered to all members of the consortium (which may include ineligible entities), then the allocation methodology must be provided by the lead consortium member to the service provider in advance, so that the service provider may compute the discount portion of the bill.

Examples of Allocation Methodologies

Number of Lines
A consortium comprising of both eligible and ineligible entities may choose to allocate the pre-discount price among each member according to the number of lines used by each member.

For example, if there are five entities comprising the consortium, the service provider issues one bill to the lead consortium member, and there are five lines used by each consortium member, each member would be allocated 1/5 or 20 percent of the bill. The pre-discount price for the consortium would be the sum of the pre-discount price allocated to each eligible school or library. Thus, if only four of the five entities are eligible for discounts, then the discounts would be applied to 80 percent of the price billed by the service provider.

Number of Lines and Hours of Operation
The consortium may also decide to allocate the pre-discount price among each member according to the number of lines and the period of time each line is used by each member.

In the above example, assume further that there are five entities comprising a consortium of eligible and ineligible entities, and there are five lines used by each consortium member.

Assume further that one member of the consortium operates 24 hours per day and the other entities use their lines 10 hours per day. The consortium could agree to weight the allocation methodology according to both the number of lines and the hours of use by each school or library as follows:

Consortium Member No. of Lines Hours of Use Total
1 5 10/day 50 hours
2 5 10/day 50 hours
3 5 10/day 50 hours
4 5 10/day 50 hours
5 5 24/day 120 hours
Total hours: 320

Each of the first four consortium members would be allocated 50/320 or 15.6 percent of the bill from the service provider. The fifth consortium member would be allocated 120/320 or 37.5 percent of the bill from the service provider.