1. OUSF & E-Rate FUNDING FOR INTERNET AND BROADBAND CONNECTIVITY 9/11/2015 1 KELLOGG & SOVEREIGN CONSULTING

2. Deborah J. Sovereign, CPA Kellogg & Sovereign Consulting, LLC Phone: 580.332.1444 Email: dsovereign@kelloggllc.comdsovereign@kelloggllc.com www.kelloggllc.com Presented By: 9/11/2015 2 KELLOGG & SOVEREIGN CONSULTING

3. OUSF Issues CHAPTER 59 - OKLAHOMA UNIVERSAL SERVICES FUND 9/11/2015 3 KELLOGG & SOVEREIGN CONSULTING

4. Internet Access & Bandwidth OUSF Lowest Reasonable Cost – bidding required 1.5 Mb per building credit not to exceed non- discount share (Erate applied first) Lease Only SP must be ILEC, OneNet or CCN* Installation cost up to $1,000 Service Provider Files AFTER services start. FCC - ERATE Most Cost Effective Solution w/ Price Primary E-Rate Discount x eligible costs Can be leased or self provisioned, dark or lit fiber Any provider Construction costs must be cost effective (comparisons required) Applicant files PRIOR to start of service. *Incumbent Local Exchange Carrier, OneNet, or company that has a Certificate of Convenience and Necessity 9/11/2015 4 KELLOGG & SOVEREIGN CONSULTING

5. OUSF – Notice of Inquiry CAUSE NO. PUD 201500339 COMMENTS DUE: September 28, 2015 October 30, 2015 TECHNICAL CONFERENCES: October 6, 2015 at 10:00 am November 3, 2015 at 10:00 am Seeking input regarding changes to: Oklahoma Universal Service Fund (“OUSF”) for Special Universal Services as provided in 17 O.S. §139.109 Oklahoma Telecommunications Act of 1997 Oklahoma Administrative Code (“OAC”) 165:59 (“Chapter 59”) related to Special Universal Services. 9/11/2015 5 KELLOGG & SOVEREIGN CONSULTING

6. OUSF- Changes Made 2012-2014 Telemedicine ◦Recertification beginning in 2013 ◦Community mental health centers – eligible ◦Required to file federal first Schools & Libraries ◦Documentation request April, 2014 ◦Review bidding procedures – reasonableness test ◦Pre-K eligible Data reporting ◦GVNW Consulting new fund manager ◦Internal reports by entity for OCC use only 9/11/2015 6 KELLOGG & SOVEREIGN CONSULTING

7. State Auditors Report July 1, 2012- June 30, 2013 PUD increased accountability and reduced risk by hiring additional staff and performing eligibility determinations of health care entities authorized by HB 2738. Redetermination process has not been implemented for schools & libraries due to staffing limitations 5% of healthcare entities files reviewed did not contain adequate documentation to determine eligibility Unorganized documentation hindered review of eligibility redetermination documentation An official complete listing of schools and libraries receiving OUSF does not exist Management does not document their review of eligibility determinations Providing funding to ineligible recipients could lead to increased fees for consumers 9/11/2015 7 KELLOGG & SOVEREIGN CONSULTING

8. HB 2738 (2012) ◦17 O.S. § 139.109 E. states, “The Corporation Commission shall have authority to investigate and modify or reject in whole or part a Special Universal Service Request under subsection C of this section if the request does not meet the specified criteria, if the Corporation Commission’s investigation determines that the entity has not provided sufficient justification for the requested services, or if the Corporation Commission determines that granting the request is not in the public interest.” 9/11/2015 8 KELLOGG & SOVEREIGN CONSULTING

9. Concerns – Public Interest Response: PUD and the OCC deal with these major considerations on a daily basis whether it is in regard to safety, energy costs, or funds requests. The statutory change rightly put the duty of applying a Public Interest standard on the OCC. It would be a rare occurrence where anyone would choose much higher payments for similar services when the funds are coming from their own pocket. If they are choosing a higher cost service due to additional services offered, that should not be covered by the OUSF. PUD and the OCC are charged with administering this fund pursuant to statute and rule. It is inappropriate for payments to be made that are not in the public interest or include non-eligible services if the contracts were entered into after the statutory change. 9/11/2015 9 KELLOGG & SOVEREIGN CONSULTING

10. OUSF Resources HELPFUL LINKS – see also www.kelloggllc.com http://www.occeweb.com/pu/OUSF/OUSF.htm Active causes in PUD http://www.occeweb.com/pu/PUD%20Reports%20Page/pudreports.html Proposed Rules (Chapter 59) http://www.occeweb.com/rules/proprules/proprule.html Rules (Chapter 59) http://www.occeweb.com/rules/rulestxt.htm 9/11/2015 10 KELLOGG & SOVEREIGN CONSULTING

11. OUSF Resources LOCATING SOURCE DOCUMENTS SUBMITTED FOR A CAUSE You can access from the Commission’s home page. You will click on the tab labeled “conducting business” and in the drop down table select “imaged documents” Select # 3 on that page to “search documents” Select “OAP Orders and Case Files” and then type in the cause number and in the third box down, labeled “case type” select “PUD” That will give you the documents filed in the cause. 9/11/2015 11 KELLOGG & SOVEREIGN CONSULTING

12. Example 9/11/2015 12 KELLOGG & SOVEREIGN CONSULTING

13. OUSF funding support SCHOOLS & LIBRARIES LIMITED TO BUILDING CREDIT – ◦T-1 EQUIVALENT (1.54 Mbps) ◦Allows support for WAN connections Internet Provider receives support first Remaining building credit to WAN provider TELEMEDICINE LIMITED TO “as the entity’s telemedicine equipment and service applications require.” Only one telemedicine line per site 9/11/2015 13 KELLOGG & SOVEREIGN CONSULTING

14. OUSF Rules Title 17 O.S. Sec 139.09 SCHOOLS & LIBRARIES Each public school building wherein classrooms are contained and each public library in the state shall, upon written request, receive one access line, free of charge, with the ability to connect to an Internet service provider at 1.5Mbps, in the most economically efficient manner for the carrier, or an equivalent dollar credit to be applied by the public school or public library toward similar services provided by the same carrier, for the purpose of accessing the Internet. TELEMEDICINE Each not-for-profit hospital, county health department, city-county health department, and federally qualified health center* in this state shall, upon written request, receive, free of charge, one telecommunications line or wireless connection sufficient for providing such telemedicine, clinical and health consultation services as the entity’s telemedicine equipment and service applications require. http://www.oklegislature.gov/osStatuesTitle.aspxhttp://www.oklegislature.gov/osStatuesTitle.aspx*mental health added in 2014 legislation 9/11/2015 14 KELLOGG & SOVEREIGN CONSULTING

15. OUSF Funding FYFUNDING REQUIREMENTCONTRIBUTION FACTOR 201663,733,8692.16% (4.32% recommended) 201549,809,8032.16% 201463,662,9040.64% * 201348,052,0573.14% 201252,646,2163.14% 201125,526,1611.99% 201019,308,7421.94% 200913,676,7100.006% 200811,880,4810.003 % *Reduced below prior years since fund was carrying a high cash balance. 1999 - 0.456%. Factor stayed relatively stable from then to FY 2009 ranging from a low of 0.400% to a high of 0.600%. 9/11/2015 15 KELLOGG & SOVEREIGN CONSULTING

16. OUSF Data 2011-2016 Projections 9/11/2015 16 KELLOGG & SOVEREIGN CONSULTING

17. 2015-16 funding loss Revenue Required: $63,733,869 Contribution Base: $1,156,202,137 Carryover Balance: $13,782,727 2.16% x $1,156,202.137 = $24,973,966.16 4.32% x $1,156,202.137 = $49,951,145.00 PROJECTED SHORTFALL FOR 2015-16: $24,977,175,84 – ** ESTIMATE ONLY** 9/11/2015 17 KELLOGG & SOVEREIGN CONSULTING

18. Factor 0.64 – Loss in OUSF Funds Factor was 3.14 for both 2012 and 2013 Lower rate approved for 2014 since carryover balance was $54,168,32. However, prior year telemedicine causes were $32,545,391 (see testimony in PUD # 2014-0031) Contribution Base: $1,484,410,006 3.14% x $1,484,410,006 = $46,610,474.19 0.64% x $1,484,410,006 = $9,500,224.04 SHORTFALL FOR 2014-15: $37,110,250.15 – factor was extended for additional 4 months 4 months additional loss: $12,370,083.38 Total loss of funds due to lower factor – 18 months - $49,480,333.53 **ESTIMATE ONLY** 9/11/2015 18 KELLOGG & SOVEREIGN CONSULTING

19. 9/11/2015 19 KELLOGG & SOVEREIGN CONSULTING

20. 9/11/2015 20 KELLOGG & SOVEREIGN CONSULTING

21. Source: http://www.occeweb.com/pu/OUSF/ OUSFFundingReport08-28-15.pdf Downloaded 9/10/2015 9/11/2015 21 KELLOGG & SOVEREIGN CONSULTING

22. 9/11/2015 22 KELLOGG & SOVEREIGN CONSULTING

23. Review Process SCHOOLS & LIBRARIES Affidavit process beginning April 2014 New orders – full review of bidding documentation Reasonableness test applied to competitive bidding documents (E-Rate) Public Interest clause - can deny / reduce funding support when review orders or upon routine review of bidding documentation TELEMEDICINE Recertification in February Approval letters for allowed bandwidth and site eligibility issued in May Effective July 1 Telemedicine providers are notified in advance of their fiscal year New orders reviewed after services start, but have approval for bandwidth and site eligibility 9/11/2015 23 KELLOGG & SOVEREIGN CONSULTING

24. OUSF CHANGES CHANGES MADE IN REVIEW PROCESS 18 MONTHS - Service Provider must file request within 18 months from start of service DUPLICATE PROVIDERS – will only provide support to new provider after date of disconnect notice PRE-APPROVAL – service providers may submit order for pre- approval. Process takes approximately 90 days. FEES – will not be paid by OUSF COMPETITIVE BIDDING – required of all applicants Affecting all applicants 9/11/2015 24 KELLOGG & SOVEREIGN CONSULTING

25. OUSF Changes - Schools  Will fund the lowest reasonable cost for internet access to schools and libraries for the balance not paid by E-rate up to the eligible 1.5Mbps building credit equivalent  Will require the production of all bids for services.  PUD must determine reasonableness for all services and charges.  OUSF will not fund redundant service(s)  Funding shall be limited to 18 months prior to the date of application  Will fund the incumbent provider until the earlier of actual disconnection or 30 days after the disconnect notice  PUD may provide support for installation and build out  Sales taxes, FUSF, and OUSF will not be reimbursed on or after 7/11/2013. Memorandum OUSF Operational Procedures (MOOP) 9/5/2014 9/11/2015 25 KELLOGG & SOVEREIGN CONSULTING

26. OUSF Changes - Schools Memorandum OUSF Operational Procedures (MOOP) 9/5/2014  PUD will not reimburse quality of service charges  Monthly equipment fees (managed routers) will not be reimbursed on or after 1/28/2014  Qualified School Building - each building which contains classrooms wherein students in pre-kindergarten thorugh twelfth grades receive internet based coursework. Buildings with a physical firewall would qualify for a building credit for each section of the building that is separated by a physcial functional firewall. Being the point of service does not automatically qualify a building for credit.  Pre-K is only funded beginning 5/9/2014 when HB 2977 was signed by the governor.  OUSF will not fund internet access to a building during construction phase or any remodeling/out of service timeframes which occur over an extended period of time. http://www.occeweb.com/pu/OUSF/OUSF%20Request%20Forms/OUSF%20Procedures%209-5-14.doc 9/11/2015 26 KELLOGG & SOVEREIGN CONSULTING

27. Schools & Libraries Statement: Schools should be allowed access to full building credits and should be able to select a more expensive carrier. Response: Schools are allowed full access to their credits when the requested funding is found to be in the public interest. However, it is not appropriate for the fund to pay additional amounts for services that are ineligible for OUSF funding or for services that are priced unreasonably Increased building credit Pre-K added 9/11/2015 27 KELLOGG & SOVEREIGN CONSULTING

28. FCC Fiber Opportunities 9/11/2015 28 KELLOGG & SOVEREIGN CONSULTING

29. FCC Resources: FCC – Erate Fiber Build Workshop (May 20, 2015): ◦https://www.fcc.gov/events/e-rate-fiber-build-workshophttps://www.fcc.gov/events/e-rate-fiber-build-workshop ◦Jon Wilkins, Managing Director, FCC ◦Joe Freddoso, Co-Founder and Chief Operating Officer, Mighty River, LLC and former President and Chief Executive Officer of MCNC FCC 2 nd E-rate Modernization Order (December 19, 2014) ◦http://www.usac.org/sl/tools/modernization-order/order.aspxhttp://www.usac.org/sl/tools/modernization-order/order.aspx FCC Fiber Presentation (USAC Phoenix Training June 2, 2015): ◦http://www.usac.org/about/tools/TrainingArchive/trainingDetails.aspx?eid=244http://www.usac.org/about/tools/TrainingArchive/trainingDetails.aspx?eid=244 9/11/2015 29 KELLOGG & SOVEREIGN CONSULTING

30. Provided by USAC (with permission) FCC FIBER Second E-rate Modernization Order OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 30

31. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 31

32. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 32

33. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 33

34. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 34

35. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 35

36. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 36

37. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 37

38. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 38

39. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 39

40. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 40

41. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 41

42. Example School A – $120,000 fiber build to nearest POP (Internet Point of Presence) 80% Erate discount $24,000 – Non Discount Share $12,000 – paid with State funds $12,000 – USAC will match up to 10% ------------- $0 – School out of pocket costs 9/11/2015 42 KELLOGG & SOVEREIGN CONSULTING

43. Example School A – $120,000 fiber build to nearest POP (Internet Point of Presence) 80% Erate discount $24,000 – Non Discount Share $ 0 State Funds ------------- $24,000 – School out of pocket costs can be paid out over 4 years with installment plan with their service provider: $6,000 per year. Can be paid monthly or annually. Need to specify installment plan request on E-rate Form 470 and RFP 9/11/2015 43 KELLOGG & SOVEREIGN CONSULTING

44. New Concept – Construction Costs year one; own not rent CONSTRUCTION COSTS – YEAR 1 $120,000 one time; $500/month(5 year) Erate discount 80% Erate payment year 1: ◦$120,000 x 80% = $96,000 ◦$6,000 x 80% = $4,800 Erate Years 2-5: $6,000 x 80% = $4,800 Totals: $150,000 ($120,000 Erate) Problem: Current OUSF rules do not provide support for construction costs – no incentive CONSTRUCTION COSTS AMORTIZED $2500/month – 5 year contract Erate discount 80% $30,000/year x 80% = $24,000 Total over 5 years: $150,000 ($120,000 Erate) Problems: Multi-year contract w/ Termination Fees; Service Provider might not lower rate after 5 years. 9/11/2015 44 KELLOGG & SOVEREIGN CONSULTING

45. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 45

46. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 46

47. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 47

48. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 48 KELLOGG & SOVEREIGN CONSULTING

49. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 49

50. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 50

51. Provided by USAC (with permission) FCC FIBER OPPORTUNITIES FOR OKLAHOMA SCHOOLS 9/11/2015 51

52. TELEMEDICINE ISSUES 9/11/2015 52 KELLOGG & SOVEREIGN CONSULTING

53. Telemedicine Cause No. PUD 20140001 – Final Order Pre-filed Testimony of Chris Herbison 3/28/2014 Telemedicine Recertification – Begin Feb 2013 and repeated in Feb 2014 ◦83 telemedicine lines were identified as no longer eligible ◦135 recipients of telemedicine notified that amount of bandwidth would be decreased effective Dec 31, 2013 ◦Savings of $4.5 million effective July 1, 2014 ◦New requests for funding expected to offset the $4.5 million Per audit report, 407 health care entities receiving telemedicine services. Recertification 9/11/2015 53 KELLOGG & SOVEREIGN CONSULTING

54. Telemedicine Cause No. PUD 20140001 – Final Order Pre-filed Testimony of Chris Herbison 3/28/2014 Telemedicine Recertification – Begin Feb 2013 and repeated in Feb 2014 ◦83 telemedicine lines were identified as no longer eligible ◦135 recipients of telemedicine notified that amount of bandwidth would be decreased effective Dec 31, 2013 ◦Savings of $4.5 million effective July 1, 2014 ◦New requests for funding expected to offset the $4.5 million Per audit report, 407 health care entities receiving telemedicine services. Recertification 9/11/2015 54 KELLOGG & SOVEREIGN CONSULTING

55. Telemedicine Telemedicine requests were expected to be approximately $26 million for 2012 ◦New requirement to seek alternate funding first ◦Health Care Connect Fund – 65% discount for rural health care providers ◦Telecommunications Program – difference between urban and rural rate – up to 98% ◦Estimated savings on fund- minimum 25% of telemedicine $ ◦No data available at this time regarding impact on this change ◦Funding data is not available from either the federal or state funds Required to file federal first effective January 1, 2014 9/11/2015 55 KELLOGG & SOVEREIGN CONSULTING

56. Telemedicine Primary Program – ◦Telecommunications Only ◦Must be rural ◦Pays difference between Urban & Rural rate Health Care Connect Fund ◦Broadband Services ◦Network equipment (consortiums) ◦65% discount ◦Rural ◦Urban can participate if member of a consortium >50% rural ◦Consortium is 2 or more sites (can be same organization) FCC Programs Available 9/11/2015 56 KELLOGG & SOVEREIGN CONSULTING

57. Telemedicine New eligibility requirements Definition of a hospital ◦Limit OUSF funding support only to sites with a hospital license Statute change ◦Added eligibility of community mental health centers Effect of changes ◦Reduced # of applicants eligible for funding ◦Mental health sites were already receiving support Added community mental health centers as eligible Rules changed to only allow health care clinics with hospital license to qualify 9/11/2015 57 KELLOGG & SOVEREIGN CONSULTING