ALBUQUERQUE, N.M. —  A Utah-based company that provides public Internet access to the Navajo Nation plans to shut off the tribe's service Monday, leaving thousands of Navajos without online access to do school work, post community announcements or communicate with others across the 27,000 square-mile reservation.

"It's going to be a sad day," said Ernest Franklin, director of the tribe's Telecommunications Regulatory Commission.

The shutdown stems from a decision by Universal Service Administration Company — which administers the E-rate program under the Federal Communications Commission — to withhold $2.1 million in reimbursement funds to OnSat Network Communications Inc. over concerns about a federal audit of the Utah-based company.

The E-rate program reimburses between 85 percent and 90 percent of the costs for Internet services to the tribe's chapter houses, which operate like city governments. The Navajo Nation covers the rest.

Because of the delay in payment, an attorney for OnSat said it can't pay a subcontractor — SES Americom — for satellite time.

"With USAC taking this particular position, it doesn't look like we're going to get paid in the foreseeable future," said Jim Fitting. "We're already $4 million in the hole, so why should we continue doing it."

In a letter dated March 28 to Navajo President Joe Shirley Jr., USAC said it is withholding money for OnSat from funding year 2006-07 because of concerns over a tribal audit that found OnSat has overbilled for services and that the tribe didn't comply with procurement rules or a competitive bidding process in selecting OnSat.

FCC rules require applicants to select the most cost-effective service or equipment and a fair and open competitive bidding process.

The USAC is asking the tribe to prove that OnSat has provided the services for which payment is sought and that it has taken steps to ensure that USAC is billed only for the services provided at each eligible site. It also is asking the tribe to document any processes it in place to make sure Internet service is uninterrupted.

The audit also is at the center of a lawsuit OnSat filed against the tribe last July in Window Rock District Court — which the USAC also raised concern over. A preliminary injunction issued July 20 essentially freezes the report from further use, Fitting said.

OnSat President Dave Stephens and Fitting have maintained the audit findings were based on faulty assumptions and a lack of understanding of the contract.

"We don't believe this audit is valid," Fitting said.

The Navajo Nation has 45 days from March 28 to respond to the USAC's letter. Based on the tribe's answers, USAC can either release full funding, partial funding or deny the funding, said USAC spokeswoman Laura Betancourt.

"They're just in a holding bin until we get satisfactory answers," she said.

Franklin said he has provided documents to the USAC detailing how OnSat was selected as the service provider and justified the services at each of the eligible sites. He said USAC sent personnel to the Navajo Nation last year to see the actual connections at randomly selected chapters.

"We proved that we are delivering the bandwidth and that we went through the proper procurement system," he said. "... We had to dig up all these documents."

Franklin said the tribe eventually would have stopped using OnSat, but that it needed to sustain the satellite connections for at least two years until a wireless grid is completed on the reservation.

"It's not like it's not being used and it's just going to go away," he said. "It's used tremendously by the public. It's just sad that this has to happen."

OnSat will continue to provide Internet services for the tribe's Division of Public Safety and the Office of the President and Vice President, which aren't tied to E-rate funding, Fitting said.

But whether OnSat and the tribe will continue their relationship should USAC release the funding is unclear.

"The nation may not want OnSat to continue. OnSat may not want to continue with the nation," Fitting said. "The relationship has been strained. If you can achieve the property settlement on the divorce, do you still want to stay married?"

Each Navajo chapter received a grant from the Bill and Melinda Gates Foundation's Native American Access to Technology Program in 2000, which provided for computer and Internet access. But the foundation found that dial-up and wireless connections weren't possible because of the lack of telephone service on the reservation and a wireless grid.

The tribe's Division of Community Development entered into a contract with OnSat in 2001 to provide the services via satellite dishes to the chapter houses, but the Gates Foundation cautioned that the use of satellite for Internet technology should be temporary because of its high cost, speed limitations and unreliable connections.

Navajo President Joe Shirley Jr. said Navajo people have come to rely on Internet access provided through E-rate to improve their educational standards and professional lives.

"It would be a very sad day for the children and people of the Navajo Nation if the dark clouds descend, the lights go out, and access is denied to the chapter houses (libraries) on the reservation, in large part, because USAC has failed to timely fund our application," Shirley said in a Dec. 10, 2007 letter to Mel Blackwell, vice president of USAC's Schools and Libraries Division.

Franklin said about 70 of the tribe's 110 chapter houses will be affected by the shutdown. He said notices were sent to the chapter houses last week, informing them they would not have Internet service as of Monday.

Inscription Chapter House community services coordinator Victor Bydone said she never received a notice. Nevertheless, she is bracing for the slew of people upset that they can't use the Internet.

The two public computers at the Arizona chapter are constantly being used by community members and students who are enrolled in online courses, doing research for school projects or surfing. Users are limited to one hour to accommodate the wait, she said.

When the chapter's administration closes down at 5 p.m., nearby residents park their vehicles outside the chapter house to access the wireless signal.

"It's going to be unfortunate," she said. "It's not going to be very good."