> Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | *  | WC Docket No. 02-60          |
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**NOTICE OF PROPOSED RULEMAKING**

**Adopted: April 18, 2002 Released: April 19, 2002**

**Comment Date: 45 days from publication in Federal Register.**

**Reply Comment Date: 75 days from publication in Federal Register.**

By the Commission: [Paras.]{.underline}

**TABLE OF CONTENTS**

I. INTRODUCTION
...........................................................................
1

II\. BACKGROUND
.............................................................................
6

III\. DISCUSSION
.................................................................................
13

A. Eligible Health Care
Providers.................................................... 13

B. Eligible Services
..................................................................\...
18

1\. Internet Access
.............................................................. 18

2\. Services Necessary for the Provision of Health
Care...............\... 28

C. Calculation of Discounted
Services................................................ 30

1.  Interpretation of Similar Services
    ........................................ 33

2.  Urban
    Area...................................................................
    41

3.  Maximum Allowable
    Distance............................................ 45

4.  Insular
    Areas.................................................................
    49

D. Other Changes to the Rural Health Care Support Mechanism
................ 51

1\. Streamlining the Application Process
.................................... 51

2\. Pro-Rata Reductions If Annual Cap Exceeded ........................
54

> 3\. Preventing Waste, Fraud, and Abuse
> .................................... 56 a. Competitive Bidding
> .............................................. 56

b.  Ensuring Selection of Cost-Effective Services................. 59

c\. Encouraging Partnerships with Clinics at Schools

> and Libraries .......................................................
> 60

d\. Other Measures to Prevent Waste, Fraud, and Abuse ....... 61

4\. Further Comment on Issues of Concern
................................ 62

E. Effect on Demand for
Support..................................................... 63

IV\. PROCEDURAL MATTERS
............................................................... 64

A.  Initial Paperwork Reduction
    Analysis............................................ 64

B.  Initial Regulatory Flexibility Analysis
    ........................................... 65

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1.  Need for, and Objectives of, the Proposed Rules
    .......................66

2.  Legal
    Basis...................................................................
    68

> 3\. Description and Estimate of the Number of Small Entities
>
> to Which Rules Will Apply
> ............................................... 69
>
> a\. Rural Health Care Providers.....................................
> 71
>
> b\. Providers of Telecommunications and Other Services....... 76
>
> 4\. Description of Projected Reporting, Recordkeeping, and Other
> Compliance Requirements
> ................................................ 84
>
> 5\. Steps Taken to Minimize Significant Economic Impact on
>
> Small Entities, and Significant Alternatives Considered ..............
> 86
>
> 6\. Federal Rules that May Duplicate, Overlap, or Conflict
>
> with the Proposed Rules
> ................................................... 89

C. Comments Due Date and Filing
Procedures..................................... 90

V. ORDERING
CLAUSES.....................................................................
98

**I. INTRODUCTION**

1.  In this Notice of Proposed Rulemaking (Notice), we seek comment on
    proposed modifications to our rules and other changes governing the
    rural health care universal service support mechanism.[^1] The
    Commission implemented the rural health care mechanism at the
    direction of Congress as provided in the Telecommunications Act of
    1996 (1996 Act).[^2] In the first five years of its operation, the
    rural health care mechanism has provided discounts that have
    facilitated the ability of health care providers to provide critical
    access to modern telecommunications and information services for
    medical and health maintenance purposes to rural America.
    Participation in the rural health care universal service support
    mechanism, however, has not met the Commission's initial
    projections. After five years of experience with the mechanism and
    considering recent developments, we find it appropriate to assess
    whether our rules and policies require modification.

2.  In light of changes in technology and market conditions as well as
    recent national events, we find it appropriate to ask whether
    various aspects of the rural health care support mechanism can be
    streamlined and improved, in order to best effectuate the mandate of
    Congress. We seek comment on certain specific changes to the
    mechanism based on our past experience with the mechanism, and
    solicit input regarding other changes to improve efficiency,
    fairness, and overall operation of the mechanism. We believe certain
    changes to our rules affecting the rural health care support
    mechanism could significantly bolster the availability of
    telemedicine and telehealth, thereby enhancing critical diagnosis
    and communication support for isolated health centers throughout the
    rural United States in the event of a national public health
    emergency.

3.  Our goals in undertaking this proceeding, consistent with the
    statute, are four-fold: (1) to ensure that the benefits of the
    universal service support mechanism for rural health care providers
    continue to be distributed in a fair and equitable manner; (2) to
    examine current rules and, if necessary, implement changes to
    improve and streamline operation of the rural health care universal
    service support mechanism; (3) to maintain our effective oversight
    over operation of the mechanism to ensure the statutory goals of
    section 254 of the Act are met without waste, fraud, or abuse;
    and (4) to strengthen the ability of rural health care providers to
    provide critical health care services, consistent with section 254,
    and thereby further our national homeland security.

    4\. In this Notice, we seek comment on several general categories of
    issues, including whether to: clarify how we should treat eligible
    entities that also perform functions that are outside the statutory
    definition of "health care provider"; provide support for Internet
    access; and change the calculation of discounted services, including
    the calculation of urban and rural rates. In addition, we seek
    comment on other administrative changes to the rural health care
    mechanism, including whether and how to: streamline the application
    process; allocate funds if demand exceeds the annual cap; modify the
    current competitive bidding rules; and encourage partnerships with
    clinics at schools and libraries. We also seek comment on other
    measures to prevent waste, fraud, and abuse; and any other issues
    concerning the structure and operation of the rural health care
    universal service support mechanism.

    5\. We seek comment on these specific proposals, and how such
    changes could be implemented. We also seek comment on the effect
    that any such changes may have on demand for support under the
    universal service mechanism as well as data to support any comments
    made. We welcome any alternative proposals that are consistent with
    the statute and that satisfy the expressed goals of this proceeding.
    We seek comment from state members of the Federal-State Joint Board
    on Universal Service on the matters raised in this proceeding.

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II. **II. BACKGROUND**

    6\. In the 1996 Act, Congress sought to provide rural health care
    providers "an affordable rate for the services necessary for the
    purposes of telemedicine and instruction relating to such
    services."[^3] Specifically, Congress directed telecommunications
    carriers "\[to\] provide telecommunications services which are
    necessary for the provision of health care services in a State,
    including instruction relating to such services, to any public or
    nonprofit health care provider that serves persons who reside in
    rural areas in that State, at rates that are reasonably comparable
    to rates charged for similar services in urban areas in that
    State."[^4] Congress also directed the Commission to enhance access
    to advanced telecommunications and information services for health
    care providers.[^5]

    7\. The Commission implemented this statutory directive by adopting
    the rural health care support mechanism in the 1997 *Universal
    Service Order*.[^6] Specifically, the Commission concluded that
    telecommunications carriers must charge eligible rural health care
    providers a rate for each supported service that is no higher than
    the highest tariffed or publicly available commercial rate for a
    similar service in the closest city in the state with a population
    of 50,000 or more people, taking distance charges into account.[^7]
    The Commission also adopted mechanisms to provide support for
    limited toll-free access to an Internet service provider.[^8] The
    Commission adopted an annual cap of \$400 million for universal
    service support for rural health care providers.[^9] The Commission
    based its conclusions on analysis of the state of the rural health
    care community and technology at that time.[^10]

    8\. Since then, the Commission has made some changes to the rural
    health care support mechanism to make it more viable and to reflect
    technological changes.[^11] Because only a small number of rural
    health care providers qualified for discounts in the original
    funding cycle, which covered the period from January 1, 1998 through
    June 30, 1999, the Commission reevaluated the structure of the rural
    health care universal service support mechanism in the fall of
    1999.[^12] At that time, the Commission made certain changes: (1)
    simplified the urban/rural rate calculation; (2) eliminated the
    per-location discount limit; (3) encouraged participation in
    consortia; and (4) re-allocated billing and collection expenses by
    number of participants in the rural health care universal service
    support mechanism.[^13] The Commission also determined that the
    definition of \"health care provider\" does not include nursing
    homes, hospices, or other long-term care facilities, and emergency
    medical service facilities.[^14] The Commission also decided not to
    further clarify the definition of \"health care provider\" or to
    provide additional support for long distance telecommunications
    service.[^15]

    9\. The rural health care community and participating service
    providers are now in their fifth year of experience with the rural
    health care support mechanism. Over this period, the rural health
    care mechanism has provided support to rural health care providers
    in 40 states and the U.S. Virgin Islands, to obtain access to modern
    telecommunications and information services for medical and health
    maintenance purposes.[^16] Such support has facilitated the delivery
    of medical services to people who would have to wait for care, go
    without it, or take long and expensive journeys across difficult
    terrain to find help. Telemedicine allows rural health care
    providers in isolated areas to send x-rays to radiologists and
    photographs of skin lesions and other medical conditions to doctors
    in real time, rather than waiting for scheduled visits or trying to
    describe such conditions with a degree of accuracy and completeness
    sufficient to enable responsible and effective medical treatment.
    Through telemedicine, doctors in our largest cities have been able
    to help with the birth of babies and provide other medical care in
    our most remote communities, while psychiatrists and caseworkers in
    urban areas have been able to treat serious mental illness in rural
    areas.

    10\. Several factors prompt us to review anew the rural health care
    universal service support mechanism. First, the mechanism is greatly
    underutilized. Notwithstanding the annual funding cap of \$400
    million, only 700 rural health care providers out of nearly 8,300
    received support in Funding Year 3.[^17] As of February 1, 2002, the
    Rural Health Care Division (RHCD) of the Universal Service
    Administrative Company (USAC or the Administrator) had disbursed
    only \$13 million in discounts for the first three years of
    operation of the universal service support mechanism.[^18]
    Reexamining certain aspects of our rules and instituting other
    streamlining changes should greatly increase the number of rural
    health care providers that could benefit from the mechanism, without
    modifying the existing funding cap.

    11\. Second, changes in telecommunications technology and its use by
    the medical community warrant a re-evaluation of some aspects of the
    mechanism. For instance, Internet points of presence now exist
    throughout the country's telecommunications network.[^19] This
    change in network infrastructure calls into question the need for
    continuing discounts for toll free access to rural health care
    facilities. More sophisticated medical imaging technology is
    available today than existed in 1997, which requires high speed
    access to display images used for diagnostic purposes.[^20]

    12\. Finally, our core statutory mandate, as set out in 47 U.S.C. §
    151, states in relevant part, that we should make "available, so far
    as possible, to all the people of the United States ... a rapid,
    efficient, Nation-wide ... wire and radio communications service
    with adequate facilities at reasonable charges, for the purpose of
    the national defense, \[and\] for the purpose of promoting safety of
    life and property through the use of wire and radio
    communication."[^21] Consistent with section 151's mandate, further
    utilization of the rural health care universal service support
    mechanism may benefit the development of a broader and more fully
    integrated network of health care providers across our nation. In
    the aftermath of recent national events, the importance of such a
    network cannot be underestimated. Improvements to the rural health
    care support mechanism also should better enable rural communities
    to rapidly diagnose, treat, and contain possible outbreaks of
    disease, while helping to provide better health care generally in
    rural areas by facilitating broader and faster transfer of critical
    information. In addition to crisis response, telemedicine and
    telehealth could play a critical role in informing rural health care
    providers about emerging threats and improving preparedness.[^22]

    **III. DISCUSSION**

    **A. Eligible Health Care Providers**

    13\. Section 254(h)(1)(A) of the Act requires telecommunications
    carriers to provide discounted telecommunications service "to any
    public or nonprofit health care provider that serves persons who
    reside in rural areas in that State."[^23] Section 254(h)(2)(A)
    directs the Commission to enhance access to "advanced
    telecommunications and information services" for, *inter alia*,
    "public and non-profit . . . health care providers."[^24] The term
    "health care provider" as used in these sections is defined in
    section 254(h)(7)(B) as follows:

    For purposes of this subsection: . . . \[t\]he term 'health care
    provider' means --

    \(i\) post-secondary educational institutions offering health care
    instruction, teaching hospitals, and medical schools;

    \(ii\) community health centers or health centers providing health
    care to migrants;

    \(iii\) local health departments or agencies;

    \(iv\) community mental health centers;

    \(v\) not-for-profit hospitals;

    \(vi\) rural health clinics; and

    \(vii\) consortia of health care providers consisting of one or more
    entities described in clause (i) through (vi).[^25]

    14\. The Commission initially addressed the scope of this statutory
    definition in the *Universal Service Order*, finding that the seven
    statutory categories adequately described the entities that Congress
    intended to qualify as health care providers. [^26] It declined to
    expand the definition of "health care provider" beyond the
    statutorily-enumerated categories, concluding that, had Congress
    intended any other entities to qualify, it would have included them
    in the list explicitly.[^27] On reconsideration of the *Universal
    Service Order*, the Commission rejected arguments that it had too
    narrowly defined the term "health care provider" and that it should
    expand the definition to include rural nursing homes, hospices, or
    other long-term care facilities, as well as emergency medical
    service facilities.[^28]

    15\. The Commission concluded that a nursing home, in particular,
    would be ineligible even if it was part of an eligible rural health
    clinic. The Commission reasoned that an ineligible entity's
    relationship with an eligible entity is an insufficient basis for
    allowing an entity omitted from the list in the statute to qualify
    for the benefits of the universal service support mechanism and that
    there was "no rational basis for distinguishing between a rural
    nursing home that is part of a not-for-profit . . . rural health
    clinic and a rural nursing home that is associated with any of the
    other categories of eligible entities listed in the statute."[^29]
    The Commission also rejected eligibility of nursing homes that were
    part of a rural health clinic because granting such eligibility
    "would very likely result in a flood of other types of ineligible
    entities requesting similar treatment, and thus would render
    meaningless the limitations imposed by Congress in section
    254(h)(7)(B)."[^30]

    16\. In this Notice, we again affirm that eligible health care
    providers are limited to the seven categories enumerated in the
    statutory definition of "health care provider." In light of the very
    low utilization of the discounts provided pursuant to section
    254(h)(1)(A), however, we invite comment on whether we should
    revisit our prior interpretations of the terms "health care
    provider" and "rural health clinic" to enable rural health care
    providers to be eligible for discounts even if they or their
    affiliates also function in capacities that do not fall under the
    statutory definition in section 254(b)(7)(B). In particular, if an
    entity allocates some of its resources acting as a "rural health
    clinic" or in another capacity that would qualify it as a "health
    care provider" under section 254(b)(7)(B), should that entity be
    eligible for discounts irrespective of whether it (or an affiliate)
    also functions in a capacity -- even on a primary basis -- that
    would *not* qualify it as a "health care provider" under the Act?
    Such part-time or multipurpose providers may play a vital role in
    responding to public health crises affecting communities located in
    remote regions of our country. In some communities, for example,
    there are rural health clinics and emergency service facilities that
    are not currently eligible for support because they are operated by
    entities that also function as nursing homes, hospices, or other
    long-term care facilities. We seek comment on whether we can and
    should interpret the statute to enable such clinics and emergency
    service providers to receive discounted services supported under the
    rural health care mechanism. The number and importance of clinics
    with these or similar arrangements may be becoming -- or may have
    already become \-- a critical part of the health care network in
    rural America.

    17\. We also seek comment on how the rural health care mechanism
    would benefit entities that function both as covered health care
    providers and as entities that do not fall under section
    254(b)(7)(B). In particular, we seek comment on whether it would be
    both practicable and consistent with the statute to prorate
    discounts. Such proration could ensure that the rural health care
    universal service support mechanism benefits such entities only to
    the extent that they operate as covered health care providers. We
    seek comment on the best way to implement such a proposal and how it
    would affect administrative costs. We also seek comment on what
    safeguards, if any, we should consider or adopt to ensure that
    discounted services provided to such multipurpose facilities are
    used consistent with the statute and our rules.

    **B. Eligible Services**

> **1. Internet Access**

18\. Under section 254(h)(1)(A) of the Act, a telecommunications carrier
may receive reimbursement for providing telecommunications services to
rural health care providers in a State at rates that are reasonably
comparable to rates charged for similar services in urban areas of that
State, with the amount of the reimbursement equal to the difference, if
any, between the rural and urban rates.[^31] Under section 254(h)(2)(A),
the Commission is authorized to establish competitively neutral rules
"to enhance, to the extent technically feasible and economically
reasonable, access to advanced telecommunications and information
services for all public and non-profit elementary and secondary school
classrooms, health care providers, and libraries . . . ."[^32] Thus, the
1996 Act contemplates both support for telecommunications services
provided to rural health care providers and enhancing access for health
care providers to advanced telecommunications and information services.

19\. In the *Universal Service Order*, the Commission, relying on these
provisions, authorized limited support for access to the Internet for
health care providers. The Commission declined at that time to adopt any
proposals for support of the Internet access provided by an ISP, due to
the limited information available and the complexity of the
proposals.[^33] The Commission did find, however, that rural health care
providers incur large telecommunications toll charges and those charges
were a major deterrent to full use of the Internet for health-related
services.[^34] Therefore, acting pursuant to its authority under section
of 254(h)(2)(A), the Commission provided support for toll charges
incurred by all health care providers that could not obtain toll-free
access to an ISP.[^35] The support was limited to the lesser of \$180.00
or 30 hours of usage per month, if a rural health care provider could
not reach an ISP without incurring toll charges.[^36] The Commission
determined that the dollar cap per provider was "a specific, sufficient,
and predictable mechanism, as required by section 254(b)(5) . . .
because it limits the amount of support that each health care provider
may receive per month to a reasonable level."[^37] The Commission
recognized, however, that the proliferation of ISPs and the competitive
marketplace "soon should eliminate the need for such support."[^38]

20\. We now seek comment on whether to alter our current framework for
providing support for Internet access for rural health care providers.
We note that the support for toll charges is presently unused by
applicants because, as a result of the proliferation of ISPs, virtually
all rural health care providers can now reach an ISP without incurring
toll charges.[^39] We seek comment on whether we should eliminate
support for toll charges to ISPs and instead provide support for any
form of Internet access provided to rural health care providers.

21\. The Commission has previously concluded that we have statutory
authority to implement a mechanism of universal service support for
non-telecommunications services to enhance access to advanced
telecommunications and information services under section 254(h)(2)(A),
as long as the mechanism is competitively neutral, technically feasible,
and economically reasonable.[^40] Indeed, in the *Universal Service
Order*, the Commission specifically rejected the notion "that support
for non-telecommunications services is . . . barred under . . . section
254(h)(2).[^41] Moreover, in the schools and libraries universal service
support context, the Fifth Circuit affirmed the Commission's
determination that 254(h)(2)(A) authorized direct support for Internet
access to non-telecommunications service providers.[^42]

22\. We continue to believe that we have authority to support the
services necessary to access the Internet under sections 254(h)(2)(A)
and 154(i), and invite comment on this view.[^43] Given the rapid
development of the Internet's capacities, the proliferation of
applications available on the Internet, and the increase in the number
of Internet users since the *Universal Service Order* was issued, it is
time to reevaluate our previous policy decision not to support Internet
access service provided by an ISP. Indeed, the Commission has previously
recognized that the most efficient and cost-effective way to provide
many telemedicine services may be via the Internet.[^44] In addition,
health care information shared across the Internet may be an important
benefit to enable rural health care providers to diagnose, treat, and
contain possible outbreaks of disease or respond to health emergencies.
We also wish to reduce isolation in rural communities by providing
additional health care services to remote areas. We seek comment on the
range of health care services and information that are available via the
Internet, on the ability of the Internet to provide to rural communities
the type of health care information that is available in urban areas,
and, in general, on how health care providers can make use of the
Internet to provide better health-related services. In light of these
changes, the provision of support for Internet access could be
beneficial in achieving the goal of section 254. We therefore seek
comment on whether the rural health care support mechanism should now
include discounts on Internet access, whether provided on a dial-up or
high-speed broadband basis, and whether such support would be
economically reasonable and technically feasible.

23\. We seek comment on how support to rural health care providers for
Internet access could be implemented. In determining an appropriate
method of implementation, we seek comment on the appropriate balance
among various competing factors. If we were to adopt this proposal, we
would want to provide an adequate level of support to enable health care
providers to afford such access. We also would want not to deter health
care providers from seeking service offerings appropriate to their
individual needs. At the same time, we seek to ensure that any
implementation of support includes measures to avoid waste and fraud
without imposing unnecessary costs on the Administrator, and to ensure
that support is used for the purposes that Congress intended. One
possible solution could be a percentage discount on Internet access
charges, analogous to the operation of the schools and libraries support
mechanism. Alternatively, we seek comment on whether support for
Internet access provided under section 254(h)(2)(A) should include a
rural-urban rate comparison of the sort required under section
254(h)(1)(A). We seek comment on the advantages and disadvantages of
each proposal and how such proposals could be efficiently and
effectively implemented. Further, we encourage commenters suggesting
methods of implementation to address these competing concerns, to be
specific as to the level of support that we should offer, and to provide
us with the facts that they rely upon in advocating a level of support.

24\. If commenters believe that Internet access support should take the
form of a percentage discount, we invite them to discuss whether we
should adopt a single discount rate broadly applicable to all rural
health care providers or apply different rates depending on a factor or
factors. If commenters argue that the latter approach is preferential,
they should specify the factors that we should rely upon in determining
rates and, where possible, how rates will vary depending on variations
in the applicable factors. In all cases, commenters should specify the
facts on which they rely in proposing a particular rate or schedule of
rates.

25\. Further, to accurately gauge the effect of such a proposal, we
should understand how authorizing support for Internet access would
increase the demand for support from rural health care providers. We
therefore seek comment on the likely demand for Internet access, and
from service providers on the cost of such services. We seek comment on
whether demand for Internet access is likely to reach the \$400 million
cap on the amount of support to be provided by the rural health care
mechanism, and how increased demand would affect the operation of the
rural health care mechanism.

26\. We recognize that, in certain circumstances, offering support for
Internet access to health care providers in rural areas may not
adequately ensure that such providers have access to critical medical
and public health resources, particularly in the event of a national
security emergency. In particular, we lack an adequate record upon which
to evaluate whether the non-rural institutions with such resources have
the financial wherewithal or alternate public funding to make those
medical resources available on networks used by rural health providers.
Thus, we encourage interested parties to identify what, if any, new
policies we should establish to enhance access to advanced
telecommunications and information services for health care providers
consistent with the scope of our authority under section 254(h)(2)(A).

27\. In general, we seek comment on the positive or negative effects
that a decision to support Internet access will have on the rural health
care support mechanism, from the perspective of the health care
providers, the service providers, and the Administrator. In addition, we
seek comment on how such implementation could be effectuated in keeping
with the Commission's long standing universal service principles,
specifically competitive neutrality and technological neutrality.[^45]
We encourage parties to discuss any issues relevant to whether we should
provide support for Internet access, which parties should be eligible
for such support, what level of support to provide, the nature of the
support, what restrictions we should place on such support, what
administrative problems and concerns may arise if we provide such
support, and the impact of such support on the mechanism's ability to
support other services. We also seek comment on the effects on
competition, if any, resulting from providing universal service support
for Internet access under the rural health care mechanism. Specifically,
we seek comment on whether such support would have positive or negative
effects on facilities-based broadband deployment in rural areas.

### Services Necessary for the Provision of Health Care

28\. Under section 254(h)(1)(A), rural health care providers may receive
support only for "telecommunications services which are necessary for
the provision of health care services . . . including instruction
relating to such services . . . ."[^46] In the *Universal Service
Order*, the Commission found that the phrase \"necessary for the
provision of health care services \... including instruction relating to
such services\" meant reasonably related to the provision of health care
services or instruction.[^47] The Commission further required that the
health care provider certify that the requested service would be used
exclusively for purposes reasonably related to the provision of health
care services or instruction that the health care provider is legally
authorized to provide under applicable state law, to help ensure that
only eligible services are funded.[^48]

29\. We seek comment on whether we should adopt any additional measures
to effectuate the statutory restriction in cases where a health care
provider engages in both the provision of health care services and other
activities. We could rely solely on the certification that none of the
telecommunications services being supported will be used in connection
with the non-health care related activities. However, if we decide to
support services to entities engaged in a substantial amount of a
non-health care related activities, the current certification procedure
may not be adequate to avoid waste and fraud. We therefore seek comment
on how best to avoid waste and fraud, specifically in situations where
entities perform a significant amount of non-health related activities.

**C. Calculation of Discounted Services**

30\. Section 254(h)(1)(A) of the Act provides that "\[a\]
telecommunications carrier shall, upon receiving a bona fide request,
provide telecommunications services which are necessary for the
provision of health care services in a State, including instruction
relating to such services, to any public or nonprofit health care
provider that serves persons who reside in rural areas in that State at
rates that are reasonably comparable to rates charged for similar
services in urban areas in that State."[^49] Under our rules, the amount
of support for an eligible service provided to a rural health care
provider is the difference, if any, between the urban rate and the rural
rate charged for the service.[^50]

31\. For service charges that are not distance-based, qualifying
entities receive discounts for the difference in urban and rural
rates.[^51] Pursuant to our rules, the Administrator determines the
"standard urban distance," (SUD) which is the average of the longest
diameters of all cities in the state with a population of at least
50,000.[^52] The Administrator also calculates the Maximum Allowable
Distance (MAD), which is the distance between the rural health care
provider and the farthest point on the jurisdictional boundary of the
nearest large city in the state with a population of at least
50,000.[^53] Under our rules, qualifying entities receive discounts on
distance-based charges for services over any distance greater than the
SUD but less than the MAD.[^54]

32\. As discussed below, we seek comment on whether the "similarity" of
urban and rural services should be determined on the basis of
functionality from the perspective of the end-user, rather than on the
basis of whether urban and rural services are technically similar. We
also seek comment on whether, for purposes of determining the urban
rate, the Administrator should allow comparison of rates in any urban
area in the state, not just comparison with the rates in the nearest
city with a population of over 50,000. In addition, we seek comment on
whether to eliminate the MAD restriction, and seek comment on other
alternatives. Furthermore, we seek comment on certain changes relating
to the calculation of the urban rate in insular areas.

> **1. Interpretation of Similar Services**

33\. As noted above, section 254(h)(1)(A) of the Act provides that
"\[a\] telecommunications carrier shall, upon receiving a bona fide
request, provide telecommunications services which are necessary for the
provision of health care services in a State, including instruction
relating to such services, to any public or nonprofit health care
provider that serves persons who reside in rural areas in that State at
rates that are reasonably comparable to rates charged for *similar*
services in urban areas in that State."[^55]

34\. However, our rules do not specify precisely how urban and rural
services are to be compared for purposes of determining what are
"similar." It has been our policy to base discounts on the difference in
urban and rural rates between the same or similar services, such as
comparing the rates for rural T-1 service with those of urban T-1
service.[^56] Our current policy of comparing technically similar
services may, however, inadvertently create inequities between urban and
rural health care providers. Doing so does not take into account the
fact that some less expensive urban services are unavailable at any
price in rural areas, and health care providers are thus required to
seek out more expensive services.

35\. We seek comment on changing our policy of comparing urban and rural
rates for particular telecommunications services, such that the
discounts would be calculated by comparing services based on
functionality of the service from the perspective of the end user. In
particular, we seek comment on whether comparisons should be made
between or among different types of high-speed transport offered by
telecommunications carriers that may be viewed as functionally
equivalent by end-users. We also seek comment on whether this proposed
policy change would better effectuate the statutory goals of section
254.

36\. We seek comment on the fairest and most effective way to compare
functionality between or among different types of telecommunications
services. We seek comment on how a functionality-based approach would
affect discounts for all telecommunications services, including
fractional T-1 lines, ISDN, Frame Relay services, and ATM services, and
any other such telecommunications services for which the rural health
care universal service support mechanism may offer discounts.

37\. We note that the discussion above presupposes that such
functionality comparisons would be made between services provided as
telecommunications services.[^57] If, however, the Commission rules that
broadband Internet access services are information services, any such
services would be eligible for support only under section 254(h)(2)(A),
and not under section 254(h)(1)(A). As noted in paragraph 23 above, we
seek comment on whether any support for information services provided
under section 254(h)(2)(A) should include a rural/urban rate comparison
of the sort required under section 254(h)(1)(A).[^58]

38\. We also seek comment on how this possible modification would affect
health care providers seeking discounts for satellite services.
Providers using satellite services have been particularly disadvantaged
under the mechanism's current rules. In some areas throughout the United
States and related territories, particularly remote and insular areas,
satellite systems may provide the only viable means for a rural health
care provider to receive telecommunications services. A rural provider
using satellite services typically does not receive a discount under
this mechanism because, under our current policies, the cost of rural
satellite service would be compared to the cost of urban satellite
service, and the price of satellite service does not vary by location.
In some cases, satellite-based services can be more costly than
traditional wireline services. Therefore, we recognize that widespread
use of satellite-based services by rural health care providers that do
have reasonably priced land-based alternatives, if fully funded by the
rural health care mechanism, may prove costly for the universal service
support mechanism and offer an unnecessarily expensive service option
for some applicants. We therefore seek comment on how to address this
concern, which is similar to our concerns with respect to traditional
wireline services.

39\. The Commission currently has before it a Petition for
Reconsideration filed by Mobile Satellite Ventures Subsidiary (MSV),
regarding the 1997 *Universal Service Order*, concerning, *inter alia*,
the issue of discounts in the rural health care universal service
support mechanism for satellite services. [^59] MSV, which offers
satellite-based emergency medical communications, argues that because
the cost of satellite systems is the same in rural and urban areas,
providers of satellite-based services are at a disadvantage compared to
terrestrial carriers, whose prices are distance sensitive. MSV proposes
that the Commission establish \"that the urban services that are
\'similar\' to MSV\'s rural \[services\] are the terrestrial mobile
communications services typically used by ambulances and other emergency
medical vehicles in a state\'s urban areas . . . \[and that\] support
for rural health care providers that use MSV\'s services should be
calculated on the basis of actual airtime usage rates that MSV charges
for calls outside a customer\'s predefined talk-group."[^60] We seek
comment on MSV's proposal as a way to make the functional comparison for
mobile satellite services, and seek any other proposals for resolving
this issue.

40\. We further seek comment on whether, and how, a functionality
approach could be implemented consistent with current requirements
concerning the Maximum Allowable Distance.[^61] If the MAD requirement
is altered or eliminated as discussed in paragraphs 45-48 below, we seek
comment on how that change may interrelate with any proposed treatment
of satellite services.

### Urban Area

41\. Section 254(h)(1)(A) of the Act directs us to provide support for
"rates that are reasonably comparable to rates charged for similar
services in urban areas in that State."[^62] Under our rules, as
described above, the urban rate is based on the rate for similar
services in the "nearest large city," defined as "the city located in
the eligible health care provider's state, with a population of at least
50,000, that is nearest to the healthcare provider's location, measuring
point to point, from the health care provider's location to the point on
that city's jurisdictional boundary closest to the health care
provider's location.[^63] In the *Universal Service Order*, the
Commission chose to base the urban rate on the rate in the nearest city
of at least 50,000 in the belief that such cities "are large enough that
telecommunications rates based on costs would likely reflect the
economies of scale and scope that can reduce such rates in densely
populated urban areas."[^64] In addition, the Commission stated that
because the telecommunications services a rural health care provider
would use would likely involve transmission facilities linked to the
nearest large city, using that location would provide more accurate and
realistic comparable rates than using rates from more distant cities.
The Commission also noted that while every state has a city of at least
50,000, not every state has larger cities.[^65]

42\. Our experience with the rural health care universal service support
mechanism leads us to consider reevaluating our previous conclusion. A
number of applicants have suggested that the last several years of
experience have demonstrated that rates and services available in small
cities do not yet fully reflect the economies of scale and scope that
are found in the most densely populated areas of the state. There is
evidence that suggests the largest cities in a state have significantly
lower rates and more service options than the city of at least 50,000
nearest the rural health care provider. In addition, our previous
assumption that services used by rural health care providers would
likely involve transmission links to the nearest city appears not always
to be the case. There is increasing evidence that many rural health care
providers choose to link their telemedicine networks to pockets of
expertise located in larger cities in the state. We seek comment on
whether to alter our rules to allow comparison with rates in any city in
a state.

43\. We recognize allowing a comparison of urban rates with any city in
a state may result in certain rural health care providers receiving
lower rates, by virtue of this support mechanism, than those obtained in
the nearest city of 50,000 or more. The Commission previously expressed
concerns about such an outcome in the context of relying on average
urban rates in a state.[^66] We also note that this change would obviate
the Commission's previous concern that some states may not have cities
much larger than 50,000, because the comparison would be based on any
city in the state. We seek comment on whether this proposal is the best
way to effectuate the statutory mandate. We also seek comment on the
potential effect this change may have on demand for support under the
rural health care mechanism.

44\. We further seek comment on any other changes involving the
calculation of the urban and rural rate, in order to fulfill the goals
and mandate of section 254.

## 3. Maximum Allowable Distance {#maximum-allowable-distance .unnumbered}

45\. We seek comment on eliminating or revising the MAD restriction in
our rules, which limits support for rural health care providers to
distances less than the "distance between the eligible health care
provider's site and the farthest point from that site that is on the
jurisdictional boundary of the nearest \[city of at least
50,000\]."[^67] In establishing the MAD, the Commission determined that
providing discounts only for distance-based charges for the distance
between a rural health care provider and the nearest city of 50,000 or
more was sufficient to connect the health care provider to adequate
services, and would protect against health care providers requesting
telemedicine connections to "far flung areas in search of the real or
imagined 'expert' in the field."[^68] However, our experience to date
suggests that limiting rural heath care providers to discounts for
connection to the nearest city of 50,000 or more may not be adequate for
purposes of creating a comprehensive telemedicine network. We therefore
seek comment on changes that would better effectuate the intent of the
statute.

46\. Removing the MAD would offer rural health care providers greater
flexibility in developing appropriate networks, which should improve the
delivery of health care in rural areas. There are several legitimate
reasons providers would seek connections to places farther away than the
nearest city of 50,000. For example, in the case of large telemedicine
networks, the circuit from a rural site may run to another rural site to
link all sites in a consortium together. Similarly, a carrier may lay
cable in a more complex route, but because the Administrator calculates
the MAD on the basis of the shortest distance between points, a rural
health care provider may lose discounts if the circuit exceeds the MAD.
Rural health care providers may wish to connect with a health care
facility with the appropriate expertise or other pockets of expertise
located beyond the MAD.[^69]

47\. Eliminating the MAD should reduce the administrative costs because
calculating the MAD requires labor-intensive and time-consuming efforts
on the part of the Administrator. The RHCD estimates that for each
application seeking support for telecommunications service over a
distance that exceeds the MAD, the Administrator must devote an average
of three additional hours to the application in order to ascertain the
proportion of the service for which the applicant is eligible. This
process diverts important resources available for all applicants, which
may not be cost-effective administratively. It also adds to the
complexity of the rural health care universal health care mechanism for
applicants. Eliminating the MAD restriction would therefore simplify the
application process while reducing administrative overhead, thereby
freeing up funds for discounts for other applicants. However, we
recognize that eliminating the MAD may result in substantially increased
demand if more entities seek support under the mechanism. We seek
comment on whether to eliminate the MAD, including the benefits and
impact on demand for support under the mechanism, and whether and how we
may need to constrain increased costs resulting from changes to the MAD
requirement.

48\. We seek comment on alternative proposals to address this issue,
including whether, in lieu of eliminating the restriction, we should
modify it or adopt another limitation, such as the greatest distance
between the location of the rural health care provider and the furthest
point on the border of the same state or the distance between the health
care provider and the nearest point of so-called tertiary care.[^70] If
we elect to provide discounts to the nearest point of tertiary care,
what standard would be used to define this point, and should we codify
that in our regulations? In the alternative, would the creation of a
state-by-state matrix listing the longest diameter in each state as the
MAD for such state be feasible? We seek comment on whether all of these
proposed approaches are consistent with the statutory scheme. Further,
if we were to adopt any of the stated proposals, we seek comment on
whether it makes sense to retain our rule that support not be provided
on telecommunications service over a distance shorter than the Standard
Urban Distance (SUD).[^71]

**4. Insular Areas**

49\. Section 254(h)(1)(A) specifies that "telecommunications carriers
shall . . . provide telecommunications services which are necessary for
the provision of health care services in a State . . . to any public or
nonprofit health care provider that serves persons who reside in rural
areas in that State at rates that are reasonably comparable to rates
charged for similar services in urban areas *in that State*."[^72]
Consistent with this statutory language, the Commission's rules
determine the "urban rate" for purposes of determining the amount of
support by looking to the rates charged customers for a similar service
in the nearest large city in the State.[^73] In the *Universal Service
Order*, the Commission noted that using urban rates within a State as
the benchmark for reasonable rates may be ill-suited to certain insular
areas that are relatively rural all over, including areas of the Pacific
Islands and the U.S. Virgin Islands.[^74] Following up on this concern,
the Commission sought comment in the *Unserved and Underserved Areas
Further Notice* on whether the calculation of support should be modified
for these areas, and invited commenters to propose specific
revisions.[^75]

50\. In response, certain commenters suggested that the Commission had
authority under section 254(h)(2)(A) to designate an out-of-state urban
locale as the relevant urban benchmark for insular areas such as Guam
and the Northern Mariana Islands.[^76] We seek comment on whether
section 254(h)(2)(A) gives us the authority to allow rural health care
providers to receive discounts by comparing the rural rate to the
nearest large city even outside of their "State." We also seek comment
on any alternative means for addressing the special problems of insular
areas, consistent with section 254.

**D. Other Changes to the Rural Health Care Support Mechanism**

##  1. Streamlining the Application Process {#streamlining-the-application-process .unnumbered}

51\. We seek comment on ways to streamline the application process to
make it more accessible to rural health care providers. The Commission
has recognized in the past that the application process, and the
complicated nature of the forms involved, may sometimes be a barrier to
applicants.[^77] We understand that this process may still provide
unnecessary barriers to applicants. We believe the proposals in this
Notice could further simplify the operation of the rural health care
universal service support mechanism. We seek comment in general on
additional ways that the process of submitting, reviewing, and approving
applications may be streamlined or otherwise improved to ensure timely,
fair, and efficient decision-making.

52\. While we welcome comments on all aspects of the application
process, we specifically seek comment on the following areas. We seek
comment on any additional ways that the calculation of the urban-rural
differential on the forms may be made easier. We further seek comment on
ways to eliminate delays and lack of response from eligible
telecommunications carriers in supplying the information necessary for
rural health care providers to complete the process.

53\. We also seek comment on ways to ensure that rural health care
providers are apprised of changes in deadlines for application filings
and other material changes in the application and appeals process.

## 2. Pro-Rata Reductions If Annual Cap Exceeded {#pro-rata-reductions-if-annual-cap-exceeded .unnumbered}

54\. We seek comment on whether to modify our current rules governing
the allocation of funds under the rural health care universal service
support mechanism if demand exceeds the annual cap. The annual cap on
universal service support for health care providers is currently \$400
million per funding year.[^78] Under our rules, if the total demand for
support in a year exceeds the cap, the Administrator shall divide the
total annual support available by the total amount requested in that
year, then multiply that result, which is the pro-rata factor, by the
amount requested by each applicant, in order to determine the amount
each applicant shall receive.[^79]

55\. Discounts amounts requested under the rural health care universal
service support mechanism, to date, have never exceeded the annual cap.
However, it is possible that changes adopted in response to this Notice
could increase the level of discounts requested in a year such that
discounts requested may, at some point in the future, exceed the cap. We
therefore seek comment on whether this pro-rata distribution of funds
for requested discounts is the most effective and equitable means of
distributing limited funds in accordance with the goals and purposes of
the statute, or whether an alternative approach should be adopted.

##  3. Preventing Waste, Fraud, and Abuse {#preventing-waste-fraud-and-abuse .unnumbered}

**a. Competitive Bidding**

56\. We seek comment on the effectiveness of the rural health care
universal service support mechanism's competitive bidding rules. Under
current rules, applicants are required to participate in a competitive
bidding process pursuant to Commission regulations and any additional
applicable state, local, or other procurement requirements.[^80]
Applicants are required to submit to the Administrator an FCC Form 465,
in which it solicits bids for services from telecommunications carriers,
and makes various certifications relating to eligibility under the rural
health care universal service support mechanism.[^81] The Administrator
then posts the form on its website, notifying telecommunications
carriers that may wish to bid for an applicant's services about the
rural health care provider's request.[^82] An applicant's FCC Form 465
must be posted on the Administrator's website for at least 28 days
before the applicant may enter into a contract for services with a
telecommunications carrier, in order to allow sufficient time for
different carriers to bid on the requested services.[^83]

57\. After selecting a telecommunications carrier, the applicant must
certify to the Administrator that it has selected the most
cost-effective method of providing the requested services, defined as
"the method that costs the least after consideration of the features,
quality of transmission, reliability, and other factors that the health
care provider deems relevant to choosing a method of providing the
required health care services."[^84] Applicants must also submit to the
Administrator paper copies of the responses or bids received.[^85]

58\. The purpose of the posting requirement for the FCC Form 465 is to
provide a rapid and easy mechanism for notifying all potential bidders
for services of rural health care providers' requests, in order to
encourage competition among bids and enable applicants to secure the
most cost-effective services.[^86] However, to the extent that some
rural areas may have only one service provider, the requirement may
result in needless delays for applicants in securing support. We seek
comment on whether the requirement can and should be waived in certain
circumstances (*e.g.,* when applications are submitted by small
entities), whether such a change is necessary or prudent, and how we may
implement it with minimal administrative effort and expense, while
fulfilling our obligations to reduce waste, fraud, and abuse and
ensuring that universal service support is used "wisely and
efficiently."[^87]

**b. Ensuring the Selection of Cost-Effective Services**

59\. We seek comment on whether there currently are adequate measures to
ensure that rural health care providers buy the most cost-effective
services. As described above, current rules require applicants to select
the most cost-effective method of providing the requested services.[^88]
However, there are no restrictions on the type of service offerings a
rural health care provider may select. We seek comment on how best to
ensure that applicants choose the most cost-effective services under the
rural health care universal service support mechanism. We also seek
comment on how such a change in our rules, if adopted, could be
implemented most effectively and equitably, preventing waste and abuse
without imposing undue burdens on rural health care providers. In
addition, we seek comment on whether we should implement changes to
encourage applicants to use lowest cost technology available, regardless
of whether that technology involves wireline, coaxial cable, fiber,
terrestrial wireless, satellite, or some other technology. If so, we
seek comment on how those changes should be implemented.

**c. Encouraging Partnerships with Clinics at Schools and Libraries**

60\. We seek comment on ways in which the rules or policies of the rural
health care universal service support mechanism might be altered to
better encourage rural health providers to pool resources with other
entities in order to limit costs for themselves and thereby utilize
support more efficiently. Some parties have questioned the rural health
care universal service support mechanism for denying school-based
clinics support on the grounds that such clinics are only eligible for
discounts under the schools and libraries universal service support
mechanism, while the schools and libraries mechanism denies the clinics
support for the reason that the clinics are only eligible under the
rural health care universal service support mechanism. We seek comment
on the extent to which such clinics are or should be eligible under
either mechanism, and on whether our rules and policies may encourage
rural health care providers to partner with clinics at schools and
libraries in rural locations. We further seek comment on other ways in
which the Commission might promote similar cost-sharing in order to
maximize the appropriate and beneficial use of universal service funds
while minimizing waste and abuse.

**d. Other Measures to Prevent Waste, Fraud, and Abuse**

61\. In keeping with our goal of preventing waste, fraud, and abuse, we
seek comment on the effectiveness of our current rules regarding audits,
and other procedures to ensure the appropriate use of funds available
under the rural health care universal service support mechanism. Rural
health care providers that receive support are currently subject to
record-keeping and record production requirements, and random audits to
ensure compliance.[^89] We seek comment on the effectiveness of these
measures, and whether additional record-keeping or audit requirements
are necessary. We further seek comment on any other rules that would
help to combat potential waste, fraud, and abuse with respect to the
rural health care universal service support mechanism.

## 4. Further Comments on Issues of Concern {#further-comments-on-issues-of-concern .unnumbered}

62\. We seek additional comments on whether we should adopt additional
rule changes, consistent with the statute, to improve our rules and
policies regarding the rural health care universal service support
mechanism. We welcome the views of applicants, service providers, and
others that have experience with, and insight into, the operation of the
rural health care universal service support mechanism. Such views will
aid us in continuing to streamline and improve our policies and
procedures, in order to ensure that eligible rural health care providers
have access to modern services.

E.  **Effect on Demand for Support**

    63\. In initiating this inquiry, we seek comments on various
    alternatives to enhance our existing rural health care universal
    service support mechanism. We are cognizant that these proposals
    contain measures that may significantly spur demand for advanced
    telecommunications and information services as well as implement
    critical cost savings measures designed to improve the efficiency
    and effectiveness of the mechanism. Given these numerous proposals,
    we ask that interested parties, to the extent possible, separately
    identify in their comments what, if any, potential effect individual
    proposals may have on demand for rural health care support. We note
    that any such increase in demand for rural health care support will
    be constrained by the operation of the \$400 million rural health
    care support cap, and thus we seek input from commenters on any
    assistance they may provide in identifying which specific proposals
    will be most beneficial to ensuring access to advanced
    telecommunications and information services for all eligible rural
    health care providers.[^90]

**IV. PROCEDURAL MATTERS**

A.  **Initial Paperwork Reduction Analysis**

    64\. This Notice contains either a proposed or modified information
    collection. As part of a continuing effort to reduce paperwork
    burdens, we invite the general public and the Office of Management
    and Budget (OMB) to take this opportunity to comment on the
    information collections contained in this Notice, as required by the
    Paperwork Reduction Act of 1995, Public Law 104-13. Public and
    agency comments are due at the same time as other comments on this
    Notice; OMB comments are due 60 days from the date of publication of
    this Notice in the Federal Register. Comments should address: (a)
    whether the proposed collection of information is necessary for the
    proper performance of the functions of the Commission, including
    whether the information shall have practical utility; (b) the
    accuracy of the Commission's burden estimates; (c) ways to enhance
    the quality, utility, and clarity of the information collected;
    and (d) ways to minimize the burden of the collection of information
    on the respondents, including the use of automated collection
    techniques or other forms of information technology.

**B. Initial Regulatory Flexibility Analysis**

65\. As required by the Regulatory Flexibility Act of 1980, as amended
(RFA)[^91] the Commission has prepared this present Initial Regulatory
Flexibility Analysis (IRFA) of the possible significant economic impact
on a substantial number of small entities by the policies and rules
proposed in this Notice.[^92] Written public comments are requested on
this IRFA. Comments must be identified as responses to the IRFA and must
be filed by the deadlines for comments on the Notice provided in section
IV(C) below. The Commission will send a copy of the Notice, including
this IRFA, to the Chief Counsel for Advocacy of the Small Business
Administration (SBA)[^93][^94] In addition, the Notice and IRFA (or
summaries thereof) will be published in the Federal Register[^95][^96]

> **1. Need for, and Objectives of, the Proposed Rules**

66\. The Commission is required by section 254 of the Act to promulgate
rules to implement the universal service provisions of section 254. On
May 8, 1997, the Commission adopted rules that reformed its system of
universal service support mechanisms so that universal service is
preserved and advanced as markets move toward competition.[^97] Among
other things, the Commission adopted a mechanism to provide discounted
telecommunications services to public or non-profit health care
providers that serve persons in rural areas. Over the last few years,
important changes have occurred affecting the rural health universal
service support mechanism. As discussed above, several factors prompt us
to review anew the rural health care universal service support
mechanism, including the underutilization of the mechanism, changes in
telecommunications technology and its use by the medical community, and
the need to develop a broader and more fully integrated network of
health care providers across the nation.[^98]

67\. In this Notice, we seek comment on whether to: clarify how we
should treat eligible entities that also perform functions that are
outside the statutory definition of "health care provider"; provide
support for Internet access; and modify the calculation of discounted
services, including the calculation of urban and rural rates. We also
seek comment on other administrative changes to the rural health care
mechanism, including whether and how to streamline the application
process; allocate funds if demand exceeds the annual cap; modify the
current competitive bidding rules; encourage partnerships with clinics
at schools and libraries. We also seek comment on other measures to
prevent waste, fraud, and abuse; and any other issues concerning the
structure and operation of the rural health care universal service
support mechanism on which commenters wish to make recommendations. We
seek further comment on these proposals and how such changes could be
implemented. We also seek comment on the effect that any such changes
may have on demand for support under the universal service mechanism as
well as data to support any comments made.

> **2. Legal Basis**

68\. The legal basis for this Notice is contained in sections 151
through 154, and 254 of the Communications Act of 1934, as amended, 47
U.S.C. §§ 151-154 and 254.

> **3. Description and Estimate of the Number of Small Entities To Which
> Rules Will Apply**

69\. The RFA directs agencies to provide a description of, and where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted.[^99] The RFA generally
defines the term "small entity" as having the same meaning as the terms
"small business," "small organization," and "small governmental
jurisdiction."[^100] In addition, the term "small business" has the same
meaning as the term "small business concern" under the Small Business
Act.[^101] A "small business concern" is one which: (1) is independently
owned and operated; (2) is not dominant in its field of operation; and
(3) satisfies any additional criteria established by the Small Business
Administration (SBA).[^102]

70\. A small organization is generally "any not-for-profit enterprise
which is independently owned and operated and is not dominant in its
field."[^103] Nationwide, as of 1992, there were approximately 275,801
small organizations.[^104] The term "small governmental jurisdiction" is
defined as "governments of cities, counties, towns, townships, villages,
school districts, or special districts, with a population of less than
fifty thousand."[^105] As of 1997, there were approximately 87,453
government jurisdictions in the United States.[^106] This number
includes 39,044 counties, municipal governments, and townships, of which
27,546 have populations of fewer than 50,000 and 11,498 counties,
municipal governments, and townships have populations of 50,000 or more.
Thus, we estimate that the number of small government jurisdictions must
be 75,955 or fewer. Small entities potentially affected by the proposals
herein include small rural health care providers, small local health
departments and agencies, and small eligible service providers offering
discounted services to rural health care providers, including
telecommunications carriers and ISPs.

**a. Rural Health Care Providers**

71\. Section 254(h)(5)(B) of the Act defines the term "health care
provider" and sets forth seven categories of health care providers
eligible to receive universal service support.[^107] Although SBA has
not developed a specific size category for small, rural health care
providers, recent data indicate that there are a total of 8,297 health
care providers, consisting of: (1) 625 "post-secondary educational
institutions offering health care instruction, teaching hospitals, and
medical schools;" (2) 866 "community health centers or health centers
providing health care to migrants;" (3) 1633 "local health departments
or agencies;" (4) 950 "community mental health centers;" (5) 1951
"not-for-profit hospitals;" and (6) 2,272 \"rural health clinics."[^108]
We have no additional data specifying the numbers of these health care
providers that are small entities. Consequently, using those numbers, we
estimate that there are 8, 297 or fewer small health care providers
potentially affected by the actions proposed in this Notice.

72\. As noted earlier, non-profit businesses and small governmental
units are considered "small entities" within the RFA. In addition, we
note that census categories and associated generic SBA small business
size categories provide the following descriptions of small
entities.[^109] The broad category of Ambulatory Health Care Services
consists of further categories and the following SBA small business size
standards.[^110] The categories of providers with annual receipts of \$6
million or less consists of: Offices of Dentists; Offices of
Chiropractors; Offices of Optometrists; Offices of Mental Health
Practitioners (except Physicians); Offices of Physical, Occupational and
Speech Therapists and Audiologists; Offices of Podiatrists; Offices of
All Other Miscellaneous Health Practitioners; and Ambulance Services.
The category of Ambulatory Health Care Services providers with \$8.5
million or less in annual receipts consists of: Offices of Physicians;
Family Planning Centers; Outpatient Mental Health and Substance Abuse
Centers; Health Maintenance Organization Medical Centers; Freestanding
Ambulatory Surgical and Emergency Centers; All Other Outpatient Care
Centers, Blood and Organ Banks; and All Other Miscellaneous Ambulatory
Health Care Services. The category of Ambulatory Health Care Services
providers with \$11.5 million or less in annual receipts consists of:
Medical Laboratories; Diagnostic Imaging Centers; and Home Health Care
Services. The category of Ambulatory Health Care Services providers with
\$29 million or less in annual receipts consists of Kidney Dialysis
Centers. For all of these Ambulatory Health Care Service Providers,
census data indicate that there is a combined total of 345,476 firms
that operated in 1997.[^111] Of these, 339,911 had receipts for that
year of less than \$5 million.[^112] In addition, an additional 3414
firms had annual receipts of \$5 million to \$9.99 million; and
additional 1475 firms had receipts of \$10 million to \$24.99 million;
and an additional 401 had receipts of \$25 million to \$49.99
million.[^113] We therefore estimate that virtually all Ambulatory
Health Care Services providers are small, given SBA's size categories.
In addition, we have no data specifying the numbers of these health care
providers that are rural and meet other criteria of the Act.

73\. The broad category of Hospitals consists of the following
categories and the following small business providers with annual
receipts of \$29 million or less: General Medical and Surgical
Hospitals, Psychiatric and Substance Abuse Hospitals; and Specialty
Hospitals.[^114] For all of these health care providers, census data
indicate that there is a combined total of 330 firms that operated in
1997, of which 237 or fewer had revenues of less than \$25
million.[^115] An additional 45 firms had annual receipts of \$25
million to \$49.99 million.[^116] We therefore estimate that most
Hospitals are small, given SBA's size categories. In addition, we have
no data specifying the numbers of these health care providers that are
rural and meet other criteria of the Act.

74\. The broad category of Nursing and Residential Care Facilities
consists of the following categories and the following small business
size standards.[^117] The category of Nursing and Residential Care
Facilities with annual receipts of \$6 million or less consists of:
Residential Mental Health and Substance Abuse Facilities; Homes for the
Elderly; and Other Residential Care Facilities. The category of Nursing
and Residential Care Facilities with annual receipts of \$8.5 million or
less consists of Residential Mental Retardation Facilities. The category
of Nursing and Residential Care Facilities with annual receipts of less
than \$11.5 million consists of: Nursing Care Facilities; and Continuing
Care Retirement Communities. For all of these health care providers,
census data indicate that there is a combined total of 18,011 firms that
operated in 1997.[^118] Of these, 16,165 or fewer firms had annual
receipts of below \$5 million.[^119] In addition, 1205 firms had annual
receipts of \$5 million to \$9.99 million, and 450 firms had receipts of
\$10 million to \$24.99 million.[^120] We therefore estimate that a
great majority of Nursing and Residential Care Facilities are small,
given SBA's size categories. In addition, we have no data specifying the
numbers of these health care providers that are rural and meet other
criteria of the Act.

75\. The broad category of Social Assistance consists of the category of
Emergency and Other Relief Services and small business size standard of
annual receipts of \$6 million or less.[^121] For all of these health
care providers, census data indicate that there is a combined total of
37,778 firms that operated in 1997.[^122] Of these, 37,649 or fewer
firms had annual receipts of below \$5 million. An additional 73 firms
had annual receipts of \$5 million to \$9.99 million.[^123] We therefore
estimate that there virtually all Social Assistance providers are small,
given SBA's size categories. In addition, we have no data specifying the
numbers of these health care providers that are rural and meet other
criteria of the Act.

**b. Providers of Telecommunications and Other Services**

76\. We have included small incumbent local exchange carriers in this
present RFA analysis. As noted above, a " small business" under the RFA
is one that, *inter alia*, meets the pertinent small business size
standard (*e.g*., a telephone communications business having 1,500 or
fewer employees), and "is not dominant in its field of operation."[^124]
The SBA's Office of Advocacy contends that, for RFA purposes, small
incumbent local exchange carriers are not dominant in their field of
operation because any such dominance is not "national" in scope.[^125]
We have therefore included small incumbent local exchange carriers in
this RFA analysis, although we emphasize that this RFA action has no
effect on Commission analyses and determinations in other, non-RFA
contexts.

77\. *Total Number of Telephone Companies Affected*. The United States
Bureau of the Census (the "Census Bureau") reports that, at the end of
1997, there were 6,239 firms engaged in providing telephone services, as
defined therein.[^126] This number contains a variety of different
categories of carriers, including local exchange carriers, interexchange
carriers, competitive access providers, cellular carriers, mobile
service carriers, operator service providers, pay telephone operators,
PCS providers, covered SMR providers, and resellers. It seems certain
that some of those 6,239 telephone service firms may not qualify as
small entities because they are not "independently owned and
operated."[^127] For example, a PCS provider that is affiliated with an
interexchange carrier having more than 1,500 employees would not meet
the definition of a small business. It seems reasonable to conclude,
therefore, that 6,239 or fewer telephone service firms are small entity
telephone service firms that may be affected by the decisions and rules
adopted in this Notice.

78\. *Local Exchange Carriers, Interexchange Carriers, Competitive
Access Providers, Operator Service Providers, Payphone Providers, and
Resellers*. Neither the Commission nor SBA has developed a definition
particular to small local exchange carriers (LECs), interexchange
carriers (IXCs), competitive access providers (CAPs), operator service
providers (OSPs), payphone providers or resellers. The closest
applicable definition for these carrier-types under SBA rules is for
telephone communications companies other than radiotelephone (wireless)
companies.[^128] The most reliable source of information regarding the
number of these carriers nationwide of which we are aware appears to be
the data that we collect annually on the Form 499-A. According to our
most recent data, there are 1,335 incumbent LECs, 349 CAPs, 204 IXCs, 21
OSPs, 758 payphone providers and 454 resellers.[^129] Although it seems
certain that some of these carriers are not independently owned and
operated, or have more than 1,500 employees, we are unable at this time
to estimate with greater precision the number of these carriers that
would qualify as small business concerns under SBA\'s definition.
Consequently, we estimate that there are fewer than 1,335 incumbent
LECs, 349 CAPs, 204 IXCs, 21 OSPs, 758 payphone providers, and 541
resellers that may be affected by the decisions and rules adopted in
this Notice.

79\. *Internet Service Providers.* Under the new NAICS codes, SBA has
developed a small business size standard for \"On-line Information
Services,\" NAICS Code 514191.[^130] According to SBA regulations, a
small business under this category is one having annual receipts of \$21
million or less.[^131] According to SBA\'s most recent data, there are a
total of 2,829 firms with annual receipts of \$9,999,999 or less, and an
additional 111 firms with annual receipts of \$10,000,000 or more.[^132]
Thus, the number of On-line Information Services firms that are small
under the SBA\'s \$21 million size standard is between 2,829 and 2,940.
Further, some of these Internet Service Providers (ISPs) might not be
independently owned and operated. Consequently, we estimate that there
are fewer than 2,940 small entity ISPs that may be affected by the
decisions and rules of the present action.

80\. *Satellite Service Carriers*. The SBA has developed a definition
for small businesses within the category of Satellite
Telecommunications. According to SBA regulations, a small business under
the category of Satellite communications is one having annual receipts
of \$12.5 million or less.[^133] According to SBA\'s most recent data,
there are a total of 371 firms with annual receipts of \$9,999,999 or
less, and an additional 69 firms with annual receipts of \$10,000,000 or
more.[^134] Thus, the number of Satellite Telecommunications firms that
are small under the SBA\'s \$12 million size standard is between 371 and
440. Further, some of these Satellite Service Carriers might not be
independently owned and operated. Consequently, we estimate that there
are fewer than 440 small entity ISPs that may be affected by the
decisions and rules of the present action.

81\. *Wireless Service Providers*. The SBA has developed a definition
for small businesses within the two separate categories of Cellular and
Other Wireless Telecommunications or Paging. Under that SBA definition,
such a business is small if it has 1,500 or fewer employees.[^135]
According to the Commission\'s most recent Telephone Trends Report data,
1,495 companies reported that they were engaged in the provision of
wireless service.[^136] Of these 1,495 companies, 989 reported that they
have 1,500 or fewer employees and 506 reported that, alone or in
combination with affiliates, they have more than 1,500 employees. We do
not have data specifying the number of these carriers that are not
independently owned and operated, and thus are unable at this time to
estimate with greater precision the number of wireless service providers
that would qualify as small business concerns under the SBA\'s
definition. Consequently, we estimate that there are 989 or fewer small
wireless service providers that may be affected by the rules.

82\. *Cable Systems*. The Commission has developed, with SBA\'s
approval, its own definition of small cable system operators. Under the
Commission\'s rules, a \"small cable company\" is one serving fewer than
400,000 subscribers nationwide.[^137] Based on our most recent
information, we estimate that there were 1,439 cable operators that
qualified as small cable companies at the end of 1995.[^138] Since then,
some of those companies may have grown to serve over 400,000
subscribers, and others may have been involved in transactions that
caused them to be combined with other cable operators. Consequently, we
estimate that there are fewer than 1,439 small entity cable system
operators that may be affected by the proposals.

83\. The Act also contains a definition of a small cable system
operator, which is "a cable operator that, directly or through an
affiliate, serves in the aggregate fewer than 1% of all subscribers in
the United States and is not affiliated with any entity or entities
whose gross annual revenue in the aggregate exceeds
\$250,000,000."[^139] The Commission has determined that there are
67,700,000 subscribers in the United States.[^140] Therefore, we found
that an operator serving fewer than 677,000 subscribers shall be deemed
a small operator, if its annual revenues, when combined with the total
annual revenues of all of its affiliates, do not exceed \$250 million in
the aggregate.[^141] Based on available data, we find that the number of
cable operators serving 677,000 subscribers or less totals approximately
1,450.[^142] Although it seems certain that some of these cable system
operators are affiliated with entities whose gross annual revenues
exceed \$250,000,000, we are unable at this time to estimate with
greater precision the number of cable system operators that would
qualify as small cable operators under the definition in the Act.

> **4. Description of Projected Reporting, Recordkeeping, and Other
> Compliance Requirements**

84\. The Notice seeks comment on changes that could modify the reporting
and recordkeeping requirements imposed on entities covered by the
universal service support mechanism for rural health care providers.
Specifically, the Notice proposes that the application process for
universal service support for rural health care providers be
streamlined. The Notice, however, does not contain any concrete
proposals for streamlining, but rather seeks comment on ways that the
process of reviewing, submitting and approving applications can be
improved and streamlined. This Notice also asks for general comment on
measures that could be taken to reduce fraud, waste, and abuse with
respect to the rural health care universal service support mechanism,
particularly with regards to competitive bidding, measures for ensuring
the selection of cost-effective services, and school-library
partnerships, but again there are no specific proposals or compliance
requirements.

85\. In this Notice, we also seek comment on whether it would be
appropriate to prorate services for rural health care providers that
provide other services. A change in this reporting requirement
potentially could require the use of professional skills, including
legal and accounting expertise. Without more data, however, we cannot
accurately estimate the cost of compliance by small entities.

5\. Steps Taken to Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered

86\. The RFA requires an agency to describe any significant alternatives
that it has considered in reaching its proposed approach impacting small
business, which may include the following four alternatives (among
others): (1) the establishment of differing compliance and reporting
requirements or timetables that take into account the resources
available to small entities; (2) the clarification, consolidation, or
simplification of compliance or reporting requirements under the rule
for small entities; (3) the use of performance, rather than design,
standards; and (4) an exemption from coverage of the rule, or part
thereof, for small entities.[^143]

87\. In this Notice, we make a number of proposals that could have an
economic impact on small entities that participate in the universal
service support mechanism for rural health care providers. Specifically,
we seek comment on: (1) allowing discounts for Internet access by
eligible rural health care providers; (2) expanding the number of
entities eligible for discounts by changing the definition of "urban
area" and the definition of eligible entities; and (3) other proposals
that could change how those discounts are calculated. If adopted, these
proposals could change the size of the overall pool of eligible
applicants for universal service support for rural health care
providers, as well as affect the amount of discounts that eligible
entities may receive. In seeking to minimize the burdens imposed on
small entities where doing so does not compromise the goals of the
universal service mechanism, we have invited comment on how these
proposals might be made less burdensome for small entities.[^144] We
again invite commenters to discuss the benefits of such changes on small
entities and whether these benefits are outweighed by resulting costs to
rural health care providers that might also be small entities.

88\. We have also sought comment on how to address financial support of
rural health care providers if demand exceeds the annual cap on
universal support. Rural health care providers that received discounts
in the past may be unable to obtain such support in the future should
the demand increase significantly due to changes in eligibility and how
discounts are calculated. As current demand has not exceeded the annual
cap, however, we are unable to determine the net economic impact of
changes to the current system to small entities as a whole. We therefore
request that commenters, in proposing possible alterations to our
proposed rules, discuss the economic impact that those changes will have
on small entities.

> **6. Federal Rules that May Duplicate, Overlap, or Conflict with the
> Proposed Rules**

89\. None.

**C. Comment Due Dates and Filing Procedures**

90\. We invite comment on the issues and questions set forth in the
Notice of Proposed Rulemaking, Paperwork Reduction Analysis, and Initial
Regulatory Flexibility Analysis contained herein. Pursuant to sections
1.415 and 1.419 of the Commission's rules,[^145] interested parties may
file comments on or before 45 days after this Notice is published in the
Federal Register, and reply comment on or before 75 days after this
Notice is published in the Federal Register. Comments may be filed using
the Commission's Electronic Comment Filing System (ECFS) or by filing
paper copies. *See* Electronic Filing of Documents in Rulemaking
Proceedings, 63 Fed. Reg. 24,121 (1998).

91\. Comments filed through the ECFS can be sent as an electronic file
via the Internet to
\<[http://www.fcc.gov/e-file/ecfs.html]{.underline}\>. Generally, only
one copy of an electronic submission must be filed. If multiple docket
or rulemaking numbers appear in the caption of this proceeding, however,
commenters must transmit one electronic copy of the comments to each
docket or rulemaking number referenced in the caption. In completing the
transmittal screen, commenters should include their full name, Postal
Service mailing address, and the applicable docket or rulemaking number.
Parties may also submit electronic comments by Internet e-mail. To
receive filing instructions for e-mail comments, commenters should send
an e-mail to [ecfs@fcc.gov]{.underline}, and should include the
following words in the body of the message, "get form \<your e-mail
address\>." A sample form and directions will be sent in reply. Or you
may obtain a copy of the ASCII Electronic Transmittal From (FORM-ET) at
\<[www.fcc.gov/e-file/email.html](http://www.fcc.gov/efile/email.html)\>.

92\. Parties who choose to file by paper must file an original and four
copies of each filing. Filings can be sent by hand or messenger
delivery, by commercial overnight courier, or by first-class or
overnight U.S. Postal Service mail (although we continue to experience
delays in receiving U.S. Postal Service mail). The Commission's
contractor, Vistronix, Inc., will receive hand-delivered or
messenger-delivered paper filings for the Commission\'s Secretary at a
new location in downtown Washington, DC. The address is 236
Massachusetts Avenue, NE, Suite 110, Washington, DC 20002. The filing
hours at this location will be 8:00 a.m. to 7:00 p.m. All hand
deliveries must be held together with rubber bands or fasteners. Any
envelopes must be disposed of before entering the building.

93\. Commercial overnight mail (other than U.S. Postal Service Express
Mail and Priority Mail) must be sent to 9300 East Hampton Drive, Capitol
Heights, MD 20743. U.S. Postal Service first-class mail, Express Mail,
and Priority Mail should be addressed to 445 12th Street, SW,
Washington, D.C. 20554. All filings must be addressed to the
Commission\'s Secretary, Office of the Secretary, Federal Communications
Commission.

+----------------------------------+-----------------------------------+
| **If you are sending this type   | It should be addressed for        |
| of document or using this        | delivery to...                    |
| delivery method...**             |                                   |
+----------------------------------+-----------------------------------+
| Hand-delivered or                | 236 Massachusetts                 |
| messenger-delivered paper        |                                   |
| filings for the Commission's     | Avenue, NE, Suite 110,            |
| Secretary                        |                                   |
|                                  | Washington, DC 20002 (8:00 to     |
|                                  | 7:00 p.m.)                        |
+----------------------------------+-----------------------------------+
| Other messenger-delivered        | 9300 East Hampton Drive,          |
| documents, including documents   |                                   |
| sent by overnight mail (other    | Capitol Heights, MD 20743         |
| than United States Postal        |                                   |
| Service Express Mail and         | (8:00 a.m. to 5:30 p.m.)          |
| Priority Mail)                   |                                   |
+----------------------------------+-----------------------------------+
| United States Postal Service     | 445 12^th^ Street, SW             |
| first-class mail, Express Mail,  |                                   |
| and Priority Mail                | Washington, DC 20554              |
+----------------------------------+-----------------------------------+

94\. Parties who choose to file by paper should also submit their
comments on diskette. These diskettes, plus one paper copy, should be
submitted to: Sheryl Todd, Telecommunications Access Policy Division,
Wireline Competition Bureau, Federal Communications, at the filing
window at 236 Massachusetts Avenue, N.E., Suite 110, Washington, D.C.
20002. Such a submission should be on a 3.5-inch diskette formatted in
an IBM compatible format using Word or compatible software. The diskette
should be accompanied by a cover letter and should be submitted in
\"read only\" mode. The diskette should be clearly labeled with the
commenter\'s name, proceeding (including the docket number, in this case
WC Docket No. 02-60, type of pleading (comment or reply comment), date
of submission, and the name of the electronic file on the diskette. The
label should also include the following phrase \"Disk Copy - Not an
Original.\" Each diskette should contain only one party\'s pleadings,
preferably in a single electronic file. In addition, commenters must
send diskette copies to the Commission\'s copy contractor, Qualex
International, Portals II, 445 12st Street, S.W., Room CYB402,
Washington, D.C. 20554 (see alternative addresses above for delivery by
hand or messenger).

95\. Regardless of whether parties choose to file electronically or by
paper, parties should also file one copy of any documents filed in this
docket with the Commission's copy contractor, Qualex International,
Portals II, 445 12th Street S.W., CY-B402, Washington, D.C. 20554 (see
alternative addresses above for delivery by hand or messenger)
(telephone 202-863-2893; facsimile 202-863-2898) or via e-mail at
<qualexint@aol.com>.

96\. Written comments by the public on the proposed and/or modified
information collections pursuant to the Paperwork Reduction Act of 1995,
Pub. L. No. 104-13, are due on or before 45 days after the date of
publication in the Federal Register. Written comments must be submitted
by the Office of Management and Budget (OMB) on the proposed and/or
modified information collections on or before 60 days after date of
publication in the Federal Register. In addition to filing comments with
the Secretary, a copy of any comments on the information collections
contained herein should be submitted to Judith Boley, Federal
Communications Commission, Room 1-C804, 445 12th Street, S.W.,
Washington, DC 20554 (see alternative addresses above for delivery by
hand or messenger), or via the Internet to jboley@fcc.gov and to
Jeanette Thornton, OMB Desk Officer, 10236 NEOB, 725 - 17th Street,
N.W., Washington, D.C. 20503.

97\. The full text of this document is available for public inspection
and copying during regular business hours at the FCC Reference
Information Center, Portals II, 445 12^th^ Street, SW, Room CY-A257,
Washington, DC, 20554. This document may also be purchased from the
Commission\'s duplicating contractor, Qualex International, Portals II,
445 12^th^ Street, SW, Room CY-B402, Washington, DC, 20554, telephone
202-863-2893, facsimile 202-863-2898, or via e-mail
<qualexint@aol.com>**.** Alternative formats (computer diskette, large
print, audio cassette and Braille) are available to persons with
disabilities by contacting Brian Millin at (202) 418‑7426, TTY (202)
418‑7365, or at <bmillin@fcc.gov>.

V.  **ORDERING CLAUSES**

98\. Accordingly, IT IS ORDERED that, pursuant to the authority
contained in sections 151 through 154, and 254 of the Communications Act
of 1934, as amended, 47 U.S.C. §§ 151-154 and 254, this NOTICE OF
PROPOSED RULEMAKING IS ADOPTED, as described herein.

99\. IT IS FURTHER ORDERED that the Commission\'s Consumer Information
Bureau, Reference Information Center, SHALL SEND a copy of this Notice
of Proposed Rulemaking, including the Initial Regulatory Flexibility
Analysis, to the Chief Counsel for Advocacy of the Small Business
Administration.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

[^1]: For this proceeding, we have opened a separate docket number, WC
    Docket No. 02-60, in order to facilitate the receipt of comments.
    The prior history of this proceeding, however, may be found in
    *Federal-State Joint Board on Universal Service* and *Federal-State
    Joint Board on Universal Service*, CC Docket Nos. 96-45 and 97-21.

[^2]: Pub. L. No. 104-104, 110 Stat. 56. The 1996 Act amended the
    Communications Act of 1934 (Act). 47 U.S.C. §§ 151 *et seq*.

[^3]: H.R. Conf. Rep. No. 458, 104^th^ Cong. 2^nd^ Sess. 133 (1996).
    *See also* Pub. L. No. 104-104, 110 Stat. 56.

[^4]: *See* 47 U.S.C. §§ 151 *et seq.* (adding 47 U.S.C. § 254(h)(1)(A)
    to the Act).

[^5]: 47 U.S.C. § 254(h)(2)(A).

[^6]: *Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Report and Order, 12 FCC Rcd 8776 (1997) (*Universal Service
    Order*) (*subsequent history omitted*).

[^7]: *Universal Service Order*, 12 FCC Rcd at 9039, para. 608*.*

[^8]: *Id.*

[^9]: 47 C.F.R. § 54.623; *Universal Service Order,* 12 FCC Rcd at 9141,
    para. 705 (pursuant to sections 254(h)(1)(A) and 254(h)(2) of the
    Act). The Commission subsequently limited support for the first
    funding cycle to \$100 million. *See Federal‑State Joint Board on
    Universal Service*, CC Docket No. 96-45, Fifth Order on
    Reconsideration and Fourth Report and Order in CC Docket No. 96‑45,
    13 FCC Rcd 14915, 14928-33 (1998).

[^10]: *See Universal Service Order*, 12 FCC Rcd at 9094 n.1556 (based
    upon material supplied by the Advisory Committee on
    Telecommunications and Health Care (comprised of experts in the
    fields of health care, telecommunications, and telemedicine) and the
    Federal‑State Joint Board on Universal Service (referring to FCC
    Advisory Committee on Telecommunications and Health Care, Findings
    and Recommendations, October 15, 1996, and *Federal-State Joint
    Board on Universal Service*, CC Docket No. 96-45, Recommended
    Decision, 12 FCC Rcd 87 (1996) (*Recommended Decision*)).

[^11]: In September 1999, the Commission adopted the *Fourteenth Order
    on Reconsideration*, in which the Commission determined that all
    telecommunications carriers that provide supported services to
    eligible health care providers under section 254(h)(1)(A) are
    entitled to have a credit against their universal service
    contribution obligation equal to the difference between the lower,
    urban rate they offer eligible health care providers for supported
    telecommunications services and the higher, rural rates that would
    normally be charged to these customers. *Federal-State Joint Board
    on Universal Service*, CC Docket No. 96-45, Fourteenth Order on
    Reconsideration, FCC 99-256 (adopted September 21, 1999)
    (*Fourteenth Order on Reconsideration*).

[^12]: *Changes to the Board of Directors of the National Exchange
    Carrier Association, Inc., Federal-State Joint Board on Universal
    Service*, CC Docket Nos. 97-21 and 96-45, Sixth Order on
    Reconsideration in CC Docket No. 97-21 and Fifteenth Order on
    Reconsideration in CC Docket No. 96-45, FCC 99-269 (rel. November 1,
    1999) (*Fifteenth Order on Reconsideration*), para. 7 (noting that
    there were 2,500 initial applications, and only a small fraction
    made it through the first funding cycle).

[^13]: *Id.*

[^14]: *Id.*

[^15]: *Fifteenth Order on Reconsideration*, FCC 99-269, para. 9.

[^16]: Universal Service Administrative Company 2001 Annual Report.

[^17]: *See id.* (stating 703 providers received support); Universal
    Service Administrative Company Report of Health Care Providers
    Eligible for Support Under the Rural Health Care Universal Service
    Support Mechanism, at 4 (April 5, 2001) (USAC Research Results
    Report) (stating there were approximately 8,297 health care
    providers in the United States as of September 2000).

[^18]: Universal Service Administrative Company 2001 Annual Report. The
    RHCD administers the rural health care support mechanism under the
    direction of the Federal Communications Commission. *See Changes to
    the Board of Directors of the National Exchange Carrier Association,
    Inc., Federal-State Joint Board on Universal Service*, CC Docket
    Nos. 97-21 and 96-45, Third Report and Order in CC Docket No. 97-21
    and Fourth Order on Reconsideration in CC Docket No. 97-21 and
    Eighth Order on Reconsideration in CC Docket No. 96-45, 13 FCC Rcd
    25058 (1998).

[^19]: *See, e.g.,* NTCA Members Internet/Broadband Survey Report,
    National Telephone Cooperative Association (November 2000) at 9
    (quoting a survey of members of the National Telephone Copperative
    Association indicating that about 97% of respondents reported local
    dial-up telephone access within their service areas). *See also*
    Ronald A. Wirtz, *The Need For Speed*, Fedgazetts, November 1, 2001
    (\"Early on, access to the Internet often meant a long-distance call
    to an ISP, which had limited points-of-presence\...a variety of
    sources suggest that \[the ISP industry\] has grown from several
    hundred five or six years ago to some 3,500 by 1998, to about 7,000
    today, each of which brings with it at least one additional POP to
    the system, and usually many more.\")

[^20]: *See, e.g., What's Next: Skyway to Health,* Telephony, April 1,
    2002, at 40.

[^21]: 47 U.S.C. § 151.

[^22]: *See, e.g., HHS Bioterrorism Preparedness: CDC's Role in Public
    Health Protection*, Statement by Tommy G. Thompson before the
    Commission on Energy and Commerce, U.S. House of Representatives
    (November 15, 2001) (emphasizing the importance of public health
    communications infrastructure to facilitate information sharing
    concerning potential bioterrorism agents); 147 Cong. Rec. H10440
    (December 19, 2001) (statement of Rep. Bereuter) (noting importance
    of telemedicine in combating bioterrorism).

[^23]: 47 U.S.C. § 254(h)(1)(A).

[^24]: 47 U.S.C. § 254(h)(2)(A).

[^25]: 47 U.S.C. § 254(h)(7)(B).

[^26]: *Universal Service Order,* 12 FCC Rcd at 8776, 9118-19, paras.
    655-56.

[^27]: *Universal Service Order*, 12 FCC Rcd at 9118, para. 655.

[^28]: *Fifteenth Order on Reconsideration*, FCC 99-269, para. 47.

[^29]: *Id.*

[^30]: *Id.*

[^31]: 47 U.S.C. § 254(h)(1)(A).

[^32]: 47 U.S.C. § 254(h)(2)(A).

[^33]: *Universal Service Order*, 12 FCC Rcd at 9161, para. 749.

[^34]: *Universal Service Order*, 12 FCC Rcd at 9107, para. 631.

[^35]: *Universal Service Order*, 12 FCC Rcd at 9107-08, para. 631*.*

[^36]: *Universal Service Order*, 12 FCC Rcd at 9159, para. 745.

[^37]: *Universal Service Order*, 12 FCC Rcd at 9159-60, para. 746*.*

[^38]: *Universal Service Order*, 12 FCC Rcd at 9161, para. 748.

[^39]: No entities applied for support under this section during the
    last two years of operation of the rural health care universal
    service mechanism.

[^40]: *Universal Service Order*, 12 FCC Rcd at 9109, para. 634.

[^41]: *Id.*

[^42]: *See Texas Office of Public Utility Counsel*, 183 F.3d at 443-44
    (affirming Commission\'s authority under section 254(h)(2)(A) to
    provide support for Internet access and internal connections
    provided by non-telecommunications carriers). *See also Universal
    Service Order*, 12 FCC Rcd at 9107, para. 630. In the *Universal
    Service Order*, the Commission addressed, in the context of the
    schools and libraries universal service mechanism, whether the
    language in section 254(h)(2)(A) directing the Commission to enhance
    "access" to information services meant that we could only provide
    support to schools and libraries for the telecommunications services
    component needed to gain "access" to the information service
    provided by an ISP. *Universal Service Order*, 12 FCC Rcd at
    9011-12, para. 441. The Commission rejected this interpretation,
    finding that support for "access" to information services, although
    not encompassing support for the separate charges for particular
    proprietary content available on the Internet, did encompass direct
    support for those information services provided by an ISP that were
    necessary to access the Internet in general, such as protocol
    conversion. *Id.* In the schools and libraries context, the
    Commission relied on two different statutory grounds for its
    authority to provide universal service support for Internet access.
    Specifically, the Commission found that sections 254(c)(3) and
    254(h)(1)(B) provided one basis for authority to support Internet
    access and that sections 254(h)(2)(A) and 154(i) provided a separate
    basis. *Universal Service Order*, 12 FCC Rcd at 9007, para. 596.
    Moreover, the Commission relied directly and solely on section
    254(h)(2)(A) for authority to provide discounts to schools and
    libraries for Internet access provided by non-telecommunications
    carriers. *Universal Service Order*, 12 FCC Rcd at 8794, para. 29.
    Thus, the Commission established that, under sections 254(h)(2)(A)
    and 154(i), it had authority to support the information services
    necessary for schools and libraries to gain access to the Internet.

[^43]: 47 U.S.C. § 254(h)(2)(A).

[^44]: *See Universal Service Order*, 12 FCC Rcd at 9107, 9158, paras.
    630, 744.

[^45]: 47 U.S.C. § 254(h)(2); *Universal Service Order*, 12 FCC Rcd at
    8801, 8802, paras. 46-48, 49.

[^46]: 47 U.S.C. § 254(h)(1)(A).

[^47]: *Universal Service Order*, 12 FCC Rcd at 9100, para. 618.

[^48]: *Universal Service Order*, 12 FCC Rcd at 9150-51, para. 726*.*

[^49]: 47 U.S.C. § 254(h)(1)(a).

[^50]: 47 C.F.R. § 54.609(a). The rural rate is the average of the rates
    actually being charged to commercial customers, other than health
    care providers, for identical or similar services provided by the
    telecommunications carrier providing the service in the rural area
    in which the health care provider is located. 47 C.F.R. § 54.607(a).
    The urban rate is defined as a rate no higher than the highest
    tariffed or publicly-available rate charged to a commercial customer
    for a similar service provided over the same distance in the nearest
    city in the state with a population of at least 50,000. 47 C.F.R. §
    54.605. However, if a rural health care provider is seeking
    discounts for services provided over a distance that is greater than
    the SUD for that state, the urban rate for purposes of the
    calculation is the rate charged for a similar service *provided over
    the SUD* of the nearest city in the state with a population of at
    least 50,000. *Id.*

[^51]: For example, if a rural health care provider is charged by its
    telecommunications provider \$250.00 for installation of an ISDN-128
    Kbps line, and is charged \$175.00 monthly for the service, but the
    urban rate in the nearest city of at least 50,000 people is only
    \$150.00 for installation and \$100.00 per month for service, the
    telecommunications service provider would give the rural health care
    provider a one-time installation credit of \$100.00 and give a
    discount of \$75.00 monthly. *See* RHCD web site, Frequently Asked
    Questions (March 11, 2002)
    \<\<[http://www.rhc.universalservice.org/faqs/default.asp](http://www.sl.universalservice.org/reference/eligible.asp)\>\>.

[^52]: 47 C.F.R. § 54.605(d).

[^53]: 47 C.F.R. § 54.613.

[^54]: 47 C.F.R. § 54.609. For example, if a rural health care provider
    has a dedicated T1 line from its site to an urban hospital with a
    circuit distance (CD) of 100 miles, the MAD is 125 miles, the
    carrier charges \$10 per mile for the line, and the SUD in the state
    is 10 miles, it would be eligible for \$900 discount per month (the
    CD of 100 miles less the SUD of 10 miles, multiplied by the rate of
    \$10 per mile per month). *See* RHCD web site, Frequently Asked
    Questions (March 11, 2002)
    \<\<[http://www.rhc.universalservice.org/faqs/default.asp](http://www.sl.universalservice.org/reference/eligible.asp)\>\>.

[^55]: 47 U.S.C. § 254(h)(1)(A)(*emphasis added*).

[^56]: *See* "Form 466" Instructions, OMB 3060-0804 (April 2001) at 6
    (line 30).

[^57]: *See Appropriate Framework for Broadband Access to the Internet
    over Wireline Facilities, Universal Service Obligations of Broadband
    Providers, Computer II Further Remand Proceedings*, CC Docket Nos.
    02-33, 95-20, and 98-10, Notice of Proposed Rulemaking, FCC 02-42,
    paras. 17-29 (rel. February 15, 2002).

[^58]: *See supra* para. 23.

[^59]: AMSC Petition for Clarification or Reconsideration filed July 17,
    1997, at 4-5. AMSC subsequently changed its name to Mobile Satellite
    Ventures Subsidiary (MSV). MSV Comments filed Dec. 20, 2001
    (updating its petition for reconsideration).

[^60]: *Id* at 5. MSV explains that its rate plans allow for unlimited
    dispatch minutes per month for calls within a pre-defined
    talk-group, but impose per-minute airtime rates for calls outside
    this group. *Id.* n.2. It is unclear exactly how MSV\'s proposed
    approach would function, and its applicability to other providers of
    satellite-based services.

[^61]: *See infra* paras. 45-48.

[^62]: 47 U.S.C. § 254(h)(1)(A).

[^63]: 47 C.F.R. § 54.605(c).

[^64]: *Universal Service Order*, 12 FCC Rcd at 9125 para. 670.

[^65]: *Id.*

[^66]: *Id.*; *see also* *Universal Service Order*, 12 FCC Rcd at 9130,
    para. 678.

[^67]: 47 C.F.R. § 54.613.

[^68]: *Universal Service Order*, 12 FCC Rcd at 9130, para. 678.

[^69]: For instance, a rural health care facility may wish to link up
    with the nearest teaching hospital, such as one affiliated with the
    state university, which typically offers more sophisticated
    diagnostic capabilities than a community hospital located in the
    nearest city of 50,000.

[^70]: *See Recommended Decision*, 12 FCC Rcd at 486. In 1996, out of
    concern for the amount of limited resources available for
    telemedicine needs, the American Telemedicine Association proposed
    that discounted telecommunications services be made available to
    both primary health care providers located in rural areas and
    so-called tertiary care facilities located in other parts of the
    state that have telecommunications links for the provision of health
    care with rural health care institutions. As of this Notice, we have
    been unable to identify the criteria for determining the nearest
    point of tertiary care.

[^71]: *See supra* para. 31.

[^72]: 47 U.S.C. § 254(h)(1)(A) (*emphasis added*).

[^73]: 47 C.F.R. §§ 54.605-609.

[^74]: *Universal Service Order*, 12 FCC Rcd at 9136, para. 694.

[^75]: *Federal-State Joint Board on Universal Service; Promoting
    Deployment and Subscribership in Unserved and Underserved Areas,
    Including Tribal and Insular Areas,* CC Docket No. 96-45, Further
    Notice of Proposed Rulemaking, 14 FCC Rcd 21177, 21235-236, para.
    143 (1999) (*Unserved and Underserved Areas Further Notice*).

[^76]: *See, e.g.,* Reply Comments of the Commonwealth of the Northern
    Mariana Islands, filed January 19, 2000, at 8.

[^77]: *See, e.g.*, *Fifteenth Order on Reconsideration*, FCC 99-269,
    para. 33; *see also* *Universal Service Administrative Company
    Report to the FCC: Evaluation of the Rural Health Care Program*, CC
    Docket Nos. 96-45 and 97-21, Public Notice, 14 FCC Rcd 5163 (Com.
    Car. Bur. 1999).

[^78]: 47 C.F.R. § 54.623.

[^79]: *Id.*

[^80]: 47 C.F.R. § 54.603(a).

[^81]: 47 C.F.R. § 54.603(b)(1).

[^82]: 47 C.F.R. § 54.603(b)(2).

[^83]: 47 C.F.R. § 54.603(b)(3).

[^84]: 47 C.F.R. § 54.603(b)(4).

[^85]: *Id.*

[^86]: *Universal Service Order*, 12 FCC Rcd at 9134, para. 688.

[^87]: *Id*.

[^88]: *See supra* para. 57. The most cost-effective method is defined
    as "the method that costs the least after consideration of the
    features, quality of transmission, reliability, and other factors
    that the health care provider deems relevant . . ." 47 C.F.R. §
    54.604(b)(4).

[^89]: 47 C.F.R. § 54.619.

[^90]: 47 C.F.R. § 54.623(a).

[^91]: ^,^

[^92]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. §§ 601 -- 612, has
    been amended by the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857
    (1996).

[^93]: ^.^

[^94]: *See* 5 U.S.C. § 603(a).

[^95]: ^.^

[^96]: *See* 5 U.S.C. § 603(a).

[^97]: *Universal Service Order*, 12 FCC Rcd 8776, 9118-19, paras.
    655-56.

[^98]: *See supra* paras. 10-11.

[^99]: 5 U.S.C. § 603(b)(3).

[^100]: 5 U.S.C. § 601(6).

[^101]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small-business concern" in the Small Business Act, 15 U.S.C. §
    632). Pursuant to 5 U.S.C. § 601(3), the statutory definition of a
    small business applies "unless an agency, after consultation with
    the Office of Advocacy of the Small Business Administration and
    after opportunity for public comment, establishes one or more
    definitions of such term which are appropriate to the activities of
    the agency and publishes such definition(s) in the Federal
    Register."

[^102]: 15 U.S.C. § 632.

[^103]: 5 U.S.C. § 601(4).

[^104]: 1992 Economic Census, U.S. Bureau of the Census, Table 6
    (special tabulation of data under contract to Office of Advocacy of
    the U.S. Small Business Administration).

[^105]: 5 U.S.C. § 601(5).

[^106]: 1995 Census of Governments, U.S. Census Bureau, United States
    Department of Commerce, Statistical Abstract of the United States
    (2000).

[^107]: *See* 47 U.S.C. § 254(h)(5)(B).

[^108]: In the 1997 *Universal Service Order,* we estimated that there
    were (1) 625 \"post-secondary educational institutions offering
    health care instruction, teaching hospitals, and medical schools,\"
    including 403 rural community colleges, 124 medical schools with
    rural programs, \[FN426\] and 98 rural teaching hospitals; (2) 1,200
    \"community health centers or health centers providing health care
    to migrants\"; (3) 3,093 \"local health departments or agencies\"
    including 1,271 local health departments and 1,822 local boards of
    health; (4) 2,000 \"community mental health centers\"; (5) 2,049
    \"not-for-profit hospitals\"; and (6) 3,329 \"rural health
    clinics.\" The total of these numbers was 12,296. *See Universal
    Service Order,* 12 FCC Rcd. at 9241-42, para. 924. More recent data,
    however, indicates that some of these 1997 numbers may have been
    overstated.

[^109]: [North American Industry Classification System: United States,
    1997]{.underline} at 629-53.

[^110]: 13 C.F.R. § 121.201, NAICS Codes 621111, 62112, 621210, 621310,
    621320, 621330, 621340621391, 621399, 621410, 621420, 621491,
    621492, 621493, 621498, 621511, 621512, 621610, 621910, 621991,
    621999.

[^111]: 1997 Economic Census, Establishment of Firm Size, U.S. Census
    Bureau, U.S. Department of Commerce, Economics and Statistics
    Administration, Document EC97S62S-SZ (*1997 Health Care Data*).

[^112]: *Id.*

[^113]: *Id.*

[^114]: 13 C.F.R. § 121.201, NAICS Codes 622110, 622210, 622310.

[^115]: *1997 Health Care Data*.

[^116]: *Id.*

[^117]: 13 C.F.R. § 121.201, NAICS Codes 623110, 623210, 623220, 623311,
    623312, 623990.

[^118]: *1997 Health Care Data*.

[^119]: *Id.*

[^120]: *Id.*

[^121]: 13 C.F.R. § 121.201, NAICS Code 624230.

[^122]: *1997 Health Care Data*.

[^123]: *Id.*

[^124]: 15 U.S.C. § 632.

[^125]: Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, to
    William E. Kennard, Chairman, FCC (May 27, 1999). The Small Business
    Act contains a definition of "small-business concern," which the RFA
    incorporates into its own definition of "small business." *See* 15
    U.S.C. § 632(a) (Small Business Act); 5 U.S.C. § 601(3) (RFA). SBA
    regulations interpret "small business concern" to take into account
    the concept of dominance on a national basis. 13 C.F.R. §
    121.102(b).

[^126]: 1997 Economic Census, Establishment and Firm Size, U.S. Census
    Bureau, U.S. Department of Commerce, Economics and Statistics
    Administration, Document EC97S51S-SZ (*1997 Economic Census*), at
    67.

[^127]: 15 U.S.C. § 632(a)(1).

[^128]: 13 C.F.R. § 121.210, North American Industry Classification
    System (NAICS) Codes 513310, 513330, 513340.

[^129]: *See* FCC, Common Carrier Bureau, Industry Analysis Division,
    *Trends in Telephone Service*, Table 5.3 (August 2001) (*Telephone
    Trends Report*). The total for resellers includes both toll
    resellers and local resellers. The category for CAPs also includes
    competitive local exchange carriers (CLECs).

[^130]: 13 C.F.R. § 121.201, NAICS Code 514191.

[^131]: *Id*.

[^132]: *1997 Economic Census*, at 18.

[^133]: 13 C.F.R. § 121.201, NAICS Code 513340.

[^134]: *1997 Economic Census*, at 16.

[^135]: 13 C.F.R. § 121.210, NAICS Code 513322.

[^136]: *Telephone Trends Report*, Table 5.3.

[^137]: 47 C.F.R. § 67.901(3). The Commission developed this definition
    based on its determination that a small cable system operator is one
    with annual revenues of \$100 million or less. *Implementation of
    Sections of the 1992 Cable Act: Rate Regulation*, Sixth Report and
    Order and Eleventh Order on Reconsideration, 10 FCC Rcd 6393 (1995).

[^138]: Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^139]: 47 U.S.C. § 543(m)(2).

[^140]: FCC Announces New Subscriber Count for the Definition of Small
    Cable Operator, Public Notice, DA 01-158 (January 24, 2001).

[^141]: 47 C.F.R. § 76.901(f).

[^142]: Paul Kagan Associates, Inc., Cable TV Investor, Feb. 29, 1996
    (based on figures for Dec. 30, 1995).

[^143]: *See* 5 U.S.C. § 603(c)(1)-(c)(4).

[^144]: *See supra* para. 58.

[^145]: 47 C.F.R. §§ 1.415, 1.419.