Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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**NOTICE OF PROPOSED RULE MAKING AND ORDER**

**Adopted:** January 16, 2002 **Released:** January 25, 2002

**Comment Date:** 45 days after publication in Federal Register

**Reply Comment Date:** 75 days after publication in Federal Register

By the Commission: Commissioner Copps approving in part, dissenting in
part, and issuing a statement.

Table of Contents

Paragraph

I. INTRODUCTION 1

II\. BACKGROUND 8

III\. NOTICE OF PROPOSED RULE MAKING 12

A. Application Process 13

1\. Eligible Services 13

2\. Discounts for Internet Access When Bundled with Content 23

3\. Review of Requests Including Eligible and Non-Eligible Services 26

4\. Compliance with the Americans with Disabilities Act 28

5\. Consortia 30

B. Post Commitment Program Administration 33

1\. Choice of Payment Method 33

2\. Equipment Transferability 37

3\. Use of Excess Services in Remote Areas 41

C. Appeals 48

1\. Appeals Procedure 48

2\. Funding of Successful Appeals 53

D. Enforcement Tools 58

1\. Independent Audits 58

2\. Prohibitions on Participation 60

E. Unused Funds 63

1\. Overview 63

2\. Reduction of Unused Funds 67

3\. Treatment of Unused Funds 69

IV\. ORDER ON RECONSIDERATION 71

V. Revising or eliminating outmoded rules 81

VI\. PROCEDURAL MATTERS 82

A. Paperwork Reduction Act Analysis 82

B. Initial Regulatory Flexibility Analysis 83

1\. Need for, and Objectives of, the Proposed Rules 84

2\. Legal Basis 87

3\. Description and Estimate of the Number of Small Entities To Which
Rules Will Apply 88

a\. Schools and Libraries 90

b\. Telecommunications Service Providers 91

c\. Internet Service Providers 97

d\. Vendors of Internal Connections 98

4\. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements 99

5\. Steps Taken to Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered 100

6\. Federal Rules that may Duplicate, Overlap, or Conflict with the
Proposed Rules 107

C. Comment Due Dates and Filing Procedures 108

VII\. ORDERING CLAUSES 114

# INTRODUCTION

1.  In this Notice of Proposed Rulemaking and Order (Notice), we
    initiate a focused review of certain of our rules governing the
    schools and libraries universal service support mechanism. We
    initiate this review to ensure the continued efficient and effective
    implementation of Congress's goals as established in the statute,
    and to explore a variety of suggestions for improvement offered by
    schools and libraries, service providers, state and local
    governments, and other interested parties.

2.  The Federal Communications Commission (Commission) implemented the
    schools and libraries universal service support mechanism based on
    the requirement in the Telecommunications Act of 1996 (1996 Act)
    that "\[a\]ll telecommunications carriers serving a geographic area
    shall, upon a bona fide request for any of its services that are
    within the definition of universal service under subsection (c)(3),
    provide such services to elementary schools, secondary schools, and
    libraries for educational purposes at rates less than the amounts
    charged for similar services to other parties."[^1] The schools and
    libraries community and the participating service providers have now
    had four years of experience with the program. As of July 2001, the
    Universal Service Administrative Company (USAC or the
    Administrator)[^2] had committed over \$5.958 billion in funds for
    the first three funding years.[^3] Over this period, the schools and
    libraries mechanism has provided discounts enabling millions of
    school children and library patrons, including those in many of the
    nation's poorest and most isolated communities, to obtain access to
    modern telecommunications and information services for educational
    purposes, consistent with the statute.[^4]

3.  During the last four years, numerous parties, including schools and
    libraries, service providers, and representatives of local and state
    governments, have approached the Commission with a variety of
    proposals that they believe will improve the program. In this
    proceeding, we present those ideas for public comment in order to
    explore whether these ideas, as well as any additional ideas
    presented by the public, will help to achieve our stated goals. We
    continue to seek ways to ensure that the program funds are utilized
    in an efficient, effective, and fair manner, while preventing waste,
    fraud, and abuse. We conclude that it is appropriate at this time to
    ask whether the various suggestions from the public will streamline
    and improve the program in a manner consistent with section 254. We
    determine that it is appropriate to review the overall program by
    reaching out to the constituents of the program and other interested
    parties for their input. We seek comment from USAC on the
    operational and administrative impact of possible changes discussed
    in this Notice. We also encourage input from the State members of
    the Federal-State Joint Board on Universal Service (Joint Board),
    and commit to ongoing informal consultations with the Joint Board on
    these issues.

4.  Our goals in undertaking this proceeding, consistent with the
    statute, are three-fold: (1) to consider changes that would
    fine-tune our rules to improve program operation; (2) to ensure that
    the benefits of this universal service support mechanism for schools
    and libraries are distributed in a manner that is fair and
    equitable; and (3) to improve our oversight over this program to
    ensure that the goals of section 254 are met without waste, fraud,
    or abuse. We intend to build on the solid foundation we have
    established.

5.  With these goals in mind, in this Notice, we seek comment on several
    changes to the schools and libraries universal service support
    mechanism. First, with respect to the application process, we seek
    comment on (1) issues related to the process for determining
    eligible services, and the eligibility for schools and libraries
    universal service support of such services as Wide Area Networks,
    wireless services, and voice mail;[^5] (2) permitting schools and
    libraries to receive discounts for Internet access that may in
    certain limited cases contain content, as long as it is the most
    cost-effective form of Internet access;[^6] (3) the 30 percent
    processing benchmark for reviewing funding requests that include
    both eligible and ineligible services;[^7] (4) whether to require a
    certification by schools and libraries acknowledging their
    compliance with the requirements of the Americans With Disabilities
    Act and related statutes;[^8] and (5) modifying our rule governing
    when members of a consortium may receive service from a tariffed
    service provider at below‑tariff rates.[^9]

6.  Second, we also seek comment on several issues that arise once
    discounts have been committed to applicants: (1) providing schools
    and libraries the flexibility either to make up-front payments for
    services and receive reimbursement via the Billed Entity Applicant
    Reimbursement (BEAR) form process, or be charged only the
    non-discounted cost by the service providers, and require that
    service providers remit BEAR reimbursements to applicants within
    twenty days;[^10] (2) limiting transferability of equipment obtained
    with universal service discounts;[^11] and (3) allowing members of
    rural remote communities to use excess capacity from services
    obtained through the universal service support mechanism in certain
    limited situations.[^12]

7.  Third, with respect to the appeals process, we seek comment on
    increasing time limits for filing appeals to 60 days, and
    considering appeals filed as of the day they are post-marked,[^13]
    and on procedures for funding successful appeals.[^14] Fourth, we
    seek comment on measures to strengthen our existing enforcement
    tools, including adopting a rule explicitly authorizing independent
    audits,[^15] and barring from the program certain applicants,
    service providers, and others that engage in willful or repeated
    failure to comply with program rules.[^16] Fifth, on the issue of
    unused program funds, we seek comment on the reasons for unused
    funds,[^17] and on how the Commission should treat unused
    funds.[^18] We also deny certain petitions for reconsideration
    relating to unused funds,[^19] and seek comment on revising or
    eliminating outmoded administrative or procedural rules or policies
    relating to the schools and libraries universal service support
    mechanism.[^20]

# BACKGROUND

8.  In the 1996 Act, Congress directed the Commission to take steps
    necessary to establish support mechanisms to ensure the delivery of
    affordable telecommunications service to all Americans, including
    low-income consumers, rural health care providers, and eligible
    schools and libraries.[^21] Based on a recommended decision from the
    Federal-State Joint Board on Universal Service, the Commission
    implemented section 254(h) in its *Universal Service Order* by
    establishing the federal universal service support mechanism for
    schools and libraries.[^22] Under the schools and libraries support
    mechanism, eligible schools, libraries, and consortia that include
    eligible schools and libraries, may apply for discounts for eligible
    telecommunications services, Internet access, and internal
    connections.[^23] Discounts on eligible services range from 20
    percent to 90 percent, depending on economic need and whether the
    applicant school or library is located in an urban or rural
    area.[^24]

9.  Pursuant to § 254(h)(1)(B), the Commission's rules require that the
    applicant make a bona fide request for services by filing with the
    Administrator an FCC Form 470,[^25] which is posted to the
    Administrator's website for all potential competing service
    providers to review.[^26] After the FCC Form 470 is posted, the
    applicant must wait at least 28 days before entering into an
    agreement for services and submitting an FCC Form 471, which
    requests support for eligible services.[^27] All applications
    received within a specified time period, or window, are deemed to be
    filed simultaneously for purposes of applying rules of priority when
    requests for funding exceed the funding cap.[^28] The Administrator
    reviews the FCC Forms 471 that it receives and issues funding
    commitment decisions indicating discounts the applicant may receive
    in accordance with the Commission's rules. The school or library
    then pays the non-discount portion of the service cost to the
    service provider, which is, in turn, reimbursed by the Administrator
    for the costs of the approved discounts. It is also possible for the
    school or library to pay such bills in full, and be reimbursed for
    the discounted amount through the filing of an FCC Form 472, the
    Billed Entity Applicant Reimbursement (BEAR) form, with the
    Administrator.[^29] Under this method, the Administrator issues
    payment of the discounted amount to the provider and requires the
    provider to remit that payment to the school or library.

10. If the Administrator denies a request for funding, the applicant may
    either appeal directly to the Commission, or appeal to the
    Administrator. If rejected on appeal by the Administrator, the
    applicant may appeal to the Commission.[^30]

11. Oversight of such a far-reaching program is necessarily intensive
    and complex. The Commission has established rules governing the
    operation of the schools and libraries discount mechanism in a
    series of orders.[^31] The Administrator, in consultation with
    Commission staff, has further refined its procedures over the course
    of the last three funding years in response to Commission
    directions, decisions on appeal, audits, and internal review. Along
    with the rapid growth in the number of applicants and recipients,
    both the Commission and the Administrator have experienced increased
    numbers of appeals by applicants whose requests for discounts have
    been denied. Although the Administrator's administrative costs
    remain small as a percentage of total program costs, particularly in
    comparison to other federal programs,[^32] the Commission continues
    to seek ways to minimize administrative costs while achieving the
    goals of the statute in the most effective manner possible.

# NOTICE OF PROPOSED RULE MAKING

12. By initiating this inquiry, we seek to further three goals. First,
    we seek to streamline and improve the program. Second, we seek to
    ensure fair and equitable distribution of funds. Third, we seek to
    protect the schools and libraries mechanism against waste, fraud,
    and abuse consistent with our goals. In the discussion that follows,
    we seek comment on ways in which these goals may be achieved through
    specific changes to various stages of the application and funding
    process. We frame the discussion in the context of the yearly
    program cycle to help commenters understand the changes to the
    program on which we seek comment. At each stage of the process, we
    invite parties to address whether and how our specific goals can be
    met by the changes discussed and to suggest other ways to further
    these goals.

## Application Process

### Eligible Services 

13. Applicants under the universal service discount mechanism for
    schools and libraries may apply for discounts for eligible
    telecommunications services, Internet access, and internal
    connections.[^33] The Commission currently directs the Administrator
    to determine whether particular services fall within the eligibility
    criteria established under the 1996 Act and the Commission's rules
    and policies. The Administrator evaluates, on an on-going basis,
    particular services offered by service providers, and determines
    their eligibility. In order to provide applicants with general
    guidance, the Administrator makes available on its website a list of
    categories of service that are eligible or ineligible, though not
    specific brands or items.[^34] Applicants or service providers can
    appeal a determination by the Administrator that a given service is
    ineligible for discounts only after a requested service is rejected.
    Accordingly, in this section, we seek comment on changes in the
    application process that relate to eligible services and that will
    serve to improve program operation and our oversight of the program.
    We emphasize that, in this section of the Notice, we seek comment on
    changes to eligible services only as they relate to applications
    under the universal service support mechanism for schools and
    libraries.

14. Many parties, including schools and libraries as well as service
    providers, have recommended that we seek comment on the efficiency
    and fairness of this process for determining the eligibility of
    particular products and services. In response, we invite parties to
    submit proposals for changes that will improve the operation of the
    eligibility determination process in terms of efficiency,
    predictability, flexibility, and administrative cost. We note that
    GAO has recommended that the Administrator implement stronger
    measures to ensure that applicants receive funding only for eligible
    services, and that the Administrator has already implemented changes
    in response to that recommendation.[^35] One possible alternative
    approach that has been suggested would be to establish a
    computerized list accessible online, whereby applicants could select
    the specific product or service as part of their FCC Form 471
    application.[^36] Because applicants would only select from
    pre-approved products and services, this presumably would decrease
    the number of instances in which applicants seek funding for
    ineligible services. It has also been suggested that such a process
    would considerably simplify the application review process. Further,
    by helping to avoid accidental funding of ineligible services, it
    would further the Commission's goal of preventing fraud and abuse.
    We seek comment on whether this approach is desired, consistent with
    our goals, and on the feasibility of such a system. We seek comment
    on how often such a list would be updated. We also seek comment on
    how we could ensure that maintaining such a list does not
    inadvertently limit applicants' ability to take advantage of
    products and services newly introduced to the marketplace. In
    addition, we seek comment on how interested parties could best
    provide input to the Administrator on an ongoing basis regarding
    what specific products and services should be eligible.
    Additionally, we seek comment on how to handle services and
    equipment that are eligible only if used in certain ways.[^37]

15. We seek comment on whether we need to reconsider or modify the
    current selection of products and services eligible for support
    under the schools and libraries mechanism. In particular, we seek
    comment on whether the mechanism could be improved by changes in our
    current eligibility policies regarding (a) Wide Area Networks, (b)
    wireless services, and (c) voice mail.

16. We seek comment on whether to change our current policy, as set
    forth in our rules and decisions, regarding Wide Area Networks
    (WANs). In the *Fourth Order on Reconsideration*, the Commission
    concluded that the building and purchasing of WANs to provide
    telecommunications is not eligible for discounts. The Commission
    first concluded that the building and purchasing of WANs themselves
    does not constitute telecommunications services or internal
    connections. The Commission further found that WANs built and
    purchased by schools and libraries do not appear to fall within the
    narrow provision that allows support for access to the Internet
    because WANs provide broad-based telecommunications.[^38] The
    Commission noted, however, that schools and libraries may receive
    universal service discounts on WANs provided over leased telephone
    lines, because such an arrangement constitutes a telecommunications
    service.[^39]

17. In the *Tennessee* *Order*, the Commission established that
    universal service funds may be used to fund equipment and
    infrastructure build-out associated with the provision of eligible
    services to eligible schools and libraries.[^40] The Commission
    subsequently affirmed this principle in the *Brooklyn Order*, but
    expressed its concern that "by authorizing unrestricted up-front
    payments for multiple years of telecommunications service when there
    is significant infrastructure build-out, \[the Commission\] could
    create a critical drain upon the universal service fund, and reach
    the annual spending caps quickly."[^41] In attempting to strike a
    fair and reasonable balance between the desire not to unnecessarily
    drain available universal service funds by committing large amounts
    annually to a limited number of applicants, and the desire to ensure
    that eligible schools and libraries receive supported services, the
    Commission determined that recipients may receive discounts on the
    non-recurring charges associated with capital investment in an
    amount equal to the investment prorated equally over a term of at
    least three years.[^42]

18. Certain state government representatives have suggested that we
    reconsider whether our policies regarding WANs have resulted in an
    efficient use of program funds, and, in particular, whether
    providing discounts on the cost of telecommunications service
    utilizing WANs has indeed caused a "critical drain" on program
    resources. Leased WAN service is, under our rules, a Priority One
    service.[^43] The costs of leasing WANs therefore decreases funds
    available for other Priority One services. We seek comment on the
    effectiveness and fairness of our WAN policy, and on whether other
    policies could result in a more equitable distribution of discounts
    in the program.

19. One possible approach would be to increase the three-year period of
    time over which WAN-related capital expenses must be recovered
    through telecommunications service charges, so that the annual
    burden on available program funds is reduced. We seek comment on
    this and other possible approaches.

20. Similarly, we seek comment on whether our decision in the *Tennessee
    Order* to consider leased WANs as a Priority One service has led to
    a fair and equitable distribution of funds.[^44] Some parties have
    suggested that the marked increase in demand for Priority One
    services arises from applicants leasing equipment from
    telecommunications providers for which they are likely to receive
    discounts rather than purchasing the equipment as internal
    connections, which have a high likelihood of not being funded under
    the current priority rules. We seek comment on whether a change in
    our approach to WAN-related expenses is warranted by this increase
    in demand, and if so, what changes consistent with the statutory
    restrictions of section 254 of the Act should be adopted to meet the
    program's goals of improved operation, a fair and equitable
    distribution of funds, and effective oversight to prevent waste,
    fraud and abuse.[^45]

21. As wireless service has become more commonplace, we have received
    numerous recommendations that we reconsider our policies regarding
    the eligibility of wireless services. Wireless telephone service,
    for example, is not currently eligible when used by school bus
    drivers or other non-teaching staff of a school, including security
    personnel, because we have interpreted the statutory requirement
    that universal service discounts be provided only for "educational
    purposes" to exclude use by such support staff.[^46] We seek comment
    on whether broadening eligibility for wireless services under the
    schools and libraries mechanism, consistent with the statute, would
    improve the application review process and whether it would increase
    opportunities for fraud and abuse. In addition, in light of changing
    wireless technologies, we seek comment on whether we need to modify
    any rules or policies regarding the eligibility of wireless services
    for support under the schools and libraries mechanism so that
    distribution of funds is consistent with our principle of
    competitive neutrality and does not favor wireline technology over
    wireless technology.[^47]

22. Many parties have recommended that the Commission reconsider its
    initial determination regarding the eligibility of voice mail for
    support under the schools and libraries mechanism. In the *Universal
    Service Order*, the Commission determined that voice mail would not
    "at \[that\] time" be eligible, based, in part, on the
    recommendation of the Federal-State Joint Board on Universal Service
    that such information services not be eligible.[^48] The increasing
    need for, and prevalence of, voice mail as a way of communicating
    with school and library staff for educational purposes raises the
    issue of whether voice mail, which serves a similar purpose as email
    (which is eligible for support under the schools and libraries
    mechanism), should also be eligible. We also note that making voice
    mail eligible may streamline the application review process, by
    reducing administrative effort and costs associated with determining
    what portion of a school or library's telecommunications costs are
    related to voice mail, and ensuring that the school or library does
    not receive discounts for those costs. Accordingly, we seek comment
    on whether a change in voice mail eligibility would improve the
    operation of the program or otherwise further our goals of
    preventing fraud, waste and abuse and promoting the fair and
    equitable distribution of the program's benefits.

###  Discounts for Internet Access When Bundled with Content

23. In the *Universal Service Order,* the Commission concluded that
    schools and libraries may receive discounts on access to the
    Internet, but not on separate charges for particular proprietary
    content or other information services.[^49] The Commission held that
    if it is more cost-effective for a school or library to purchase
    Internet access provided by a telecommunications carrier that
    bundles a minimal amount of content with such Internet access, a
    school or library may obtain discounts on that bundled package.[^50]
    If the telecommunications carrier provides bundled Internet access
    with proprietary content to a school or library, and also offers
    content separate from Internet access, the school or library may
    only obtain discounts on the price of the Internet access, as
    determined by the price of the bundled access and content less the
    price of the separately-priced content.[^51] Thus, if the only
    Internet access a provider offers is bundled with content for a
    total of \$50.00 per month, and that provider sells the content
    separately for \$30.00 per month, a school or library purchasing the
    bundled package would currently be eligible for discounts on \$20.00
    per month.[^52]

24. Various affected applicants have suggested, both to us and to the
    Administrator, that Internet access that includes content from one
    provider may provide more cost-effective access to the Internet than
    another provider's Internet access containing minimal or no content.
    For example, an applicant may receive bids for Internet access from
    two providers, each offering service at \$50.00 a month. One
    provider offers access and content bundled together, and separately
    offers content alone for \$30.00, while the second provider just
    offers Internet access. An applicant might find that the bundled
    access and content may provide more cost-effective Internet access
    when considering cost, reliability, and other factors than Internet
    access without content from the other provider. Under our current
    rules, a recipient would be eligible for discounts on only \$20.00
    per month for the package of access and content, but could obtain
    discounts on the full \$50.00 for Internet access without content
    from the second provider. In such a case, our rules may create
    undesirable incentives for an applicant to choose a provider with a
    similar price but poorer service and reliability.

25. We seek comment on whether a modification of our rules governing
    funding of Internet content would improve program operation
    consistent with our other goals of ensuring a fair and equitable
    distribution of benefits and preventing waste, fraud and abuse.
    Specifically, we seek comment on whether, if the only Internet
    access a provider offers is bundled with content but the provider
    also offers the content separately without Internet access, an
    applicant may receive full discounts on that Internet access package
    (including content) if that package provides the most cost-effective
    Internet access. Such a modification to our rules may also increase
    administrative efficiencies, for both applicants and the
    Administrator, by eliminating effort and costs associated with
    ensuring that applicants receive no discounts for bundled
    content.[^53] We seek input on the costs and benefits of such a
    change, including whether providers might take advantage of this
    approach by adding content to Internet access in order to maximize
    revenues. We also seek comment on whether, in keeping with our
    current rules, universal service discounts would continue to be
    available for a provider only for the cost of access without
    content, if a service provider offers Internet access to consumers
    both with and without content.

### Review of Requests Including Eligible and Non-Eligible Services 

26. Currently, acting pursuant to Commission oversight, the
    Administrator utilizes a 30 percent processing benchmark when
    reviewing funding requests that include both eligible and ineligible
    services.[^54] If less than 30 percent of the request seeks funding
    of ineligible services, the Administrator normally will consider the
    request and issue a funding commitment for the eligible services,
    denying funding only of the ineligible part. If 30 percent or more
    of the request is for funding of ineligible services, the
    Administrator will deny the funding request in its entirety. The 30
    percent policy allows the Administrator to efficiently process
    requests for funding that contain only a small amount of ineligible
    services without expending significant fund resources working with
    applicants to determine what part of the discounts requested is
    associated with eligible services. It also provides an incentive to
    applicants to eliminate ineligible services from their requests
    before submitting their applications, further reducing the
    Administrator's administrative costs. For example, without the
    procedure, an applicant who has contracted for the construction of a
    new school for a lump sum might submit a request for the entire
    amount knowing that the Administrator must then perform the
    necessary work to identify the costs of any eligible components,
    such as the telecommunications wiring. Because the Administrator's
    annual administrative costs are drawn from the same \$2.25 billion
    that supports the award of discounts, an increase in the
    administrative costs of eligibility review would directly reduce the
    amount of funds available for actual discounts.

27. We seek comment on the operational benefits and burdens of this
    procedure to applicants and to the Administrator. We specifically
    seek input on whether there are alternatives that would improve
    program operation or otherwise further the other two goals of
    preventing fraud, waste, and abuse and promoting the equitable
    distribution of the program's funds, while still providing
    appropriate incentives to applicants to seek discounts only for
    eligible services.

### Compliance with the Americans with Disabilities Act 

28. The Americans With Disabilities Act (ADA) provides comprehensive
    civil rights protections to individuals with disabilities in the
    areas of employment, public accommodations, State and local
    government services, and telecommunications.[^55] Related statutes,
    which are referenced by the ADA, include the Rehabilitation Act of
    1973, and the Individuals with Disabilities Education Act.[^56] The
    current FCC Form 471, on which entities apply for universal service
    discounts, contains the following notice: "The Americans with
    Disabilities Act (ADA), the Individuals with Disabilities Education
    Act, and the Rehabilitation Act may impose obligations on entities
    to make the services purchased with these discounts accessible to
    and usable by people with disabilities."[^57] We do not, however,
    explicitly require compliance with these statutory requirements as a
    condition of receipt of universal service discounts.

29. Some parties have suggested that we require applicants to certify
    that the services for which they seek discounts will be used in
    compliance with these acts.[^58] We seek comment on whether we
    should adopt such a certification requirement. In commenting on such
    a change, parties should comment on the language of any ADA
    certification, and on the timing for the ADA certification in the
    application process.[^59] To the extent that we would adopt such a
    change, we also solicit comment on whether any rule changes are
    needed to ensure that applicants that fail to comply with the
    certification no longer receive discounts. We further seek comment
    on whether, and how, the Administrator and the Commission would
    verify and enforce compliance, and the extent that such actions
    promote our three goals of improving program operation, ensuring a
    fair and equitable distribution of benefits, and preventing waste,
    fraud, and abuse.

### Consortia 

30. Section 54.501(d)(1) implements the Commission's determinations in
    the *Universal Service Order* as to when eligible entities seeking
    discounts as part of a consortium can obtain interstate
    telecommunications services at prices below tariffed rates.[^60] The
    Commission found that there was congressional support for allowing
    eligible schools and libraries to obtain services at pre-discount
    prices below tariffed rates.[^61] However, it concluded that where
    such eligible entities sought services as members of a consortium
    including private sector non-eligible members, allowing the private
    non-eligible businesses to obtain below-tariff rates would
    compromise federal and state policies of non-discriminatory
    pricing.[^62] The Commission therefore concluded that a consortium
    that included private sector ineligible members could obtain
    tariffed services only if "the pre-discount prices of \[the tariffed
    services\] are generally tariffed rates."[^63]

31. We seek comment on whether a change to section 54.501(d)(1),
    recommended by consortia members and service providers working with
    consortia, would improve program operation. We also invite comment
    on whether changes to other consortia rules might achieve a greater
    consistency or fairness in our approach to the participation of
    consortia in the program. The language in the current rule provides
    that "\[w\]ith one exception, eligible schools and libraries
    participating in consortia with ineligible private sector members
    shall not be eligible for discounts for interstate services."[^64]
    Parties have argued that this language is unclear and could be
    construed to prohibit such consortia from obtaining services other
    than tariffed services. We seek comment on whether to clarify the
    rule to establish clearly that only ineligible private sector
    members seeking services as part of a consortium with eligible
    members are prohibited from obtaining below-tariffed rates from
    providers that offer tariffed services (tariffed providers). In
    particular, we seek comment on this proposed modification:

    § 54.501(d)(1). For purposes of seeking competitive bids for
    telecommunications services, Internet access and internal
    connections, schools and libraries eligible for support under this
    subpart may form consortia with other customers. When ordering
    telecommunications and other supported services under this subpart,
    the consortium may even seek to negotiate for pre-discount prices
    below tariffed interstate rates on behalf of members that are
    eligible schools or libraries, health care providers eligible under
    subpart G, or public sector (governmental) entities, including, but
    not limited to, state colleges and state universities, state
    educational broadcasters, counties and municipalities. However,
    eligible schools and libraries may only receive support for their
    share of services as part of a consortium that includes ineligible
    private sector entities if the pre-discount prices of any interstate
    tariffed services that such ineligible private sector members of the
    consortium receive are at the tariffed rates.

    We specifically request comment on the impact of this rule on
    program operation, whether administrative costs would result from
    the proposed change, what these costs would be, and whether these
    costs would outweigh the benefits of the change.

32. We also seek comment on any proposals as to how we might clarify,
    change or reorganize the other rules and requirements relating to
    consortia, to help ensure that these rules and requirements reflect
    a fair and consistent approach to the role and obligations of
    consortia leaders and the consequences to consortia members of
    violations by leaders and other members. We seek comment on how we
    might improve program operation or otherwise further our interest in
    fairly distributing benefits of the program and limiting fraud,
    waste, and abuse, by making consortia application and participation
    requirements more transparent, so that it is clear what consortia
    may do and what their responsibilities are.

## Post Commitment Program Administration

### Choice of Payment Method 

33. Under existing law and Commission procedure, the Administrator of
    the universal service support mechanism does not provide funds
    directly to schools and libraries, but rather, provides funds to
    eligible service providers, who then offer discounted services to
    eligible schools and libraries.[^65] Under existing Administrator's
    procedures, service providers and applicants are advised to work
    together to determine whether the applicant will either (1) pay the
    service provider the full cost of services, and subsequently receive
    reimbursement from the provider for the discounted portion, after
    the provider receives reimbursement through the Billed Entity
    Applicant Reimbursement (BEAR) process, or (2) pay only the
    non-discounted portion of the cost of services, with the service
    provider seeking reimbursement from the Administrator for the
    discounted portion.[^66] Because it is not clear in our rules
    whether the provider or the applicant may make the final
    determination of which of the two payment processes to pursue, the
    potential exists for service providers to insist that applicants to
    whom they provide services use the first method of paying the
    up-front costs, and later seeking reimbursement. Indeed, some large
    providers require recipients to use the BEAR form.

34. We seek comment on whether our rules should specify that service
    providers must offer applicants the option of either making up-front
    payments for the full cost of services and being reimbursed via the
    BEAR form process, or paying only the non-discounted portion
    up-front. We seek comment on the costs and benefits of our proposal
    to all affected parties and whether it would improve program
    operation overall.

35. We also seek comment on whether, to further improve program
    operation and prevent fraud and abuse, we should incorporate
    enforcement measures regarding remittal of BEAR payments into our
    rules. Under current Administrator procedure, service providers
    reimbursing billed entities via the BEAR process must remit to the
    billed entity the discount amount authorized by the Administrator to
    the billed entity within ten days of receiving the reimbursement
    payment from the Administrator and prior to tendering or making use
    of the payment from the Administrator.[^67] The Administrator has
    implemented this procedure pursuant to ongoing Commission oversight
    of the program, but this procedure has not been formally codified in
    our rules. We have received reports from both the Administrator and
    from affected schools and libraries that, in certain cases, service
    providers have failed to remit these payments to applicants until
    well past the ten-day limit. In order to address this problem, we
    seek comment on whether service providers should be required to
    remit these payments to the applicants within twenty days of having
    received them, and that failure to do so will constitute a rule
    violation potentially subjecting the service provider to fines and
    forfeitures under section 503 and/or other law enforcement
    action.[^68]

36. We seek comment on whether this proposed twenty-day period imposes a
    significant economic burden on small entity providers (as defined
    below in paragraphs 88 through 98 of this Order). We welcome any
    suggestions as to how the remittance process might be modified to
    minimize such impact. We also seek comment on the extent to which a
    modification such as lengthening the remittance period would have a
    deleterious impact on eligible schools and libraries that is
    inconsistent with our three goals of improving program operation,
    ensuring that the benefits of the program are equitably distributed,
    and preventing fraud, waste, and abuse.

### Equipment Transferability

37. Our rules provide that eligible services purchased at a discount
    "shall not be sold, resold, or transferred in consideration for
    money or any other thing of value."[^69] Nothing in our rules,
    however, prevents transferring equipment obtained with universal
    service discounts from the eligible recipient to another entity
    without consideration for money or anything of value. We have
    received reports from state authorities, schools and libraries, and
    the Administrator that some recipients are replacing, on a yearly or
    almost-yearly basis, equipment obtained with universal service
    discounts, and transferring that equipment to other schools or
    libraries in the same district that may not have been eligible for
    such equipment.[^70]

38. Although we recognize that schools and libraries may legitimately
    desire to upgrade their equipment frequently as a result of the
    rapid pace of technological change, we seek comment on whether it is
    appropriate to balance this desire against the impact of such action
    on other parties seeking discounts under the program. We seek
    comment on whether the program's goals would be improved by
    requiring that schools and libraries make significant use of the
    discounted equipment that they receive, before seeking to substitute
    new discounted equipment. In particular, we seek comment on whether
    there may be insufficient incentives in the schools and libraries
    mechanism to prevent wasteful or fraudulent behavior, without
    imposing restrictions on these transfers of equipment. We
    specifically seek comment on whether, as a condition of receipt of
    universal service discounts, we should adopt measures to ensure that
    discounted internal connections are used at the location and for the
    use specified in the application process for a certain period of
    time.

39. One option could be to adopt a rule limiting transfers for three
    years from the date of delivery and installation of equipment for
    internal connections other than cabling, and ten years in the case
    of cabling. Under this option, an applicant could replace only ten
    percent of its old cabling per year with new discounted internal
    connections (such as upgrading from copper wire to fiber optics).
    Otherwise, an applicant seeking discounts on new equipment to
    replace universal service-funded equipment that has been in place
    for less than the specified time periods could do so only if it
    traded the existing equipment to its service provider for a credit
    toward the purchase of the cost of the new discounted
    equipment.[^71] We seek comments on whether this option would
    achieve the goals of efficient and equitable use of the mechanism's
    funds, and whether this approach would prevent both waste and fraud.
    We also seek comment on how this change might most effectively be
    implemented, and on attendant benefits and costs.

40. An alternate approach could be to deny internal connections
    discounts to any entity that has already received discounts on
    internal connections within a specified period of years regardless
    of the intended use of the new internal connections. We seek comment
    on whether we should adopt such a rule, on the appropriate time
    frame for such a rule, and whether we should impose this limitation
    only in situations where the applicants have previously received
    discounts above a specified threshold in the relevant time period.
    We also seek comment on the administrative costs that would be
    incurred, both in the application process and in post-disbursement
    auditing, to ensure compliance with a rule prohibiting an entity
    from receiving discounts on internal connections if it previously
    had received such discounts. We seek comment on these and any other
    proposals to address this issue and thus give us further insight on
    how, with regard to equipment issues, we might further our goals of
    improving program operation, ensuring that the mechanism's benefits
    are fairly and equitably distributed, and eliminating fraud, waste,
    and abuse.

### Use of Excess Services in Remote Areas

41. The Act requires that discounts on services be provided for
    educational purposes to schools and libraries.[^72] In the
    *Universal Service Order*, the Commission implemented this provision
    by requiring schools and libraries to certify that the services
    obtained through discounts from the schools and libraries mechanism
    will be used solely for educational purposes.[^73] The Commission
    determined that the certification rules, including the educational
    purposes rule, were reasonable and not unnecessarily burdensome,
    especially in light of the Commission's goals to reduce fraud,
    waste, and abuse.[^74]

42. In some instances, the discounted services received by schools and
    libraries through the schools and libraries program are provided on
    a non-usage sensitive basis and are used for educational purposes
    during hours when the schools and libraries are open, but remain
    unused during off-hours when the entities are closed. As a result,
    due to the non-usage sensitive nature of the services, services that
    could be used after the operating hours of schools and libraries
    presently go unused.

43. The State of Alaska recently requested a waiver of the restriction
    in section 54.504(b)(2)(ii) that requires applicants to certify that
    the services obtained from the schools and libraries mechanism would
    be used for solely educational purposes.[^75] In many communities in
    Alaska, services from the schools and libraries program have
    provided the only means to deliver Internet access to communities in
    rural remote areas. Specifically, the State of Alaska asked to use
    the telecommunications and Internet access services as an Internet
    "point of presence" in rural remote communities.[^76] To the extent
    that a school or library will not be fully utilizing the services it
    ordered for educational purposes, and these services would otherwise
    be wasted, the State of Alaska requested that others in the
    community be allowed to use these services for non-educational
    purposes.[^77]

44. On December 3, 2001, the Commission granted the State of Alaska a
    limited waiver of section 54.504(b)(2)(ii) of the Commission's
    rules.[^78] In the *Alaska Order*, the Commission concluded that
    there is nothing in section 254(h)(1)(B) that prohibits the
    Commission from granting a waiver of section 54.507(b)(2)(ii) of its
    rules to expand the use of such services, so long as in the first
    instance they are used for educational purposes.[^79] The Commission
    further determined that based on the special circumstances outlined
    in Alaska's petition, there was good cause to waive section
    54.504(b)(2)(ii) of the Commission's rules for rural remote
    communities in Alaska who lack local or toll-free dial-up access to
    the Internet.[^80]

45. We seek comment more broadly on the types of situations that might
    warrant utilization of excess service obtained through the universal
    service mechanism for schools and libraries when services are not in
    use by the schools and libraries for educational purposes.[^81]
    Although we believe the Commission's current rule relating to
    educational purposes is appropriate in the overwhelming majority of
    circumstances, we seek comment on whether the Commission should
    revise its rules in order to expressly address such situations, and
    whether such revisions would further the goals of improving program
    operation, ensuring a fair and equitable distribution of benefits
    and preventing waste, fraud, and abuse.

46. If we were to modify our rules expressly to address the use of
    excess services in limited circumstances, we seek comment on whether
    to consider conditioning such use on several criteria: (1) that the
    school or library request only as much discounts for services as are
    reasonably necessary for educational purposes; (2) the additional
    use would not impose any additional costs on the schools and
    libraries program; (3) services to be used by the community would be
    sold on the basis of a price that is not usage sensitive; (4) the
    use should be limited to times when the school or library is not
    using the services; and (5) the excess services are made available
    to all capable service providers in a neutral manner that does not
    require or take into account any commitments or promises from the
    service providers. With respect to the fifth condition, we
    previously found that such a condition was "consistent with the Act,
    which prohibits any discounted services or network capacity from
    being sold, resold, or transferred by such user in consideration for
    money or any other thing of value."[^82] We seek comment on the
    legal, operational, and enforcement issues raised by this approach.

47. We believe that, to the extent we should adopt any such change, the
    resulting policy would need to be carefully circumscribed to prevent
    fraud, waste, and abuse. In light of these concerns, and our desire
    to ensure that the appropriate safeguards are in place, we also seek
    comment regarding how such an arrangement would function. In
    particular, we seek comment on how to ensure that any revised rule
    would not indirectly impose costs on the schools and libraries
    program or that applicants would not request more service than is
    necessary for educational purposes.

## Appeals

### Appeals Procedure

48. In the *Eighth Order on Reconsideration*, the Commission established
    a process by which aggrieved parties could seek review from the
    Commission of decisions of the Administrator.[^83] As of January 1,
    2002, the Commission has reviewed 740 appeals from the
    Administrator's decisions. Of these, 592 were denied or dismissed,
    135 were granted, and 13 were granted in part. Of those appeals
    granted, a number involved situations where the Commission concluded
    that a close examination of the rules and policies applicable to the
    underlying request was warranted.[^84] Our history to date thus
    leads us to conclude that the Administrator is applying existing
    rules and policies correctly in the vast majority of cases.
    Nevertheless, the opportunity for Commission review remains an
    important method by which we provide effective oversight of the
    Administrator's activities.

49. Our current rules provide that any person aggrieved by a decision of
    any Division of the Administrator may file an appeal directly with
    the Commission within 30 days of the date of the issuance of the
    decision.[^85] Alternately, the person may appeal the decision of a
    Division within 30 days of the date of the decision to the relevant
    Committee governing that Division, in which case the time for filing
    an appeal with the Commission is tolled during the pendency of the
    appeal before the Committee.[^86] Once the Committee has issued a
    decision on the appeal, the person then has up to 30 days to appeal
    that decision to the Commission.[^87] In each case, an appeal is
    deemed filed on the date that it is received, not the date it is
    postmarked.[^88]

50. Appeals to the Commission are decided by the Common Carrier Bureau,
    unless they raise novel issues of fact, law, or policy, in which
    case, they are decided by the full Commission.[^89] Whether an
    appeal is before the Common Carrier Bureau or the full Commission,
    the standard of review is *de novo*.[^90] This review process
    applies equally to decisions made by the three divisions of the
    Administrator defined in our regulations, the Schools and Libraries
    Division, the Rural Healthcare Division, and the High Cost and Low
    Income Division.[^91]

51. Numerous parties have recommended that we increase the time limit
    for filing an appeal with the Committee of the Schools and Libraries
    Division and the time limit for filing an appeal with the
    Commission. As noted above, the time limit in both cases is 30 days,
    which commences on the date of the decision and runs until the
    filing of the appeal.[^92] The parties have proposed increasing this
    period to 60 days. In the *Eighth Order on Reconsideration*, the
    Commission established the 30 day period partly in response to
    commenters' requests for a streamlined approach.[^93] Experience
    suggests, however, that this time period may be inadequate for
    parties wishing to appeal an adverse decision. To date, we have
    dismissed appeals as untimely approximately 22 percent of the time.
    Parties have suggested that some extension of time for filing
    appeals will provide aggrieved schools and libraries a greater
    opportunity to review the relevant decisions, and determine whether
    there are valid bases for appeal in light of the governing rules and
    Commission precedent. Moreover, they suggest, additional time would
    enable applicants to consult with the e-rate assistance offices that
    many States have now established to advise constituents who are
    seeking such funding. Nothing in this suggested change would prevent
    participants from filing appeals before the end of the appeals
    period.

52. We therefore invite comment on whether this modification to our
    rules would improve program operation. In addition, we seek comment
    on the suggestion that we should treat appeals to the Administrator
    or to the Commission as having been received on the date they are
    post-marked rather than the date they are filed. This would depart
    from the Commission practice for filings in general.[^94] Such a
    change, however, would make the appeal procedure consistent with the
    Administrator's practice of treating FCC Form 471 applications as
    having been filed as of the post-mark date. Further, it could better
    ensure that rural and remote applicants will not be disadvantaged if
    it takes longer to mail an appeal to the Commission. We therefore
    seek comment on whether we should adopt this modification. Finally,
    we seek comment on any other changes to our rules or policies
    concerning the appeals procedure of the Administrator or the
    Commission that might further the goals of improving program
    operation, ensuring a fair and equitable distribution of benefits
    and preventing waste, fraud, and abuse consistent with the 1996 Act.

### Funding of Successful Appeals

53. Each funding year, the Administrator sets aside a portion of the
    funds available that year for the schools and libraries universal
    service mechanism to ensure that sufficient funds will be available
    for any appeals that may be granted by the Administrator or the
    Commission.[^95] The Administrator calculates this amount in part by
    generating a prediction of the percentage of its decisions that will
    be reversed based on historical experience. Because the prediction
    may underestimate the actual number of reversed decisions, it is
    possible that the appeal reserve fund in a particular year will
    ultimately be inadequate to fund all successful appeals in that
    year.

54. In the *Eleventh Reconsideration Order and Further Notice*, the
    Commission proposed certain rules establishing funding priorities
    for the Administrator to apply when distributing funds from the
    appeal reserve to schools and libraries that successfully appeal
    decisions of the Administrator.[^96] Specifically, the Commission
    proposed that the Administrator should first fund all Priority One
    appeals, and then allocate any remaining funds in the appeal reserve
    to Priority Two appeals in order of descending discount rate.[^97]
    The Commission further proposed that if funds were not available for
    all Priority One appeals, then all funding should be allocated to
    Priority One appeals on a pro-rata basis.[^98] To ensure correct
    distribution of funds to Priority One appeals, the Commission
    proposed that the Administrator should wait until a final decision
    has been issued on all Priority One service appeals before
    allocating funds to such services on a pro-rata basis.[^99]

55. In response to these proposals, several commenters suggest that it
    is inappropriate to limit appellants to those funds in the appeal
    reserve fund because it might result in successful appellants being
    treated differently from applicants who were awarded funding
    initially.[^100] In some circumstances, two schools or libraries of
    similar eligibility that file simultaneous applications for
    identical support might receive different funding merely because one
    was subject to an erroneous initial funding decision that was
    subsequently reversed on appeal. To avoid such a result, we now seek
    comment on whether, to ensure a fair and equitable distribution of
    funds, we should instead fully fund successful appeals to the same
    extent that they would have been funded in the initial application
    process had they not been initially denied funding.

56. We further seek comment on what rules should govern if the new
    proposal were adopted, in the event that the funding year's appeal
    reserve is depleted. One option, for example, would be for the
    Administrator to rely on any other funds that remain from the
    current funding year first, including funds that had never been
    committed and funds that had been committed but were never used by
    the original recipients. If these sources are unavailable or
    insufficient, the Administrator could then use funds from the next
    funding year as soon as they become available, and reduce the level
    of discounts available in that next funding year by that amount. We
    seek comment on this and any other option consistent with our goals
    of improving program operation, ensuring a fair and equitable
    distribution of benefits, and preventing waste, fraud, and abuse
    consistent with the 1996 Act.

57. Under such an option, it may be unnecessary to withhold funding
    until all appeals have been decided. Some delay in funding may be
    unavoidable, however, because if the Administrator must fund
    successful appeals in one year by drawing funds from the succeeding
    Funding Year, those funds would not be available until the beginning
    of that future funding year. We believe that delays in funding of
    Priority Two internal connections will generally be less burdensome
    than delays in funding of Priority One services, because the latter
    services must be purchased by the applicant during the funding year
    regardless of whether funding for discounts is awarded at that time
    or not. We therefore seek comment on whether the Administrator
    should fund successful appellants in the order that decisions on
    appeal are issued, except that the Administrator should not commit
    funds to successful applicants requesting support for Priority Two
    services until the Administrator is certain that sufficient funds
    remain to fund all successful appellants requesting discounts for
    Priority One services. We seek comment on all of our current
    proposals regarding the funding of successful appellants.

## Enforcement Tools

### Independent Audits

58. In its December 2000 report, the General Accounting Office proposed
    strengthening application and invoice review procedures in order to
    reduce the amount of funds inadvertently spent on ineligible
    services.[^101] The Administrator has implemented a number of
    procedural changes suggested by the report, and has undertaken
    numerous measures on its own initiative. Working closely with the
    Commission's Office of the Inspector General (OIG), the
    Administrator has significantly stepped up its efforts aimed at
    detecting and resolving instances of waste, fraud, and abuse. For
    example, it has increased the number of audits, withheld suspect
    payments, withdrawn posted FCC Forms 470 from its website and
    rejected FCC Form 471 applications, and has increasingly coordinated
    its efforts with federal, state, and local law enforcement to combat
    fraud and other potentially criminal activity. We, in turn, have
    examined our rules to consider whether our existing enforcement
    tools should be strengthened in any way.

59. We seek comment on whether, so as to improve our oversight capacity
    to guard against waste, fraud, and abuse, our rules should
    explicitly authorize the Administrator to require independent audits
    of recipients and service providers, at recipients' and service
    providers' expense, where the Administrator has reason to believe
    that potentially serious problems exist, or is directed by the
    Commission. We specifically seek comment on the impact of such a
    rule on small entities. We further seek comment on alternatives that
    might provide other assurances of program integrity consistent with
    the goals of improving program operation, ensuring a fair and
    equitable distribution of benefits, and preventing waste, fraud, and
    abuse.

### Prohibitions on Participation

60. The Act and our rules permit the Commission to initiate forfeiture
    proceedings against those that willfully or repeatedly fail to
    comply with statutory and regulatory requirements.[^102] There are
    no provisions in our current rules, however, to bar entities from
    participating in the program for periods of time.

61. We seek comment on whether, so as to further improve our oversight,
    we can and should adopt rules barring applicants, service providers,
    and others (such as consultants) that engage in willful or repeated
    failure to comply with program rules from involvement with the
    program, for a period of years. Assuming we were to adopt such a
    rule, we seek input on what standards should apply for barring such
    entities, and on what an appropriate length of time would be for
    such a prohibition. We also seek comment on other questions
    regarding implementation of such a prohibition, including whether
    the prohibition might apply to individuals, so that those
    responsible for actions that led to the barring of a particular
    entity do not evade the purpose of the prohibition by joining or
    forming another eligible entity.

62. We seek comment generally on whether to adopt additional measures to
    reduce potential waste, fraud, and abuse in the schools and
    libraries support mechanism. Consistent with our intent to continue
    strengthening program integrity, we seek input on further rules and
    procedures to address these matters.

## Unused Funds 

### Overview

63. In each funding year, a portion of the \$2.25 billion available
    under the program cap has gone unused, largely because some
    applicants do not fully use the funds committed to them in a given
    year. [^103] Under the Administrator's procedures in effect in the
    first three funding years of the program, the Administrator engaged
    in various ongoing analyses throughout each funding year to ensure
    that it did not commit more than the \$2.25 billion cap each year.
    Although this \$2.25 billion limit on commitments ensured that the
    level of funds actually disbursed remained under the \$2.25 billion
    cap, the result, given that applicants do not seek disbursement of
    all committed funds, has been that some of the \$2.25 billion has
    gone unused by applicants each year.

64. The Administrator issues funding commitment decision letters to
    applicants once their applications have been approved, but does not
    authorize payouts of committed funds until it receives valid
    invoices demonstrating that the applicants have obtained the
    requested products and services. The Administrator approves the
    disbursement of funds once it receives a certification from the
    recipient and invoices from the service provider or applicant,
    indicating that approved services have begun. In many cases,
    however, applicants and vendors do not submit the required
    documentation for all the funding, and therefore receive only
    partial funding, or none of the committed funds at all. As of June
    30, 2001, approximately \$940 million of the \$3.7 billion in
    program funds committed to applicants during the first and second
    funding years was not disbursed because of the failure of applicants
    and providers to submit the required documentation.[^104] In the
    first funding year, the Administrator disbursed approximately 82
    percent of committed funds.[^105] In the second funding year through
    June 30, 2001, the Administrator disbursed approximately 71 percent
    of committed funds.[^106] The Administrator projects that a similar
    proportion of committed funds will be disbursed in Funding Year 3.

65. We seek comment on whether there are any administrative
    modifications to the schools and libraries universal service support
    mechanism that we should implement to improve program operation,
    ensure a fair and equitable distribution of funds, or guard against
    waste, fraud, and abuse. We seek comment generally on whether there
    are modifications to the application and funding disbursement
    process that would serve our goals in this proceeding, that could be
    implemented immediately without need for a rule change.

66. In addition, the existence of unused funds each year raises two
    issues that we address in this Notice. The first issue is how to
    reduce the level of funds that go unused. The second issue is what
    to do with undisbursed funds, to the extent that they remain despite
    our reduction efforts. In the sections that follow, we seek comment
    on these issues.

### Reduction of Unused Funds

67. We anticipate that several recent administrative changes to the
    schools and libraries program should help to reduce the
    under-utilization of committed funds. Specifically, in May 2000, the
    Administrator released a new Form 500 that gives applicants a
    convenient tool to reduce or cancel commitments they will not use so
    that those funds can be made available for other applicants during
    the same funding year.[^107] Additionally, the Administrator
    developed new and more flexible procedures for service provider
    changes, consistent with governing precedent. The Administrator
    expects those procedures to permit approval of many pending service
    provider changes and the distribution of more funds each year.
    Furthermore, in order to address the under-utilization of program
    resources caused by this gap between committed and disbursed funds,
    the Administrator, in consultation with the Commission, will begin
    to base the overall amount of committed funds each year on a formula
    that takes into consideration past levels of disbursement. We
    believe that each of these changes will help prevent the likelihood
    of waste, fraud, and abuse by improving the disbursement of program
    funds.

68. It is our goal to reduce the gap between funds that have been
    committed and those that have been disbursed, in order to most
    effectively implement the goals of section 254(h) by providing for
    discounts as close as possible to the level of the annual \$2.25
    billion cap. We seek to develop a record on the reasons why
    applicants and providers may fail to fully use committed funds under
    the program. We also seek comment on whether any other program
    changes would likely result in an increased percentage of committed
    funds being disbursed each funding year, which will help to reduce
    the overall amount of unused funds from the schools and libraries
    mechanism.[^108] In the event we adopt additional measures to reduce
    the existence of unused funds, we seek comment on whether it is
    necessary to adopt procedures to address a situation in which more
    funds are committed and used than are available for disbursement.

### Treatment of Unused Funds

69. Section 54.507(a) of the Commission's rules codifies the annual
    \$2.25 billion cap on the schools and libraries support
    mechanism.[^109] The rule also provides that "all *funding
    authority* for a given funding year that is unused in that funding
    year shall be carried forward into subsequent funding years for use
    in accordance with demand."[^110] Although section 54.507(a)
    addresses *funding authority*, it is silent as to the treatment of
    unused *funds*, *i.e.,* funds that the Administrator had available
    for disbursement, but that were not disbursed in that funding year.
    As discussed *infra*,[^111] unused funds from Funding Year 1 have
    been used to reduce the contribution factor for Funding Years 2 and
    3, consistent with Commission rules and policies. We believe,
    however, that we should consider what should be done with unused
    funds that may occur in future years.

70. In accord with our efforts to reduce the amount of unused funds from
    the schools and libraries mechanism, we seek comment on revising the
    Commission's rules to clarify the appropriate treatment of such
    unused funds. As stated above, the Commission's rule adopted in
    accord with the *Universal Service Order* refers to unused *funding
    authority*, not unused *funds*.[^112] Thus, the Commission seeks
    comment on two options relating to the treatment of unused funds.
    The first option would be to modify the rule to require expressly
    that unused funds from the schools and libraries mechanism
    (beginning with Funding Year 2) should be credited back to
    contributors through reductions in the contribution factor.[^113]
    The second option would be to modify the rule to require expressly
    the distribution of the unused funds in subsequent years of the
    schools and libraries program, in excess of the annual cap. We seek
    comment on each of the alternatives. We believe that consumers may
    benefit from reducing the contribution factor with unused funds
    because it will decrease the contribution amounts that carriers
    recover from consumers. Alternatively, disbursing unused funds in
    subsequent funding years of the schools and libraries mechanism
    would provide additional resources for applicants, thereby assisting
    efforts to provide affordable telecommunications and information
    services to schools and libraries.

# ORDER ON RECONSIDERATION

71. In this Order, we consider three petitions asking for
    reconsideration of Public Notices released in 2000 that credited to
    contributors unused funds from Funding Year 1 of the universal
    service support mechanism for schools and libraries.[^114] We
    conclude that it was appropriate to credit back unused funds from
    Funding Year 1 in the form of a reduction in the contribution factor
    and deny the petitioner's requests for reconsideration.

    **A. Background**

72. In the *Fifth Order on Reconsideration*, the Commission decided to
    revise the \$2.25 million annual cap, and establish collection and
    disbursement limits of \$1.925 billion for the schools and libraries
    support mechanism during Funding Year 1.[^115] As a result, the
    collection and disbursement limits in Funding Year 1 were \$325
    million less than the annual \$2.25 billion cap. The Commission
    explained its decision by noting the desire of many legislators to
    balance the need to provide support for schools and libraries
    against the need to provide support for other mechanisms, such as
    the high cost support mechanisms, and to keep telephone rates
    affordable.[^116]

73. In 1998, the Commission adopted section 54.507(a) of the
    Commission's rules, which provides that unused *funding authority*,
    the difference between the amounts authorized to be collected in any
    funding year and the \$2.25 billion annual cap, would be available
    for use in subsequent funding years in accordance with demand.[^117]
    Nevertheless, for Funding Year 1, the Commission provided an
    exception to the rule and specifically prohibited the carryover of
    unused *funding authority* for the period January 1, 1998 through
    June 30, 1999.[^118] The Commission further determined that unused
    *funds* that were collected but not disbursed in Funding Year 1
    would be carried forward to the next funding period.[^119] The rule
    did not specifically establish how these funds would be used after
    they were carried forward, however -- whether they were to be
    credited back to contributors or distributed in subsequent funding
    years to exceed the cap for the schools and libraries mechanism.

74. In May 1999, in the *Twelfth Order on Reconsideration*, the
    Commission again amended its funding rules to implement quarterly
    collection and disbursement limits on universal service funds for
    schools and libraries in Funding Year 2. [^120] In addition, unlike
    Funding Year 1, when the Commission did not authorize funding to the
    cap, the Commission made clear that for Funding Year 2, the \$2.25
    billion funding cap would remain undisturbed.[^121] Therefore,
    unused funds that were carried forward from Funding Year 1 could not
    be disbursed because that would result in disbursement in excess of
    the \$2.25 billion that was authorized to be collected and disbursed
    in Funding Year 2. The Commission amended section 54.507(a) of its
    rules to reflect these changes.[^122]

75. On December 10, 1999, the Common Carrier Bureau (Bureau) released a
    Public Notice announcing the proposed universal service contribution
    factor for the first quarter of 2000.[^123] The universal service
    contribution factor is used to calculate a carrier's contribution to
    the universal service fund.[^124] USAC reported that it would not
    need to disburse the full amount of funds that it was authorized to
    collect for Funding Year 1 of the schools and libraries support
    mechanism. Specifically, USAC estimated that the schools and
    libraries program would have an unused balance of approximately
    \$229 million after making all disbursements for Funding Year
    1.[^125] The Public Notice directed USAC to apply one-quarter of the
    estimated unused balance to reduce the collection requirement for
    the schools and libraries program in the first quarter of
    2000.[^126] The Public Notice noted that this action was consistent
    with section 54.507 of the Commission's rules and a previous
    decision by the Commission to permit excess contributions to the
    rural health care support mechanism to be credited back to
    contributors.[^127] Under the Commission's rules, the Public Notice
    was deemed approved by the Commission 14 days after release.[^128]

76. In 2000, the Commission took no action to change the annual funding
    cap, and therefore, consistent with the rules, the schools and
    libraries universal service mechanism was funded at \$2.25 billion
    during Funding Year 3.[^129] Subsequently, the proposed contribution
    factors for the third and fourth quarters of 2000 were released and
    the estimated unused funds for Funding Year 1 were revised. In the
    third quarter, USAC estimated that the schools and libraries
    mechanism would have an unused balance of \$340 million.[^130] In
    the fourth quarter, USAC estimated there would be an unused balance
    of \$170 million.[^131] By Public Notice, the Bureau directed USAC
    to apply the estimated unused funds to reduce the collection
    requirement for the schools and libraries program in the third and
    fourth quarters of 2000.[^132] Again, those Public Notices were
    deemed approved by the Commission 14 days after release.

77. The petitioner filed three petitions requesting the Commission to
    reconsider the Public Notices establishing the contribution factors
    for the first, third, and fourth quarters of 2000. [^133]
    Specifically, the petitioner asks the Commission to reconsider its
    decision to credit unused funds from Funding Year 1 to contributors
    in the form of a reduction in the collection requirement for the
    schools and libraries universal service support mechanism in 2000.
    Rather, the petitioner requests that these funds be carried forward
    and directly disbursed to schools and libraries for use in
    subsequent funding years of the schools and libraries program.

    **B. Discussion**

78. We deny the petitions for reconsideration of Public Notices in which
    unused funds from Funding Year 1 of the schools and libraries
    universal service support mechanism were applied to reduce the
    contribution factor. As noted above, section 54.507(a)(2) of the
    Commission's rules directed the Commission to carry forward unused
    funds from Funding Year 1, but failed to address how the funds were
    to be used after they were carried forward.[^134] In the *Twelfth
    Order on Reconsideration,* the Commission adopted rules that
    precluded the use of unused funds from Funding Year 1 to exceed the
    disbursement cap in Funding Year 2.[^135] The Commission determined
    that no more than \$2.25 billion should be "collected or disbursed"
    in Funding Year 2.[^136] In light of this restriction, the
    Commission reasonably determined that it could best satisfy the
    needs of the program by using the unspent funds to reduce the
    contribution factor for Funding Year 2.[^137]

79. Although the Commission did not adopt the same express limiting
    language found in 54.507(a)(1) with regard to Funding Year 3, the
    Commission followed the same policy -- using unspent funds from
    Funding Year 1 to reduce the contribution factor for Funding Year 3.
    At the time that the Commission ordered that the Funding Year 2 cap
    could not be exceeded in the *Twelfth Order on Reconsideration*, the
    Commission did not anticipate that unused funds from Funding Year 1
    would still be remaining during Funding Year 3. Thus, it did not
    write the rule to address any year other than Funding Year 2.
    Although we acknowledge that there is language in the *Universal
    Service Order* suggesting that unused funds from the schools and
    libraries universal service support mechanism will be carried
    forward to exceed the cap, the Commission later adopted an expressly
    different policy in the *Twelfth Order on Reconsideration*.[^138]
    Applying Funding Year 1 unused funds to exceed the cap in Funding
    Year 3 would have been inconsistent with the Commission's policy
    established in the *Twelfth Order on Reconsideration* that unused
    funds from Funding Year 1 should not be used to exceed the annual
    funding cap in subsequent funding years.[^139] Accordingly, we find
    that the decision to reduce the contribution factor in Funding Year
    3 with unused funds carried forward from Funding Year 1 was
    appropriate and consistent with the Commission's previous decision
    to reduce the contribution factor in Funding Year 2.[^140]

80. Finally, we decline to overturn our prior decisions with respect to
    the use of Funding Year 1 unused funds. We conclude that it would be
    contrary to the Commission's intent, as established in the *Twelfth
    Order on Reconsideration*, to carry forward the unused funds from
    Year 1 for purposes of disbursing such funds to schools and
    libraries to exceed the cap in subsequent funding years.[^141]
    Furthermore, we conclude it would be disruptive to revisit this
    issue at this time. We therefore deny the petitioner's requests for
    reconsideration.

# Revising or eliminating outmoded rules

81. We seek comment on any administrative or procedural rules or
    policies of the Commission or SLD, relating to the schools and
    libraries support mechanism, that should be revised or eliminated
    because they have become outmoded. In the four years since the
    implementation of the support mechanism, some such rules or policies
    may have become obsolete through changed circumstances or
    technologies, or may have been rendered unnecessary or redundant in
    light of changes made to the program. We therefore seek comment on
    such rules or policies in order to determine whether any are no
    longer necessary or in the public interest.

# PROCEDURAL MATTERS

## Paperwork Reduction Act Analysis

82. As part of our continuing effort to reduce paperwork burdens, we
    invite the general public to take this opportunity to comment on the
    additional certification collections contained in this Notice, as
    required by the Paperwork Reduction Act of 1995, Pub. L. No. 104-13.
    Public and agency comments are due at the same time as other
    comments on this Notice. 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.

## Initial Regulatory Flexibility Analysis

83. As required by the Regulatory Flexibility Act (RFA),[^142] the
    Commission has prepared this Initial Regulatory Flexibility Analysis
    (IRFA) of the possible significant economic impact on small entities
    by the policies and rules proposed in this Notice. 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 below in section VI.C. The
    Commission will send a copy of the Notice, including this IRFA, to
    the Chief Counsel for Advocacy of the Small Business Administration
    (SBA).[^143] In addition, the Notice and IRFA (or summaries thereof)
    will be published in the Federal Register.[^144]

### Need for, and Objectives of, the Proposed Rules

84. 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 to reform our system of
    universal service support mechanisms so that universal service is
    preserved and advanced as markets move toward competition.[^145] In
    this Notice, we seek comment on several changes to the schools and
    libraries universal service support mechanism. With respect to the
    application process, we seek comment on (1) issues related to the
    process for determining eligible services, and the eligibility for
    schools and libraries universal service support of such services as
    voice mail, wireless, and Wide Area Networks; (2) permitting schools
    and libraries to receive discounts for Internet access that may in
    certain limited cases contain content, as long as it is the most
    cost-effective form of Internet access; (3) the 30 percent
    processing benchmark for reviewing funding requests that include
    both eligible and ineligible services; (4) whether to require a
    certification by schools and libraries acknowledging their
    compliance with the requirements of the Americans With Disabilities
    Act and related statutes; and (5) modifying our rule governing when
    members of a consortium may receive service from a tariffed service
    provider at below‑tariff rates.

85. We also seek comment on several issues that arise once discounts
    have been committed to applicants: (1) providing schools and
    libraries the flexibility either to make up-front payments for
    services and receive reimbursement via the Billed Entity Applicant
    Reimbursement (BEAR) form process, or be charged only the
    non-discounted cost by the service providers, and require that
    service providers remit BEAR reimbursements to applicants within
    twenty days; (2) limiting transferability of equipment obtained with
    universal service discounts; and (3) allowing members of rural
    remote communities to use excess capacity from services obtained
    through the universal service support mechanism in certain limited
    situations.

86. With respect to the appeals process, we seek comment on increasing
    time limits for filing appeals to 60 days, and considering appeals
    filed as of the day they are post-marked; and procedures for funding
    successful appeals. Fourth, we seek comment on measures to
    strengthen our existing enforcement tools, including adopting a rule
    explicitly authorizing independent audits; and barring from the
    program certain applicants, service providers, and others that
    engage in willful or repeated failure to comply with program rules.
    On the issue of unused program funds, we seek comment on the reasons
    for unused funds, and on how the Commission should treat unused
    funds. We also deny certain petitions for reconsideration relating
    to unused funds, and seek comment on revising or eliminating
    outmoded administrative or procedural rules or policies relating to
    the schools and libraries universal service support mechanism.

### Legal Basis

87. The legal basis for this Notice is contained in sections 1 through
    4, 201 through 205, 254, 303(r), and 403 of the Communications Act
    of 1934, as amended by the Telecommunications Act of 1996, 47 U.S.C.
    §§ 151 through 154, 201 through 205, 254, 303(r), and 403, and
    section 1.411 of the Commission's rules, 47 C.F.R. § 1.411.

### Description and Estimate of the Number of Small Entities To Which Rules Will Apply

88. 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.[^146] The RFA generally
    defines the term "small entity" as having the same meaning as the
    terms "small business," "small organization," and "small
    governmental jurisdiction."[^147] In addition, the term "small
    business" has the same meaning as the term "small business concern"
    under the Small Business Act.[^148] A small business concern is one
    that: (1) is independently owned and operated; (2) is not dominant
    in its field of operation; and (3) satisfies any additional criteria
    established by the SBA.[^149] A small organization is generally "any
    not-for-profit enterprise which is independently owned and operated
    and is not dominant in its field."[^150] Nationwide, as of 1992,
    there were approximately 275,801 small organizations.[^151] "Small
    governmental jurisdiction"[^152] generally means "governments of
    cities, counties, towns, townships, villages, school districts, or
    special districts, with a population of less than 50,000."[^153] As
    of 1992, there were approximately 85,006 such jurisdictions in the
    United States.[^154] This number includes 38,978 counties, cities,
    and towns; of these, 37,566, or 96 percent, have populations of
    fewer than 50,000.[^155] The Census Bureau estimates that this ratio
    is approximately accurate for all governmental entities. Thus, of
    the 85,006 governmental entities, we estimate that 81,600 (96
    percent) are small entities.

89. Small entities potentially affected by the proposals herein include
    eligible schools and libraries and the eligible service providers
    offering them discounted services, including telecommunications
    service providers, Internet Service Providers (ISPs) and vendors of
    internal connections.[^156]

#### Schools and Libraries

90. Under the schools and libraries universal service support mechanism,
    which provides support for elementary and secondary schools and
    libraries, an elementary school is generally "a non-profit
    institutional day or residential school that provides elementary
    education, as determined under state law."[^157] A secondary school
    is generally defined as "a non-profit institutional day or
    residential school that provides secondary education, as determined
    under state law," and not offering education beyond grade 12.[^158]
    For-profit schools and libraries, and schools and libraries with
    endowments in excess of \$50,000,000, are not eligible to receive
    discounts under the program, nor are libraries whose budgets are not
    completely separate from any schools.[^159] Certain other statutory
    definitions apply as well.[^160] The SBA has defined as small
    entities elementary and secondary schools and libraries having \$5
    million or less in annual receipts.[^161] In funding year 2 (July 1,
    1999 to June 20, 2000) approximately 83,700 schools and 9,000
    libraries received funding under the schools and libraries universal
    service mechanism. Although we are unable to estimate with precision
    the number of these entities that would qualify as small entities
    under SBA's definition, we estimate that fewer than 83,700 schools
    and 9,000 libraries would be affected annually by the rules proposed
    in this Notice, under current operation of the program.[^162]

#### Telecommunications Service Providers

91. We have included small incumbent local exchange carriers in this RFA
    analysis. 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.\"[^163] 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.[^164] We
    have therefore included small incumbent carriers in this RFA
    analysis, although we emphasize that this RFA action has no effect
    on the Commission's analyses and determinations in other, non-RFA
    contexts.

92. *Local Exchange Carriers*. Neither the Commission nor the SBA has
    developed a definition for small providers of local exchange
    services. The closest applicable definition under the SBA rules is
    for wired telecommunications carriers.[^165] This provides that a
    wired telecommunications carrier is a small entity if it employs no
    more than 1,500 employees.[^166] According to the most recent
    *Trends in Telephone Service* report, 1,335 carriers classified
    themselves as incumbent local exchange carriers.[^167] We do not
    have data specifying the number of these carriers that are either
    dominant in their field of operations, are not independently owned
    and operated, or have more than 1,500 employees, and thus are unable
    at this time to estimate with greater precision the number of local
    exchange carriers that would qualify as small business concerns
    under the SBA\'s definition. Of the 1,335 incumbent carriers, 13
    entities are price cap carriers that are not subject to these rules.
    Consequently, we estimate that fewer than 1,322 providers of local
    exchange service are small entities or small incumbent local
    exchange carriers that may be affected.

93. *Interexchange Carriers.* Neither the Commission nor the SBA has
    developed a definition of small entities specifically applicable to
    providers of interexchange services (IXCs). The closest applicable
    definition under the SBA rules is for wired telecommunications
    carriers.[^168] This provides that a wired telecommunications
    carrier is a small entity if it employs no more than 1,500
    employees.[^169] According to the most recent *Trends Report*, 204
    companies reported that they were engaged in the provision of
    interexchange services.[^170] As some of these carriers have more
    than 1,500 employees, we are unable at this time to estimate with
    greater precision the number of IXCs that would qualify as small
    business concerns under the SBA\'s definition. Consequently, we
    estimate that there are fewer than 204 small entity IXCs that may be
    affected by the proposals in this Notice.

94. *Competitive Access Providers*. Neither the Commission nor the SBA
    has developed a definition of small entities specifically applicable
    to competitive access services providers (CAPs). The closest
    applicable definition under the SBA rules is for wired
    telecommunications carriers.[^171] This provides that a wired
    telecommunications carrier is a small entity if it employs no more
    than 1,500 employees.[^172] According to the most recent *Trends
    Report*, 496 competitive service providers reported that they were
    engaged in the provision of competitive local exchange
    services.[^173] We do not have data specifying the number of these
    carriers that are not independently owned and operated, or have more
    than 1,500 employees, and thus are unable at this time to estimate
    with greater precision the number of CAPs that would qualify as
    small business concerns under the SBA\'s definition. Consequently,
    we estimate that there are less than 349 small entity CAPs and 60
    other local exchange carriers that may be affected.

95. *Cellular and Wireless Telephony*. Neither the Commission nor the
    SBA has developed a definition of small entities specifically for
    wireless telephony. The closest definition is the SBA definition for
    cellular and other wireless telecommunications.[^174] Under this
    definition, a cellular licensee is a small entity if it employs no
    more than 1,500 employees.[^175] According to the most recent
    *Trends Report*, 806 providers classified themselves as providers of
    wireless telephony, including cellular telecommunications, Personal
    Communications Service, and Specialized Mobile Radio (SMR) Telephony
    Carriers.[^176] We do not have data specifying the number of these
    carriers that are not independently owned and operated or have more
    than 1,500 employees, and thus are unable at this time to estimate
    with greater precision the number of cellular service carriers that
    would qualify as small business concerns under the SBA\'s
    definition. Consequently, we estimate that there are fewer than 806
    wireless telephony carriers that may be affected.

96. *Other Wireless Services*. Neither the Commission nor the SBA has
    developed a definition of small entities specifically applicable to
    wireless services other than wireless telephony.[^177] The closest
    applicable definition under the SBA rules is again that of cellular
    and other wireless telecommunications, under which a service
    provider is a small entity if it employs no more than 1,500
    employees.[^178] According to the most recent *Trends Report*, 477
    providers classified themselves as paging services, wireless data
    carriers or other mobile service providers.[^179] We do not have
    data specifying the number of these carriers that are not
    independently owned and operated or have more than 1,500 employees,
    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 fewer than 477 wireless service providers
    that may be affected.

#### Internet Service Providers

97. Under the new NAICS codes, SBA has developed a small business size
    standard for "On-line Information Services," NAICS Code
    514191.[^180] According to SBA regulations, a small business under
    this category is one having annual receipts of \$18 million or
    less.[^181] 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.[^182] Thus, the number of On-line Information Services firms
    that are small under the SBA's \$18 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.

#### Vendors of Internal Connections

98. The Commission has not developed a definition of small entities
    applicable to the manufacturers of internal network connections. The
    most applicable definitions of a small entity are the definitions
    under the SBA rules applicable to manufacturers of \"Radio and
    Television Broadcasting and Communications Equipment\" (RTB) and
    "Other Communications Equipment."[^183] According to the SBA\'s
    regulations, manufacturers of RTB or other communications equipment
    must have 750 or fewer employees in order to qualify as a small
    business.[^184] The most recent available Census Bureau data
    indicates that there are 1,187 companies with fewer than 1,000
    employees in the United States that manufacture radio and television
    broadcasting and communications equipment, and 271 companies with
    less than 1,000 employees that manufacture other communications
    equipment.[^185] Some of these manufacturers might not be
    independently owned and operated. Consequently, we estimate that
    there are fewer than 1,458 small entity internal connections
    manufacturers that may be affected by the decisions and rules of the
    present action.

### Description of Projected Reporting, Recordkeeping, and Other Compliance Requirements

99. The Notice seeks comment on the proposal that all recipients of
    discounts be required to certify that they are in compliance with
    the ADA, but does not specify the language or at what point in the
    process applicants should be required to make this certification. We
    already require applicants to make several certifications, both when
    they apply for discounted services and after approval of discounts
    when they file an FCC Form 486 indicating their receipt of those
    services. The new certification will merely require them to check
    one additional box prior to signing the relevant form.[^186]
    Regardless of the precise language of the certification, we estimate
    that it will take no more than one minute to review and check the
    appropriate certification box. Aside from this requirement, the
    specific proposals under consideration in this Notice would, if
    adopted, result in no additional reporting or recordkeeping
    requirements.

### Steps Taken to Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered

100. The RFA requires an agency to describe any significant alternatives
     that it has considered in reaching its proposed approach, 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.[^187]

101. We find that the following proposals will have no significant
     economic impact on small entities: allowing, under certain
     circumstances, full discounts on Internet service that includes
     content, the proposed modification to the appeals process,
     requiring certification of compliance with the ADA, a proposed
     alteration to the rules regarding application of tariff rates to
     consortia, the proposed rule establishing the right of funding for
     all successful appellants and the funding methodology, and possible
     rule changes affecting overcommitted funding requests.

102. Requiring that recipients be allowed to choose their payment method
     could have a significant impact on service providers, including
     small entities, by depriving them of their full revenues for a
     period of time when the applicant chooses to pay only the
     discounted portion up-front. We have considered the alternative of
     continuing to allow small service providers the discretion to
     mandate a particular payment method. However, as the Commission
     noted in *Universal Service Order*, "requiring schools and
     libraries to pay \[service providers\] in full could create serious
     cash flow problems for many schools and libraries and would
     disproportionately affect the most disadvantaged schools and
     libraries."[^188] In order to comply with the goals of the Act,
     *i.e.*, to ensure the delivery of affordable telecommunications
     service to schools and libraries, including small entities, we
     conclude that we can justify any additional economic impact that
     might occur to small service providers.

103. However, in seeking to minimize the burdens imposed on small
     businesses where doing so does not compromise the goals of the
     universal service mechanism, we have sought comment on whether to
     increase the current 10-day period for service providers to remit
     their payments to 20 days, and we invited comment on how the
     billing process might be made less burdensome for small entities.
     We further invited comment on whether, in the case of applicants
     that choose up-front payment of the full pre-discount cost followed
     by the provider's remittance of the discount fund through the BEAR
     process, some extension of the standard remittance period for small
     businesses may be appropriate.[^189] We again invite commenters to
     discuss the benefits of such changes on small businesses and
     whether these benefits are outweighed by resulting costs to schools
     and libraries that might also be small entities.

104. We have sought comment on a proposed rule restricting
     transferability of equipment, which may have an economic impact on
     small entity schools and libraries. However, we expect that the
     impact on small entities will be minimal because the overall effect
     of the proposed rule is to restrict an entity's ability to purchase
     redundant systems. Thus, it should reduce rather than increase the
     entity's costs.

105. We have sought comment on two options for the treatment of funds
     left unused at the end of a Funding Year. The first option, to use
     these funds to reduce the contribution factor used to calculate a
     carrier's contribution for universal service support, would
     temporarily reduce the burden of universal service support on
     telecommunications service providers, including many small
     businesses. In the alternative, we have sought comment on a
     proposal to distribute unused funds to schools and libraries in
     subsequent funding years, which would improve the opportunities of
     small entity schools and libraries but conversely would impose a
     greater burden on small businesses. It is therefore not clear which
     of these two alternatives would be more appropriate to minimizing
     the economic impact on small entities. In seeking comment on these
     two options, we invite commenters to discuss this question.

106. We have further sought comment on numerous other areas of the
     program, including the reduction of the percentage of unused funds,
     the eligibility determination process, the specific eligibility of
     WANs, wireless services, and voice mail, the use of excess capacity
     in rural areas for non-educational purposes, the rules governing
     consortia, and the appropriate method of enforcement of our rules
     in general. We do not seek comment on specific proposals on these
     issues at this time, and therefore, cannot at this time determine
     how changes in these areas will impact on small entities in
     relation to the current regime. We therefore request that
     commenters, in proposing possible alterations to our rules, discuss
     the economic impact that those changes will have on small entities.

### Federal Rules that may Duplicate, Overlap, or Conflict with the Proposed Rules

107. None.

##  Comment Due Dates and Filing Procedures

108. We invite comment on the issues and questions set forth in the
     Notice of Proposed Rulemaking and Initial Regulatory Flexibility
     Analysis contained herein. Pursuant to applicable procedures set
     forth in sections 1.415 and 1.419 of the Commission's rules,[^190]
     interested parties may comment 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).

109. 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.

110. Parties who choose to file by paper must file an original and four
     copies of each filing. If more than one docket or rulemaking number
     appears in the caption of this proceeding, commenters must submit
     two additional copies for each additional docket or rulemaking
     number. Parties who choose to file by paper are hereby notified
     that effective December 18, 2001, 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. This facility is the only
     location where hand-delivered or messenger-delivered paper filings
     for the Commission\'s Secretary will be accepted. Accordingly, the
     Commission will no longer accept these filings at 9300 East Hampton
     Drive, Capitol Heights, MD 20743. Other messenger-delivered
     documents, including documents sent by overnight mail (other than
     United States Postal Service (USPS) Express Mail and Priority
     Mail), must be addressed to 9300 East Hampton Drive, Capitol
     Heights, MD 20743. This location will be open 8:00 a.m. to 5:30
     p.m. The USPS first-class mail, Express Mail, and Priority Mail
     should continue to be addressed to the Commission\'s headquarters
     at 445 12th Street, SW, Washington, DC 20554. The USPS mail
     addressed to the Commission\'s headquarters actually goes to our
     Capitol Heights facility for screening prior to delivery at the
     Commission.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

If you are sending this type of document or It should be addressed for
delivery to\...

using this delivery method\...

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Hand-delivered or messenger-delivered paper 236 Massachusetts

filings for the Commission\'s Secretary Avenue, NE, Suite 110,

Washington, DC 20002 (8:00 to

7:00 p.m.

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

Other messenger-delivered documents, 9300 East Hampton Drive,

including documents sent by overnight mail Capitol Heights, MD 20743

(other than United States Postal Service (8:00 a.m. to 5:30 p.m.)

Express Mail and Priority Mail)

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

United States Postal Service first-class mail, 445 12th Street, SW

Express Mail, and Priority Mail Washington, DC 20554

\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\-\--

All filings must be sent to the Commission\'s Secretary: Magalie Roman
Salas, Office of the Secretary, Federal Communications Commission, 445
12th Street, S.W., Suite TW-A325, Washington, D.C. 20554.

111. Parties who choose to file by paper should also submit their
     comments on diskette to Sheryl Todd, Accounting Policy Division,
     Common Carrier Bureau, Federal Communications Commission, 445
     Twelfth Street, S.W., Room 5-B540, Washington, D.C. 20554. Such a
     submission should be on a 3.5 inch diskette formatted in an
     IBM-compatible format using Microsoft Word 97 for Windows or a
     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 lead docket number in the proceeding (CC Docket No.
     02-6), 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 12th Street, SW,
     Room CY-B402, Washington, DC, 20554, telephone 202-863-2893,
     facsimile 202-863-2898, or via e-mail at qualexint@aol.com.

112. 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 15 days after 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
     Judy Boley, Federal Communications Commission, Room 1-C804, 445
     12th Street, S.W., Washington, DC 20554, or via the Internet to
     [jboley@fcc.gov]{.underline} and to Edward Springer, OMB Desk
     Officer, 10236 NEOB, 725 - 17th Street, N.W., Washington, D.C.
     20503.

113. Accessible formats (computer diskette, large print, audio recording
     and Braille) are available to persons with disabilities by
     contacting Brian Millin at (202) 418-7426, (202) 418-7365 TTY, or
     at [bmillin@fcc.gov]{.underline}.

# VII. ORDERING CLAUSES {#vii.-ordering-clauses .unnumbered}

114. Accordingly, IT IS ORDERED that, pursuant to the authority
     contained in sections 1-4, 201-205, 254, 303(r), and 403 of the
     Communications Act of 1934, as amended, 47 U.S.C. §§ 151-154,
     201-205, 254, 303(r), 403, and sections 0.91, 0.291, 1.3, and 1.411
     of the Commission's rules, 47 C.F.R. §§ 0.91, 0.291, 1.3, and
     1.411, this NOTICE OF PROPOSED RULE MAKING IS ADOPTED, as described
     herein.

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

116. IT IS FURTHER ORDERED pursuant to section 1.106(j) of the
     Commission\'s rules, 47 C.F.R. § 1.106(j), that the following
     Petitions for Reconsideration are DENIED: Petition for
     Reconsideration of Proposed First Quarter 2000 Universal Service
     Contribution Factor by Greg Weisiger, filed December 20, 1999;
     Petition for Reconsideration of Proposed Third Quarter 2000
     Universal Service Contribution Factor by Greg Weisiger, filed June
     12, 2000; Petition for Reconsideration of Proposed Fourth Quarter
     2000 Universal Service Contribution Factor by Greg Weisiger, filed
     September 18, 2000.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Magalie Roman Salas

Secretary

SEPARATE STATEMENT OF

COMMISSIONER MICHAEL J. COPPS,

APPROVING IN PART, DISSENTING IN PART

*Re:* *Schools and Libraries Universal Service Support Mechanism, Notice
of Proposed Rulemaking and Order (CC Docket No. 02-6).*

I wholeheartedly support seeking comment on ways to improve the schools
and libraries program. We are now in the fourth year of what can only be
described as a tremendously successful program. By helping connect our
schools and libraries to the Internet, the E-Rate plays a critical role
in providing our children and our communities with the Information Age
tools and skills necessary to prosper in the 21^st^ century.

I must, however, dissent from one part of this Notice of Proposed
Rulemaking that creates ambiguity where none need exist. This issue
concerns whether unspent funds in one year of the program may be
provided to schools and libraries in subsequent years.

In 1997, when the Commission put in place an annual cap of \$2.25
billion for this program, the Commission made clear that "all funding
authority for a given year that is unused shall be carried forward into
subsequent years for use in accordance with demand."[^191] In each year,
the Administrator of the E-Rate program collects funds up to the cap to
meet demand. Yet, although initial estimates were that demand would not
exceed the cap for nearly a decade,[^192] the program has been so
successful that since the first year, requests from our nation's schools
and libraries have exceeded the available funding. All funds, however,
are not disbursed for a variety of administrative reasons or because
individual schools and libraries do not fully use the money committed to
them. Our rules were designed to ensure that funds would be used for
their intended purpose or returned so that other deserving schools could
benefit. Today, we have hundreds of millions of dollars in unspent funds
that could and should be used to bring Internet access to our
communities.

Yet, the Notice the Commission adopts today states that our rules are
ambiguous as to whether unused funds in one year are available to
support our schools and libraries in subsequent years. I find no
ambiguity.

Last year, in the fourth year of the E-Rate program, schools and
libraries requested more than double the available funds to help bring
the Internet to the heart of our communities. Now is not the time to
shortchange our children's future. I hope that, in the Order, my
colleagues will vote with me to affirm full funding for this program. We
need to make sure that the end result of this proceeding is to improve
the program for our communities and our schools. They deserve no less.

[^1]: Pub. L. No. 104-104, Section 254(h)(1)(B), 110 Stat. 56, codified
    at 47 U.S.C. § 254(h)(1)(B). The 1996 Act amends the Communications
    Act of 1934, 47 U.S.C. §§ 151 *et seq.* (Act).

[^2]: The Schools and Libraries Division (SLD) of the Universal Service
    Administrative Company administers the schools and libraries 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)* (*Eighth Order on
    Reconsideration*)*.*

[^3]: *See* Federal Universal Service Support Mechanisms Fund Size
    Projections for the Fourth Quarter, available at
    \<[http://www.universalservice.org/overview/
    filings/default.asp]{.underline}\> (filed by USAC Aug. 2, 2001)
    (*USAC Filing for Fourth Quarter 2001 Projections*).

[^4]: More than 38 million children attend schools that have received
    discounts since the program's inception four years ago. Eighty-two
    percent of public schools receive universal service discounts, as do
    18 percent of private and Catholic schools, and 59 percent of public
    libraries. By the end of 2000, 98 percent of public schools were
    connected to the Internet, whereas only 65 percent were connected
    just three years earlier. National Center for Education Statistics,
    U.S. Department of Education*, Internet Access in U.S. Public
    Schools and Classrooms: 1994-2000* (May 2001) (NCES), at 1.

[^5]: *See* paras. 13-22.

[^6]: *See* paras. 23-25.

[^7]: *See* paras. 26-27.

[^8]: *See* paras. 28-29.

[^9]: *See* paras. 30-32.

[^10]: *See* paras. 33-36.

[^11]: *See* paras. 37-40.

[^12]: *See* paras. 41-47.

[^13]: *See* paras. 48-52.

[^14]: *See* paras. 53-57.

[^15]: *See* paras. 58-59.

[^16]: *See* paras. 60-62.

[^17]: *See* paras. 63-68.

[^18]: *See* paras. 69-71.

[^19]: *See* paras. 71-80.

[^20]: *See* para*.* 81.

[^21]: 47 U.S.C. § 254.

[^22]: *Id.; Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Report and Order, 12 FCC Rcd 8776 (1997) (*Universal
    Service Order*), as corrected by *Federal‑State Joint Board on
    Universal Service*, CC Docket No. 96‑45, Errata, FCC 97‑157 (rel.
    June 4, 1997), *affirmed in part*, *Texas Office of Public Utility
    Counsel v. FCC*, 183 F.3d 393 (5th Cir. 1999) (affirming *Universal
    Service Order* in part and reversing and remanding on unrelated
    grounds), *cert. denied, Celpage, Inc. v. FCC*, 120 S.Ct. 2212 (May
    30, 2000), *cert. denied,* *AT&T Corp. v. Cincinnati Bell Tel. Co*.,
    120 S.Ct. 2237 (June 5, 2000*), cert. dismissed,* *GTE Service Corp.
    v. FCC*, 121 S.Ct. 423 (November 2, 2000).

[^23]: 47 C.F.R. §§ 54.502, 54.503.

[^24]: *See* 47 C.F.R. § 54.505.

[^25]: Schools and Libraries Universal Service, Description of Services
    Requested and Certification Form, OMB 3060-0806 (September 1999)
    (FCC Form 470).

[^26]: 47 C.F.R. § 54.504(b); *Universal Service Order*, at para. 575.

[^27]: 47 C.F.R. § 54.504(b), (c); Schools and Libraries Universal
    Service, Services Ordered and Certification Form, OMB 3060-0806
    (October 2000) (FCC Form 471).

[^28]: The funding cap is set at \$2.25 billion. 47 C.F.R. § 54.507.

[^29]: Schools and Libraries Universal Service, Billed Entity Applicant
    Reimbursement Form, OMB 3060-0856 (October 1998) (FCC Form 472 or
    BEAR Form).

[^30]: *See* 47 C.F.R. § 54.719.

[^31]: *See, e.g., Universal Service Order; Request for Review by
    Brooklyn Public Library*, *Federal-State Joint Board on Universal
    Service, Changes to the Board of Directors of the National Exchange
    Carrier Association, Inc*., File No. SLD-149423, CC Dockets No.
    96-45 and 97-21, Order, 15 FCC Rcd 18598 (2000) (*Brooklyn Order*);
    *Request for Review by the Department of Education of the State of
    Tennessee of the Decision of the Universal Service Administrator,
    Request for Review by Integrated Systems and Internet Solutions,
    Inc., of the Decision of the Universal Service Administrator,
    Request for Review by Education Networks of America of the Decision
    of the Universal Service Administrator, Federal-State Joint Board on
    Universal Service*, *Changes to the Board of Directors of the
    National Exchange Carrier Association, Inc*., CC Docket Nos. 96-45
    and 97-21, Order, 14 FCC Rcd 13734 (1999) (*Tennessee Order*).

[^32]: The Administrator's administrative costs for 1997-1999 were 2.4
    percent of total costs program costs, compared to other federal
    programs, for which administrative expenses range from 1 percent to
    15 percent. *See* "Schools and Libraries Program, Report to the
    Subcommittee on Commerce, Justice, State, the Judiciary, and Related
    Agencies, Committee on Appropriations, U.S. Senate," General
    Accounting Office, GAO-01-105, (*GAO Report),* December 2000, at 28.

[^33]: 47 C.F.R. §§ 54.502, 54.503.

[^34]: *See* SLD web site, Eligible Services List (October 17, 2001)
    \<<http://www.sl.universalservice.org/reference/eligible.asp>\>.

[^35]: *See* *GAO Report*.

[^36]: *See* Schools and Libraries Universal Service, Services Ordered
    and Certification Form, OMB 3060-0806 (October 2000) (FCC Form 471).

[^37]: For example, cellular telephone service is currently eligible
    only when used at a place of instruction and for educational
    purposes. *See* SLD web site, Eligible Services List (October 17,
    2001)
    \<\<[http://www.sl.universalservice.org/data/pdf/EligibleServicesList_10_17_01.pdf]{.underline}\>\>.

[^38]: *Federal-State Joint Board on Universal Service*, *Access Charge
    Reform, Price Cap Performance Review for Local Exchange Carriers,
    Transport Rate Structure and Pricing, End User Common Line Charge*,
    CC Docket Nos. 96-45, 96-262, 94-1, 91-213, and 95-72, Fourth Order
    on Reconsideration in CC Docket No. 96-45, Report and Order in CC
    Docket Nos. 96-45, 96-262, 94-1, 91-213, 95-72, 13 FCC Rcd 5318,
    5430 para. 193 (1997) (*Fourth Order on Reconsideration*); *see
    also* 47 C.F.R. § 54.518 ("\[T\]o the extent that states, schools or
    libraries build or purchase a wide area network to provide
    telecommunications services, the cost of such wide area networks
    shall not be eligible for universal service discounts . . . .")

[^39]: *Fourth Order on Reconsideration,* 13 FCC Rcd at 5431 para. 193
    n.585.

[^40]: *Tennessee Order*.

[^41]: *See Brooklyn Order,* 15 FCC Record at 18606.

[^42]: *Id.* at 18606-18607.

[^43]: Leased WAN service is currently eligible under Priority One.
    *See* *Brooklyn Order; Tennessee Order*.

[^44]: *Tennessee Order*, 14 FCC Rcd 13734.

[^45]: 47 U.S.C. § 254.

[^46]: 47 U.S.C. § 254(h)(1)(B)(stating that services shall be provided
    "for educational purposes."; 47 C.F.R. § 54.504(b)(2)(ii)(requiring
    certification that services requested will be used "solely for
    educational purposes."); SLD website, Eligible Services List
    (October 17, 2001)
    \<<http://www.sl.universalservice.org/reference/eligible.asp>\>.

[^47]: *See* *Universal Service Order,* 12 FCC Rcd at 8801-20, paras.
    47-49 (citing competitive neutrality, including technological
    neutrality, as a guiding principle of section 254).

[^48]: *Id.* at 9013, para. 444; *see* Federal-State Joint Board on
    Universal Service, CC Docket 96-45, *Recommended Decision*, 12 FCC
    Rcd 87, 323-324 (1996).

[^49]: *Universal Service Order* at 9014, para. 445.

[^50]: *Id.* at 9014, paras. 446-447.

[^51]: *Id.* at 9014, para. 447*.*

[^52]: *Id.*

[^53]: Should we adopt such a rule, we will need to consider the best
    manner in which it should be implemented. Thus, the determination of
    the cost-effectiveness of Internet access should, consistent with
    applicable state and local procurement rules, consider price as the
    primary factor, but may also include other factors such as technical
    excellence. *See* *id.* at 9029-30, paras. 480-482.

[^54]: *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); *Brooklyn Order*, 15 FCC Rcd 17931,
    nn. 23, 46.

[^55]: 42 U.S.C. §§ 12101 *et seq.*

[^56]: 29 U.S.C. §§ 701 *et seq.;* 20 U.S.C. §§ 1400 *et seq*.

[^57]: Schools and Libraries Universal Service, Services Ordered and
    Certification Form, OMB 3060-0806 (October 2000) (Form 471).

[^58]: *See, e.g.,* National Council on Disability, *National Disability
    Policy: A Progress Report* 63-64 (2001).

[^59]: Such a certification could, for example, be made on a modified
    FCC Form 486. *See* Schools and Libraries Universal Service, Receipt
    of Service Confirmation Form, OMB 3060-0853 (April 2000) (FCC Form
    486). To implement newly enacted statutory requirements, the
    Commission recently modified FCC Form 486 to include certifications
    that schools and libraries are in compliance with the Children's
    Internet Protection Act. *See* *Federal-State Joint Board on
    Universal Service, Children\'s Internet Protection Act*, CC Docket
    No. 96-45, Report and Order, FCC 01-120 (rel. Apr. 5, 2001).

[^60]: 47 C.F.R. § 54.501(d)(1); *Universal Service Order*, 12 FCC Rcd
    at 9027-28, paras. 476-478.

[^61]: *Universal Service Order*, 12 FCC Rcd at 9028, para. 477.

[^62]: *Id.* at 9028, para. 478.

[^63]: *Id.*

[^64]: 47 C.F.R. § 501(d)(1).

[^65]: *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, Order, FCC 99-291, paras.
    8-9 (rel. October 8, 1999) (*reconsideration pending*); *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, Order, FCC 00-350 (rel. October 26, 2000)
    (*appeal pending*), *United States Telecommunications Association v.
    Federal Communications Commission,* No. 00-1500, filed November 27,
    2000.

[^66]: *See* SLD web site, Form 472 BEAR Filing Guidance (April 27,
    2001) \<<http://www.sl.universalservice.org/reference/8bear.asp>\>;
    FCC Form 472.

[^67]: *See* FCC Form 472 at 4.

[^68]: 47 U.S.C. § 503.

[^69]: 47 C.F.R. § 54.617.

[^70]: For example, in Funding Year 3, schools that were not eligible
    for at least an 82 percent discount did not receive discounts for
    internal connections due to limited program funds. However, a school
    eligible for a 90 percent discount in Funding Year 3 that received
    internal connections could have transferred that equipment to
    another school in the same school district that was ineligible for
    Funding Year 3 discounts for internal connections due to its lower
    discount rate. *See* 47 C.F.R. § 54.507(g) (describing rules of
    priority*); Federal-State Joint Board on Universal Service*, CC
    Docket No. 96-45, Further Notice of Proposed Rulemaking, FCC 01-143
    (rel. April 30, 2001) (describing funding priorities for Funding
    Year 3).

[^71]: We note that these rules would affect only the transferability of
    equipment in the schools and libraries support mechanism, and
    therefore would not affect any Commission rules or policies
    governing depreciation.

[^72]: 47 U.S.C. § 254(h)(1)(B).

[^73]: *See Universal Service Order*, 12 FCC Rcd at 9079-9080, para.
    577-578. The Commission requires schools and libraries to certify
    that the services requested will be used solely for educational
    purposes. The Commission declined to establish guidelines to
    identify educational purposes in order to prevent fraudulent use of
    discounted services. *See also* 47 C.F.R. § 54.504(b)(2)(ii).

[^74]: *See Universal Service Order*, 12 FCC Rcd at 9076, para. 570 ("We
    concur with the Joint Board's finding that Congress intended to
    require accountability on the part of schools and libraries and,
    therefore, we concur with the Joint Board's recommendation and the
    position of most commenters that eligible schools and libraries be
    required to: (1) conduct internal assessments of the components
    necessary to use effectively the discounted services they order; (2)
    submit a complete description of services they seek so that it may
    be posted for competing providers to evaluate; and (3) certify to
    certain criteria under penalty of perjury."). By taking steps to
    require accountability from applicants, the Commission was reducing
    the likelihood of fraud, waste, and abuse.

[^75]: *Petition of the State of Alaska for Waiver for the Utilization
    of Schools and Libraries Internet Point-of-Presence in Rural Remote
    Alaska Villages Where No Local Access Exists and Request for
    Declaratory Ruling*, CC Docket No. 96-45, Request for Waiver and
    Declaratory Ruling, filed January 29, 2001 (Alaska Petition). *See
    also* *State of Alaska Seeks a Declaratory Ruling and Waiver of
    Section 54.504(b)(2)(ii) of the Commission's Rules Pleading Cycle
    Established*, CC Docket No. 96-45, Public Notice, DA 01-584 (rel.
    Mar. 7, 2001).

[^76]: *See* Alaska Petition at 2. The State of Alaska asked the
    Commission to waive section 54.504(b)(2)(ii) as long as the services
    were not usage sensitive, the use was limited to hours in which the
    school or library was not in operation, and no toll-free or local
    dial-up Internet access was otherwise available.

[^77]: *See* Alaska Petition at 20.

[^78]: *Federal-State Joint Board on Universal Service, Petition of the
    State of Alaska for Waiver* *for the Utilization of Schools and
    Libraries Internet Point-of-Presence in Rural Remote Alaska Villages
    Where No Local Access Exists and Request for Declaratory Ruling*, CC
    Docket No. 96-45, Order, FCC 01-350 (rel. Dec. 3, 2001*) (Alaska
    Order*).

[^79]: *Alaska Order*.

[^80]: *Id.*

[^81]: *See* 47 U.S.C. § 254(h)(1)(B); 47 C.F.R. § 54.504(b)(2)(ii).

[^82]: *Alaska Order*, para. 17.

[^83]: *Eighth Order on Reconsideration.*

[^84]: *See*, *e.g.*, *Request for Review by Copan Public Schools of the
    Universal Service Administrator, Federal-State Joint Board on
    Universal Service, Changes to the Board of Directors of the National
    Exchange Carrier Association, Inc.*, File No. SLD-26231, CC Docket
    Nos. 96-45 and 97-21, Order, 15 FCC Rcd. 5498 (2000).

[^85]: 47 C.F.R. §§ 54.719(c), 54.720(a).

[^86]: 47 C.F.R. §§ 54.719(a), 54.720(b). In October 1998, the Board of
    Directors (Board) of the predecessor corporation to USAC with
    responsibility for the schools and libraries universal service
    support mechanism authorized staff to process appeals in accordance
    with principles set forth by the Board and by the Schools and
    Libraries Committee of the Board.

[^87]: 47 C.F.R. §§ 54.719(c), 54.720(a). We note that, due to recent
    disruptions in the reliability of the mail service, the period of
    appeal has been extended on an emergency, temporary basis to 60 days
    for requests seeking review of decisions issued on or after August
    13, 2001. *See* *Implementation of Interim Filing Procedures for
    Filings of Requests for Review, Federal-State Joint Board on
    Universal Service*, CC Docket No. 96-45, Order, FCC 01-376 (rel.
    December 26, 2001; erratum rel. December 28, 2001; second erratum
    rel. January 4, 2002).

[^88]: 47 C.F.R. § 54.720.

[^89]: 47 C.F.R. § 54.722(a).

[^90]: 47 C.F.R. §§ 54.722, 54.723. For further description of the
    procedures for seeking review of the Administrator's decisions
    specifically, s*ee* SLD Web Site*,*
    \<<http://www.sl.universalservice.org/reference/AppealsProcedureYR4.asp>\>.

[^91]: *Eighth Order on Reconsideration,* 13 FCC Rcd 25058, 25091-25094,
    paras. 66-71. USAC\'s operations include three divisions created
    pursuant to the Commission's regulations: the High Cost and Low
    Income Division, the Schools and Libraries Division, and the Rural
    Health Care Division, each of which is responsible for its
    respective universal service support mechanism. 47 C.F.R. §
    54.701(g)(1). For each of these three divisions, there is a
    committee of the USAC Board of Directors (the Board) that directs
    and oversees its actions. 47 C.F.R. § 54.701(f). Any action taken by
    a committee with regard to its respective support mechanism is
    binding on the Board, unless the USAC Board disapproves of such
    action by a two-thirds vote of a quorum of directors. 47 C.F.R. §
    54.705(d)(1). USAC has also created a fourth division, the
    Operations Division, which is responsible for billing and to which
    USAC has applied the same appeals procedures and deadlines as are
    applicable to the other divisions.

[^92]: 47 C.F.R. § 54.720.

[^93]: *Eighth Order on Reconsideration*, 13 FCC Rcd 25058, 25093-94,
    para. 70.

[^94]: *See* 47 C.F.R. § 1.7 ("Unless otherwise provided in this Title,
    by Public Notice, or by decision of the Commission or of the
    Commission's staff acting on delegated authority, pleadings and
    other documents are considered to be filed with the Commission upon
    their receipt at the location designated by the Commission.")

[^95]: *Changes to the Board of Directors of the National Exchange
    Carrier Association, Inc.*, Fifth Order on Reconsideration in CC
    Docket No. 97-21, *Federal-State Joint Board on Universal Service*,
    Eleventh Order on Reconsideration in CC Docket No. 96-45, and
    Further Notice of Proposed Rulemaking, 14 FCC Rcd 6033, n. 15 (1999)
    (*Eleventh Reconsideration Order and Further Notice*).

[^96]: *See*, *generally*, *Eleventh Reconsideration Order and Further
    Notice*, 14 FCC Rcd 6033, 6037-38, paras. 9-12.

[^97]: *Id*., 14 FCC Rcd at 6037, para. 9.

[^98]: *Id.*, 14 FCC Rcd at 6038, para. 10.

[^99]: *Id.*

[^100]: *See* United States Telephone Association Comments, at 2;
    Council of Chief State School Officers Comments, at 3 (filed in
    response to *Eleventh Reconsideration Order and Further Notice*).

[^101]: *See GAO Report*.

[^102]: Section 503 of the Act provides for forfeitures in the case of
    any person who "willfully or repeatedly failed to comply with any of
    the provisions of this Act or of any rule, regulation, or Order
    issued by the Commission under this Act . . . ." 47 U.S.C. §
    503(b)(1)(B).

[^103]: According to USAC, unused funds from Funding Year 1 resulted
    from: the unsatisfied completion of service contracts; use of only a
    portion of the funds committed to a school or library; and unused
    funds reserved for appeals. *See* Proposed First Quarter 2000
    Universal Service Contribution Factor, CC Docket No. 96-45, Public
    Notice, DA 99-2780 (rel. Dec. 10, 1999)(*December 1999 Public
    Notice)*.

[^104]: *See* *USAC Filing for Fourth Quarter 2001 Projections.* GAO
    recommended that FCC staff should develop a strategy for reducing
    the percentages of committed funds that go unused, including
    contacting applicants to ascertain their reasons for not fully using
    available funds, and determining whether programs rules or
    procedures should be changed. *See GAO Report* at 37.

[^105]: *See* *USAC Filing for Fourth Quarter 2001 Projections*.

[^106]: *See id*.

[^107]: *See* Schools and Libraries Universal Service, Adjustment to
    Funding Commitment and Modification to Receipt of Service
    Confirmation Form, OMB 3060-0853 (April 2000) (Form 500).

[^108]: This request for comments is consistent with the recommendation
    of the General Accounting Office in its December 2000 report. GAO
    Report, GAO-01-105, at 37.

[^109]: 47 C.F.R. § 54.507(a).

[^110]: *Id.* (emphasis added).

[^111]: *See* paras. 72-77.

[^112]: 47 C.F.R. § 54.507(a).

[^113]: The universal service contribution factor is used to calculate a
    carrier's contribution to the universal service fund. In the *Second
    Order on Reconsideration*, the Commission set forth the specific
    method of computation for universal service contributions. *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, 96-45, Report and Order and Second Order on
    Reconsideration, 12 FCC Rcd 18400, 18427, at para. 49 (1997)
    (*Second Order on Reconsideration*). The Commission directed USAC to
    calculate an individual carrier's quarterly contribution by
    multiplying the carrier's universal service revenue base (*i.e*.,
    interstate and international end-user telecommunications revenues)
    by the relevant universal service contribution factor. See 47 C.F.R.
    54.709(a)(2). *See also Federal-State Joint Board on Universal
    Service Access Charge Reform*, CC Docket Nos. 96-45 and 96-262,
    Sixteenth Order on Reconsideration in CC Docket No. 96-45, Eighth
    Report and Order in CC Docket No. 96-45, Sixth Report and Order in
    CC Docket No. 96-262, 15 FCC Rcd 1679 (2000). The contribution
    factor is based "on the ratio of quarterly projected costs of the
    support mechanisms, including administrative expenses, to the
    applicable revenue base." The Commission further directed USAC to
    "adjust the contribution factors for each quarter based on quarterly
    demand for services and administrative costs, subject to any funding
    caps established in the Universal Service Order." *See Second Order
    on Reconsideration*, 12 FCC Rcd at 18425, para. 45.

[^114]: *See* Petition for Reconsideration of Proposed First Quarter
    2000 Universal Service Contribution Factor by Greg Weisiger, filed
    December 20, 1999; Petition for Reconsideration of Proposed Third
    Quarter 2000 Universal Service Contribution Factor by Greg Weisiger,
    filed June 12, 2000; Petition for Reconsideration of Proposed Fourth
    Quarter 2000 Universal Service Contribution Factor by Greg Weisiger,
    filed September 18, 2000 (*Public Notice Reconsideration
    Petitions*). *See also* Petitioner Requests Carryover of Unused
    Funds in the Federal Universal Service Mechanism for Schools and
    Libraries Pleading Cycle Established, CC Docket No. 96-45, Public
    Notice, DA 01-975 (rel. Apr. 19, 2001).

[^115]: *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, 14916, para. 3 (1998) (*Fifth
    Order on Reconsideration*). *See also* *Universal Service Order,* 12
    FCC Rcd at 9054, para. 529 (establishes \$2.25 billion annual cap).

[^116]: *See Fifth Order on Reconsideration*, 13 FCC Rcd at 14926, para.
    18.

[^117]: 47 C.F.R. § 54.507(a).

[^118]: 47 C.F.R. § 54.507(a)(2). The first funding cycle of the schools
    and libraries universal service mechanism was 18 months. *See also*
    *Fifth Order on Reconsideration*, 13 FCC Rcd at 14934, para. 30.

[^119]: *Id.*

[^120]: *Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Twelfth Order on Reconsideration in CC Docket No. 96-45, 64
    Fed. Reg. 30440 (1999) (*Twelfth Order on Reconsideration*).

[^121]: *Twelfth Order on Reconsideration* at para. 9.

[^122]: *See* 47 C.F.R. § 54.507(a)(1).

[^123]: *December 1999 Public Notice*. We note that the funding year for
    the schools and libraries universal service mechanism is a fiscal
    year cycle (July 1 -- June 30). Therefore, the first quarter of 2000
    was during Funding Year 2 (July 1999- June 2000) of the schools and
    libraries program.

[^124]: *See Second Order of Reconsideration*, 12 FCC Rcd at 18427,
    para. 49.

[^125]: *December 1999 Public Notice.* According to USAC, this balance
    occurred because: 1) although USAC made funding commitments to
    certain schools and libraries, it received no indication that the
    services were or would be provided; 2) some schools and libraries
    used only a portion of the funds committed to them; and 3) a portion
    of the funds reserved for appeals would not be needed.

[^126]: *Id.* The Commission found that it would be prudent to apply
    only one-quarter of the estimated unused balance to reduce the
    contribution factor in the first quarter of 2000 because the unused
    balance projected for the schools and libraries program was only an
    estimate at that time.

[^127]: *See* 47 C.F.R. § 54.507; Proposed First Quarter 1999 Universal
    Service Contribution Factors and Proposed Actions, CC Docket No.
    96-45, Public Notice, FCC 98-318 (rel. Dec. 4, 1998) (*December 1998
    Public Notice*). The *December 1998 Public Notice* relied upon 47
    C.F.R. § 54.709(b) as authority to take into consideration excess
    contributions when calculating future contribution factors.

[^128]: *See* 47 C.F.R. § 54.709(a)(3).

[^129]: *See* Statement of FCC Chairman William E. Kennard and
    Commissioner Gloria Tristani*, E-Rate to Receive Full Funding*,
    released April 13, 2000 (*Funding Year 3 Statement)*. We note that
    Funding Year 3 (July 2000-June 2001) of the schools and libraries
    program began on July 1, 2000. Therefore, Funding Year 3 included
    the third and fourth quarters of 2000.

[^130]: *See* Federal Universal Service Support Mechanisms Fund Size
    Projections & Contribution Base for the Third Quarter 2000 (filed by
    USAC May 2, 2000).

[^131]: *See* Federal Universal Service Programs Fund Size Projections &
    Contribution Base for the Fourth Quarter 2000 (filed by USAC August
    2, 2000).

[^132]: *See* Proposed Third Quarter 2000 Universal Service Contribution
    Factor, CC Docket No. 96-45, Public Notice, DA 00-1272 (rel. Jun. 9,
    2000) (applying one-half of estimated unused schools and libraries
    balance to offset projected expenses in the third quarter of 2000);
    Proposed Fourth Quarter 2000 Universal Service Contribution Factor,
    CC Docket No. 96-45, Public Notice, DA 00-2065 (rel. Sep. 8, 2000)
    (applying remainder of estimated unused schools and libraries
    balance to offset projected expenses in the fourth quarter of 2000).

[^133]: *See* *Public Notice Reconsideration Petitions*.

[^134]: 47 C.F.R. § 54.507(a)(2).

[^135]: *Twelfth Order on Reconsideration* at para. 9.

[^136]: 47 C.F.R. § 54.507(a)(1).

[^137]: We also note that this action is consistent with section
    54.709(b), which generally addresses the disposition of unused funds
    from quarter to quarter. "If the contributions received by the
    Administrator in a quarter exceed the amount of universal service
    support program contributions and administrative costs for that
    quarter, the excess payments will be carried forward to the
    following quarter. The contribution factors for the following
    quarter will take into consideration the projected costs of the
    support mechanisms for that quarter and the excess contributions
    carried over from the previous quarter." 47 C.F.R. § 54.709(b).

[^138]: *Universal Service Order*, 12 FCC Rcd at 9052, 9054, paras. 526,
    529; *Twelfth Order on Reconsideration* at para. 9.

[^139]: Moreover, we note that in its rules the Commission only codified
    the treatment for unused *funding authority*, not the treatment for
    unused *funds*, *see* 47 C.F.R. § 54.507, raising questions as to
    the import of the language in the *Universal Service Order*.

[^140]: *See* *Public Notice Reconsideration Petitions*.

[^141]: *Twelfth Order on Reconsideration* at para. 9.

[^142]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. § 601 *et. seq.*,
    has been amended by the Contract with America Advancement Act of
    1996, Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of
    the CWAAA is the Small Business Regulatory Enforcement Fairness Act
    of 1996 (SBREFA).

[^143]: *See* 5 U.S.C. § 603(a).

[^144]: *See id.*

[^145]: *Universal Service Order*, 12 FCC Rcd 8776.

[^146]: 5 U.S.C. § 603(b)(3).

[^147]: 5 U.S.C. § 601(6).

[^148]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small business concern" in 15 U.S.C. § 632). Pursuant to the RFA,
    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." 5 U.S.C. § 601(3).

[^149]: Small Business Act, 15 U.S.C. § 632.

[^150]: 5 U.S.C. § 601(4).

[^151]: 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).

[^152]: 47 C.F.R. § 1.1162.

[^153]: 5 U.S.C. § 601(5).

[^154]: U.S. Dept. of Commerce, Bureau of the Census, "1992 Census of
    Governments."

[^155]: *Id*.

[^156]: 47 C.F.R. §§ 54.502, 54.503, 54.517(b).

[^157]: 47 C.F.R. § 54.500(b).

[^158]: 47 C.F.R. § 54.500(j).

[^159]: 47 C.F.R. § 54.501.

[^160]: *See* *id.*

[^161]: 13 C.F.R. § 121.201, North American Industry Classification
    System (NAICS) Codes 611110, 514120. These NAICS Codes were adopted
    by the SBA effective December 18, 2000, replacing the previously
    used Standard Industrial Classification (SIC) Codes.

[^162]: The number of small entities affected by these rules may also be
    affected by a determination of which entities may make the required
    certification, which is an issue on which this Notice seeks comment,
    see ¶ 8. For example, if a school district may certify on behalf of
    all of its schools, that district may well have annual receipts in
    excess of \$5 million and therefore would not be a small entity
    under SBA's definition, whereas an individual school in that
    district might be a small entity with annual receipts of less than
    \$5 million, and thus would be affected by these rules.

[^163]: 5 U.S.C. § 601(3).

[^164]: *See* Letter from Jere W. Glover, Chief Counsel for Advocacy,
    SBA, to William E. Kennard, Chairman, FCC, dated 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* U.S.C. § 632(a) (Small Business Act); 5
    U.S.C. § 601(3) (RFA). SBA regulations interpret \"small business
    concern\" to include the concept of dominance on a national basis.
    13 C.F.R. § 121.102(b). Since 1996, out of an abundance of caution,
    the Commission has included small incumbent LECs in its regulatory
    flexibility analyses. *See*, *e.g*., *Implementation of the Local
    Competition Provisions of the Telecommunications Act of 1996*, CC
    Docket, 96-98, First Report and Order, 11 FCC Rcd 15499, 16144‑45
    (1996).

[^165]: 13 C.F.R. § 121.201, NAICS Code 513310.

[^166]: *Id.*

[^167]: FCC, Common Carrier Bureau, Industry Analysis Division, *Trends
    in Telephone Service*, Table 16.3 (Dec. 2000),
    \<<http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/trend200.pdf>\>
    (*Trends Report*).

[^168]: 13 C.F.R. § 121.201, NAICS Code 513310.

[^169]: *Id.*

[^170]: *Trends Report*, Table 16.3.

[^171]: 13 C.F.R. § 121.201, NAICS Code 513310.

[^172]: *Id.*

[^173]: *Trends Report*, Table 16.3.

[^174]: 13 C.F.R. § 121.201, NAICS Code 513322.

[^175]: *Id.*

[^176]: *Trends Report*, Table 16.3.

[^177]: The Commission has adopted a number of service-specific
    definitions of small businesses for various categories of wireless
    service, principally in the context of the Commission's rules
    governing spectrum auctions. *See* *Assessment and Collection of
    Regulatory Fees for Fiscal Year 2001*, MD Docket No. 01-76, FCC
    01-196, Attachment A, paras. 31-54 (rel. July 2, 2001). For purposes
    of administering the schools and libraries universal service
    program, however, we find that it is appropriate to address the
    various non-telephony wireless services as a group.

[^178]: 13 C.F.R. § 121.201, NAICS Code 513322.

[^179]: *Trends Report*, Table 16.3.

[^180]: 13 C.F.R. § 121.201, NAICS Code 514191.

[^181]: *Id*.

[^182]: 1997 Census Report, Establishment and Firm Size, U.S. Census
    Bureau, U.S. Department of Commerce, Economics and Statistics
    Administration, Document EC97S51S-SZ,
    \<<http://www.census.gov/prod/ec97/97s51-sz.pdf>\>, at 24.

[^183]: 13 C.F.R. § 121.201, NAICS Code 334220, 334290.

[^184]: *Id.*

[^185]: 1997 Economic Census, Manufacturing, Industry Series, Radio and
    Television Broadcasting and Wireless Communications Equipment
    Manufacturing, Document No. E97M-3342B (August 1999), at 14; 1997
    Economic Census, Manufacturing, Industry Series, Other
    Communications Equipment Manufacturing, Document No. EC97M-3342C
    (September 1999), at 14 (both available at
    \<[http://www.census.gov/prod/www/abs/97ecmani.html]{.underline}\>).

[^186]: *See*, *supra*, paras. 28-29.

[^187]: *See* 5 U.S.C. § 603(c).

[^188]: *Universal Service Order*, 12 FCC Rcd 8776, para. 586.

[^189]: *See*, *supra*, para. 36.

[^190]: 47 C.F.R. §§ 1.415, 1.419.

[^191]: 47 C.F.R. § 54.507(a).

[^192]: Congressional Budget Office, *Federal Subsidies of Advanced
    Telecommunications for Schools, Libraries, and Health Care
    Providers*, January 1998.