**Before the**

**FEDERAL COMMUNICATIONS COMMISSION**

**Washington, D.C. 20554**

In the Matter of )

)

Federal-State Joint Board on ) CC Docket No. 96-45

Universal Service )

**TWELFTH ORDER ON RECONSIDERATION**

**IN CC DOCKET NO. 96-45**

**Adopted: May 27, 1999 Released: May 28, 1999**

By the Commission: Chairman Kennard and Commissioners Ness and Tristani
issuing separate statements; Commissioner Furchtgott-Roth dissenting and
issuing a statement at a later date; Commissioner Powell concurring in
part and dissenting in part, and issuing a statement.

**I. INTRODUCTION**

1\. In this Order, we reconsider, on our own motion, the Commission\'s
decision governing the amount of money that may be collected during the
second six months of 1999 and the first six months of 2000 to fund the
second year of the federal universal service support mechanisms for
schools, libraries, and rural health care providers.[^1] For the reasons
set forth below, we find that we should set the collection rate for the
schools and libraries support mechanism at the \$2.25 billion cap
adopted in the *Universal Service Order*[^2] and that we should modify
the collection rate for the rural health care support mechanism by
setting a collection level of \$12 million.[^3] Although we modify the
collection rate for the rural health care support mechanism, we do not
revise the annual \$400 million cap for the rural health care support
mechanism adopted in the *Universal Service Order*. In addition, we do
not revise the rules of priority adopted in the *Fifth Order on
Reconsideration* and the *Eleventh Order on Reconsideration* to govern
the schools and libraries support mechanism.[^4]

2\. In this Order, we direct the Universal Service Administrative
Company (USAC or the Administrator)[^5] to collect no more than \$562.5
million per quarter for the third and fourth quarters of 1999 and the
first and second quarters of 2000 to support the schools and libraries
universal service support mechanism, and to limit collections to no more
than \$3 million per quarter for the third and fourth quarters of 1999
and the first and second quarters of 2000 to support the rural health
care universal service support mechanism. Furthermore, we direct USAC
neither to commit nor disburse more than \$2.25 billion for the schools
and libraries support mechanism during the third and fourth quarters of
1999 and the first two quarters of 2000 or more than \$12 million for
the third and fourth quarters of 1999 and the first and second quarters
of 2000 for the rural health care support mechanism.

**II. COLLECTIONS DURING THE SECOND FUNDING YEAR**

**A. BACKGROUND**

3\. When we initially implemented the schools and libraries and rural
health care support mechanisms in 1997, we did not have historical data
upon which to estimate with certainty the demand for services in the
initial months of the support mechanisms.[^6] As a result, the
Federal-State Joint Board on Universal Service (Joint Board) and the
Commission relied on the figures submitted on the record in the
universal service proceeding to project demand for the schools and
libraries and rural health care support mechanisms.[^7] Based on
extensive public comment and the unanimous recommendation of the Joint
Board,[^8] the Commission instituted annual caps on both support
mechanisms \-- \$2.25 billion for the schools and libraries support
mechanism,[^9] and \$400 million for the rural health care support
mechanism.[^10] On December 16, 1997, the Commission adopted the *Third
Reconsideration Order*, in which it revised the collection amounts for
the first six months of 1998. The Commission directed the Administrator
to collect only as much is required by demand, but in no event more than
\$625 million for the first six months of 1998 to support the schools
and libraries universal service support mechanism, and no more than \$50
million for the first six months of 1998 to support the rural health
care universal service support mechanism.[^11]

4\. In May of 1998, the Administrator estimated that \$2.02 billion in
discounts had been requested by applicants that had filed for schools
and libraries discounts for the first funding year.[^12] The
Administrator also projected that the rural health care support
mechanism required \$25 million for the third and fourth quarters of
1998.[^13] The *Fifth Reconsideration Order*, adopted on June 22, 1998,
amended the collection amounts, directing the Administrator to collect
and disburse only as much money as is required by demand, but in no
event more than \$25 million per quarter for the third and fourth
quarters of 1998 to support the rural health care universal service
support mechanism, and no more than \$325 million for each of the third
and fourth quarters of 1998 and the first and second quarters of 1999 to
support the schools and libraries universal service support
mechanism.[^14] Thus, the total collection amount for the first 18-month
funding cycle of the schools and libraries universal service support
mechanism was increased to \$1.925 billion.[^15] In addition, the *Fifth
Reconsideration Order* directed the Administrator neither to commit nor
disburse more than \$100 million during 1998 for the rural health care
support mechanism, or more than \$1.925 billion for the schools and
libraries support mechanism during 1998 and the first two quarters of
1999.[^16] The Commission determined that the revised collection rates
would ensure full support for telecommunications services and Internet
access, and would provide support for internal connections for the
neediest applicants.[^17] The Commission reasoned that funding
collections for the new support mechanisms should be set at reduced
levels in light of both the need to implement the necessary
administrative processes and the need to make the fund sufficiently
flexible to respond to demand.[^18] In addition, the Commission
concluded that the collection rate for the rural health care support
mechanism, \$25 million for the last two quarters of 1998, was
consistent with demand and that it was unlikely that eligible health
care providers would require additional funding.[^19]

5\. On February 27, 1999, the Schools and Libraries Division (SLD) of
USAC completed the issuance of funding commitment letters, which advised
schools and libraries of the amount of discounts for which they are
eligible for the first funding year. Collectively, eligible schools and
libraries were found eligible to receive more than \$1.6 billion in
discounts for the first funding year.[^20] For those applications
submitted during the initial filing window period, SLD granted all
approved requests for discounts on priority one services
(telecommunications services and Internet access) and granted all
approved requests for internal connections down to the 70 percent
discount level.

6\. The filing window for second year applications for the schools and
libraries support mechanism opened on December 1, 1998 and closed on
April 6, 1999. As of April 16, 1999, the Schools and Libraries Division
estimated that schools and libraries have requested discounts in the
amount of \$2.435 billion.[^21]

7\. Collections for the rural health care support mechanism prior to the
first quarter of 1999 exceeded disbursements and USAC has reported that
the support mechanism had a balance of \$87 million at the end of
1998.[^22] The Commission directed that excess contributions be credited
back to contributors.[^23] Specifically, the Commission proposed that
the excess contributions for the rural health care support mechanism be
applied to the other support mechanisms with the same contribution base,
i.e., the support mechanisms based upon interstate, intrastate, and
international end-user telecommunications revenues.[^24] USAC reported
that no more than \$2.0 million would be necessary to fund completed
applications for the second quarter of 1999.[^25] USAC therefore
requested that no contributions be collected for the second quarter of
1999 because the funding requirements would be satisfied by the
remaining balance in the rural health care account.[^26]

8\. The filing window for the rural health care support mechanism opened
on March 1, 1999 and is scheduled to close on May 14, 1999. The
Administrator projected that demand for the rural health care support
mechanism likely would not exceed \$12 million for the second funding
year.[^27]

**B. DISCUSSION**

9\. The Commission is committed to setting collection levels for the
second funding year at an amount that will ensure that the Administrator
is able to allocate support to schools and libraries at a level that is
equal to or greater than the level of support that was allocated in the
first funding year. Accordingly, given this commitment and estimated
demand at \$2.435 billion, we believe that the collection level should
be set at the \$2.25 billion cap recommended by the Joint Board on
Universal Service in the *First Recommended Decision*[^28] and adopted
by the Commission in the *Universal Service Order.*[^29] Consistent with
the Commission\'s conclusion in the *Universal Service Order,* we
believe that setting the collection level at \$2.25 billion reasonably
balances the desire to provide support to eligible schools and libraries
against the costs associated with establishing larger support
mechanisms.[^30] While we recognize that some applicants\' needs will
not be met in full (i.e., for funding of all internal connection
requests), a collection rate of \$2.25 billion will be sufficient to
fund fully all requests for priority one services (telecommunications
services and Internet access) and to fund fully requests by the neediest
schools and libraries for internal connections to the same level of
discount as was funded in the first program year.[^31] This approach is
consistent with the Commission\'s commitment to ensuring that support
will be directed toward the most economically disadvantaged schools and
libraries, as well as those located in rural areas. Accordingly, we
direct USAC to collect only as much as required by demand, but in no
event more than \$562.5 million per quarter for the third and fourth
quarters of 1999 and the first and second quarters of 2000 to support
the schools and libraries universal service support mechanism. We also
direct the Administrator to commit to applicants no more than \$2.25
billion for disbursement during the second half of 1999 and the first
half of 2000 to support the schools and libraries support mechanism.

10\. We have determined that demand for funding will not increase
significantly during the second funding year of the rural health care
support mechanism. As projected by USAC, we anticipate that demand is
not likely to exceed \$12 million total annual support for the second
funding year.[^32] We conclude therefore that we should establish a
maximum collection level at \$12 million for the third and fourth
quarters of 1999 and the first and second quarters of 2000.[^33] This
collection level is consistent with projected demand, and there is no
evidence that eligible health care providers will require funding beyond
this level for the second funding year. Accordingly, we direct USAC to
limit collections to no more than \$3 million per quarter for the third
and fourth quarters of 1999 and the first and second quarters of 2000
for the rural health care universal service support mechanism. We also
direct USAC to commit to applicants no more than \$12 million for
disbursement during the second half of 1999 and the first half of 2000
to support the rural health care support mechanism.

**III. CONCLUSION**

11\. We find that it serves the public interest to direct USAC to
collect only as much as required by demand, but in no event more than
\$562.5 million per quarter for the third and fourth quarters of 1999
and the first and second quarters of 2000 to support the schools and
libraries universal service support mechanism. We direct USAC to limit
collections to no more than \$3 million per quarter for the third and
fourth quarters of 1999 and the first and second quarters of 2000 for
the rural health care universal service support mechanism. We also
direct the Administrator to commit to applicants no more than \$2.25
billion for disbursement during the second half of 1999 and the first
half of 2000 to support the schools and libraries support mechanism and
no more than \$12 million for disbursement during the second half of
1999 and the first half of 2000 to support the rural health care support
mechanism.

12\. We find good cause, pursuant to section 553(d)(3) of the
Administrative Procedure Act,[^34] to make the rules adopted in this
Order effective upon publication in the Federal Register. The rules
adopted herein are necessary for the Commission to calculate the
universal service contribution factors for the second funding year of
the federal support mechanisms for schools, libraries, and rural health
care providers. The contribution factors must be published via Public
Notice in early June[^35] to provide sufficient advance notification to
industry representatives and service providers before USAC uses the
factors in preparing to bill service providers, beginning July 1, for
their third quarter contributions. Early effectiveness of the rules will
thus enable the Commission and USAC to promptly complete these tasks. In
addition, certain service providers must file tariffs in mid-June that
reflect the contribution factors. Thus, we find that good cause exists
to make the rules adopted herein effective upon publication in the
Federal Register.

**IV. Regulatory Flexibility Analysis**

**A. Final Regulatory Analysis**

13\. In compliance with the Regulatory Flexibility Act (RFA),[^36] this
Supplemental Final Regulatory Flexibility Analysis (Supplemental FRFA)
supplements the Final Regulatory Flexibility Analysis (FRFA) included in
the *Universal Service Order*,[^37] and the Supplemental Final
Regulatory Flexibility Analyses in the *Fifth Reconsideration
Order*[^38] and the *Eighth Order on Reconsideration*,[^39] only to the
extent that changes to the Order adopted here on reconsideration require
changes in the conclusions reached in the FRFA and the two previous
Supplemental FRFAs. In the previous analyses, we sought written public
comment on the potential economic impact on small entities.

**1. Need for and Objectives of This Order**

14\. The Commission is required by section 254 of the Act to promulgate
rules to implement promptly the universal service provisions of section
254. On May 8, 1997, the Commission adopted rules whose principle goal
is to reform our system of universal service support mechanisms so that
universal service is preserved and advanced as markets move toward
competition. In this Order, we reconsider one aspect of those rules. We
reconsider, on our own motion, the amounts that will be collected during
the second six months of 1999 and the first six months of 2000 for the
schools and libraries and rural health care support mechanisms.

**2. Description and Estimates of the Number of Small Entities to Which
the Rules Adopted in This Order will Apply**

15\. 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.[^40] The RFA generally
defines the term \"small entity\" as having the same meaning as the
terms \"small business,\" \"small organization,\" and \"small
governmental jurisdiction.\"[^41] In addition, the term \"small
business\" has the same meaning as the term \"small business concern\"
under the Small Business Act.[^42] A small business concern is one
which: (1) is independently owned and operated; (2) is not dominant in
its field of operation; and (3) satisfies any additional criteria
established by the Small Business Administration (SBA).[^43] A small
organization is generally \"any not-for-profit enterprise which is
independently owned and operated and is not dominant in its
field.\"[^44]

16\. In the FRFA of the *Universal Service Order*, we estimated and
described in detail the number of small entities that might be affected
by the new universal service rules.[^45] The rules adopted in this
Order, however, would affect primarily schools, libraries, and rural
health care providers. Moreover, the adopted rules will allow schools,
libraries, and rural health care providers to benefit more fully from
the schools and libraries and rural health care universal service
support mechanisms, constituting a positive economic impact on these
small entities.

17\. As noted above, small entities includes \"small businesses,\"
\"small organizations,\" and \"small governmental jurisdictions.\" All
three types of small entities may also constitute schools, libraries, or
rural health care providers for the purpose of this analysis. \"Small
governmental jurisdiction\" generally means \"governments of cities,
counties, towns, townships, villages, school districts, or special
districts, with a population of less than 50,000.\"[^46] As of 1992,
there were approximately 85,006 such jurisdictions in the United
States.[^47] This number includes 38,978 counties, cities, and towns; of
these, 37,566, or 96 percent, have populations of fewer than
50,000.[^48] 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 (91 percent) are
small entities. As for \"small organizations,\" as of 1992, there were
approximately 275,801.[^49]

18\. Also, as the Commission specifically noted in the *Universal
Service Order*, the SBA defined small elementary and secondary schools
and small libraries as those with under \$5 million in annual
revenues.[^50] The Commission has further estimated that there are fewer
than 86,221 public and 26,093 private schools and fewer than 15,904
libraries that may be affected by the decisions and rules adopted in the
Universal Service Order.[^51] We believe that these same small entities
may be affected potentially by the rules adopted in this Order.

19\. In addition, the Commission noted in the *Universal Service Order*
that neither the Commission nor the SBA has developed a definition of
small, rural health care providers. Section 254(h)(5)(B) defines the
term \"health care provider\" and sets forth the seven categories of
health care providers eligible to receive universal service
support.[^52] We estimated that there are fewer than 12,296 health care
providers potentially affected by the rules in the *Universal Service
Order*.[^53] We note that these small entities may potentially be
affected by the rules adopted in this Order.

**3. Description of the Projected Reporting, Recordkeeping, and Other
Compliance Requirements**

20\. The modifications to the Commission\'s rules that are set forth in
this Order relate only to actions that need to be taken by the
Administrator of the universal service support mechanisms. As a result,
we do not anticipate any additional burdens or costs associated with
these proposed rules on any entities, including on small entities.

**4. Steps Taken to Minimize Significant Economic Impact on Small
Entities, and Significant Alternatives Considered**

21\. In the FRFA to the *Universal Service Order*, the Commission
described the steps taken to minimize the significant economic impact on
a substantial number of small entities consistent with stated objectives
associated with the Schools and Libraries section, the Rural Health Care
Provider section, and the Administration section of the *Universal
Service Order*.[^54] As described above, our current action to amend our
rules will benefit schools and libraries by ensuring that funds are
allocated first to the neediest schools and libraries. We believe that
these amended rules fulfill the statutory mandate to enhance access to
telecommunications services for schools, libraries, and rural health
care providers, and fulfill the statutory principle of providing quality
services at \"just, reasonable, and affordable rates,\"[^55] without
imposing unnecessary burdens on schools, libraries, rural health care
providers, or service providers, including small entities.

22\. *Report to Congress*. The Commission will send a copy of the
Twelfth Order on Reconsideration in CC Docket No. 96-45, including this
FRFA, in a report to be sent to Congress pursuant to the Small Business
Regulatory Enforcement Fairness Act of 1996, [see]{.underline} 5 U.S.C.
§ 801(a)(1)(A). In addition, the Commission will send a copy of the
Twelfth Order on Reconsideration in CC Docket No. 96-45, to the Chief
Counsel for Advocacy of the Small Business Administration. A copy of the
Twelfth Order on Reconsideration in CC Docket No. 96-45, and FRFA (or
summaries thereof) will also be published in the Federal Register.
[See]{.underline} 5 U.S.C. § 604(b).

**V. ORDERING CLAUSES**

23\. Accordingly, IT IS ORDERED that, pursuant to the authority
contained in sections 1-4, 201-205, 218-220, 254, 303(r), 403, and 405
of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151-154,
201-205, 218-220, 254, 303(r), 403, and 405, section 1.108 of the
Commission\'s rules, 47 C.F.R. § 1.108, and section 553 of the
Administrative Procedure Act, 5 U.S.C § 553, Part 54 of the
Commission\'s rules, 47 C.F.R. Part 54, is revised as set forth in
Appendix A hereto, effective upon publication in the Federal Register.

24\. IT IS FURTHER ORDERED that the Commission\'s Office of Public
Affairs, Reference Operations Division, SHALL SEND a copy of this
TWELFTH ORDER ON RECONSIDERATION, including the Supplemental Final
Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of
the Small Business Administration.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

**Appendix A \-- Rule Changes**

**§ 54.507 Cap.**

1\. Revise paragraph 54.507(a)(1) to read as follows:

\(1\) No more than \$562.5 million shall be collected or spent per
quarter for the third and fourth quarters of 1999 and the first and
second quarters of 2000 to support the schools and libraries universal
service support mechanism. No more than \$2.25 billion shall be
collected or disbursed during the twelve month period from July 1, 1999
through June 30, 2000.

**§ 54.623 Cap.**

2\. Revise paragraph 54.623(a) to read as follows:

\(a\) [Amount of the annual cap]{.underline}. The annual cap on federal
universal service support for health care providers shall be \$400
million per funding year, with the following exceptions. No more than
\$3 million shall be collected or spent per quarter for the third and
fourth quarters of 1999 and the first and second quarters of 2000 for
the rural health care universal service support mechanism. No more than
\$12 million shall be committed or disbursed during the twelve month
period from July 1, 1999 through June 30, 2000.

**Statement of**

**Chairman William E. Kennard**

**on**

***Funding for the Second Year of the Schools***

***and Libraries and Rural Health Care***

***Universal Support Mechanisms***

As members of the FCC, sometimes we have the occasion to witness events
and even make decisions that will shape the comunications revolution for
years to come, decisions that will impact how technology can and does
affect people\'s homes, businesses, families, and lives.

Today is one such occasion. I will be voting to fund the e-rate -- a
program to wire schools and libraries to the Internet -- to its cap of
\$2.25 billion for its second year.

Before the e-rate, only 39 percent of classrooms in poor school
districts in rural and urban America had any Internet connections
compared to 62 percent of classrooms in wealthier districts. The
on-ramps to the Information Superhighway were bypassing the communities
that needed access to opportunity the most.

After one year, though, we find that the digital divide is narrowing.
Over 80,000 schools and libraries -- and more than 38 million kids \--
have been helped by the e-rate program. Because of the e-rate, more than
half of the unconnected classrooms will now be linked to the Internet,
the bulk of which are found in schools where over half of the students
live in poverty.

And according to Forrester Research, Internet access among
African-Americans is expected to increase 42 percent, and among
Hispanics 20 percent -- two phenomena that Forrester chalks up to the
e-rate program and its ability to bring this technology into every
community.

By funding to the cap, we\'ll be able to wire 528,000 public school
classrooms to the Internet. If we meet this high demand, we will be able
to help schools that teach 40 million American children. We\'ll allow
libraries and schools that never would have been able to pay for these
services the chance to connect to the Internet. We\'ll be able to
connect communities throughout rural America.

The funding that we authorize today will be sufficient to ensure
fully-funded discounts for all telecommunications services and Internet
access and to fully fund discounts for the neediest schools and
libraries for internal connections to the same level of discount as was
funded in the first program year. Unfortunately, some applicants\' needs
will not be met in full, but we have acted to ensure that support will
be directed to rural areas and the most economically disadvantaged
schools and libraries. Based on the record, we believe that the funding
rates we have established today reasonably balance the need to provide
support with the costs associated with a larger support program.

Moreover, funding at this level is the only way in which we can reach
those schools and libraries in rural America. In fact, by funding the
e-rate to its cap, we\'ll be able to connect one-third of public schools
throughout rural America.

If you have ever traveled through our nation\'s countryside and spoken
to the people who live in its small towns and on its farms, you will
hear firsthand how important these connections are to them. With links
to the on-line world, students won\'t have to travel far distances to
take courses not offered in their schools. More time can be spent in the
community giving a child the nurturing and support that they need. And
with the \"death of distance,\" educational and economic opportunities
will become available locally and families will be able to comfortably
stay on the land on which they\'ve lived for generations.

To further help families in our nation\'s small towns and farms, we are
also directing the Universal Services Administrative Company to collect
the funds required to meet projected demand up to \$12 million over the
next year for the rural health care support mechanism.

Over 200 years ago, Benjamin Franklin -- who incidentally helped found a
great university, the University of Pennsylvania, and a great library,
the Philadelphia Free Library -- once remarked that \"If a man empties
his purse into his head, no one can take it away from him. An investment
in knowledge always pays the best interest.\"

The e-rate is one such investment. It\'s a down payment on the future of
our kids and of our economy. By exposing more and more of our children
to the Internet and information technology, they will learn the skills
needed to gain the high-paying jobs of our Information-Age economy. They
will be linked into our national community. They will be given the
digital tools needed to fulfill the promise of American life in the
Information Age.

**Separate Statement**

**of**

**Commissioner Susan Ness**

*Re: Funding for the Second Year of the Schools and Libraries and Rural
Health Care Universal Service Support Mechanisms (Federal--State Joint
Board on Universal Service, CC Docket No. 96-45).*

The Telecommunications Act of 1996 embraces universal service as one of
its fundamental goals -- that all Americans should have access to
telecommunications and information services at affordable and reasonably
comparable rates.

Based upon the recommendations of a bipartisan federal-state joint
board, the Commission, in May 1997, adopted an order that: (1) approved
a plan that preserved existing explicit funding for rural carriers
serving high cost areas; (2) established a forward-looking cost model
and national-benchmark regime for determining the cost of service and
subsidy necessary for large carriers serving high cost areas; (3)
expanded the Lifeline and Link Up programs to enable low income
residents in states that did not have a matching program to qualify for
this funding; and (4) pursuant to the Snowe-Rockefeller-Exon-Kerrey
provisions of the Act, established a schools and libraries support
mechanism to provide discounts for telecommunications services and
internal connections to link classrooms and libraries to the Internet,
as well as a program to provide rates for telecommunications services
for rural health care providers that are comparable to those paid by
urban providers.

The high cost and low income programs were on-going and were
sufficiently funded; the schools and libraries and rural health care
funds were new tiles in the universal service mosaic.

Last year Congress raised very legitimate concerns about the structure
and priorities of the schools and libraries program. After streamlining
the structure of the schools and libraries and rural health care
programs, reprioritizing schools and libraries to benefit institutions
in the most economically disadvantaged and rural areas first, and
undergoing exhaustive audits by the GAO and an outside accounting firm
to ensure that adequate procedures are in place to deter and detect
waste, fraud, and abuse -- all to address Congressional concerns -- the
two programs finally began to fund applications late last year.

The benefits to date from this funding are readily apparent. Over the
past year the number of classrooms connected has more than doubled.

For the schools and libraries program, the demand for telecommunications
discounts has well exceeded the level of approved funding. Today, I vote
to increase that funding level not to exceed \$2.25 billion -- the cap
recommended by the original bipartisan joint board and adopted by the
Commission in1997 -- to enable schools and libraries serving some of the
most economically disadvantaged and rural areas of the country to
connect their classrooms and facilities to the Internet.

Section 254 of the Act wisely and specifically provides for classrooms
to have access to advanced telecommunications services. It is in the
classroom where the students and teachers assemble for learning. It is
in the classroom where distance learning can offer students advanced
courses taught by teachers located many miles away. And it is in the
classroom where student forays on the Internet can best be protected.

Moreover, the schools and libraries program will help to jumpstart the
provision of advanced telecommunications and information services to
rural America. In areas where individual households do not yet have
access to advanced services, a high-speed Internet connection to a
school or library is a tremendous resource for the whole community. It
is noteworthy that Section 706 also focuses specifically on providing
"advanced telecommunications capability to all Americans (including, in
particular, elementary and secondary schools and classrooms)."

In an increasingly global economy, it is essential that we prepare our
children and our communities now for the 21^st^ century. Every day, more
jobs require computer skills. Providing our children and communities
with Information Age tools is key to our future success as a prosperous
nation. We cannot afford to wait.

**STATEMENT OF COMMISSIONER MICHAEL K. POWELL**

**CONCURRING IN PART AND DISSENTING IN PART**

Re: *Twelfth Order on Reconsideration, Federal-State Joint Board on
Universal Service*, CC Docket No. 96-45

Giving all our children access to the world of information is
unassailably a worthy and noble objective. Few, and certainly not I,
dispute its value or its importance. I sincerely respect the depth of my
colleagues' support and commitment to this program as well as that of
other proponents and supporters. As the father of two children, I have
seen first hand the advantages of Internet access and computer literacy.

Regrettably, however, I remain uncomfortable with much of the program's
structure and parameters. And, today, I am uncomfortable with the
funding increase that the majority will adopt. Because I am unsure that
the funding increase is actually needed as opposed to just wanted, I
must respectfully dissent from increasing funding to \$2.25 billion
(though I would have supported a more modest increase in funding).

We are told that the demand for the program is extraordinarily high and
we should continue to provide support to the neediest schools. But what
information, data, or even mechanisms do I, or we, have as regulators to
distinguish between need and want in picking the "right" amount? Demand
certainly should be taken into account, but it is unremarkable that
demand is high, for like in the movie "Field of Dreams," if you build
it, they will come. And, as one would expect, we built a large federal
program and they have come. Indeed, shame on any school that has not
acted aggressively to take advantage of this federal generosity. But,
how do we know or distinguish, within that infinite demand, real need
from want, even for the poorest schools?

Part of the problem is that the distinction or choice involves questions
of educational policy and priorities, as well as social judgments about
worthiness among school demographics. For the Schools and Libraries
program, these judgments uncomfortably rest with telecom policy experts
at a federal agency. In fact, perhaps recognizing that we are fish out
of water, we do not really attempt in our decision today to make these
judgments and instead leave much of it in the hands of local officials
who have the expertise, but who likely also have insatiable appetites.

Passionate support of the objectives and commitment to the program alone
should not and cannot determine the appropriate amount of funding. Nor
can a lack of support or more modest commitment determine this amount.
Yet, if there is going to be such a large and significant federal
program as this, it must have some basis for fiscal discipline and
restraint, some basis for picking the "right" funding level. But, as
structured, I have no real idea how to do that without simply checking
the political winds and aligning myself with one current or the other.

Passionate support in implementing federal programs is admirable. But,
it can lead to over-aggressive driving. In fact, this program often
feels like we are driving fast along a dark road without headlights and
we keep pushing harder on the accelerator. But, this road has twists and
turns. Our aggressiveness may have consequences:

• I worry that our aggressive interpretation of the statute will be
arrested by the courts. Indeed, a decision is expected any day out of
the Fifth Circuit with respect to some of our statutory interpretation
maneuvers, that may severely constrain this program, yet we stay
resolutely on the accelerator.

• I worry that we cannot actually handle the speed of our aggressive
funding---today, an increase of 80%, on average, on a monthly, quarterly
and annual basis. We insist we can handle it, by covering the cost of
the program through savings we hope to engineer. Yet, we really do not
have complete control over such savings. Carriers in their business
judgment will allocate savings in different ways, depending on how they
choose to serve their customers. At present, we can't ultimately make
carriers do it as we might like, and should be careful how far we go in
trying to pressure or coerce them into doing so. Thus, the "savings" we
tout may or may not be fully realized, and bill paying consumers may pay
the price for the increase.

Similarly, we bet on the off-sets of access reductions. Yet, the price
cap formula that we have been counting on for off-setting this increase
has been overturned by the D.C. Circuit. We may get that decision
stayed, but it places a long shadow of doubt over our ability to balance
the costs of the program. Moreover, we still have before us in the road,
not behind us, the access charge reform proceeding. And, we still are
unsure what the ultimate price tag for universal service will be---what
it will cost consumers---yet we push ahead with this increase. I have
always preferred a more comprehensive and coordinated approach to
implementing universal service for just this reason.

I fear all of this haste could lead to missteps that result in a
collapse of political will to continue this program. But just as
importantly, it could lead to a collapse of political will to support
funding or reallocating other costs which are equally important
exercises for the good of consumers and the general public. I hope we
can handle it, but I have my doubts.

As the cop in the movies always says, "Why are you in such a hurry?" I
cannot say that I understand the urgency. The rhetoric is powerful: "A
digital divide," "information haves and have nots," affluent suburbs
versus poor urban children. They certainly are powerfully emotional
sound bites that give the intended sense of urgency and crisis.

But, is this rhetoric warranted if we are not talking about eliminating,
but rather limiting, the program, at least while we attend to other,
languishing aspects of universal service? More modest funding would not
stop the program, it would not jeopardize the well-being of our
children. It would not condemn us to a world of haves and have nots.
Modest funding would merely mean that all of the benefits of the program
will not arrive immediately. It means all will still get wired over the
next couple of years, but perhaps not by year 2000. Why would that be
tragic?

We are told only 51% of classrooms are wired---a bare majority. It is
difficult to see how our global competitiveness somehow will be
irreversibly lost if it is not 100% immediately? I doubt seriously that
many countries around the world actually have anything approaching this
level of connectivity in the classroom.

Moreover, nearly 90% of schools are already wired. Those students still
have access. Surely not as much direct and instantaneous access as they
may want, but they are not shut out. Plus, we really do not know where
else they may get access: home, church, boys and girls clubs, and other
public and private initiatives. Yet, without taking any of that into
consideration, we speed ahead as if racing a dying child to the
emergency room.

I dismiss any suggestion that interjecting a note of caution into the
administration of a popular program is uncaring or hard-hearted. This
all troubles me precisely because I care about the program and support
it. The program simply must not get to the point where its rhetoric
exceeds its fundamentals.

I would have supported pegging funding levels at the current \$1.9
billion, a more moderate increase given this funding year is six months
shorter than the last. No, I don't know if that is the right number
either. But if we are going to travel a fairly dim-lit road, its seems
driving a little slower is more likely to ensure a safe arrival at our
destination.

**Separate Statement of**

**Commissioner Gloria Tristani**

*Re: Federal-State Joint Board on Universal Service; Twelfth Order on
Reconsideration. CC Docket No. 96-45.*

I strongly support the Commission's decision today setting the
collection level for the schools and libraries support mechanism (the
"e-rate") at the \$2.25 billion cap. I support fully funding the e-rate
because it is a sound investment in the future of our children and our
country. By funding Internet connections to classrooms, we bring the
enormous educational resources of the Internet directly to teachers and
students.

Although 89 percent of public schools have some Internet access today,
only 51 percent of our nation's classrooms are connected to the
Internet. Only 39 percent of high-poverty classrooms are connected,
compared to 62 percent of classrooms in wealthier schools. The e-rate is
especially critical for ensuring that minority and low income children
-- those who are less likely to have access to computers and the
Internet at home -- are able to participate in the telecommunications
revolution. It will help ensure that this country's troubling digital
divide does not become an unbridgeable chasm.

Moreover, the e-rate is sound competition policy for the United States.
Today, technology companies in the United States cannot fill jobs
because young people in the workforce lack the necessary skills. If
companies do not fill those jobs with American workers, they will fill
them with foreign workers. Any significant export of high technology
jobs to other countries far outweighs the cost of the Schools and
Libraries Program. Thus, we can make the relatively small investment
now, or we can pay in countless ways later. I am committed to seeing
this vital program move forward and to seeing all our students reap the
benefits.

[^1]:     ^?^ The Commission retains jurisdiction to reconsider its own
    rules on its own motion. *See* 47 C.F.R. § 1.108. *See also Central
    Florida Enterprises, Inc., v. FCC,* 598 F.2d 37, 48 n.51 (D.C. Cir.
    1978), *cert. dismissed*, 441 U.S. 957 (1979).

[^2]:     ^?^ *Federal-State Joint Board on Universal Service*, CC
    Docket No. 96-45, First Report and Order, 12 FCC Rcd 8776, 9054,
    para. 529 (1997), appeal pending sub nom. Texas Office of Util.
    Counsel, No. 97-60421 (5th Cir., filed June 25, 1997) (*Universal
    Service Order*).

[^3]:     ^?^ *See* Letter from Robert Haga, Secretary and Treasurer,
    Universal Service Administrative Company, to Magalie Roman Salas,
    Secretary, Federal Communications Commission, dated May 17, 1999
    (USAC May 17 Letter).

[^4]:     ^?^ *See Federal‑State Joint Board on Universal Service,* CC
    Docket No. 96‑45, Fifth Order on Reconsideration and Fourth Report
    and Order*,* 13 FCC Rcd 14915, 14934, para. 31 (1998) (*Fifth
    Reconsideration Order*). The rules of funding priority provide that
    requests for telecommunications services and Internet access for all
    discount categories shall receive first priority for available
    funds. When sufficient funds are not available to fund all requests
    for discounts on internal connection, the Administrator shall
    allocate funds for discounts to schools and libraries beginning with
    those applicants at the ninety percent discount level and, to the
    extent funds remain, continue to allocate funds for discounts to
    applicants at each descending single discount percentage, e.g.,
    eighty-nine percent, eighty-eight percent, and so on. *See Changes
    to the Board of Directors of the National Exchange Carrier
    Association, Federal-State Joint Board on Universal Service*, Fifth
    Order on Reconsideration in CC Docket No. 97-21, Eleventh Order on
    Reconsideration in CC Docket No. 96-45, and Further Notice of
    Proposed Rulemaking, FCC 99-49, para. 4 (adopted Mar. 18, 1999)
    (*Eleventh Reconsideration Order*).

[^5]:     ^?^ In a November 20, 1998 order, the Commission revised the
    organizational structure of the universal service support
    mechanisms. As of January 1, 1999, the Schools and Libraries
    Corporation and the Rural Health Care Division Corporation merged
    into the Universal Service Administrative Company (USAC). USAC now
    serves as the single entity responsible for administering all of the
    universal service support mechanisms. *See Changes to the Board of
    Directors of the National Exchange Carrier Association, Inc*.,
    *Federal-State Joint Board on Universal Service*, Third Report and
    Order in CC Docket No. 97‑21, Fourth Order on Reconsideration in CC
    Docket No. 97‑21, and Eighth Order on Reconsideration in CC Docket
    No. 96‑45, FCC 98‑306 (rel. Nov. 20, 1998).

[^6]:     ^?^ *Universal Service Order*, 12 FCC Rcd at 9054-56, 9140-41,
    paras. 529-33, 704-05.

[^7]:     ^?^ *See Federal-State Joint Board on Universal Service*, CC
    Docket No. 96-45, Recommended Decision, 12 FCC Rcd 87, 368-71,
    paras. 552-56 (1996) (*First Recommended Decision*); *Universal
    Service Order*, 12 FCC Rcd at 9054-57, paras. 529-33.

[^8]:     ^?^ *See* *Recommended Decision*, 12 FCC Rcd at 368-71, paras.
    552-56.

[^9]:     ^?^ *Universal Service Order*, 12 FCC Rcd at 9054, para. 529.

[^10]:     ^?^ *Universal Service Order,* 12 FCC Rcd at 9141, para. 705.
    In addition, the Commission specified that the Administrator should
    collect \$100 million per month for the first three months of 1998
    for the schools and libraries support mechanism, and held that,
    between January 1, 1998 and June 30, 1998, the Administrator \"will
    only collect as much as required by demand, but in no case more than
    \$1 billion.\" For the rural health care support mechanism, the
    Commission directed the Administrator to collect \$100 million for
    the first three months of 1998. *Id.* at 9145, para. 715.

[^11]:     ^?^ *Third Order on Reconsideration*, 12 FCC Rcd 22801, para.
    1 (1997).

[^12]:     ^?^ *See* Letter from Ira Fishman, CEO, Schools and Libraries
    Corporation, to the Honorable William E. Kennard, Chairman, Federal
    Communications Commission, dated May 7, 1998.

[^13]:     ^?^ On May 13, 1998, the Common Carrier Bureau released a
    Public Notice seeking comment on a proposed revision of the 1998
    collection amounts for the schools and libraries and rural health
    care universal service support mechanisms. *See Common Carrier
    Bureau Seeks Comment on Proposed Revision of 1998 Collection Amounts
    for Schools and Libraries and Rural Health Care Universal Service
    Support Mechanisms*, CC Docket No. 96-45, Public Notice, DA 98-872
    (rel. May 13, 1998) (*Collection Public Notice*). In the *Collection
    Public Notice*, the Common Carrier Bureau sought comment on a
    proposal to direct USAC to collect only as much money as is required
    by demand, but in no event more than \$25 million per quarter for
    the third and fourth quarters of 1998 to support the rural health
    care universal service support mechanism, and no more than \$524
    million per quarter for the third and fourth quarters of 1998 to
    support the schools and libraries universal service support
    mechanism. The Common Carrier Bureau also sought comment on whether
    to direct the administrative corporations neither to commit nor
    disburse more than \$100 million for the rural health care support
    mechanism and \$1.67 billion for the schools and libraries support
    mechanism during the 1998 funding year. *Id.*

[^14]:     ^?^ *Fifth Reconsideration Order*, 13 FCC Rcd at 14933, para.
    29. The *Fifth Reconsideration Order* changed the funding year for
    the schools and libraries support mechanism from a calendar year
    cycle (January 1 - December 31) to a fiscal year cycle (July 1 -
    June 30). To facilitate the change, the Commission concluded that
    the first funding period should run from January 1, 1998 through
    June 30, 1999. As a result, the Commission found that applications
    submitted during the initial 75-day filing window (January 30,
    1998 - April 15, 1998) should be funded through June 30, 1999. *Id.*
    The *Fifth Reconsideration Order* also established new rules to
    govern how funding will take place in situations where available
    funding is less than total demand; *see* n.3, *supra*. The rules of
    priority provide that requests for telecommunications services and
    Internet access for all discount categories shall receive first
    priority for the available funds. *See* 47 C.F.R. § 54.507(g)(1)(i).

[^15]:     ^?^ This increase reflected the extension of the first
    funding year from 12 months to 18 months; *see* n. 14, *supra.*

[^16]:     ^?^ *Fifth Reconsideration Order*, 13 FCC Rcd at 14916, para.
    3.

[^17]:     ^?^ *Fifth Reconsideration Order*, 13 FCC Rcd at 14938,
    paras. 3, 37-8.

[^18]:     ^?^ *Fifth Reconsideration Order*, 13 FCC Rcd at 14928, para.
    19. *See also* *Universal Service Order*, 12 FCC at 9054, para. 529.

[^19]:     ^?^ *Fifth Reconsideration Order*, 13 FCC Rcd at 14928, para.
    21.

[^20]:     ^?^ This amount does not reflect funds set aside for
    administrative expenses and appeals.

[^21]:     ^?^ *See* Letter from Kate L. Moore, President, Schools and
    Libraries Division, to the Honorable William E. Kennard, Chairman,
    Federal Communications Commission, dated April 16, 1999.

[^22]:     ^?^ *See Second Quarter 1999 Universal Service Contribution
    Factors*, CC Docket No. 96-45, Public Notice, DA 99-455 (rel. March
    4, 1999).

[^23]:     ^?^ *Id.*

[^24]:     ^?^ *Id.*

[^25]:     ^?^ *Id.*

[^26]:     ^?^ *Id.*

[^27]:     ^?^ *See* USAC May 17 Letter.

[^28]:     ^?^ *First Recommended Decision*, 12 FCC Rcd at 370, para.
    556.

[^29]:     ^?^ *Universal Service Order*, 12 FCC Rcd at 9054, para. 529.

[^30]:     ^?^ *See Universal Service Order*, 12 FCC Rcd at 9056, para.
    533.

[^31]:     ^?^ *See* para. 5, *supra.* Some funds must be set aside for
    administrative expenses and appeals and, therefore, the total
    collection amount would not be available to fund requests for
    discounts.

[^32]:     ^?^ *See* n. 27, *supra.*

[^33]:     ^?^ *See* n. 31, *supra.*

[^34]:     ^?^ 5 U.S.C. § 553(d).

[^35]:     ^?^ The contribution factors become effective 14 days later
    absent further Commission action. *See Changes to the Board of
    Directors of the National Exchange Carrier Association, Inc., and
    Federal-State Board on Universal Service*, CC Docket Nos. 97-21 and
    96-45, FCC 97-253, Report and Order and Second Order on
    Reconsideration (rel. July 18, 1997).

[^36]:     ^?^ *See* 5 U.S.C. § 604. The Regulatory Flexibility Act, 5
    U.S.C. § 601 *et seq.*, was amended by the Small Business Regulatory
    Enforcement Act of 1996 (SBREFA), Title II of the Contract with
    America Advancement Act of 1996, Pub. L. No. 104-121, 110 Stat. 847
    (1996).

[^37]:     ^?^ *Universal Service Order*, 12 FCC Rcd at 9219-9260,
    paras. 870-983.

[^38]:     ^?^ *Fifth Reconsideration Order*, 13 FCC Rcd at 14948.

[^39]:     ^?^ *Changes to the Board of Directors of the National
    Exchange Carrier Association, Inc., Federal-State Joint Board on
    Universal Service*, Third Report and Order in CC Docket No. 97-21,
    Fourth Order on Reconsideration in CC Docket No. 97-21 and Eighth
    Order on Reconsideration in CC Docket No. 96-45, FCC 98-306 (rel.
    November 20, 1998).

[^40]:     ^?^ 5 U.S.C. § 603(b)(3).

[^41]:     ^?^ 5 U.S.C. § 601(6).

[^42]:     ^?^ 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).

[^43]:     ^?^ Small Business Act, 15 U.S.C. § 632 (1996).

[^44]:     ^?^ 5 U.S.C. § 601(4).

[^45]:     ^?^ *See Universal Service Order*, 12 FCC Rcd at 9242, para.
    925.

[^46]:     ^?^ 5 U.S.C. § 601(5).

[^47]:     ^?^ U.S. Dept. of Commerce, Bureau of the Census, \"1992
    Census of Governments.\"

[^48]:     ^?^ U.S. Dept. of Commerce, Bureau of the Census, \"1992
    Census of Governments.\"

[^49]:     ^?^ 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).

[^50]:     ^?^ *See Universal Service Order*, 12 FCC Rcd at 9242, para.
    925.

[^51]:     ^?^ *See Universal Service Order*, 12 FCC Rcd at 9243, para.
    925.

[^52]:     ^?^ *See* 47 U.S.C. § 254(h)(5)(B).

[^53]:     ^?^ *See Universal Service Order*, 12 FCC Rcd at 9242, para.
    924.

[^54]:     ^?^ *See Universal Service Order*, 12 FCC Rcd at 9242, para.
    924.

[^55]:     ^?^ 47 U.S.C. § 254(b)(1).