*Pages 1--21 from  Microsoft Word - 16368*
 Federal  Communications  Commission  FCC  99-  121 
 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 
 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). 
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 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. 

 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). 
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 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 
 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, 
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 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 

 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. 
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 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, 

 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. 
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 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 

 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. 
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 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 

 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. 
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 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 
 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). 
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 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 

 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). 
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 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 
 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. 
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 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  5 

 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). 
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 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  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 
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 13 
 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.  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. 
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 Federal  Communications  Commission  FCC  99-  121 
 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. 
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 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. 
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 Federal  Communications  Commission  FCC  99-  121 
 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 
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 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. 
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 Federal  Communications  Commission  FCC  99-  121 
 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  programs  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 
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 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 
 cant  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 
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 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  dont  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. 
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 Federal  Communications  Commission  FCC  99-  121 
 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  Commissions  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  nations  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  countrys 
 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. 
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