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 Federal  Communications  Commission  FCC  02-  8 
 Before  the 
 Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of 
 Schools  and  Libraries  Universal  Service 
 Support  Mechanism 


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 ) 
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 ) 


 CC  Docket  No.  02-  6 


 NOTICE  OF  PROPOSED  RULE  MAKING  AND  ORDER 
 Adopted:  January  16,  2002  Released:  January  25,  2002 
 Comment  Date:  45  days  after  publication  in  Federal  Register 
 Reply  Comment  Date:  75  days  after  publication  in  Federal  Register 


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


 TABLE  OF  CONTENTS 
 Paragraph 
 I.  INTRODUCTION  1 
 II.  BACKGROUND  ...................................................................................................................  8 
 III.  NOTICE  OF  PROPOSED  RULE  MAKING  .......................................................................  12 
 A.  Application  Process  ........................................................................................................  13 
 1.  Eligible  Services  .......................................................................................................  13 
 2.  Discounts  for  Internet  Access  When  Bundled  with  Content  ......................................  23 
 3.  Review  of  Requests  Including  Eligible  and  Non-  Eligible  Services  .............................  26 
 4.  Compliance  with  the  Americans  with  Disabilities  Act  ................................................  28 
 5.  Consortia  .................................................................................................................  30 
 B.  Post  Commitment  Program  Administration  ....................................................................  33 
 1.  Choice  of  Payment  Method  ......................................................................................  33 
 2.  Equipment  Transferability  .........................................................................................  37 
 3.  Use  of  Excess  Services  in  Remote  Areas  ..................................................................  41 
 C.  Appeals  ..........................................................................................................................  48 
 1.  Appeals  Procedure  ...................................................................................................  48 
 2.  Funding  of  Successful  Appeals  .................................................................................  53 
 D.  Enforcement  Tools  .........................................................................................................  58 
 1.  Independent  Audits  ..................................................................................................  58 
 2.  Prohibitions  on  Participation  .....................................................................................  60 
 E.  Unused  Funds  ................................................................................................................  63 
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 1.  Overview  .................................................................................................................  63 
 2.  Reduction  of  Unused  Funds  ......................................................................................  67 
 3.  Treatment  of  Unused  Funds  .....................................................................................  69 
 IV.  ORDER  ON  RECONSIDERATION  ...................................................................................  71 
 V.  REVISING  OR  ELIMINATING  OUTMODED  RULES  .....................................................  81 
 VI.  PROCEDURAL  MATTERS  ...............................................................................................  82 
 A.  Paperwork  Reduction  Act  Analysis  ................................................................................  82 
 B.  Initial  Regulatory  Flexibility  Analysis  ..............................................................................  83 
 1.  Need  for,  and  Objectives  of,  the  Proposed  Rules  ......................................................  84 
 2.  Legal  Basis  ...............................................................................................................  87 
 3.  Description  and  Estimate  of  the  Number  of  Small  Entities  To  Which  Rules  Will 
 Apply  .......................................................................................................................  88 
 a.  Schools  and  Libraries  .........................................................................................  90 
 b.  Telecommunications  Service  Providers  ...............................................................  91 
 c.  Internet  Service  Providers  ...................................................................................  97 
 d.  Vendors  of  Internal  Connections  .........................................................................  98 
 4.  Description  of  Projected  Reporting,  Recordkeeping,  and  Other  Compliance 
 Requirements  ...........................................................................................................  99 
 5.  Steps  Taken  to  Minimize  Significant  Economic  Impact  on  Small  Entities,  and 
 Significant  Alternatives  Considered  ........................................................................  100 
 6.  Federal  Rules  that  may  Duplicate,  Overlap,  or  Conflict  with  the  Proposed 
 Rules  ......................................................................................................................  107 
 C.  Comment  Due  Dates  and  Filing  Procedures  ..................................................................  108 
 VII.  ORDERING  CLAUSES  ..............................................................................................  114 


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


 2.  The  Federal  Communications  Commission  (Commission)  implemented  the  schools 
 and  libraries  universal  service  support  mechanism  based  on  the  requirement  in  the 
 Telecommunications  Act  of  1996  (1996  Act)  that  [  a]  ll  telecommunications  carriers  serving  a 
 geographic  area  shall,  upon  a  bona  fide  request  for  any  of  its  services  that  are  within  the  definition 
 of  universal  service  under  subsection  (c)(  3),  provide  such  services  to  elementary  schools, 
 secondary  schools,  and  libraries  for  educational  purposes  at  rates  less  than  the  amounts  charged 
 for  similar  services  to  other  parties.  1  The  schools  and  libraries  community  and  the  participating 
 service  providers  have  now  had  four  years  of  experience  with  the  program.  As  of  July  2001,  the 


 1  Pub.  L.  No.  104-  104,  Section  254(  h)(  1)(  B),  110  Stat.  56,  codified  at  47  U.  S.  C.    254(  h)(  1)(  B).  The 
 1996  Act  amends  the  Communications  Act  of  1934,  47  U.  S.  C.    151  et  seq.  (Act). 
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 Universal  Service  Administrative  Company  (USAC  or  the  Administrator)  2  had  committed  over 
 $5.958  billion  in  funds  for  the  first  three  funding  years.  3  Over  this  period,  the  schools  and  libraries 
 mechanism  has  provided  discounts  enabling  millions  of  school  children  and  library  patrons, 
 including  those  in  many  of  the  nations  poorest  and  most  isolated  communities,  to  obtain  access  to 
 modern  telecommunications  and  information  services  for  educational  purposes,  consistent  with 
 the  statute.  4 


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


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


 2  The  Schools  and  Libraries  Division  (SLD)  of  the  Universal  Service  Administrative  Company 
 administers  the  schools  and  libraries  support  mechanism  under  the  direction  of  the  Federal  Communications 
 Commission.  See  Changes  to  the  Board  of  Directors  of  the  National  Exchange  Carrier  Association,  Inc., 
 Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  Nos.  97-  21  and  96-  45,  Third  Report  and  Order  in  CC 
 Docket  No.  97-  21  and  Fourth  Order  on  Reconsideration  in  CC  Docket  No.  97-  21  and  Eighth  Order  on 
 Reconsideration  in  CC  Docket  No.  96-  45,  13  FCC  Rcd  25058  (1998)  (Eighth  Order  on  Reconsideration). 


 3  See  Federal  Universal  Service  Support  Mechanisms  Fund  Size  Projections  for  the  Fourth  Quarter, 


 available  at  <http://  www.  universalservice.  org/  overview/  filings/  default.  asp>  (filed  by  USAC  Aug.  2,  2001) 
 (USAC  Filing  for  Fourth  Quarter  2001  Projections). 


 4  More  than  38  million  children  attend  schools  that  have  received  discounts  since  the  programs 


 inception  four  years  ago.  Eighty-  two  percent  of  public  schools  receive  universal  service  discounts,  as  do  18 
 percent  of  private  and  Catholic  schools,  and  59  percent  of  public  libraries.  By  the  end  of  2000,  98  percent  of 
 public  schools  were  connected  to  the  Internet,  whereas  only  65  percent  were  connected  just  three  years  earlier. 
 National  Center  for  Education  Statistics,  U.  S.  Department  of  Education,  Internet  Access  in  U.  S.  Public  Schools 
 and  Classrooms:  1994-  2000  (May  2001)  (NCES),  at  1. 
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 5.  With  these  goals  in  mind,  in  this  Notice,  we  seek  comment  on  several  changes  to 
 the  schools  and  libraries  universal  service  support  mechanism.  First,  with  respect  to  the 
 application  process,  we  seek  comment  on  (1)  issues  related  to  the  process  for  determining  eligible 
 services,  and  the  eligibility  for  schools  and  libraries  universal  service  support  of  such  services  as 
 Wide  Area  Networks,  wireless  services,  and  voice  mail;  5  (2)  permitting  schools  and  libraries  to 
 receive  discounts  for  Internet  access  that  may  in  certain  limited  cases  contain  content,  as  long  as  it 
 is  the  most  cost-  effective  form  of  Internet  access;  6  (3)  the  30  percent  processing  benchmark  for 
 reviewing  funding  requests  that  include  both  eligible  and  ineligible  services;  7  (4)  whether  to 
 require  a  certification  by  schools  and  libraries  acknowledging  their  compliance  with  the 
 requirements  of  the  Americans  With  Disabilities  Act  and  related  statutes;  8  and  (5)  modifying  our 
 rule  governing  when  members  of  a  consortium  may  receive  service  from  a  tariffed  service 
 provider  at  below-  tariff  rates.  9 


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


 7.  Third,  with  respect  to  the  appeals  process,  we  seek  comment  on  increasing  time 
 limits  for  filing  appeals  to  60  days,  and  considering  appeals  filed  as  of  the  day  they  are  post-marked,  13 
 and  on  procedures  for  funding  successful  appeals.  14  Fourth,  we  seek  comment  on 
 measures  to  strengthen  our  existing  enforcement  tools,  including  adopting  a  rule  explicitly 


 5  See  paras.  13-  22. 
 6  See  paras.  23-  25. 
 7  See  paras.  26-  27. 
 8  See  paras.  28-  29. 
 9  See  paras.  30-  32. 
 10  See  paras.  33-  36. 
 11  See  paras.  37-  40. 
 12  See  paras.  41-  47. 
 13  See  paras.  48-  52. 
 14  See  paras.  53-  57. 
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 authorizing  independent  audits,  15  and  barring  from  the  program  certain  applicants,  service 
 providers,  and  others  that  engage  in  willful  or  repeated  failure  to  comply  with  program  rules.  16 
 Fifth,  on  the  issue  of  unused  program  funds,  we  seek  comment  on  the  reasons  for  unused  funds,  17 
 and  on  how  the  Commission  should  treat  unused  funds.  18  We  also  deny  certain  petitions  for 
 reconsideration  relating  to  unused  funds,  19  and  seek  comment  on  revising  or  eliminating 
 outmoded  administrative  or  procedural  rules  or  policies  relating  to  the  schools  and  libraries 
 universal  service  support  mechanism.  20 


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


 9.  Pursuant  to    254(  h)(  1)(  B),  the  Commissions  rules  require  that  the  applicant 


 15  See  paras.  58-  59. 
 16  See  paras.  60-  62. 
 17  See  paras.  63-  68. 
 18  See  paras.  69-  71. 
 19  See  paras.  71-  80. 
 20  See  para.  81. 
 21  47  U.  S.  C.    254. 
 22  Id.;  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Report  and  Order,  12 
 FCC  Rcd  8776  (1997)  (Universal  Service  Order),  as  corrected  by  Federal-  State  Joint  Board  on  Universal 
 Service,  CC  Docket  No.  96-  45,  Errata,  FCC  97-  157  (rel.  June  4,  1997),  affirmed  in  part,  Texas  Office  of  Public 
 Utility  Counsel  v.  FCC,  183  F.  3d  393  (5th  Cir.  1999)  (affirming  Universal  Service  Order  in  part  and  reversing 
 and  remanding  on  unrelated  grounds),  cert.  denied,  Celpage,  Inc.  v.  FCC,  120  S.  Ct.  2212  (May  30,  2000),  cert. 
 denied,  AT&  T  Corp.  v.  Cincinnati  Bell  Tel.  Co.,  120  S.  Ct.  2237  (June  5,  2000),  cert.  dismissed,  GTE  Service 
 Corp.  v.  FCC,  121  S.  Ct.  423  (November  2,  2000). 


 23  47  C.  F.  R.    54.502,  54.503. 


 24  See  47  C.  F.  R.    54.505. 
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 make  a  bona  fide  request  for  services  by  filing  with  the  Administrator  an  FCC  Form  470,  25  which 
 is  posted  to  the  Administrators  website  for  all  potential  competing  service  providers  to  review.  26 
 After  the  FCC  Form  470  is  posted,  the  applicant  must  wait  at  least  28  days  before  entering  into  an 
 agreement  for  services  and  submitting  an  FCC  Form  471,  which  requests  support  for  eligible 
 services.  27  All  applications  received  within  a  specified  time  period,  or  window,  are  deemed  to  be 
 filed  simultaneously  for  purposes  of  applying  rules  of  priority  when  requests  for  funding  exceed 
 the  funding  cap.  28  The  Administrator  reviews  the  FCC  Forms  471  that  it  receives  and  issues 
 funding  commitment  decisions  indicating  discounts  the  applicant  may  receive  in  accordance  with 
 the  Commissions  rules.  The  school  or  library  then  pays  the  non-  discount  portion  of  the  service 
 cost  to  the  service  provider,  which  is,  in  turn,  reimbursed  by  the  Administrator  for  the  costs  of  the 
 approved  discounts.  It  is  also  possible  for  the  school  or  library  to  pay  such  bills  in  full,  and  be 
 reimbursed  for  the  discounted  amount  through  the  filing  of  an  FCC  Form  472,  the  Billed  Entity 
 Applicant  Reimbursement  (BEAR)  form,  with  the  Administrator.  29  Under  this  method,  the 
 Administrator  issues  payment  of  the  discounted  amount  to  the  provider  and  requires  the  provider 
 to  remit  that  payment  to  the  school  or  library. 


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


 11.  Oversight  of  such  a  far-  reaching  program  is  necessarily  intensive  and  complex. 
 The  Commission  has  established  rules  governing  the  operation  of  the  schools  and  libraries 
 discount  mechanism  in  a  series  of  orders.  31  The  Administrator,  in  consultation  with  Commission 
 staff,  has  further  refined  its  procedures  over  the  course  of  the  last  three  funding  years  in  response 


 25  Schools  and  Libraries  Universal  Service,  Description  of  Services  Requested  and  Certification  Form, 
 OMB  3060-  0806  (September  1999)  (FCC  Form  470). 
 26  47  C.  F.  R.    54.504(  b);  Universal  Service  Order,  at  para.  575. 


 27  47  C.  F.  R.    54.504(  b),  (c);  Schools  and  Libraries  Universal  Service,  Services  Ordered  and 
 Certification  Form,  OMB  3060-  0806  (October  2000)  (FCC  Form  471). 
 28  The  funding  cap  is  set  at  $2.25  billion.  47  C.  F.  R.    54.507. 


 29  Schools  and  Libraries  Universal  Service,  Billed  Entity  Applicant  Reimbursement  Form,  OMB  3060- 
 0856  (October  1998)  (FCC  Form  472  or  BEAR  Form). 
 30  See  47  C.  F.  R.    54.719. 


 31  See,  e.  g.,  Universal  Service  Order;  Request  for  Review  by  Brooklyn  Public  Library,  Federal-  State 
 Joint  Board  on  Universal  Service,  Changes  to  the  Board  of  Directors  of  the  National  Exchange  Carrier 
 Association,  Inc.,  File  No.  SLD-  149423,  CC  Dockets  No.  96-  45  and  97-  21,  Order,  15  FCC  Rcd  18598  (2000) 
 (Brooklyn  Order);  Request  for  Review  by  the  Department  of  Education  of  the  State  of  Tennessee  of  the  Decision 
 of  the  Universal  Service  Administrator,  Request  for  Review  by  Integrated  Systems  and  Internet  Solutions,  Inc.,  of 
 the  Decision  of  the  Universal  Service  Administrator,  Request  for  Review  by  Education  Networks  of  America  of 
 the  Decision  of  the  Universal  Service  Administrator,  Federal-  State  Joint  Board  on  Universal  Service,  Changes 
 to  the  Board  of  Directors  of  the  National  Exchange  Carrier  Association,  Inc.,  CC  Docket  Nos.  96-  45  and  97-  21, 
 Order,  14  FCC  Rcd  13734  (1999)  (Tennessee  Order). 
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 to  Commission  directions,  decisions  on  appeal,  audits,  and  internal  review.  Along  with  the  rapid 
 growth  in  the  number  of  applicants  and  recipients,  both  the  Commission  and  the  Administrator 
 have  experienced  increased  numbers  of  appeals  by  applicants  whose  requests  for  discounts  have 
 been  denied.  Although  the  Administrators  administrative  costs  remain  small  as  a  percentage  of 
 total  program  costs,  particularly  in  comparison  to  other  federal  programs,  32  the  Commission 
 continues  to  seek  ways  to  minimize  administrative  costs  while  achieving  the  goals  of  the  statute  in 
 the  most  effective  manner  possible. 


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


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


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


 33  47  C.  F.  R.    54.502,  54.503. 


 34  See  SLD  web  site,  Eligible  Services  List  (October  17,  2001) 
 <http://  www.  sl.  universalservice.  org/  reference/  eligible.  asp>. 
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 that,  in  this  section  of  the  Notice,  we  seek  comment  on  changes  to  eligible  services  only  as  they 
 relate  to  applications  under  the  universal  service  support  mechanism  for  schools  and  libraries. 


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


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


 16.  We  seek  comment  on  whether  to  change  our  current  policy,  as  set  forth  in  our 
 rules  and  decisions,  regarding  Wide  Area  Networks  (WANs).  In  the  Fourth  Order  on 
 Reconsideration,  the  Commission  concluded  that  the  building  and  purchasing  of  WANs  to 
 provide  telecommunications  is  not  eligible  for  discounts.  The  Commission  first  concluded  that  the 


 35  See  GAO  Report. 
 36  See  Schools  and  Libraries  Universal  Service,  Services  Ordered  and  Certification  Form,  OMB  3060- 
 0806  (October  2000)  (FCC  Form  471). 
 37  For  example,  cellular  telephone  service  is  currently  eligible  only  when  used  at  a  place  of  instruction 


 and  for  educational  purposes.  See  SLD  web  site,  Eligible  Services  List  (October  17,  2001) 
 <<  http://  www.  sl.  universalservice.  org/  data/  pdf/  EligibleServicesList_  10_  17_  01.pdf>>. 
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 building  and  purchasing  of  WANs  themselves  does  not  constitute  telecommunications  services  or 
 internal  connections.  The  Commission  further  found  that  WANs  built  and  purchased  by  schools 
 and  libraries  do  not  appear  to  fall  within  the  narrow  provision  that  allows  support  for  access  to 
 the  Internet  because  WANs  provide  broad-  based  telecommunications.  38  The  Commission  noted, 
 however,  that  schools  and  libraries  may  receive  universal  service  discounts  on  WANs  provided 
 over  leased  telephone  lines,  because  such  an  arrangement  constitutes  a  telecommunications 
 service.  39 


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


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


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


 39  Fourth  Order  on  Reconsideration,  13  FCC  Rcd  at  5431  para.  193  n.  585. 


 40  Tennessee  Order. 
 41  See  Brooklyn  Order,  15  FCC  Record  at  18606. 
 42  Id.  at  18606-  18607. 
 43  Leased  WAN  service  is  currently  eligible  under  Priority  One.  See  Brooklyn  Order;  Tennessee  Order. 
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 19.  One  possible  approach  would  be  to  increase  the  three-  year  period  of  time  over 
 which  WAN-  related  capital  expenses  must  be  recovered  through  telecommunications  service 
 charges,  so  that  the  annual  burden  on  available  program  funds  is  reduced.  We  seek  comment  on 
 this  and  other  possible  approaches. 


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


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


 22.  Many  parties  have  recommended  that  the  Commission  reconsider  its  initial 
 determination  regarding  the  eligibility  of  voice  mail  for  support  under  the  schools  and  libraries 
 mechanism.  In  the  Universal  Service  Order,  the  Commission  determined  that  voice  mail  would 
 not  at  [that]  time  be  eligible,  based,  in  part,  on  the  recommendation  of  the  Federal-  State  Joint 


 44  Tennessee  Order,  14  FCC  Rcd  13734. 
 45  47  U.  S.  C.    254. 
 46  47  U.  S.  C.    254(  h)(  1)(  B)(  stating  that  services  shall  be  provided  for  educational  purposes.;  47 
 C.  F.  R.    54.504(  b)(  2)(  ii)(  requiring  certification  that  services  requested  will  be  used  solely  for  educational 
 purposes.);  SLD  website,  Eligible  Services  List  (October  17,  2001) 
 <http://  www.  sl.  universalservice.  org/  reference/  eligible.  asp>. 


 47  See  Universal  Service  Order,  12  FCC  Rcd  at  8801-  20,  paras.  47-  49  (citing  competitive  neutrality, 


 including  technological  neutrality,  as  a  guiding  principle  of  section  254). 
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 Federal  Communications  Commission  FCC  02-  8 
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 Board  on  Universal  Service  that  such  information  services  not  be  eligible.  48  The  increasing  need 
 for,  and  prevalence  of,  voice  mail  as  a  way  of  communicating  with  school  and  library  staff  for 
 educational  purposes  raises  the  issue  of  whether  voice  mail,  which  serves  a  similar  purpose  as 
 email  (which  is  eligible  for  support  under  the  schools  and  libraries  mechanism),  should  also  be 
 eligible.  We  also  note  that  making  voice  mail  eligible  may  streamline  the  application  review 
 process,  by  reducing  administrative  effort  and  costs  associated  with  determining  what  portion  of  a 
 school  or  librarys  telecommunications  costs  are  related  to  voice  mail,  and  ensuring  that  the 
 school  or  library  does  not  receive  discounts  for  those  costs.  Accordingly,  we  seek  comment  on 
 whether  a  change  in  voice  mail  eligibility  would  improve  the  operation  of  the  program  or 
 otherwise  further  our  goals  of  preventing  fraud,  waste  and  abuse  and  promoting  the  fair  and 
 equitable  distribution  of  the  programs  benefits. 


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


 24.  Various  affected  applicants  have  suggested,  both  to  us  and  to  the  Administrator, 
 that  Internet  access  that  includes  content  from  one  provider  may  provide  more  cost-  effective 
 access  to  the  Internet  than  another  providers  Internet  access  containing  minimal  or  no  content. 
 For  example,  an  applicant  may  receive  bids  for  Internet  access  from  two  providers,  each  offering 
 service  at  $50.00  a  month.  One  provider  offers  access  and  content  bundled  together,  and 
 separately  offers  content  alone  for  $30.00,  while  the  second  provider  just  offers  Internet  access. 
 An  applicant  might  find  that  the  bundled  access  and  content  may  provide  more  cost-  effective 
 Internet  access  when  considering  cost,  reliability,  and  other  factors  than  Internet  access  without 


 48  Id.  at  9013,  para.  444;  see  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  96-  45, 
 Recommended  Decision,  12  FCC  Rcd  87,  323-  324  (1996). 
 49  Universal  Service  Order  at  9014,  para.  445. 


 50  Id.  at  9014,  paras.  446-  447. 
 51  Id.  at  9014,  para.  447. 
 52  Id. 
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 Federal  Communications  Commission  FCC  02-  8 
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 content  from  the  other  provider.  Under  our  current  rules,  a  recipient  would  be  eligible  for 
 discounts  on  only  $20.00  per  month  for  the  package  of  access  and  content,  but  could  obtain 
 discounts  on  the  full  $50.00  for  Internet  access  without  content  from  the  second  provider.  In 
 such  a  case,  our  rules  may  create  undesirable  incentives  for  an  applicant  to  choose  a  provider  with 
 a  similar  price  but  poorer  service  and  reliability. 


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


 3.  Review  of  Requests  Including  Eligible  and  Non-  Eligible  Services 
 26.  Currently,  acting  pursuant  to  Commission  oversight,  the  Administrator  utilizes  a 
 30  percent  processing  benchmark  when  reviewing  funding  requests  that  include  both  eligible  and 
 ineligible  services.  54  If  less  than  30  percent  of  the  request  seeks  funding  of  ineligible  services,  the 
 Administrator  normally  will  consider  the  request  and  issue  a  funding  commitment  for  the  eligible 
 services,  denying  funding  only  of  the  ineligible  part.  If  30  percent  or  more  of  the  request  is  for 
 funding  of  ineligible  services,  the  Administrator  will  deny  the  funding  request  in  its  entirety.  The 
 30  percent  policy  allows  the  Administrator  to  efficiently  process  requests  for  funding  that  contain 
 only  a  small  amount  of  ineligible  services  without  expending  significant  fund  resources  working 
 with  applicants  to  determine  what  part  of  the  discounts  requested  is  associated  with  eligible 
 services.  It  also  provides  an  incentive  to  applicants  to  eliminate  ineligible  services  from  their 
 requests  before  submitting  their  applications,  further  reducing  the  Administrators  administrative 
 costs.  For  example,  without  the  procedure,  an  applicant  who  has  contracted  for  the  construction 


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


 54  See  Changes  to  the  Board  of  Directors  of  the  National  Exchange  Carrier  Association,  Inc.,  Federal-State 


 Joint  Board  on  Universal  Service,  CC  Docket  Nos.  97-  21  and  96-  45,  Third  Report  and  Order  in  CC  Docket 
 No.  97-  21  and  Fourth  Order  on  Reconsideration  in  CC  Docket  No.  97-  21  and  Eighth  Order  on  Reconsideration 
 in  CC  Docket  No.  96-  45,  13  FCC  Rcd  25058  (1998);  Brooklyn  Order,  15  FCC  Rcd  17931,  nn.  23,  46. 
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 of  a  new  school  for  a  lump  sum  might  submit  a  request  for  the  entire  amount  knowing  that  the 
 Administrator  must  then  perform  the  necessary  work  to  identify  the  costs  of  any  eligible 
 components,  such  as  the  telecommunications  wiring.  Because  the  Administrators  annual 
 administrative  costs  are  drawn  from  the  same  $2.  25  billion  that  supports  the  award  of  discounts, 
 an  increase  in  the  administrative  costs  of  eligibility  review  would  directly  reduce  the  amount  of 
 funds  available  for  actual  discounts. 


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


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


 29.  Some  parties  have  suggested  that  we  require  applicants  to  certify  that  the  services 
 for  which  they  seek  discounts  will  be  used  in  compliance  with  these  acts.  58  We  seek  comment  on 
 whether  we  should  adopt  such  a  certification  requirement.  In  commenting  on  such  a  change, 
 parties  should  comment  on  the  language  of  any  ADA  certification,  and  on  the  timing  for  the  ADA 
 certification  in  the  application  process.  59  To  the  extent  that  we  would  adopt  such  a  change,  we 


 55  42  U.  S.  C.    12101  et  seq. 
 56  29  U.  S.  C.    701  et  seq.;  20  U.  S.  C.    1400  et  seq. 
 57  Schools  and  Libraries  Universal  Service,  Services  Ordered  and  Certification  Form,  OMB  3060-  0806 
 (October  2000)  (Form  471). 
 58  See,  e.  g.,  National  Council  on  Disability,  National  Disability  Policy:  A  Progress  Report  63-  64 


 (2001). 
 59  Such  a  certification  could,  for  example,  be  made  on  a  modified  FCC  Form  486.  See  Schools  and  Libraries 


 Universal  Service,  Receipt  of  Service  Confirmation  Form,  OMB  3060-  0853  (April  2000)  (FCC  Form  486).  To 
 implement  newly  enacted  statutory  requirements,  the  Commission  recently  modified  FCC  Form  486  to  include 
 certifications  that  schools  and  libraries  are  in  compliance  with  the  Childrens  Internet  Protection  Act.  See 
 Federal-  State  Joint  Board  on  Universal  Service,  Children's  Internet  Protection  Act,  CC  Docket  No.  96-  45,  Report 
 and  Order,  FCC  01-  120  (rel.  Apr.  5,  2001). 
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 also  solicit  comment  on  whether  any  rule  changes  are  needed  to  ensure  that  applicants  that  fail  to 
 comply  with  the  certification  no  longer  receive  discounts.  We  further  seek  comment  on  whether, 
 and  how,  the  Administrator  and  the  Commission  would  verify  and  enforce  compliance,  and  the 
 extent  that  such  actions  promote  our  three  goals  of  improving  program  operation,  ensuring  a  fair 
 and  equitable  distribution  of  benefits,  and  preventing  waste,  fraud,  and  abuse. 


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


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


   54.501(  d)(  1).  For  purposes  of  seeking  competitive  bids  for  telecommunications 
 services,  Internet  access  and  internal  connections,  schools  and  libraries  eligible  for  support 
 under  this  subpart  may  form  consortia  with  other  customers.  When  ordering 
 telecommunications  and  other  supported  services  under  this  subpart,  the  consortium  may 


 60  47  C.  F.  R.    54.501(  d)(  1);  Universal  Service  Order,  12  FCC  Rcd  at  9027-  28,  paras.  476-  478. 
 61  Universal  Service  Order,  12  FCC  Rcd  at  9028,  para.  477. 
 62  Id.  at  9028,  para.  478. 
 63  Id. 
 64  47  C.  F.  R.    501(  d)(  1). 
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 even  seek  to  negotiate  for  pre-  discount  prices  below  tariffed  interstate  rates  on  behalf  of 
 members  that  are  eligible  schools  or  libraries,  health  care  providers  eligible  under  subpart 
 G,  or  public  sector  (governmental)  entities,  including,  but  not  limited  to,  state  colleges  and 
 state  universities,  state  educational  broadcasters,  counties  and  municipalities.  However, 
 eligible  schools  and  libraries  may  only  receive  support  for  their  share  of  services  as  part  of 
 a  consortium  that  includes  ineligible  private  sector  entities  if  the  pre-  discount  prices  of  any 
 interstate  tariffed  services  that  such  ineligible  private  sector  members  of  the  consortium 
 receive  are  at  the  tariffed  rates. 


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


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


 B.  Post  Commitment  Program  Administration 
 1.  Choice  of  Payment  Method 
 33.  Under  existing  law  and  Commission  procedure,  the  Administrator  of  the  universal 
 service  support  mechanism  does  not  provide  funds  directly  to  schools  and  libraries,  but  rather, 
 provides  funds  to  eligible  service  providers,  who  then  offer  discounted  services  to  eligible  schools 
 and  libraries.  65  Under  existing  Administrators  procedures,  service  providers  and  applicants  are 
 advised  to  work  together  to  determine  whether  the  applicant  will  either  (1)  pay  the  service 
 provider  the  full  cost  of  services,  and  subsequently  receive  reimbursement  from  the  provider  for 
 the  discounted  portion,  after  the  provider  receives  reimbursement  through  the  Billed  Entity 
 Applicant  Reimbursement  (BEAR)  process,  or  (2)  pay  only  the  non-  discounted  portion  of  the 
 cost  of  services,  with  the  service  provider  seeking  reimbursement  from  the  Administrator  for  the 
 discounted  portion.  66  Because  it  is  not  clear  in  our  rules  whether  the  provider  or  the  applicant 


 65  See  Changes  to  the  Board  of  Directors  of  the  National  Exchange  Carrier  Association,  Inc.,  Federal-State 
 Joint  Board  on  Universal  Service,  CC  Docket  Nos.  97-  21  and  96-  45,  Order,  FCC  99-  291,  paras.  8-  9  (rel. 
 October  8,  1999)  (reconsideration  pending);  Changes  to  the  Board  of  Directors  of  the  National  Exchange 
 Carrier  Association,  Inc.,  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  Nos.  97-  21  and  96-  45, 
 Order,  FCC  00-  350  (rel.  October  26,  2000)  (appeal  pending),  United  States  Telecommunications  Association  v. 
 Federal  Communications  Commission,  No.  00-  1500,  filed  November  27,  2000. 


 66  See  SLD  web  site,  Form  472  BEAR  Filing  Guidance  (April  27,  2001) 


 <http://  www.  sl.  universalservice.  org/  reference/  8bear.  asp>;  FCC  Form  472. 
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 may  make  the  final  determination  of  which  of  the  two  payment  processes  to  pursue,  the  potential 
 exists  for  service  providers  to  insist  that  applicants  to  whom  they  provide  services  use  the  first 
 method  of  paying  the  up-  front  costs,  and  later  seeking  reimbursement.  Indeed,  some  large 
 providers  require  recipients  to  use  the  BEAR  form. 


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


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


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


 2.  Equipment  Transferability 
 37.  Our  rules  provide  that  eligible  services  purchased  at  a  discount  shall  not  be  sold, 
 resold,  or  transferred  in  consideration  for  money  or  any  other  thing  of  value.  69  Nothing  in  our 


 67  See  FCC  Form  472  at  4. 
 68  47  U.  S.  C.    503. 
 69  47  C.  F.  R.    54.617. 
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 rules,  however,  prevents  transferring  equipment  obtained  with  universal  service  discounts  from 
 the  eligible  recipient  to  another  entity  without  consideration  for  money  or  anything  of  value.  We 
 have  received  reports  from  state  authorities,  schools  and  libraries,  and  the  Administrator  that 
 some  recipients  are  replacing,  on  a  yearly  or  almost-  yearly  basis,  equipment  obtained  with 
 universal  service  discounts,  and  transferring  that  equipment  to  other  schools  or  libraries  in  the 
 same  district  that  may  not  have  been  eligible  for  such  equipment.  70 


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


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


 40.  An  alternate  approach  could  be  to  deny  internal  connections  discounts  to  any 
 entity  that  has  already  received  discounts  on  internal  connections  within  a  specified  period  of 
 years  regardless  of  the  intended  use  of  the  new  internal  connections.  We  seek  comment  on 


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


 71  We  note  that  these  rules  would  affect  only  the  transferability  of  equipment  in  the  schools  and  libraries 


 support  mechanism,  and  therefore  would  not  affect  any  Commission  rules  or  policies  governing  depreciation. 
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 whether  we  should  adopt  such  a  rule,  on  the  appropriate  time  frame  for  such  a  rule,  and  whether 
 we  should  impose  this  limitation  only  in  situations  where  the  applicants  have  previously  received 
 discounts  above  a  specified  threshold  in  the  relevant  time  period.  We  also  seek  comment  on  the 
 administrative  costs  that  would  be  incurred,  both  in  the  application  process  and  in  post-disbursement 
 auditing,  to  ensure  compliance  with  a  rule  prohibiting  an  entity  from  receiving 
 discounts  on  internal  connections  if  it  previously  had  received  such  discounts.  We  seek  comment 
 on  these  and  any  other  proposals  to  address  this  issue  and  thus  give  us  further  insight  on  how, 
 with  regard  to  equipment  issues,  we  might  further  our  goals  of  improving  program  operation, 
 ensuring  that  the  mechanisms  benefits  are  fairly  and  equitably  distributed,  and  eliminating  fraud, 
 waste,  and  abuse. 


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


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


 43.  The  State  of  Alaska  recently  requested  a  waiver  of  the  restriction  in  section 
 54.504(  b)(  2)(  ii)  that  requires  applicants  to  certify  that  the  services  obtained  from  the  schools  and 


 72  47  U.  S.  C.    254(  h)(  1)(  B). 
 73  See  Universal  Service  Order,  12  FCC  Rcd  at  9079-  9080,  para.  577-  578.  The  Commission  requires  schools  and 
 libraries  to  certify  that  the  services  requested  will  be  used  solely  for  educational  purposes.  The  Commission 
 declined  to  establish  guidelines  to  identify  educational  purposes  in  order  to  prevent  fraudulent  use  of  discounted 
 services.  See  also  47  C.  F.  R.    54.504(  b)(  2)(  ii). 


 74  See  Universal  Service  Order,  12  FCC  Rcd  at  9076,  para.  570  (  We  concur  with  the  Joint  Boards 
 finding  that  Congress  intended  to  require  accountability  on  the  part  of  schools  and  libraries  and,  therefore,  we 
 concur  with  the  Joint  Boards  recommendation  and  the  position  of  most  commenters  that  eligible  schools  and 
 libraries  be  required  to:  (1)  conduct  internal  assessments  of  the  components  necessary  to  use  effectively  the 
 discounted  services  they  order;  (2)  submit  a  complete  description  of  services  they  seek  so  that  it  may  be  posted  for 
 competing  providers  to  evaluate;  and  (3)  certify  to  certain  criteria  under  penalty  of  perjury.).  By  taking  steps  to 
 require  accountability  from  applicants,  the  Commission  was  reducing  the  likelihood  of  fraud,  waste,  and  abuse. 
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 libraries  mechanism  would  be  used  for  solely  educational  purposes.  75  In  many  communities  in 
 Alaska,  services  from  the  schools  and  libraries  program  have  provided  the  only  means  to  deliver 
 Internet  access  to  communities  in  rural  remote  areas.  Specifically,  the  State  of  Alaska  asked  to 
 use  the  telecommunications  and  Internet  access  services  as  an  Internet  point  of  presence  in  rural 
 remote  communities.  76  To  the  extent  that  a  school  or  library  will  not  be  fully  utilizing  the  services 
 it  ordered  for  educational  purposes,  and  these  services  would  otherwise  be  wasted,  the  State  of 
 Alaska  requested  that  others  in  the  community  be  allowed  to  use  these  services  for  non-educational 
 purposes.  77 


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


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


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


 76  See  Alaska  Petition  at  2.  The  State  of  Alaska  asked  the  Commission  to  waive  section  54.504(  b)(  2)(  ii) 


 as  long  as  the  services  were  not  usage  sensitive,  the  use  was  limited  to  hours  in  which  the  school  or  library  was 
 not  in  operation,  and  no  toll-  free  or  local  dial-  up  Internet  access  was  otherwise  available. 


 77  See  Alaska  Petition  at  20. 


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


 79  Alaska  Order. 


 80  Id. 
 81  See  47  U.  S.  C.    254(  h)(  1)(  B);  47  C.  F.  R.    54.504(  b)(  2)(  ii). 
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 distribution  of  benefits  and  preventing  waste,  fraud,  and  abuse. 
 46.  If  we  were  to  modify  our  rules  expressly  to  address  the  use  of  excess  services  in 
 limited  circumstances,  we  seek  comment  on  whether  to  consider  conditioning  such  use  on  several 
 criteria:  (1)  that  the  school  or  library  request  only  as  much  discounts  for  services  as  are 
 reasonably  necessary  for  educational  purposes;  (2)  the  additional  use  would  not  impose  any 
 additional  costs  on  the  schools  and  libraries  program;  (3)  services  to  be  used  by  the  community 
 would  be  sold  on  the  basis  of  a  price  that  is  not  usage  sensitive;  (4)  the  use  should  be  limited  to 
 times  when  the  school  or  library  is  not  using  the  services;  and  (5)  the  excess  services  are  made 
 available  to  all  capable  service  providers  in  a  neutral  manner  that  does  not  require  or  take  into 
 account  any  commitments  or  promises  from  the  service  providers.  With  respect  to  the  fifth 
 condition,  we  previously  found  that  such  a  condition  was  consistent  with  the  Act,  which 
 prohibits  any  discounted  services  or  network  capacity  from  being  sold,  resold,  or  transferred  by 
 such  user  in  consideration  for  money  or  any  other  thing  of  value.  82  We  seek  comment  on  the 
 legal,  operational,  and  enforcement  issues  raised  by  this  approach. 


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


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


 82  Alaska  Order,  para.  17. 
 83  Eighth  Order  on  Reconsideration. 
 84  See,  e.  g.,  Request  for  Review  by  Copan  Public  Schools  of  the  Universal  Service  Administrator, 
 Federal-  State  Joint  Board  on  Universal  Service,  Changes  to  the  Board  of  Directors  of  the  National  Exchange 
 Carrier  Association,  Inc.,  File  No.  SLD-  26231,  CC  Docket  Nos.  96-  45  and  97-  21,  Order,  15  FCC  Rcd.  5498 
 (2000). 
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 Federal  Communications  Commission  FCC  02-  8 
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 provide  effective  oversight  of  the  Administrators  activities. 
 49.  Our  current  rules  provide  that  any  person  aggrieved  by  a  decision  of  any  Division 
 of  the  Administrator  may  file  an  appeal  directly  with  the  Commission  within  30  days  of  the  date  of 
 the  issuance  of  the  decision.  85  Alternately,  the  person  may  appeal  the  decision  of  a  Division 
 within  30  days  of  the  date  of  the  decision  to  the  relevant  Committee  governing  that  Division,  in 
 which  case  the  time  for  filing  an  appeal  with  the  Commission  is  tolled  during  the  pendency  of  the 
 appeal  before  the  Committee.  86  Once  the  Committee  has  issued  a  decision  on  the  appeal,  the 
 person  then  has  up  to  30  days  to  appeal  that  decision  to  the  Commission.  87  In  each  case,  an 
 appeal  is  deemed  filed  on  the  date  that  it  is  received,  not  the  date  it  is  postmarked.  88 


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


 85  47  C.  F.  R.    54.719(  c),  54.720(  a). 
 86  47  C.  F.  R.    54.719(  a),  54.720(  b).  In  October  1998,  the  Board  of  Directors  (Board)  of  the 
 predecessor  corporation  to  USAC  with  responsibility  for  the  schools  and  libraries  universal  service  support 
 mechanism  authorized  staff  to  process  appeals  in  accordance  with  principles  set  forth  by  the  Board  and  by  the 
 Schools  and  Libraries  Committee  of  the  Board. 


 87  47  C.  F.  R.    54.719(  c),  54.720(  a).  We  note  that,  due  to  recent  disruptions  in  the  reliability  of  the 


 mail  service,  the  period  of  appeal  has  been  extended  on  an  emergency,  temporary  basis  to  60  days  for  requests 
 seeking  review  of  decisions  issued  on  or  after  August  13,  2001.  See  Implementation  of  Interim  Filing  Procedures 
 for  Filings  of  Requests  for  Review,  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45, 
 Order,  FCC  01-  376  (rel.  December  26,  2001;  erratum  rel.  December  28,  2001;  second  erratum  rel.  January  4, 
 2002). 


 88  47  C.  F.  R.    54.720. 


 89  47  C.  F.  R.    54.722(  a). 
 90  47  C.  F.  R.    54.722,  54.723.  For  further  description  of  the  procedures  for  seeking  review  of  the 
 Administrators  decisions  specifically,  see  SLD  Web  Site, 
 <http://  www.  sl.  universalservice.  org/  reference/  AppealsProcedureYR4.  asp>. 


 91  Eighth  Order  on  Reconsideration,  13  FCC  Rcd  25058,  25091-  25094,  paras.  66-  71.  USAC's 


 operations  include  three  divisions  created  pursuant  to  the  Commissions  regulations:  the  High  Cost  and  Low 
 Income  Division,  the  Schools  and  Libraries  Division,  and  the  Rural  Health  Care  Division,  each  of  which  is 
 responsible  for  its  respective  universal  service  support  mechanism.  47  C.  F.  R.    54.701(  g)(  1).  For  each  of  these 
 three  divisions,  there  is  a  committee  of  the  USAC  Board  of  Directors  (the  Board)  that  directs  and  oversees  its 
 actions.  47  C.  F.  R.    54.701(  f).  Any  action  taken  by  a  committee  with  regard  to  its  respective  support 
 mechanism  is  binding  on  the  Board,  unless  the  USAC  Board  disapproves  of  such  action  by  a  two-  thirds  vote  of  a 
 quorum  of  directors.  47  C.  F.  R.    54.705(  d)(  1).  USAC  has  also  created  a  fourth  division,  the  Operations 
 Division,  which  is  responsible  for  billing  and  to  which  USAC  has  applied  the  same  appeals  procedures  and 
 deadlines  as  are  applicable  to  the  other  divisions. 
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 51.  Numerous  parties  have  recommended  that  we  increase  the  time  limit  for  filing  an 
 appeal  with  the  Committee  of  the  Schools  and  Libraries  Division  and  the  time  limit  for  filing  an 
 appeal  with  the  Commission.  As  noted  above,  the  time  limit  in  both  cases  is  30  days,  which 
 commences  on  the  date  of  the  decision  and  runs  until  the  filing  of  the  appeal.  92  The  parties  have 
 proposed  increasing  this  period  to  60  days.  In  the  Eighth  Order  on  Reconsideration,  the 
 Commission  established  the  30  day  period  partly  in  response  to  commenters  requests  for  a 
 streamlined  approach.  93  Experience  suggests,  however,  that  this  time  period  may  be  inadequate 
 for  parties  wishing  to  appeal  an  adverse  decision.  To  date,  we  have  dismissed  appeals  as  untimely 
 approximately  22  percent  of  the  time.  Parties  have  suggested  that  some  extension  of  time  for 
 filing  appeals  will  provide  aggrieved  schools  and  libraries  a  greater  opportunity  to  review  the 
 relevant  decisions,  and  determine  whether  there  are  valid  bases  for  appeal  in  light  of  the  governing 
 rules  and  Commission  precedent.  Moreover,  they  suggest,  additional  time  would  enable 
 applicants  to  consult  with  the  e-  rate  assistance  offices  that  many  States  have  now  established  to 
 advise  constituents  who  are  seeking  such  funding.  Nothing  in  this  suggested  change  would 
 prevent  participants  from  filing  appeals  before  the  end  of  the  appeals  period. 


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


 2.  Funding  of  Successful  Appeals 
 53.  Each  funding  year,  the  Administrator  sets  aside  a  portion  of  the  funds  available 
 that  year  for  the  schools  and  libraries  universal  service  mechanism  to  ensure  that  sufficient  funds 
 will  be  available  for  any  appeals  that  may  be  granted  by  the  Administrator  or  the  Commission.  95 


 92  47  C.  F.  R.    54.720. 
 93  Eighth  Order  on  Reconsideration,  13  FCC  Rcd  25058,  25093-  94,  para.  70. 
 94  See  47  C.  F.  R.    1.  7  (  Unless  otherwise  provided  in  this  Title,  by  Public  Notice,  or  by  decision  of  the 
 Commission  or  of  the  Commissions  staff  acting  on  delegated  authority,  pleadings  and  other  documents  are 
 considered  to  be  filed  with  the  Commission  upon  their  receipt  at  the  location  designated  by  the  Commission.) 


 95  Changes  to  the  Board  of  Directors  of  the  National  Exchange  Carrier  Association,  Inc.,  Fifth  Order  on 


 Reconsideration  in  CC  Docket  No.  97-  21,  Federal-  State  Joint  Board  on  Universal  Service,  Eleventh  Order  on 
 (continued.) 
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 The  Administrator  calculates  this  amount  in  part  by  generating  a  prediction  of  the  percentage  of 
 its  decisions  that  will  be  reversed  based  on  historical  experience.  Because  the  prediction  may 
 underestimate  the  actual  number  of  reversed  decisions,  it  is  possible  that  the  appeal  reserve  fund 
 in  a  particular  year  will  ultimately  be  inadequate  to  fund  all  successful  appeals  in  that  year. 


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


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


 56.  We  further  seek  comment  on  what  rules  should  govern  if  the  new  proposal  were 
 adopted,  in  the  event  that  the  funding  years  appeal  reserve  is  depleted.  One  option,  for  example, 
 would  be  for  the  Administrator  to  rely  on  any  other  funds  that  remain  from  the  current  funding 
 year  first,  including  funds  that  had  never  been  committed  and  funds  that  had  been  committed  but 
 were  never  used  by  the  original  recipients.  If  these  sources  are  unavailable  or  insufficient,  the 


 (Continued  from  previous  page) 
 Reconsideration  in  CC  Docket  No.  96-  45,  and  Further  Notice  of  Proposed  Rulemaking,  14  FCC  Rcd  6033,  n.  15 
 (1999)  (Eleventh  Reconsideration  Order  and  Further  Notice). 


 96  See,  generally,  Eleventh  Reconsideration  Order  and  Further  Notice,  14  FCC  Rcd  6033,  6037-  38, 


 paras.  9-  12. 
 97  Id.,  14  FCC  Rcd  at  6037,  para.  9. 


 98  Id.,  14  FCC  Rcd  at  6038,  para.  10. 
 99  Id. 
 100  See  United  States  Telephone  Association  Comments,  at  2;  Council  of  Chief  State  School  Officers 
 Comments,  at  3  (filed  in  response  to  Eleventh  Reconsideration  Order  and  Further  Notice). 
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 Federal  Communications  Commission  FCC  02-  8 
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 Administrator  could  then  use  funds  from  the  next  funding  year  as  soon  as  they  become  available, 
 and  reduce  the  level  of  discounts  available  in  that  next  funding  year  by  that  amount.  We  seek 
 comment  on  this  and  any  other  option  consistent  with  our  goals  of  improving  program  operation, 
 ensuring  a  fair  and  equitable  distribution  of  benefits,  and  preventing  waste,  fraud,  and  abuse 
 consistent  with  the  1996  Act. 


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


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


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


 101  See  GAO  Report. 
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 Federal  Communications  Commission  FCC  02-  8 
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 equitable  distribution  of  benefits,  and  preventing  waste,  fraud,  and  abuse. 
 2.  Prohibitions  on  Participation 
 60.  The  Act  and  our  rules  permit  the  Commission  to  initiate  forfeiture  proceedings 
 against  those  that  willfully  or  repeatedly  fail  to  comply  with  statutory  and  regulatory 
 requirements.  102  There  are  no  provisions  in  our  current  rules,  however,  to  bar  entities  from 
 participating  in  the  program  for  periods  of  time. 


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


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


 E.  Unused  Funds 
 1.  Overview 
 63.  In  each  funding  year,  a  portion  of  the  $2.25  billion  available  under  the  program  cap 
 has  gone  unused,  largely  because  some  applicants  do  not  fully  use  the  funds  committed  to  them  in 
 a  given  year.  103  Under  the  Administrators  procedures  in  effect  in  the  first  three  funding  years  of 
 the  program,  the  Administrator  engaged  in  various  ongoing  analyses  throughout  each  funding 
 year  to  ensure  that  it  did  not  commit  more  than  the  $2.  25  billion  cap  each  year.  Although  this 
 $2.  25  billion  limit  on  commitments  ensured  that  the  level  of  funds  actually  disbursed  remained 
 under  the  $2.  25  billion  cap,  the  result,  given  that  applicants  do  not  seek  disbursement  of  all 
 committed  funds,  has  been  that  some  of  the  $2.  25  billion  has  gone  unused  by  applicants  each  year. 


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


 103  According  to  USAC,  unused  funds  from  Funding  Year  1  resulted  from:  the  unsatisfied  completion  of 


 service  contracts;  use  of  only  a  portion  of  the  funds  committed  to  a  school  or  library;  and  unused  funds  reserved 
 for  appeals.  See  Proposed  First  Quarter  2000  Universal  Service  Contribution  Factor,  CC  Docket  No.  96-  45, 
 Public  Notice,  DA  99-  2780  (rel.  Dec.  10,  1999)(  December  1999  Public  Notice). 
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 Federal  Communications  Commission  FCC  02-  8 
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 64.  The  Administrator  issues  funding  commitment  decision  letters  to  applicants  once 
 their  applications  have  been  approved,  but  does  not  authorize  payouts  of  committed  funds  until  it 
 receives  valid  invoices  demonstrating  that  the  applicants  have  obtained  the  requested  products  and 
 services.  The  Administrator  approves  the  disbursement  of  funds  once  it  receives  a  certification 
 from  the  recipient  and  invoices  from  the  service  provider  or  applicant,  indicating  that  approved 
 services  have  begun.  In  many  cases,  however,  applicants  and  vendors  do  not  submit  the  required 
 documentation  for  all  the  funding,  and  therefore  receive  only  partial  funding,  or  none  of  the 
 committed  funds  at  all.  As  of  June  30,  2001,  approximately  $940  million  of  the  $3.  7  billion  in 
 program  funds  committed  to  applicants  during  the  first  and  second  funding  years  was  not 
 disbursed  because  of  the  failure  of  applicants  and  providers  to  submit  the  required  documentation.  104  In  the  first  funding  year,  the  Administrator  disbursed  approximately  82  percent 


 of  committed  funds.  105  In  the  second  funding  year  through  June  30,  2001,  the  Administrator 
 disbursed  approximately  71  percent  of  committed  funds.  106  The  Administrator  projects  that  a 
 similar  proportion  of  committed  funds  will  be  disbursed  in  Funding  Year  3. 


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


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


 2.  Reduction  of  Unused  Funds 
 67.  We  anticipate  that  several  recent  administrative  changes  to  the  schools  and 
 libraries  program  should  help  to  reduce  the  under-  utilization  of  committed  funds.  Specifically,  in 
 May  2000,  the  Administrator  released  a  new  Form  500  that  gives  applicants  a  convenient  tool  to 
 reduce  or  cancel  commitments  they  will  not  use  so  that  those  funds  can  be  made  available  for 
 other  applicants  during  the  same  funding  year.  107  Additionally,  the  Administrator  developed  new 
 and  more  flexible  procedures  for  service  provider  changes,  consistent  with  governing  precedent. 


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


 105  See  USAC  Filing  for  Fourth  Quarter  2001  Projections. 


 106  See  id. 
 107  See  Schools  and  Libraries  Universal  Service,  Adjustment  to  Funding  Commitment  and  Modification 
 to  Receipt  of  Service  Confirmation  Form,  OMB  3060-  0853  (April  2000)  (Form  500). 
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 The  Administrator  expects  those  procedures  to  permit  approval  of  many  pending  service  provider 
 changes  and  the  distribution  of  more  funds  each  year.  Furthermore,  in  order  to  address  the  under-utilization 
 of  program  resources  caused  by  this  gap  between  committed  and  disbursed  funds,  the 
 Administrator,  in  consultation  with  the  Commission,  will  begin  to  base  the  overall  amount  of 
 committed  funds  each  year  on  a  formula  that  takes  into  consideration  past  levels  of  disbursement. 
 We  believe  that  each  of  these  changes  will  help  prevent  the  likelihood  of  waste,  fraud,  and  abuse 
 by  improving  the  disbursement  of  program  funds. 


 68.  It  is  our  goal  to  reduce  the  gap  between  funds  that  have  been  committed  and  those 
 that  have  been  disbursed,  in  order  to  most  effectively  implement  the  goals  of  section  254(  h)  by 
 providing  for  discounts  as  close  as  possible  to  the  level  of  the  annual  $2.  25  billion  cap.  We  seek 
 to  develop  a  record  on  the  reasons  why  applicants  and  providers  may  fail  to  fully  use  committed 
 funds  under  the  program.  We  also  seek  comment  on  whether  any  other  program  changes  would 
 likely  result  in  an  increased  percentage  of  committed  funds  being  disbursed  each  funding  year, 
 which  will  help  to  reduce  the  overall  amount  of  unused  funds  from  the  schools  and  libraries 
 mechanism.  108  In  the  event  we  adopt  additional  measures  to  reduce  the  existence  of  unused 
 funds,  we  seek  comment  on  whether  it  is  necessary  to  adopt  procedures  to  address  a  situation  in 
 which  more  funds  are  committed  and  used  than  are  available  for  disbursement. 


 3.  Treatment  of  Unused  Funds 
 69.  Section  54.507(  a)  of  the  Commissions  rules  codifies  the  annual  $2.  25  billion  cap 
 on  the  schools  and  libraries  support  mechanism.  109  The  rule  also  provides  that  all  funding 
 authority  for  a  given  funding  year  that  is  unused  in  that  funding  year  shall  be  carried  forward  into 
 subsequent  funding  years  for  use  in  accordance  with  demand.  110  Although  section  54.507(  a) 
 addresses  funding  authority,  it  is  silent  as  to  the  treatment  of  unused  funds,  i.  e.,  funds  that  the 
 Administrator  had  available  for  disbursement,  but  that  were  not  disbursed  in  that  funding  year.  As 
 discussed  infra,  111  unused  funds  from  Funding  Year  1  have  been  used  to  reduce  the  contribution 
 factor  for  Funding  Years  2  and  3,  consistent  with  Commission  rules  and  policies.  We  believe, 
 however,  that  we  should  consider  what  should  be  done  with  unused  funds  that  may  occur  in 
 future  years. 


 70.  In  accord  with  our  efforts  to  reduce  the  amount  of  unused  funds  from  the  schools 
 and  libraries  mechanism,  we  seek  comment  on  revising  the  Commissions  rules  to  clarify  the 
 appropriate  treatment  of  such  unused  funds.  As  stated  above,  the  Commissions  rule  adopted  in 
 accord  with  the  Universal  Service  Order  refers  to  unused  funding  authority,  not  unused  funds.  112 


 108  This  request  for  comments  is  consistent  with  the  recommendation  of  the  General  Accounting  Office 
 in  its  December  2000  report.  GAO  Report,  GAO-  01-  105,  at  37. 
 109  47  C.  F.  R.    54.507(  a). 


 110  Id.  (emphasis  added). 
 111  See  paras.  72-  77. 
 112  47  C.  F.  R.    54.507(  a). 
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 Thus,  the  Commission  seeks  comment  on  two  options  relating  to  the  treatment  of  unused  funds. 
 The  first  option  would  be  to  modify  the  rule  to  require  expressly  that  unused  funds  from  the 
 schools  and  libraries  mechanism  (beginning  with  Funding  Year  2)  should  be  credited  back  to 
 contributors  through  reductions  in  the  contribution  factor.  113  The  second  option  would  be  to 
 modify  the  rule  to  require  expressly  the  distribution  of  the  unused  funds  in  subsequent  years  of  the 
 schools  and  libraries  program,  in  excess  of  the  annual  cap.  We  seek  comment  on  each  of  the 
 alternatives.  We  believe  that  consumers  may  benefit  from  reducing  the  contribution  factor  with 
 unused  funds  because  it  will  decrease  the  contribution  amounts  that  carriers  recover  from 
 consumers.  Alternatively,  disbursing  unused  funds  in  subsequent  funding  years  of  the  schools  and 
 libraries  mechanism  would  provide  additional  resources  for  applicants,  thereby  assisting  efforts  to 
 provide  affordable  telecommunications  and  information  services  to  schools  and  libraries. 


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


 A.  Background 
 72.  In  the  Fifth  Order  on  Reconsideration,  the  Commission  decided  to  revise  the 
 $2.  25  million  annual  cap,  and  establish  collection  and  disbursement  limits  of  $1.  925  billion  for  the 


 113  The  universal  service  contribution  factor  is  used  to  calculate  a  carriers  contribution  to  the  universal  service 
 fund.  In  the  Second  Order  on  Reconsideration,  the  Commission  set  forth  the  specific  method  of  computation  for 
 universal  service  contributions.  See  Changes  to  the  Board  of  Directors  of  the  National  Exchange  Carrier 
 Association  Inc.,  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  Nos.  97-  21,  96-  45,  Report  and  Order 
 and  Second  Order  on  Reconsideration,  12  FCC  Rcd  18400,  18427,  at  para.  49  (1997)  (Second  Order  on 
 Reconsideration).  The  Commission  directed  USAC  to  calculate  an  individual  carriers  quarterly  contribution  by 
 multiplying  the  carriers  universal  service  revenue  base  (i.  e.,  interstate  and  international  end-  user 
 telecommunications  revenues)  by  the  relevant  universal  service  contribution  factor.  See  47  C.  F.  R.  54.709(  a)(  2). 
 See  also  Federal-  State  Joint  Board  on  Universal  Service  Access  Charge  Reform,  CC  Docket  Nos.  96-  45  and  96- 
 262,  Sixteenth  Order  on  Reconsideration  in  CC  Docket  No.  96-  45,  Eighth  Report  and  Order  in  CC  Docket  No.  96- 
 45,  Sixth  Report  and  Order  in  CC  Docket  No.  96-  262,  15  FCC  Rcd  1679  (2000).  The  contribution  factor  is  based 
 on  the  ratio  of  quarterly  projected  costs  of  the  support  mechanisms,  including  administrative  expenses,  to  the 
 applicable  revenue  base.  The  Commission  further  directed  USAC  to  adjust  the  contribution  factors  for  each 
 quarter  based  on  quarterly  demand  for  services  and  administrative  costs,  subject  to  any  funding  caps  established  in 
 the  Universal  Service  Order.  See  Second  Order  on  Reconsideration,  12  FCC  Rcd  at  18425,  para.  45. 


 114  See  Petition  for  Reconsideration  of  Proposed  First  Quarter  2000  Universal  Service  Contribution 
 Factor  by  Greg  Weisiger,  filed  December  20,  1999;  Petition  for  Reconsideration  of  Proposed  Third  Quarter  2000 
 Universal  Service  Contribution  Factor  by  Greg  Weisiger,  filed  June  12,  2000;  Petition  for  Reconsideration  of 
 Proposed  Fourth  Quarter  2000  Universal  Service  Contribution  Factor  by  Greg  Weisiger,  filed  September  18, 
 2000  (Public  Notice  Reconsideration  Petitions).  See  also  Petitioner  Requests  Carryover  of  Unused  Funds  in  the 
 Federal  Universal  Service  Mechanism  for  Schools  and  Libraries  Pleading  Cycle  Established,  CC  Docket  No.  96-45, 
 Public  Notice,  DA  01-  975  (rel.  Apr.  19,  2001). 
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 schools  and  libraries  support  mechanism  during  Funding  Year  1.  115  As  a  result,  the  collection  and 
 disbursement  limits  in  Funding  Year  1  were  $325  million  less  than  the  annual  $2.  25  billion  cap. 
 The  Commission  explained  its  decision  by  noting  the  desire  of  many  legislators  to  balance  the 
 need  to  provide  support  for  schools  and  libraries  against  the  need  to  provide  support  for  other 
 mechanisms,  such  as  the  high  cost  support  mechanisms,  and  to  keep  telephone  rates  affordable.  116 


 73.  In  1998,  the  Commission  adopted  section  54.507(  a)  of  the  Commissions  rules, 
 which  provides  that  unused  funding  authority,  the  difference  between  the  amounts  authorized  to 
 be  collected  in  any  funding  year  and  the  $2.  25  billion  annual  cap,  would  be  available  for  use  in 
 subsequent  funding  years  in  accordance  with  demand.  117  Nevertheless,  for  Funding  Year  1,  the 
 Commission  provided  an  exception  to  the  rule  and  specifically  prohibited  the  carryover  of  unused 
 funding  authority  for  the  period  January  1,  1998  through  June  30,  1999.  118  The  Commission 
 further  determined  that  unused  funds  that  were  collected  but  not  disbursed  in  Funding  Year  1 
 would  be  carried  forward  to  the  next  funding  period.  119  The  rule  did  not  specifically  establish 
 how  these  funds  would  be  used  after  they  were  carried  forward,  however    whether  they  were  to 
 be  credited  back  to  contributors  or  distributed  in  subsequent  funding  years  to  exceed  the  cap  for 
 the  schools  and  libraries  mechanism. 


 74.  In  May  1999,  in  the  Twelfth  Order  on  Reconsideration,  the  Commission  again 
 amended  its  funding  rules  to  implement  quarterly  collection  and  disbursement  limits  on  universal 
 service  funds  for  schools  and  libraries  in  Funding  Year  2.  120  In  addition,  unlike  Funding  Year  1, 
 when  the  Commission  did  not  authorize  funding  to  the  cap,  the  Commission  made  clear  that  for 
 Funding  Year  2,  the  $2.  25  billion  funding  cap  would  remain  undisturbed.  121  Therefore,  unused 
 funds  that  were  carried  forward  from  Funding  Year  1  could  not  be  disbursed  because  that  would 
 result  in  disbursement  in  excess  of  the  $2.  25  billion  that  was  authorized  to  be  collected  and 
 disbursed  in  Funding  Year  2.  The  Commission  amended  section  54.507(  a)  of  its  rules  to  reflect 
 these  changes.  122 


 115  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Fifth  Order  on 
 Reconsideration  and  Fourth  Report  and  Order  in  CC  Docket  No.  96-  45,  13  FCC  Rcd  14915,  14916,  para.  3 
 (1998)  (Fifth  Order  on  Reconsideration).  See  also  Universal  Service  Order,  12  FCC  Rcd  at  9054,  para.  529 
 (establishes  $2.  25  billion  annual  cap). 


 116  See  Fifth  Order  on  Reconsideration,  13  FCC  Rcd  at  14926,  para.  18. 


 117  47  C.  F.  R.    54.507(  a). 
 118  47  C.  F.  R.    54.507(  a)(  2).  The  first  funding  cycle  of  the  schools  and  libraries  universal  service 
 mechanism  was  18  months.  See  also  Fifth  Order  on  Reconsideration,  13  FCC  Rcd  at  14934,  para.  30. 
 119  Id. 


 120  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Twelfth  Order  on 
 Reconsideration  in  CC  Docket  No.  96-  45,  64  Fed.  Reg.  30440  (1999)  (Twelfth  Order  on  Reconsideration). 
 121  Twelfth  Order  on  Reconsideration  at  para.  9. 


 122  See  47  C.  F.  R.    54.507(  a)(  1). 
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 75.  On  December  10,  1999,  the  Common  Carrier  Bureau  (Bureau)  released  a  Public 
 Notice  announcing  the  proposed  universal  service  contribution  factor  for  the  first  quarter  of  2000.  123  The  universal  service  contribution  factor  is  used  to  calculate  a  carriers  contribution  to 


 the  universal  service  fund.  124  USAC  reported  that  it  would  not  need  to  disburse  the  full  amount 
 of  funds  that  it  was  authorized  to  collect  for  Funding  Year  1  of  the  schools  and  libraries  support 
 mechanism.  Specifically,  USAC  estimated  that  the  schools  and  libraries  program  would  have  an 
 unused  balance  of  approximately  $229  million  after  making  all  disbursements  for  Funding  Year  1.  125  The  Public  Notice  directed  USAC  to  apply  one-  quarter  of  the  estimated  unused  balance  to 


 reduce  the  collection  requirement  for  the  schools  and  libraries  program  in  the  first  quarter  of 
 2000.  126  The  Public  Notice  noted  that  this  action  was  consistent  with  section  54.507  of  the 
 Commissions  rules  and  a  previous  decision  by  the  Commission  to  permit  excess  contributions  to 
 the  rural  health  care  support  mechanism  to  be  credited  back  to  contributors.  127  Under  the 
 Commissions  rules,  the  Public  Notice  was  deemed  approved  by  the  Commission  14  days  after 
 release.  128 


 76.  In  2000,  the  Commission  took  no  action  to  change  the  annual  funding  cap,  and 
 therefore,  consistent  with  the  rules,  the  schools  and  libraries  universal  service  mechanism  was 
 funded  at  $2.  25  billion  during  Funding  Year  3.  129  Subsequently,  the  proposed  contribution 
 factors  for  the  third  and  fourth  quarters  of  2000  were  released  and  the  estimated  unused  funds  for 
 Funding  Year  1  were  revised.  In  the  third  quarter,  USAC  estimated  that  the  schools  and  libraries 


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


 124  See  Second  Order  of  Reconsideration,  12  FCC  Rcd  at  18427,  para.  49. 


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


 126  Id.  The  Commission  found  that  it  would  be  prudent  to  apply  only  one-  quarter  of  the  estimated 


 unused  balance  to  reduce  the  contribution  factor  in  the  first  quarter  of  2000  because  the  unused  balance  projected 
 for  the  schools  and  libraries  program  was  only  an  estimate  at  that  time. 


 127  See  47  C.  F.  R.    54.507;  Proposed  First  Quarter  1999  Universal  Service  Contribution  Factors  and 


 Proposed  Actions,  CC  Docket  No.  96-  45,  Public  Notice,  FCC  98-  318  (rel.  Dec.  4,  1998)  (December  1998  Public 
 Notice).  The  December  1998  Public  Notice  relied  upon  47  C.  F.  R.    54.709(  b)  as  authority  to  take  into 
 consideration  excess  contributions  when  calculating  future  contribution  factors. 


 128  See  47  C.  F.  R.    54.709(  a)(  3). 


 129  See  Statement  of  FCC  Chairman  William  E.  Kennard  and  Commissioner  Gloria  Tristani,  E-  Rate  to 
 Receive  Full  Funding,  released  April  13,  2000  (Funding  Year  3  Statement).  We  note  that  Funding  Year  3  (July 
 2000-  June  2001)  of  the  schools  and  libraries  program  began  on  July  1,  2000.  Therefore,  Funding  Year  3 
 included  the  third  and  fourth  quarters  of  2000. 
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 mechanism  would  have  an  unused  balance  of  $340  million.  130  In  the  fourth  quarter,  USAC 
 estimated  there  would  be  an  unused  balance  of  $170  million.  131  By  Public  Notice,  the  Bureau 
 directed  USAC  to  apply  the  estimated  unused  funds  to  reduce  the  collection  requirement  for  the 
 schools  and  libraries  program  in  the  third  and  fourth  quarters  of  2000.  132  Again,  those  Public 
 Notices  were  deemed  approved  by  the  Commission  14  days  after  release. 


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


 B.  Discussion 
 78.  We  deny  the  petitions  for  reconsideration  of  Public  Notices  in  which  unused  funds 
 from  Funding  Year  1  of  the  schools  and  libraries  universal  service  support  mechanism  were 
 applied  to  reduce  the  contribution  factor.  As  noted  above,  section  54.507(  a)(  2)  of  the 
 Commissions  rules  directed  the  Commission  to  carry  forward  unused  funds  from  Funding  Year  1, 
 but  failed  to  address  how  the  funds  were  to  be  used  after  they  were  carried  forward.  134  In  the 
 Twelfth  Order  on  Reconsideration,  the  Commission  adopted  rules  that  precluded  the  use  of 
 unused  funds  from  Funding  Year  1  to  exceed  the  disbursement  cap  in  Funding  Year  2.  135  The 
 Commission  determined  that  no  more  than  $2.  25  billion  should  be  collected  or  disbursed  in 
 Funding  Year  2.  136  In  light  of  this  restriction,  the  Commission  reasonably  determined  that  it  could 
 best  satisfy  the  needs  of  the  program  by  using  the  unspent  funds  to  reduce  the  contribution  factor 


 130  See  Federal  Universal  Service  Support  Mechanisms  Fund  Size  Projections  &  Contribution  Base  for 
 the  Third  Quarter  2000  (filed  by  USAC  May  2,  2000). 
 131  See  Federal  Universal  Service  Programs  Fund  Size  Projections  &  Contribution  Base  for  the  Fourth 


 Quarter  2000  (filed  by  USAC  August  2,  2000). 
 132  See  Proposed  Third  Quarter  2000  Universal  Service  Contribution  Factor,  CC  Docket  No.  96-  45, 


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


 133  See  Public  Notice  Reconsideration  Petitions. 


 134  47  C.  F.  R.    54.507(  a)(  2). 
 135  Twelfth  Order  on  Reconsideration  at  para.  9. 
 136  47  C.  F.  R.    54.507(  a)(  1). 
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 for  Funding  Year  2.  137 
 79.  Although  the  Commission  did  not  adopt  the  same  express  limiting  language  found 
 in  54.507(  a)(  1)  with  regard  to  Funding  Year  3,  the  Commission  followed  the  same  policy    using 
 unspent  funds  from  Funding  Year  1  to  reduce  the  contribution  factor  for  Funding  Year  3.  At  the 
 time  that  the  Commission  ordered  that  the  Funding  Year  2  cap  could  not  be  exceeded  in  the 
 Twelfth  Order  on  Reconsideration,  the  Commission  did  not  anticipate  that  unused  funds  from 
 Funding  Year  1  would  still  be  remaining  during  Funding  Year  3.  Thus,  it  did  not  write  the  rule  to 
 address  any  year  other  than  Funding  Year  2.  Although  we  acknowledge  that  there  is  language  in 
 the  Universal  Service  Order  suggesting  that  unused  funds  from  the  schools  and  libraries  universal 
 service  support  mechanism  will  be  carried  forward  to  exceed  the  cap,  the  Commission  later 
 adopted  an  expressly  different  policy  in  the  Twelfth  Order  on  Reconsideration.  138  Applying 
 Funding  Year  1  unused  funds  to  exceed  the  cap  in  Funding  Year  3  would  have  been  inconsistent 
 with  the  Commissions  policy  established  in  the  Twelfth  Order  on  Reconsideration  that  unused 
 funds  from  Funding  Year  1  should  not  be  used  to  exceed  the  annual  funding  cap  in  subsequent 
 funding  years.  139  Accordingly,  we  find  that  the  decision  to  reduce  the  contribution  factor  in 
 Funding  Year  3  with  unused  funds  carried  forward  from  Funding  Year  1  was  appropriate  and 
 consistent  with  the  Commissions  previous  decision  to  reduce  the  contribution  factor  in  Funding 
 Year  2.  140 


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


 V.  REVISING  OR  ELIMINATING  OUTMODED  RULES 
 81.  We  seek  comment  on  any  administrative  or  procedural  rules  or  policies  of  the 
 137  We  also  note  that  this  action  is  consistent  with  section  54.709(  b),  which  generally  addresses  the 
 disposition  of  unused  funds  from  quarter  to  quarter.  If  the  contributions  received  by  the  Administrator  in  a 
 quarter  exceed  the  amount  of  universal  service  support  program  contributions  and  administrative  costs  for  that 
 quarter,  the  excess  payments  will  be  carried  forward  to  the  following  quarter.  The  contribution  factors  for  the 
 following  quarter  will  take  into  consideration  the  projected  costs  of  the  support  mechanisms  for  that  quarter  and 
 the  excess  contributions  carried  over  from  the  previous  quarter.  47  C.  F.  R.    54.709(  b). 


 138  Universal  Service  Order,  12  FCC  Rcd  at  9052,  9054,  paras.  526,  529;  Twelfth  Order  on  Reconsideration  at 


 para.  9. 
 139  Moreover,  we  note  that  in  its  rules  the  Commission  only  codified  the  treatment  for  unused  funding 
 authority,  not  the  treatment  for  unused  funds,  see  47  C.  F.  R.    54.507,  raising  questions  as  to  the  import  of  the 
 language  in  the  Universal  Service  Order. 


 140  See  Public  Notice  Reconsideration  Petitions. 


 141  Twelfth  Order  on  Reconsideration  at  para.  9. 
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 Commission  or  SLD,  relating  to  the  schools  and  libraries  support  mechanism,  that  should  be 
 revised  or  eliminated  because  they  have  become  outmoded.  In  the  four  years  since  the 
 implementation  of  the  support  mechanism,  some  such  rules  or  policies  may  have  become  obsolete 
 through  changed  circumstances  or  technologies,  or  may  have  been  rendered  unnecessary  or 
 redundant  in  light  of  changes  made  to  the  program.  We  therefore  seek  comment  on  such  rules  or 
 policies  in  order  to  determine  whether  any  are  no  longer  necessary  or  in  the  public  interest. 


 VI.  PROCEDURAL  MATTERS 
 A.  Paperwork  Reduction  Act  Analysis 
 82.  As  part  of  our  continuing  effort  to  reduce  paperwork  burdens,  we  invite  the 
 general  public  to  take  this  opportunity  to  comment  on  the  additional  certification  collections 
 contained  in  this  Notice,  as  required  by  the  Paperwork  Reduction  Act  of  1995,  Pub.  L.  No.  104- 
 13.  Public  and  agency  comments  are  due  at  the  same  time  as  other  comments  on  this  Notice. 
 Comments  should  address:  (a)  whether  the  proposed  collection  of  information  is  necessary  for  the 
 proper  performance  of  the  functions  of  the  Commission,  including  whether  the  information  shall 
 have  practical  utility;  (b)  the  accuracy  of  the  Commission's  burden  estimates;  (c)  ways  to  enhance 
 the  quality,  utility,  and  clarity  of  the  information  collected;  and  (d)  ways  to  minimize  the  burden  of 
 the  collection  of  information  on  the  respondents,  including  the  use  of  automated  collection 
 techniques  or  other  forms  of  information  technology. 


 B.  Initial  Regulatory  Flexibility  Analysis 
 83.  As  required  by  the  Regulatory  Flexibility  Act  (RFA),  142  the  Commission  has 
 prepared  this  Initial  Regulatory  Flexibility  Analysis  (IRFA)  of  the  possible  significant  economic 
 impact  on  small  entities  by  the  policies  and  rules  proposed  in  this  Notice.  Written  public 
 comments  are  requested  on  this  IRFA.  Comments  must  be  identified  as  responses  to  the  IRFA 
 and  must  be  filed  by  the  deadlines  for  comments  on  the  Notice  provided  below  in  section  VI.  C. 
 The  Commission  will  send  a  copy  of  the  Notice,  including  this  IRFA,  to  the  Chief  Counsel  for 
 Advocacy  of  the  Small  Business  Administration  (SBA).  143  In  addition,  the  Notice  and  IRFA  (or 
 summaries  thereof)  will  be  published  in  the  Federal  Register.  144 


 1.  Need  for,  and  Objectives  of,  the  Proposed  Rules 
 84.  The  Commission  is  required  by  section  254  of  the  Act  to  promulgate  rules  to 
 implement  the  universal  service  provisions  of  section  254.  On  May  8,  1997,  the  Commission 
 adopted  rules  to  reform  our  system  of  universal  service  support  mechanisms  so  that  universal 


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


 143  See  5  U.  S.  C.    603(  a). 


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


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


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


 145  Universal  Service  Order,  12  FCC  Rcd  8776. 
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 2.  Legal  Basis 
 87.  The  legal  basis  for  this  Notice  is  contained  in  sections  1  through  4,  201  through 
 205,  254,  303(  r),  and  403  of  the  Communications  Act  of  1934,  as  amended  by  the 
 Telecommunications  Act  of  1996,  47  U.  S.  C.    151  through  154,  201  through  205,  254,  303(  r), 
 and  403,  and  section  1.411  of  the  Commissions  rules,  47  C.  F.  R.    1.411. 


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


 88.  The  RFA  directs  agencies  to  provide  a  description  of  and,  where  feasible,  an 
 estimate  of  the  number  of  small  entities  that  may  be  affected  by  the  proposed  rules,  if  adopted.  146 
 The  RFA  generally  defines  the  term  small  entity  as  having  the  same  meaning  as  the  terms  small 
 business,  small  organization,  and  small  governmental  jurisdiction.  147  In  addition,  the  term 
 small  business  has  the  same  meaning  as  the  term  small  business  concern  under  the  Small 
 Business  Act.  148  A  small  business  concern  is  one  that:  (1)  is  independently  owned  and  operated; 
 (2)  is  not  dominant  in  its  field  of  operation;  and  (3)  satisfies  any  additional  criteria  established  by 
 the  SBA.  149  A  small  organization  is  generally  any  not-  for-  profit  enterprise  which  is 
 independently  owned  and  operated  and  is  not  dominant  in  its  field.  150  Nationwide,  as  of  1992, 
 there  were  approximately  275,801  small  organizations.  151  Small  governmental  jurisdiction  152 
 generally  means  governments  of  cities,  counties,  towns,  townships,  villages,  school  districts,  or 
 special  districts,  with  a  population  of  less  than  50,000.  153  As  of  1992,  there  were  approximately 
 85,006  such  jurisdictions  in  the  United  States.  154  This  number  includes  38,978  counties,  cities, 
 and  towns;  of  these,  37,566,  or  96  percent,  have  populations  of  fewer  than  50,000.  155  The 


 146  5  U.  S.  C.    603(  b)(  3). 


 147  5  U.  S.  C.    601(  6). 
 148  5  U.  S.  C.    601(  3)  (incorporating  by  reference  the  definition  of  small  business  concern  in  15 
 U.  S.  C.    632).  Pursuant  to  the  RFA,  the  statutory  definition  of  a  small  business  applies  unless  an  agency,  after 
 consultation  with  the  Office  of  Advocacy  of  the  Small  Business  Administration  and  after  opportunity  for  public 
 comment,  establishes  one  or  more  definitions  of  such  term  which  are  appropriate  to  the  activities  of  the  agency 
 and  publishes  such  definition(  s)  in  the  Federal  Register.  5  U.  S.  C.    601(  3). 


 149  Small  Business  Act,  15  U.  S.  C.    632. 


 150  5  U.  S.  C.    601(  4). 
 151  1992  Economic  Census,  U.  S.  Bureau  of  the  Census,  Table  6  (special  tabulation  of  data  under 
 contract  to  Office  of  Advocacy  of  the  U.  S.  Small  Business  Administration). 
 152  47  C.  F.  R.    1.1162. 


 153  5  U.  S.  C.    601(  5). 


 154  U.  S.  Dept.  of  Commerce,  Bureau  of  the  Census,  1992  Census  of  Governments. 
 155  Id. 
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 Census  Bureau  estimates  that  this  ratio  is  approximately  accurate  for  all  governmental  entities. 
 Thus,  of  the  85,006  governmental  entities,  we  estimate  that  81,600  (96  percent)  are  small  entities. 


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


 a.  Schools  and  Libraries 
 90.  Under  the  schools  and  libraries  universal  service  support  mechanism,  which 
 provides  support  for  elementary  and  secondary  schools  and  libraries,  an  elementary  school  is 
 generally  a  non-  profit  institutional  day  or  residential  school  that  provides  elementary  education, 
 as  determined  under  state  law.  157  A  secondary  school  is  generally  defined  as  a  non-  profit 
 institutional  day  or  residential  school  that  provides  secondary  education,  as  determined  under 
 state  law,  and  not  offering  education  beyond  grade  12.  158  For-  profit  schools  and  libraries,  and 
 schools  and  libraries  with  endowments  in  excess  of  $50,000,000,  are  not  eligible  to  receive 
 discounts  under  the  program,  nor  are  libraries  whose  budgets  are  not  completely  separate  from 
 any  schools.  159  Certain  other  statutory  definitions  apply  as  well.  160  The  SBA  has  defined  as  small 
 entities  elementary  and  secondary  schools  and  libraries  having  $5  million  or  less  in  annual  receipts.  161  In  funding  year  2  (July  1,  1999  to  June  20,  2000)  approximately  83,700  schools  and 


 9,000  libraries  received  funding  under  the  schools  and  libraries  universal  service  mechanism. 
 Although  we  are  unable  to  estimate  with  precision  the  number  of  these  entities  that  would  qualify 
 as  small  entities  under  SBAs  definition,  we  estimate  that  fewer  than  83,700  schools  and  9,000 
 libraries  would  be  affected  annually  by  the  rules  proposed  in  this  Notice,  under  current  operation 
 of  the  program.  162 


 156  47  C.  F.  R.    54.502,  54.503,  54.517(  b). 
 157  47  C.  F.  R.    54.500(  b). 
 158  47  C.  F.  R.    54.500(  j). 
 159  47  C.  F.  R.    54.501. 
 160  See  id. 
 161  13  C.  F.  R.    121.201,  North  American  Industry  Classification  System  (NAICS)  Codes  611110, 
 514120.  These  NAICS  Codes  were  adopted  by  the  SBA  effective  December  18,  2000,  replacing  the  previously 
 used  Standard  Industrial  Classification  (SIC)  Codes. 


 162  The  number  of  small  entities  affected  by  these  rules  may  also  be  affected  by  a  determination  of  which 


 entities  may  make  the  required  certification,  which  is  an  issue  on  which  this  Notice  seeks  comment,  see    8.  For 
 example,  if  a  school  district  may  certify  on  behalf  of  all  of  its  schools,  that  district  may  well  have  annual  receipts 
 in  excess  of  $5  million  and  therefore  would  not  be  a  small  entity  under  SBAs  definition,  whereas  an  individual 
 school  in  that  district  might  be  a  small  entity  with  annual  receipts  of  less  than  $5  million,  and  thus  would  be 
 affected  by  these  rules. 
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 b.  Telecommunications  Service  Providers 
 91.  We  have  included  small  incumbent  local  exchange  carriers  in  this  RFA  analysis.  A 
 "small  business"  under  the  RFA  is  one  that,  inter  alia,  meets  the  pertinent  small  business  size 
 standard  (e.  g.,  a  telephone  communications  business  having  1,500  or  fewer  employees),  and  "is 
 not  dominant  in  its  field  of  operation."  163  The  SBA's  Office  of  Advocacy  contends  that,  for  RFA 
 purposes,  small  incumbent  local  exchange  carriers  are  not  dominant  in  their  field  of  operation 
 because  any  such  dominance  is  not  "national"  in  scope.  164  We  have  therefore  included  small 
 incumbent  carriers  in  this  RFA  analysis,  although  we  emphasize  that  this  RFA  action  has  no  effect 
 on  the  Commissions  analyses  and  determinations  in  other,  non-  RFA  contexts. 


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


 93.  Interexchange  Carriers.  Neither  the  Commission  nor  the  SBA  has  developed  a 
 definition  of  small  entities  specifically  applicable  to  providers  of  interexchange  services  (IXCs). 
 The  closest  applicable  definition  under  the  SBA  rules  is  for  wired  telecommunications  carriers.  168 


 163  5  U.  S.  C.    601(  3). 


 164  See  Letter  from  Jere  W.  Glover,  Chief  Counsel  for  Advocacy,  SBA,  to  William  E.  Kennard, 
 Chairman,  FCC,  dated  May  27,  1999.  The  Small  Business  Act  contains  a  definition  of  "small  business  concern," 
 which  the  RFA  incorporates  into  its  own  definition  of  "small  business."  See  U.  S.  C.    632(  a)  (Small  Business 
 Act);  5  U.  S.  C.    601(  3)  (RFA).  SBA  regulations  interpret  "small  business  concern"  to  include  the  concept 
 of  dominance  on  a  national  basis.  13  C.  F.  R.    121.102(  b).  Since  1996,  out  of  an  abundance  of  caution,  the 
 Commission  has  included  small  incumbent  LECs  in  its  regulatory  flexibility  analyses.  See,  e.  g.,  Implementation 
 of  the  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996,  CC  Docket,  96-  98,  First  Report  and 
 Order,  11  FCC  Rcd  15499,  16144-  45  (1996). 


 165  13  C.  F.  R.    121.201,  NAICS  Code  513310. 


 166  Id. 
 167  FCC,  Common  Carrier  Bureau,  Industry  Analysis  Division,  Trends  in  Telephone  Service,  Table  16.  3 
 (Dec.  2000),  <http://  www.  fcc.  gov/  Bureaus/  Common_  Carrier/  Reports/  FCC-  State_  Link/  IAD/  trend200.pdf> 
 (Trends  Report). 


 168  13  C.  F.  R.    121.201,  NAICS  Code  513310. 
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 This  provides  that  a  wired  telecommunications  carrier  is  a  small  entity  if  it  employs  no  more  than 
 1,500  employees.  169  According  to  the  most  recent  Trends  Report,  204  companies  reported  that 
 they  were  engaged  in  the  provision  of  interexchange  services.  170  As  some  of  these  carriers  have 
 more  than  1,500  employees,  we  are  unable  at  this  time  to  estimate  with  greater  precision  the 
 number  of  IXCs  that  would  qualify  as  small  business  concerns  under  the  SBA's  definition. 
 Consequently,  we  estimate  that  there  are  fewer  than  204  small  entity  IXCs  that  may  be  affected  by 
 the  proposals  in  this  Notice. 


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


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


 169  Id. 
 170  Trends  Report,  Table  16.  3. 
 171  13  C.  F.  R.    121.201,  NAICS  Code  513310. 
 172  Id. 
 173  Trends  Report,  Table  16.  3. 
 174  13  C.  F.  R.    121.201,  NAICS  Code  513322. 
 175  Id. 
 176  Trends  Report,  Table  16.  3. 
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 Federal  Communications  Commission  FCC  02-  8 
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 affected. 
 96.  Other  Wireless  Services.  Neither  the  Commission  nor  the  SBA  has  developed  a 
 definition  of  small  entities  specifically  applicable  to  wireless  services  other  than  wireless 
 telephony.  177  The  closest  applicable  definition  under  the  SBA  rules  is  again  that  of  cellular  and 
 other  wireless  telecommunications,  under  which  a  service  provider  is  a  small  entity  if  it  employs 
 no  more  than  1,500  employees.  178  According  to  the  most  recent  Trends  Report,  477  providers 
 classified  themselves  as  paging  services,  wireless  data  carriers  or  other  mobile  service  providers.  179  We  do  not  have  data  specifying  the  number  of  these  carriers  that  are  not 


 independently  owned  and  operated  or  have  more  than  1,500  employees,  and  thus  are  unable  at 
 this  time  to  estimate  with  greater  precision  the  number  of  wireless  service  providers  that  would 
 qualify  as  small  business  concerns  under  the  SBA's  definition.  Consequently,  we  estimate  that 
 there  are  fewer  than  477  wireless  service  providers  that  may  be  affected. 


 c.  Internet  Service  Providers 
 97.  Under  the  new  NAICS  codes,  SBA  has  developed  a  small  business  size  standard 
 for  On-  line  Information  Services,  NAICS  Code  514191.  180  According  to  SBA  regulations,  a 
 small  business  under  this  category  is  one  having  annual  receipts  of  $18  million  or  less.  181 
 According  to  SBAs  most  recent  data,  there  are  a  total  of  2,829  firms  with  annual  receipts  of 
 $9,999,999  or  less,  and  an  additional  111  firms  with  annual  receipts  of  $10,000,000  or  more.  182 
 Thus,  the  number  of  On-  line  Information  Services  firms  that  are  small  under  the  SBAs  $18 
 million  size  standard  is  between  2,  829  and  2,940.  Further,  some  of  these  Internet  Service 
 Providers  (ISPs)  might  not  be  independently  owned  and  operated.  Consequently,  we  estimate 
 that  there  are  fewer  than  2,940  small  entity  ISPs  that  may  be  affected  by  the  decisions  and  rules  of 
 the  present  action. 


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


 178  13  C.  F.  R.    121.201,  NAICS  Code  513322. 


 179  Trends  Report,  Table  16.  3. 
 180  13  C.  F.  R.    121.201,  NAICS  Code  514191. 
 181  Id. 
 182  1997  Census  Report,  Establishment  and  Firm  Size,  U.  S.  Census  Bureau,  U.  S.  Department  of 
 Commerce,  Economics  and  Statistics  Administration,  Document  EC97S51S-  SZ, 
 <http://  www.  census.  gov/  prod/  ec97/  97s51-  sz.  pdf>,  at  24. 
39
 Federal  Communications  Commission  FCC  02-  8 
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 d.  Vendors  of  Internal  Connections 
 98.  The  Commission  has  not  developed  a  definition  of  small  entities  applicable  to  the 
 manufacturers  of  internal  network  connections.  The  most  applicable  definitions  of  a  small  entity 
 are  the  definitions  under  the  SBA  rules  applicable  to  manufacturers  of  "Radio  and  Television 
 Broadcasting  and  Communications  Equipment"  (RTB)  and  Other  Communications  Equipment.  183  According  to  the  SBA's  regulations,  manufacturers  of  RTB  or  other 


 communications  equipment  must  have  750  or  fewer  employees  in  order  to  qualify  as  a  small 
 business.  184  The  most  recent  available  Census  Bureau  data  indicates  that  there  are  1,187 
 companies  with  fewer  than  1,000  employees  in  the  United  States  that  manufacture  radio  and 
 television  broadcasting  and  communications  equipment,  and  271  companies  with  less  than  1,000 
 employees  that  manufacture  other  communications  equipment.  185  Some  of  these  manufacturers 
 might  not  be  independently  owned  and  operated.  Consequently,  we  estimate  that  there  are  fewer 
 than  1,458  small  entity  internal  connections  manufacturers  that  may  be  affected  by  the  decisions 
 and  rules  of  the  present  action. 


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


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


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


 100.  The  RFA  requires  an  agency  to  describe  any  significant  alternatives  that  it  has 
 considered  in  reaching  its  proposed  approach,  which  may  include  the  following  four  alternatives 


 183  13  C.  F.  R.    121.201,  NAICS  Code  334220,  334290. 
 184  Id. 
 185  1997  Economic  Census,  Manufacturing,  Industry  Series,  Radio  and  Television  Broadcasting  and 
 Wireless  Communications  Equipment  Manufacturing,  Document  No.  E97M-  3342B  (August  1999),  at  14;  1997 
 Economic  Census,  Manufacturing,  Industry  Series,  Other  Communications  Equipment  Manufacturing, 
 Document  No.  EC97M-  3342C  (September  1999),  at  14  (both  available  at 
 <http://  www.  census.  gov/  prod/  www/  abs/  97ecmani.  html>). 


 186  See,  supra,  paras.  28-  29. 
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 Federal  Communications  Commission  FCC  02-  8 
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 (among  others):  (1)  the  establishment  of  differing  compliance  and  reporting  requirements  or 
 timetables  that  take  into  account  the  resources  available  to  small  entities;  (2)  the  clarification, 
 consolidation,  or  simplification  of  compliance  or  reporting  requirements  under  the  rule  for  small 
 entities;  (3)  the  use  of  performance,  rather  than  design,  standards;  and  (4)  an  exemption  from 
 coverage  of  the  rule,  or  part  thereof,  for  small  entities.  187 


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


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


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


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


 187  See  5  U.  S.  C.    603(  c). 
 188  Universal  Service  Order,  12  FCC  Rcd  8776,  para.  586. 
 189  See,  supra,  para.  36. 
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 Federal  Communications  Commission  FCC  02-  8 
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 reduce  rather  than  increase  the  entitys  costs. 
 105.  We  have  sought  comment  on  two  options  for  the  treatment  of  funds  left  unused  at 
 the  end  of  a  Funding  Year.  The  first  option,  to  use  these  funds  to  reduce  the  contribution  factor 
 used  to  calculate  a  carriers  contribution  for  universal  service  support,  would  temporarily  reduce 
 the  burden  of  universal  service  support  on  telecommunications  service  providers,  including  many 
 small  businesses.  In  the  alternative,  we  have  sought  comment  on  a  proposal  to  distribute  unused 
 funds  to  schools  and  libraries  in  subsequent  funding  years,  which  would  improve  the  opportunities 
 of  small  entity  schools  and  libraries  but  conversely  would  impose  a  greater  burden  on  small 
 businesses.  It  is  therefore  not  clear  which  of  these  two  alternatives  would  be  more  appropriate  to 
 minimizing  the  economic  impact  on  small  entities.  In  seeking  comment  on  these  two  options,  we 
 invite  commenters  to  discuss  this  question. 


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


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


 107.  None. 
 C.  Comment  Due  Dates  and  Filing  Procedures 


 108.  We  invite  comment  on  the  issues  and  questions  set  forth  in  the  Notice  of 
 Proposed  Rulemaking  and  Initial  Regulatory  Flexibility  Analysis  contained  herein.  Pursuant  to 
 applicable  procedures  set  forth  in  sections  1.415  and  1.419  of  the  Commissions  rules,  190 
 interested  parties  may  comment  on  or  before  45  days  after  this  Notice  is  published  in  the  Federal 
 Register,  and  reply  comment  on  or  before  75  days  after  this  Notice  is  published  in  the  Federal 
 Register.  Comments  may  be  filed  using  the  Commissions  Electronic  Comment  Filing  System 
 (ECFS)  or  by  filing  paper  copies.  See  Electronic  Filing  of  Documents  in  Rulemaking  Proceedings, 
 63  Fed.  Reg.  24,121  (1998). 


 109.  Comments  filed  through  the  ECFS  can  be  sent  as  an  electronic  file  via  the  Internet 
 to  <http://  www.  fcc.  gov/  e-  file/  ecfs.  html>.  Generally,  only  one  copy  of  an  electronic  submission 
 must  be  filed.  If  multiple  docket  or  rulemaking  numbers  appear  in  the  caption  of  this  proceeding, 
 however,  commenters  must  transmit  one  electronic  copy  of  the  comments  to  each  docket  or 


 190  47  C.  F.  R.    1.415,  1.419. 
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 Federal  Communications  Commission  FCC  02-  8 
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 rulemaking  number  referenced  in  the  caption.  In  completing  the  transmittal  screen,  commenters 
 should  include  their  full  name,  Postal  Service  mailing  address,  and  the  applicable  docket  or 
 rulemaking  number.  Parties  may  also  submit  electronic  comments  by  Internet  e-  mail.  To  receive 
 filing  instructions  for  e-  mail  comments,  commenters  should  send  an  e-  mail  to  ecfs@  fcc.  gov,  and 
 should  include  the  following  words  in  the  body  of  the  message,  get  form  <your  e-  mail  address>. 
 A  sample  form  and  directions  will  be  sent  in  reply. 


 110.  Parties  who  choose  to  file  by  paper  must  file  an  original  and  four  copies  of  each 
 filing.  If  more  than  one  docket  or  rulemaking  number  appears  in  the  caption  of  this  proceeding, 
 commenters  must  submit  two  additional  copies  for  each  additional  docket  or  rulemaking  number. 
 Parties  who  choose  to  file  by  paper  are  hereby  notified  that  effective  December  18,  2001,  the 
 Commission's  contractor,  Vistronix,  Inc.,  will  receive  hand-  delivered  or  messenger-  delivered 
 paper  filings  for  the  Commission's  Secretary  at  a  new  location  in  downtown  Washington,  DC. 
 The  address  is  236  Massachusetts  Avenue,  NE,  Suite  110,  Washington,  DC  20002.  The  filing 
 hours  at  this  location  will  be  8:  00  a.  m.  to  7:  00  p.  m.  All  hand  deliveries  must  be  held  together 
 with  rubber  bands  or  fasteners.  Any  envelopes  must  be  disposed  of  before  entering  the  building. 
 This  facility  is  the  only  location  where  hand-  delivered  or  messenger-  delivered  paper  filings  for  the 
 Commission's  Secretary  will  be  accepted.  Accordingly,  the  Commission  will  no  longer  accept 
 these  filings  at  9300  East  Hampton  Drive,  Capitol  Heights,  MD  20743.  Other  messenger-delivered 
 documents,  including  documents  sent  by  overnight  mail  (other  than  United  States  Postal 
 Service  (USPS)  Express  Mail  and  Priority  Mail),  must  be  addressed  to  9300  East  Hampton  Drive, 
 Capitol  Heights,  MD  20743.  This  location  will  be  open  8:  00  a.  m.  to  5:  30  p.  m.  The  USPS  first-class 
 mail,  Express  Mail,  and  Priority  Mail  should  continue  to  be  addressed  to  the  Commission's 
 headquarters  at  445  12th  Street,  SW,  Washington,  DC  20554.  The  USPS  mail  addressed  to  the 
 Commission's  headquarters  actually  goes  to  our  Capitol  Heights  facility  for  screening  prior  to 
 delivery  at  the  Commission. 


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


 All  filings  must  be  sent  to  the  Commission's  Secretary:  Magalie  Roman  Salas,  Office  of  the 
43
 Federal  Communications  Commission  FCC  02-  8 
 44 
 Secretary,  Federal  Communications  Commission,  445  12th  Street,  S.  W.,  Suite  TW-  A325, 
 Washington,  D.  C.  20554. 


 111.  Parties  who  choose  to  file  by  paper  should  also  submit  their  comments  on  diskette 
 to  Sheryl  Todd,  Accounting  Policy  Division,  Common  Carrier  Bureau,  Federal  Communications 
 Commission,  445  Twelfth  Street,  S.  W.,  Room  5-  B540,  Washington,  D.  C.  20554.  Such  a 
 submission  should  be  on  a  3.  5  inch  diskette  formatted  in  an  IBM-  compatible  format  using 
 Microsoft  Word  97  for  Windows  or  a  compatible  software.  The  diskette  should  be  accompanied 
 by  a  cover  letter  and  should  be  submitted  in  read-  only  mode.  The  diskette  should  be  clearly 
 labeled  with  the  commenters  name,  proceeding,  including  the  lead  docket  number  in  the 
 proceeding  (CC  Docket  No.  02-  6),  type  of  pleading  (comment  or  reply  comment),  date  of 
 submission,  and  the  name  of  the  electronic  file  on  the  diskette.  The  label  should  also  include  the 
 following  phrase  (  Disk  Copy  Not  an  Original.)  Each  diskette  should  contain  only  one  partys 
 pleadings,  preferably  in  a  single  electronic  file.  In  addition,  commenters  must  send  diskette  copies 
 to  the  Commissions  copy  contractor,  Qualex  International,  Portals  II,  445  12th  Street,  SW, 
 Room  CY-  B402,  Washington,  DC,  20554,  telephone  202-  863-  2893,  facsimile  202-  863-  2898,  or 
 via  e-  mail  at  qualexint@  aol.  com. 


 112.  Written  comments  by  the  public  on  the  proposed  and/  or  modified  information 
 collections  pursuant  to  the  Paperwork  Reduction  Act  of  1995,  Pub.  L.  No.  104-  13,  are  due  on  or 
 before  15  days  after  date  of  publication  in  the  Federal  Register.  Written  comments  must  be 
 submitted  by  the  Office  of  Management  and  Budget  (OMB)  on  the  proposed  and/  or  modified 
 information  collections  on  or  before  60  days  after  date  of  publication  in  the  Federal  Register.  In 
 addition  to  filing  comments  with  the  Secretary,  a  copy  of  any  comments  on  the  information 
 collections  contained  herein  should  be  submitted  to  Judy  Boley,  Federal  Communications 
 Commission,  Room  1-  C804,  445  12th  Street,  S.  W.,  Washington,  DC  20554,  or  via  the  Internet 
 to  jboley@  fcc.  gov  and  to  Edward  Springer,  OMB  Desk  Officer,  10236  NEOB,  725  -  17th  Street, 
 N.  W.,  Washington,  D.  C.  20503. 


 113.  Accessible  formats  (computer  diskette,  large  print,  audio  recording  and  Braille)  are 
 available  to  persons  with  disabilities  by  contacting  Brian  Millin  at  (202)  418-  7426,  (202)  418- 
 7365  TTY,  or  at  bmillin@  fcc.  gov. 
44
 Federal  Communications  Commission  FCC  02-  8 
 45 
 VII.  ORDERING  CLAUSES 
 114.  Accordingly,  IT  IS  ORDERED  that,  pursuant  to  the  authority  contained  in 
 sections  1-  4,  201-  205,  254,  303(  r),  and  403  of  the  Communications  Act  of  1934,  as  amended,  47 
 U.  S.  C.    151-  154,  201-  205,  254,  303(  r),  403,  and  sections  0.91,  0.291,  1.3,  and  1.411  of  the 
 Commissions  rules,  47  C.  F.  R.    0.91,  0.291,  1.3,  and  1.411,  this  NOTICE  OF  PROPOSED 
 RULE  MAKING  IS  ADOPTED,  as  described  herein. 


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


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


 FEDERAL  COMMUNICATIONS  COMMISSION 


 Magalie  Roman  Salas 
 Secretary 
45
 Federal  Communications  Commission  FCC  02-  8 
 2 
 SEPARATE  STATEMENT  OF 
 COMMISSIONER  MICHAEL  J.  COPPS, 
 APPROVING  IN  PART,  DISSENTING  IN  PART 


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


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


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


 In  1997,  when  the  Commission  put  in  place  an  annual  cap  of  $2.25  billion  for  this 
 program,  the  Commission  made  clear  that  all  funding  authority  for  a  given  year  that  is  unused 
 shall  be  carried  forward  into  subsequent  years  for  use  in  accordance  with  demand.  1  In  each  year, 
 the  Administrator  of  the  E-  Rate  program  collects  funds  up  to  the  cap  to  meet  demand.  Yet, 
 although  initial  estimates  were  that  demand  would  not  exceed  the  cap  for  nearly  a  decade,  2  the 
 program  has  been  so  successful  that  since  the  first  year,  requests  from  our  nations  schools  and 
 libraries  have  exceeded  the  available  funding.  All  funds,  however,  are  not  disbursed  for  a  variety 
 of  administrative  reasons  or  because  individual  schools  and  libraries  do  not  fully  use  the  money 
 committed  to  them.  Our  rules  were  designed  to  ensure  that  funds  would  be  used  for  their 
 intended  purpose  or  returned  so  that  other  deserving  schools  could  benefit.  Today,  we  have 
 hundreds  of  millions  of  dollars  in  unspent  funds  that  could  and  should  be  used  to  bring  Internet 
 access  to  our  communities. 


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


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


 1  47  C.  F.  R.    54.507(  a). 
 2  Congressional  Budget  Office,  Federal  Subsidies  of  Advanced  Telecommunications  for  Schools,  Libraries,  and 
 Health  Care  Providers,  January  1998. 
46