[Federal Register Volume 75, Number 232 (Friday, December 3, 2010)]
[Rules and Regulations]
[Pages 75393-75416]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-29386]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 02-6, GN Docket No. 09-51; FCC 10-175]


Schools and Libraries Universal Service Support Mechanism and A 
National Broadband Plan for Our Future

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) takes another step toward realizing the National Broadband 
Plan's vision of improving connectivity to schools and libraries by 
upgrading and modernizing the successful E-rate program. In particular, 
the Commission takes action on upgrades that can be implemented in 
funding year 2011 (July 1, 2011-June 30, 2012); enables schools and 
libraries to better serve students, teachers, librarians, and their 
communities by providing more flexibility to select and make available 
the most cost-effective broadband and other communications services; 
simplifies and streamlines the program; and improves safeguards against 
waste, fraud and abuse. In addition, the Commission adopts the eligible 
services list for funding year 2011.

DATES: Effective January 3, 2011.

FOR FURTHER INFORMATION CONTACT: Regina Brown, Wireline Competition

[[Page 75394]]

Bureau, Telecommunications Access Policy Division, (202) 418-0792 or 
TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's Sixth 
Report and Order in CC Docket No. 02-6, GN Docket No. 09-51, FCC 10-
175, adopted September 23, 2010, and released September 28, 2010. The 
complete text of this document is available for inspection and copying 
during normal business hours in the FCC Reference Information Center, 
Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. 
The document may also be purchased from the Commission's duplicating 
contractor, Best Copy and Printing, Inc., 445 12th Street, SW., Room 
CY-B402, Washington, DC 20554, telephone (800) 378-3160 or (202) 863-
2893, facsimile (202) 863-2898, or via the Internet at http://www.bcpiweb.com. It is also available on the Commission's Web site at 
http://www.fcc.gov. People with Disabilities: To request materials in 
accessible formats for people with disabilities (braille, large print, 
electronic files, audio format), send an e-mail to <a href="/cdn-cgi/l/email-protection#670104045257532701040449000811"><span class="__cf_email__" data-cfemail="22444141171216624441410c454d54">[email protected]</span></a> or 
call the Consumer & Governmental Affairs Bureau at 202-418-0530 
(voice), 202-418-0432 (tty).

I. Introduction

    1. In this order, we take another step toward realizing the 
National Broadband Plan's (NBP) vision of improving connectivity to 
schools and libraries by upgrading and modernizing the successful E-
rate program (more formally known as the schools and libraries 
universal service support mechanism). Schools and libraries can serve 
as anchor institutions for their communities, and certain areas may 
depend on these anchor institutions to achieve the NBP's goal of 
affordable access to broadband of at least 1 gigabit per second in 
every community in the country. Broadband is an essential tool to help 
educators, parents, and students meet challenges in education and life-
long learning. Through broadband, librarians can assist library patrons 
to improve skills for jobs, apply for employment, or access government 
resources. Access to broadband--at home or at anchor institutions--is a 
critical component of enabling everyone in America to develop the 
digital skills they need to prosper in the 21st century.
    2. The NBP, delivered to Congress on March 16, 2010, recommended 
that the Commission take a fresh look at the E-rate program and 
identify potential improvements to reflect changes in technology and 
evolving teaching methods used by schools. In May 2010, the Commission 
issued a Notice of Proposed Rulemaking (NPRM) seeking public comment on 
proposals to ensure that the E-rate program continues to help our 
children and communities prepare for the high-skilled jobs of the 
future and reap the full benefits of the Internet. The Commission 
received extensive comments in response to the E-rate Broadband NPRM, 
75 FR 32699, June 9, 2010, which inform the policy choices made in this 
order.
    3. We adopt a number of the proposals put forward in the E-rate 
Broadband NPRM. The revisions we adopt today fall into three conceptual 
categories: (1) Enabling schools and libraries to better serve 
students, teachers, librarians, and their communities by providing more 
flexibility to select and make available the most cost-effective 
broadband and other communications services; (2) simplifying and 
streamlining the E-rate application process; and (3) improving 
safeguards against waste, fraud, and abuse. As a result of these 
changes, schools and libraries throughout the country can make their 
limited dollars go further. The changes we adopt will increase the 
ability of students and the public to utilize broadband services for 
educational needs. In addition, the changes to simplify the E-rate 
program will help reduce the cost of participating in the program, 
thereby making the program more accessible, particularly to smaller 
school districts and libraries that are often located in more rural 
areas and may not have staff dedicated to managing E-rate applications 
and related activities.
    4. In particular, in this report and order, we:
    [cir] Enable schools and libraries to better serve students, 
teachers, librarians, and their communities by providing more 
flexibility to select and make available the most cost-effective 
broadband and other communications services by
     <bullet> Allowing applicants to lease dark or lit fiber from the 
most cost-effective provider, including non-profit and for-profit 
entities, so that applicants can choose the services that best meet 
their needs from a broad set of competitive options and in the most 
cost-effective manner available in the marketplace;
     <bullet> Changing our rules to permit schools to allow community 
use of E-rate funded services outside of school hours;
     <bullet> Supporting eligible services to the residential portion 
of schools that serve students with special circumstances;
     <bullet> Indexing E-rate's funding cap to inflation to preserve 
the purchasing power of a successful program;
    [dec221] Seeking proposals for a limited pilot program to establish 
best practices to support off-campus wireless connectivity for portable 
learning devices outside of regular school or library operating hours;
    [cir] Simplify and streamline the program by
    [dec221] Streamlining the application process to reduce the 
administrative burden on applicants;
    [dec221] Removing the technology plan requirement for priority one 
(telecommunications services and Internet access) services;
    [dec221] Facilitating the disposal and recycling of obsolete 
equipment that received E-rate support by authorizing schools and 
libraries to receive consideration for such equipment; and
    [cir] Improve safeguards against waste, fraud and abuse by
    [dec221] Codifying the requirement that competitive bidding 
processes be fair and open. In addition, the report and order adopts 
the eligible services list (ESL) for funding year 2011.

II. Upgrading E-Rate for the 21st Century

A. Improving Broadband Access for Students, Teachers, Librarians, and 
the Communities They Serve

1. Expanded Access to Low-Cost Fiber
    5. Pursuant to sections 254(c)(3), (h)(1)(B), and (h)(2) of the 
Act, we include dark fiber on the ESL and allow eligible schools and 
libraries to receive support for the lease of fiber, whether lit or 
dark, as a priority one service, from any entity, including but not 
limited to telecommunications carriers and non-telecommunications 
carriers, such as research and education networks; regional, state, and 
local government entities or networks; non-profits and for-profit 
providers; and utility companies. Accordingly, we amend Sec.  54.502 of 
our rules to allow any entity to provide supported telecommunications 
in whole or in part via fiber. Specifically, we require applicants that 
choose to lease dark (i.e., unlit) fiber to light it immediately and to 
use the lit fiber to meet their broadband needs in order to receive E-
rate support. Our decision today will not allow applicants to use E-
rate discounts to acquire unneeded capacity or warehouse dark fiber for 
future use. Because dark fiber has not been classified as either a 
telecommunications service or Internet access, we hereby include it in 
the telecommunications section of the ESL. For purposes of funding year 
2011, we

[[Page 75395]]

direct applicants to select either the telecommunications service or 
Internet access box on the FCC Form 471 for type of service requested 
when applying for funding for leased dark or lit fiber, based on the 
type of provider they select to provide the leased dark fiber service. 
We emphasize that selecting a telecommunications carrier as a service 
provider does not absolve schools and libraries of their obligation to 
adhere to the Children's Internet Protection Act (CIPA) requirements 
when they use that service to obtain Internet service or access to the 
Internet. Furthermore, we amend Sec.  54.518 of our rules to clarify 
that states acting as service providers are treated the same as 
telecommunications carriers or other non-telecommunications providers 
when applicants are leasing a wide area network (WAN).
    6. Section 254 of the Act gives the Commission authority to 
designate ``telecommunications services'' and additional services as 
eligible for support under the E-rate program. In the Universal Service 
First Report and Order, 62 FR 32862, June 17, 1997, the Commission 
designated all commercially available telecommunications services as 
services eligible for support (or discounts) under the E-rate program. 
At the same time, the Commission determined that it could provide E-
rate support for additional, non-telecommunications services, 
particularly Internet access, email, and internal connections, provided 
by both telecommunications carriers and non-telecommunications carriers 
pursuant to sections 4(i) and 254(c)(1), (c)(3), (h)(1)(B), and (h)(2). 
The Commission reasoned that such services enhance access to advanced 
telecommunications and information services for public and non-profit 
elementary and secondary school classrooms and libraries. Thus, 
pursuant to this authority, we now include on the ESL leased dark and 
lit fiber provided by both telecommunications carriers and non-
telecommunications carrier providers, as described below.
    7. Although lit fiber is already eligible for funding as either a 
telecommunications service or an Internet access service (depending 
upon how it is used by an eligible school or library and who is 
providing the service), under current implementation of section 254, an 
applicant cannot lease the lit fiber for voice telecommunications from 
a non-telecommunications carrier. State networks and other providers, 
however, may be able to provide the voice telecommunications, even if 
they are not ``offering it to the public for a fee,'' as is required of 
a telecommunications carrier. Section 254(h)(1)(B) requires 
telecommunications carriers to provide universal service to schools and 
libraries; it does not, however, stand as a bar to our authority to 
allow non-telecommunications providers to provide such services and 
participate in the E-rate program. As explained below, drawing a 
distinction between telecommunications carriers and entities other than 
telecommunications carriers in this specific context would unduly limit 
the flexibility of schools and libraries to select the most cost-
effective broadband solutions to meet their needs, which would be 
inconsistent with our schools and libraries policies. We find that 
broadening the scope of potential suppliers of broadband increases 
competitive options, which in turn enhances choice and reduces cost. 
Thus, pursuant to section 254(c)(3) and (h)(2) and section 4(i), we now 
include lit fiber provided by non-telecommunications providers on the 
ESL. We conclude that eligible schools and libraries should be free to 
meet their communications needs by leasing fiber from entities other 
than telecommunications carriers that are able to provide schools and 
libraries the same services that a traditional telecommunications 
carrier can provide a school or library over a fiber network.
    8. The Commission precedent refutes any contention that leasing 
dark fiber is not a ``service.'' Because dark fiber is a service, we do 
not have to decide whether we could otherwise fund it under section 
254(h). Moreover, like internal connections, which the Commission has 
found to be services for purposes of the E-rate program, dark fiber is 
part of the transmission path that enables the requisite functionality 
(delivery of voice, video and/or data) to be delivered to the 
classroom. Further, contrary to opponents' arguments, we find that dark 
fiber does enhance access to advanced telecommunications and 
information services consistent with section 254(h)(2)(A). As discussed 
below, allowing schools and libraries to lease fiber from any provider 
will give the institutions more flexibility to select the most cost-
effective broadband solutions. It should also increase competition 
among providers of fiber and ensures that schools and libraries can pay 
less for the same or greater bandwidth, which should increase access to 
advanced telecommunications and information services, including 
Internet access. Additionally, if schools and libraries are able to 
receive additional capacity for less money, this should free up E-rate 
funding to help other schools and libraries meet their connectivity 
goals.
    9. As instructional technology requires greater bandwidth, 
applicants will benefit from having the freedom to select from more 
options for broadband access. If more providers bid to provide services 
to schools and libraries, the resulting competition should better 
ensure that applicants--and the E-rate program--receive the best price 
for the most bandwidth. If schools and libraries are able to receive 
the same--or better--capacity for less money, the program should save 
money that can be spent on other services to help schools and libraries 
meet their connectivity goals. We thus find that allowing schools and 
libraries to lease fiber from any provider will best serve the purposes 
of the E-rate program.
    10. The designation of dark and lit fiber provided by 
telecommunications carriers and non-telecommunications carrier 
providers as services eligible for E-rate support should help schools 
and libraries save money or receive additional capacity for the same or 
fewer dollars. Commenters provided many examples of schools and 
libraries that are using fiber today because it is the most cost-
effective solution for them, even without E-rate support. For example, 
the Tri-County Educational Service Center in Wooster, Ohio, which 
serves more than 30,000 students in 19 school districts across three 
Central Ohio counties, has been able to save 50 percent over 
traditional carrier services through the use of dark fiber, along with 
a 750 percent increase in network performance. Such cost savings will 
help E-rate funds go further.
    11. Furthermore, the increased capacity available through fiber 
will enable schools and libraries to develop and deliver a wide variety 
of educational programs and services to students and library patrons. 
For example, the bandwidth used by San Francisco's public libraries has 
increased over the past five years, from 1.44 megabits per second 
(Mbps) to 50 Mbps, but even 50 Mbps is currently insufficient for San 
Francisco to deliver the bandwidth-intensive content available on the 
Internet through its libraries' online resources and databases. San 
Francisco's public library branches serve as community anchors, both as 
centers for digital literacy and as hubs for access to public 
computers. While their bandwidth needs are increasing, their local 
government and school district budgets are shrinking. Currently, San 
Francisco's public libraries must rely on commercial telecommunications 
services in order to

[[Page 75396]]

take advantage of E-rate discounts. As bandwidth needs continue to 
increase, the ability to receive E-rate discounts on leased fiber will 
provide another option for schools and libraries, such as those in San 
Francisco, to access the bandwidth they need to deliver the most cost-
effective services to their students and patrons, thus enhancing access 
to advanced telecommunications and information services. Our action 
today encourages collaboration with local, state, and federal agencies 
to more effectively utilize existing facilities and resources to meet 
the broadband needs of schools and libraries across the nation.
    12. We are not persuaded by commercial service providers' arguments 
that entities other than commercial service providers cannot be trusted 
to serve applicants adequately, or that schools and libraries are 
unequipped to lease dark fiber. There are a variety of entities--from 
telecommunications carriers to non-traditional providers, including 
research and education networks; regional, state, and local government 
entities and networks; other non-profit and for-profit providers; and 
utility companies--that are successfully provisioning fiber solutions. 
For example, the City of San Francisco has provisioned dark fiber to 10 
campus sites of City College of San Francisco, one of the largest 
college systems in the country. The City College network has enabled 
the implementation of new classes, allowed expansion of computer labs, 
and facilitated deployment of new educational applications that would 
not have been possible with City College's previous networking 
environment. Additionally, in the last 13 years, non-profit national 
and state research and education networks have deployed almost 25,000 
miles of a national fiber infrastructure to more than 66,000 community 
anchor institutions.
    13. Some commercial service providers argue that school and library 
information technology (IT) professionals are unlikely to understand 
how to use leased dark fiber. We find no evidence in the record 
supporting that assertion, and note that many schools and libraries 
have expert, professional IT staff. We believe applicants are generally 
in the best position to know their needs, resources, and capabilities, 
and to procure from the full range of competitive options in the 
marketplace the most cost-effective broadband solutions for those 
needs. Nor are we persuaded by suggestions that we should not provide 
flexibility to allow schools to lease dark fiber or other spare 
capacity from a municipal network because the schools would be 
unprotected if the municipality cannot continue to operate. It is 
unclear why a municipality would be more likely to discontinue service 
than a private company, and, in any event, our rules permit schools and 
libraries to change service providers under certain circumstances when 
the service provider ceases operations or is unable to perform. 
Further, we are not convinced that schools and libraries purchasing 
services from other governmental or non-profit entities will raise 
conflict of interest issues or financial conflicts related to their 
employees. We believe our competitive bidding rules protect against any 
such waste, fraud, and abuse of the E-rate program. To the extent the 
Commission finds violations of its rules, such as sharing of inside 
information during the competitive bidding process, the Commission will 
require USAC to adjust its funding commitment or recover any disbursed 
E-rate funds through its normal processes.
    14. Commenters that opposed including leased dark fiber on the ESL 
also argue that schools and libraries will be unaware of or unable to 
bear the additional cost of installation. They also argue that leased 
fiber may include more capacity than needed by a school or library 
system for educational purposes. We are not persuaded by such 
arguments. The Commission's competitive bidding rules serve as a 
central tenet of the E-rate program. They ensure more efficient pricing 
for telecommunications and information services purchased by schools 
and libraries and help deter waste, fraud and abuse. Thus, while not 
all schools and libraries may choose to use leased fiber to meet their 
broadband needs, our rules require all applicants to select the service 
or equipment offering that will be the most cost-effective means of 
meeting their educational needs and technology goals. Our rules also 
require schools and libraries to have the necessary resources to 
support any non-discounted portion of the eligible services, in order 
to make the most effective use of E-rate funding. We believe these two 
rules will ensure that all applicants that choose to use a leased fiber 
solution are considering the full range of costs associated with 
implementing leased fiber and are not requesting funding for more 
capacity than necessary for their educational needs. We also emphasize, 
in this context, the importance of applicants making ``apples-to-apples 
comparisons when evaluating competing bids to meet their needs. 
Providing services using dark fiber may involve a number of additional 
costs beyond lease payments for fiber connectivity, and those costs 
should be factored in to a total-cost comparison across bids.
    15. In order for schools and libraries to utilize and make the most 
efficient use of dark fiber, we include as eligible certain costs 
associated with leased dark fiber. Specifically, we include as eligible 
maintenance costs and installation charges. Providing support for 
maintenance costs and installation charges will enhance access to 
advanced telecommunications and information services by helping schools 
and libraries make use of an existing or new local fiber network. At 
this time, however, we decline to extend support to cover special 
construction charges that may be incurred to build out connections from 
applicants' facilities to an off-premises fiber network, preferring to 
seek further comment in a subsequent proceeding on the potential effect 
of such changes on the fund. We also do not include as eligible the 
cost of modulating electronics needed to light dark fiber. The 
applicant is therefore responsible for covering these costs in order to 
receive E-rate funding for the lease of dark fiber. While we conclude 
that including leased dark fiber on the ESL should provide greater 
flexibility to E-rate participants to meet their bandwidth needs and 
reduce their overall cost of broadband, we nevertheless limit funding 
in this manner pending further inquiry into the potential impact on the 
E-rate fund of allowing related costs.
2. Community Use of Schools' E-Rate Funded Facilities and Services
    16. We conclude that we should revise our rules to permanently 
allow schools to open their facilities, when classes are not in 
session, to the general public to utilize services and facilities 
supported by E-rate. Specifically, we revise Sec. Sec.  54.503 and 
54.504 of our rules to require applicants to certify that ``[t]he 
services the applicant purchases at discounts will be used primarily 
for educational purposes.'' This is consistent with the standard we 
adopted in the Community Use Order, 75 FR 10199, March 24, 2010. Thus, 
schools must primarily use services funded under the E-rate program, in 
the first instance, for educational purposes. To primarily use services 
supported by E-rate, E-rate recipients must ensure that students always 
get first priority in use of the schools' resources.
    17. Our experience convinces us that our decision will expand the 
benefits of using E-rate funds. For example, after we waived the rule 
in February 2010,

[[Page 75397]]

the State of West Virginia allowed community use of school Internet 
access and networks by offering evening community technology training 
lab classes and school technology nights. Most notably, during the 
April 2010 Upper Big Branch coal mining disaster, a school in West 
Virginia whose students were on spring break provided community access 
to its facilities to be used as a government and media command center 
during the rescue and eventual search and recovery efforts. We thus 
find that permitting community use of E-rate services and equipment 
during times when classes are not in session (non-operating hours) will 
promote broadband access. Moreover, this decision is consistent with 
Congress's directive to consider how anchor institutions, such as 
schools, can ensure access to broadband service. We remain focused on 
Congress's primary purpose in establishing the schools component of the 
E-rate program: to ensure that educators, students, and school 
personnel have access to advanced telecommunications and information 
services for educational purposes. At the same time, there are many 
times when schools are out of session--evenings, weekends, school 
holidays, and summer breaks, for example--and we conclude that it is in 
the public interest to allow greater use of government-supported 
services and facilities during those times, particularly because that 
enhanced access comes at no additional cost to the E-rate program. 
Moreover, we find that the revised rules are consistent with the 
overarching goals of universal service to promote access to 
telecommunications and information services, and that no provision of 
the Communications Act prohibits this use of E-rate supported services.
    18. To reduce the likelihood of waste, fraud, and abuse, and to 
guard against expanding the cost of the E-rate program, we set forth 
certain conditions for schools that choose to allow the community to 
use their E-rate funded services. First, schools participating in the 
E-rate program may not request funding for more services than are 
necessary for educational purposes to serve their current student 
population. This condition is necessary to ensure that E-rate funds 
that schools receive remain targeted to the educational needs of the 
institution and its students. This is essential to preserve limited 
funds and to carry out Congress's intent in establishing the E-rate 
program. To the extent that a school desires to augment services beyond 
that which is necessary for educational purposes, it must use other, 
non-E-rate funded resources. Any community use of the services 
purchased under the E-rate program must be incidental and not increase 
overall costs to the E-rate program.
    19. Second, any community use of E-rate funded services at a school 
facility shall be limited to non-operating hours of the school and to 
community members who access the Internet while on a school's campus. 
Thus, the public can utilize a school's facilities and services during 
times when the school is not in session, such as after school hours, 
weekends, school holidays, and summer breaks. Services supported by E-
rate funds must, in the first instance, be used for educational 
purposes, and students, educators, and other school personnel shall 
always get priority in the use of these resources. Further, the 
decision about whether to allow community access rests with the school, 
and we thus leave it to schools to establish their own policies 
regarding specific use of their services and facilities, including, for 
example, the hours of use. We decline at this time to provide guidance 
on after-hours community use policies. We find that schools are in the 
best position to establish their own individualized policies, including 
ways in which to inform the public of the hours of operation to the 
general public. While we are sensitive to placing additional 
administrative burdens on applicants, we plan to include a box on the 
FCC Form 471 when we next revise this form for applicants to check if 
they are taking advantage of this rule change. We believe checking a 
box indicating community use, without requiring additional, specific 
information, will enable the Commission to develop a better 
understanding of where such community use is occurring while at the 
same time minimizing applicants' reporting burden. In addition, we urge 
schools to make their community use policies and hours publicly 
available on their Web sites. Additionally, schools can submit their 
success stories directly to the Commission regarding the community's 
use of their E-rate funded facilities and services at the Commission's 
Web site, http://www.fcc.gov/wcb/tapd/universal_service/schoolsandlibs.html, in the section titled ``E-rate Community Use 
Success Stories.''
    20. Third, as set forth in the Act and our rules, schools' 
discounted service or network capacity may not be ``sold, resold, or 
transferred by such user in consideration for money or any other thing 
of value.'' Specifically, schools may not charge for the use of 
services and facilities purchased using E-rate funds. The Commission 
concluded, however, in the Universal Service First Report and Order, 
that section 254(h)(3) of the Act does not prohibit an eligible entity 
from charging fees for any services that schools or libraries purchase 
that are not subject to a universal service discount. Thus, the 
Commission found that an eligible school or library may assess computer 
fees to help defray the cost of computers or training fees to help 
cover the cost of training because these purchases are not subsidized 
by the universal service support mechanisms. Similarly, we agree with 
the Massachusetts Department of Telecommunications and Cable (MDTC) and 
Sprint that schools should not be prohibited from recovering costs 
reasonably associated with permitting community access, such as 
additional electricity, security, and heating costs used to facilitate 
community access.
    21. We emphasize that the revision of our rules creates an 
opportunity for schools, but not an obligation. Schools may have any 
number of reasons to decide not to open their facilities to the general 
public to utilize services and facilities supported by E-rate during 
non-operating hours. For example, some schools may find that school 
activities utilize all or almost all of the E-rate supported services, 
or that there is not a public need for use during non-operating hours 
in a particular school. We therefore stress the optional nature of 
these rule revisions, leaving this decision up to individual recipients 
of E-rate funding.
3. Expanding Access for Residential Schools That Serve Unique 
Populations
    22. We adopt our proposal to allow residential schools that serve 
unique populations--schools on Tribal lands; schools designed to serve 
students with medical needs; schools designed to serve students with 
physical, cognitive or behavioral disabilities; schools where 35 
percent or more of their students are eligible for the national school 
lunch program; or juvenile justice facilities--to receive E-rate 
funding for all supported services provided in the residential areas of 
those schools. We find that, because these schools also serve as 
residences to the students, the supported E-rate services will be used 
primarily, if not exclusively, for educational purposes, and thus 
support is consistent with our rules and with the purposes of section 
254. As the Commission stated in the Schools and Libraries Second 
Report and Order, 68 FR 36931, June 20, 2003, the technology needs of 
participants in the E-rate program are often complex and unique

[[Page 75398]]

to each participant. Based on the record before us, we find that these 
schools serve students whose educational needs may not be otherwise met 
without attending such a residential school. We therefore find it to be 
reasonable and consistent with the public interest to provide support 
for E-rate services provided to the residential areas of those schools, 
including Internet access, telecommunications, telecommunications 
services, and internal connections. Additionally, E-rate support will 
facilitate ongoing access to educational and learning materials beyond 
the normal school day and increase the ability of those students to 
complete homework assignments, such as those that require broadband 
access for research projects, after school hours. Accordingly, we find 
that such use meets the definition of educational purposes. 
Additionally, we amend Sec.  54.502 to permit discounts for internal 
connections in non-instructional buildings of a school or school 
district where the Commission has found that the use of those services 
meets the definition of educational purpose.
    23. We decline, at this time, to adopt SECA's suggestion to expand 
this proposal to any school that has a dormitory or residential 
facility on its grounds. While we recognize that there are other 
residential schools that do not fall within the categories outlined 
above, we want to proceed in a conservative fashion to focus on schools 
serving students with the most unique needs as provided above, rather 
than providing funding more broadly to all residential schools. Thus, 
we believe it is preferable to limit the potential impact of this 
revision on the E-rate program as we consider additional upgrades to 
the program. We agree with SECA, however, that we should not limit 
support to residential campuses that are state- or federal-sponsored 
institutions. For instance, there may be private schools that serve 
students with physical, cognitive, or behavioral disabilities, and 
their students face the same need to have ongoing access to technology-
based learning outside of the classroom. Therefore, we decline to limit 
support for services to residential areas only to schools partly or 
fully sponsored by state or federal funds.
    24. West Virginia Request for Waiver and Clarification. The West 
Virginia Department of Education (WVDE) filed a request for waiver and 
clarification of the Commission's rules to allow the West Virginia 
Schools for the Deaf and the Blind to receive funding for services for 
their students who reside on the school campus. Because we address the 
issues raised by WVDE in this order, we dismiss WVDE's request as moot.
4. Indexing the Annual Funding Cap to Inflation
    25. Many commenters encouraged the Commission to increase the E-
rate program funding cap significantly from its current $2.25 billion 
level before indexing the cap to inflation on a going-forward basis. 
Commenters contend that the Commission should increase the cap to 
reflect all inflationary adjustments since the program was initiated in 
1997, which would immediately add about $650 million to the E-rate 
program. Others said that indexing the E-rate cap to inflation on a 
going-forward basis would not be sufficient to meaningfully fund the 
program. We note that when the E-rate program began in 1997, basic 
Internet connectivity required a phone line and dial-up Internet 
service, which might have cost a total of less than $50 per month. 
Today, for basic Internet connectivity capable of supporting common 
applications and learning tools such as educational video content, a 
school or library needs broadband at speeds of at least several 
megabits per second, which might cost upwards of $500 per month (e.g., 
for a T-1 line), plus the costs of necessary internal connections.
    26. We find that indexing the current $2.25 billion E-rate cap to 
inflation is a sensible approach to gradually aligning the support 
provided by E-rate with the needs of schools and libraries, which the 
E-rate program is designed to serve. Using the analysis described 
below, the cap for funding year 2010 will be increased to 
$2,270,250,000. The Commission must balance its desire to ensure that 
schools and libraries have access to valuable communications 
opportunities with the need to ensure that consumer rates for 
communications services remain affordable. End users ultimately bear 
the cost of supporting universal service, through carrier charges. 
Thus, we amend Sec.  54.507 of our rules to index the E-rate program 
funding cap to the rate of inflation on a going-forward basis, 
beginning in the current funding year. Indexing the cap to inflation 
will ensure that the program maintains its current purchasing power in 
today's dollars without significantly increasing the fund and raising 
the contribution factor.
    27. It could be argued that the existence of substantial rollover 
funds demonstrates that an increase in the cap is unwarranted. The 
rollover funding is not surplus funding left over after demand has been 
met, however. To the contrary, even with an additional $600 million in 
rollover funding for funding year 2008, added to the $2.25 billion cap, 
the program still did not come close to meeting demand for priority two 
services and was forced to deny millions of dollars in applications 
because existing funding had been exhausted. The Commission uses the 
full extent of funds available, including rollover funds, to meet 
demand each year. Nevertheless, demand still exceeds available funding.
    28. We also note that additional universal service funds required 
to index the E-rate cap to inflation will be offset by the Commission's 
recent decision to use reclaimed funds surrendered from competitive 
eligible telecommunications carriers as a ``fiscally responsible down 
payment on proposed broadband universal service reforms,'' including 
indexing the E-rate funding cap to inflation. Thus, reclaimed universal 
service funds will be used to cover any increase that results from 
increases to the fund from inflation adjustments. Finally, no party 
objected to an increase in the cap and many supported the proposal. 
They noted that this step will ensure that the program continues to 
serve a key role in bringing essential communications and information 
services to thousands of schools and libraries. One commenter noted 
that an increase in the E-rate funding cap should occur only after the 
completion of comprehensive reform of the contribution methodology. We 
find, however, that the adoption of a fiscally responsible increase in 
the funding cap will not interfere with our broader efforts to reform 
the contribution methodology and acts only to give some relief to a 
capped support mechanism that is consistently oversubscribed.
    29. As proposed, the Commission will use the gross domestic product 
chain-type price index (GDP-CPI) to inflation-adjust the amount of 
funds available annually to E-rate program participants. This is the 
same index the Commission uses to inflation-adjust revenue thresholds 
used for classifying carrier categories for various accounting and 
reporting purposes and to calculate adjustments to the annual funding 
cap for the high-cost loop support mechanism. There is no index that 
specifically examines the cost of the services funded under the E-rate 
program, and no record support for a more targeted measure of inflation 
than the GDP-CPI. Moreover, the Commission has used the GDP-CPI index 
in other contexts to estimate inflation of carrier costs, and we find 
it reasonable to use the GDP-CPI to approximate the impact of inflation 
on E-rate supported services. During periods of deflation, we will 
maintain

[[Page 75399]]

the prior-year cap to maintain predictability. When the calculation of 
the yearly average GDP-CPI is determined, the Wireline Competition 
Bureau Commission will publish a Public Notice in the Federal Register 
within 60 days announcing any increase of the annual funding cap based 
on the rate of inflation.
    30. Specifically, to compute the annual increase, the percentage 
increase in the GDP-CPI from the previous year will be used. The 
increase shall be rounded to the nearest 0.1 percent. The increase in 
the inflation index will then be used to calculate the amount of 
funding for the next E-rate funding year (which runs from July 1 to 
June 30). Using this computation, we find that the GDP-CPI from 2008 to 
2009 increased .9 percent. Using the analysis described below, the cap 
for funding year 2010 will be increased to $2,270,250,000.
5. Limited Trial To Investigate Offsite Access
    31. Currently, our rules presume that services used on school or 
library premises are serving an educational purpose, and the E-rate 
program supports wireless Internet access on school and library 
grounds. If a device that provides wireless Internet access service, 
such as a laptop or other mobile computing device, is taken off school 
or library premises, however, applicants are required to cost-allocate 
the dollar amount of support for wireless Internet access use for the 
time that the device is not at the school or library and remove that 
portion from its E-rate funding request. If that same device, however, 
is left on school or library grounds all of the time, the E-rate 
program would pay 100 percent of the applicant's non-discount share for 
wireless Internet access use. As such, our current rules may prevent 
full utilization of the learning opportunities that portable wireless 
devices, such as digital textbooks, can provide off campus and outside 
of regular school hours.
    32. Advances in technology have enabled students to continue to 
learn well after the school bell rings, including from their homes or 
other locations, for example, youth centers. As noted in the NBP, 
``[o]nline educational systems are rapidly taking learning outside the 
classroom, creating a potential situation where students with access to 
broadband at home will have an even greater advantage over those 
students who can only access these resources at their public schools 
and libraries.'' In the E-rate Broadband NPRM, we sought comment on the 
NBP recommendation to provide full E-rate support for wireless Internet 
access service for portable learning devices that are used beyond 
school or library premises. In response, commenters generally agreed 
that students need to learn ``anytime/anywhere,'' which would require 
Internet access outside schools and libraries. Some schools identified 
that they are already implementing innovative programs utilizing 
portable devices that can use data applications wirelessly, such as e-
readers, tablet PCs, smartphones, and netbooks. Some of these programs 
enable students to download all of their textbooks onto one portable 
device and access them both during school and at home. Others use 
software applications to help students write essays or create 
presentations for their classmates. Initial studies indicate that--with 
the correct support and training for teachers, students, and parents--
targeted programs like these can demonstrably improve student 
achievement. Commenters noted that, in addition to the educational 
benefits, improvements and cost reductions in portable learning devices 
like e-readers, smartphones, and tablet computers make funding off-
premises wireless connectivity for these devices a cost-efficient 
supported service.
    33. We recognize the benefits of enabling innovation in learning 
outside the boundaries of the school building and the traditional 
school day, as well as of enabling libraries to innovate with new 
models of delivering service to library patrons. We note the potential 
for meaningful gains in student achievement that new devices and 
applications may deliver. We also see significant utility in devices 
that allow remote access to the Internet for library patrons. At the 
same time, however, we acknowledge the concerns of commenters who urged 
us to proceed cautiously in this area and emphasized the challenges 
that may accompany support for connectivity for portable learning 
devices used outside the physical grounds of schools and libraries. For 
example, some commenters identified possible challenges in 
administration and oversight, and in ensuring compliance with existing 
program rules, including requirements under CIPA and the program's 
definition of educational purposes. Others raised concerns about the 
potential for waste, fraud, and abuse, as well as increased costs to 
the E-rate fund, noting that if support is expanded for wireless 
Internet access outside of school or library grounds, the availability 
of funding for other equally or more important services may be reduced. 
Some commenters also were concerned about schools or students who may 
not be able to afford the equipment or devices necessary to connect to 
E-rate funded wireless Internet services. Finally, some commenters 
argued that E-rate funding for wireless access off premises is not 
technology-neutral and improperly favors wireless services over wired 
services. We believe these concerns warrant further inquiry and 
consideration before such services should be eligible for support on a 
program-wide basis.
    34. The E-rate Deployed Ubiquitously (EDU) 2011 Pilot Program. To 
assist us in our inquiry and program development, we establish a trial 
program to investigate the merits and challenges of wireless off-
premises connectivity services, and to help us determine whether they 
should ultimately be eligible for E-rate support. We plan to use this 
trial program to gather more information about the implementation 
challenges described above and to identify and disseminate best 
practices in existing projects. We ask schools and libraries that 
already are implementing or experimenting with wireless off-campus 
learning to provide us with information about their projects, as 
described below.
    35. A number of commenters have indicated that they have already 
found solutions to the challenges to successfully implementing off-
premises wireless Internet connectivity, including ensuring CIPA 
compliance and other protections against waste, fraud and abuse. 
Additionally, some commenters suggested that corporate partnerships may 
help with equipment and application costs. Through the EDU2011 Program, 
we expect to obtain more information about how wireless learning 
programs are operating today. For example, we hope to gain a better 
understanding of operational and administrative issues associated with 
off-premises use and connectivity, as well as the financial impact on 
the E-rate program overall. We also hope to learn what conditions, if 
any, should accompany off-premises access to prevent waste, fraud, and 
abuse; to ensure compliance with the statute and Commission rules, such 
as CIPA; and to enable such programs to maximize student achievement 
and utilization of library services. Additionally, we recognize that 
schools and libraries face different issues when considering off-
premises use, and we would like to gain a greater understanding about 
how libraries are using remote access to serve their communities. 
Finally, we hope to gain insight on evolving uses of mobile

[[Page 75400]]

wireless devices that will assist us in crafting effective permanent 
rules in this area should we decide to support offsite wireless access.
    36. As part of this first phase, we may decide to fund off-campus 
wireless telecommunications and Internet access for some small number 
of select programs for funding year 2011, if we find proposals that we 
believe adequately meet the factors we discuss below. We expect that 
most of these proposals will not provide broad access to the Internet, 
but instead will provide connectivity for limited purposes, for example 
downloading digital textbooks. We authorize up to $10 million for 
funding year 2011 to support innovative and interactive off-premise 
wireless device connectivity for schools and libraries. Given the 
Commission's planning and competitive bidding requirements, we 
recognize there is limited time for applicants to develop a proposal 
from scratch for this round of funding. Therefore, considering those 
practical barriers, we anticipate that any first phase EDU2011 Program 
funding will primarily, if not exclusively, be provided to already-
existing portable wireless device programs.
    37. How To Apply. We delegate implementation of this pilot program 
to the Wireline Competition Bureau (Bureau). To be considered for first 
phase EDU2011 Program funding, applicants must complete a two-step 
application process. After publication of this Order in the Federal 
Register, the Bureau will release a public notice with the due date for 
applications. First, applicants must submit the information detailed in 
the following paragraph to the Bureau. Second, applicants must apply 
for E-rate funding by following the regular E-rate program rules. 
Because potential applicants will most likely already be using portable 
wireless devices in their school or library, we understand that the 
applicants may have an established relationship with a service 
provider. Therefore, to the extent necessary, we waive the applicable 
sections of our E-rate competitive bidding rules for those first phase 
EDU2011 Program applicants that have already entered into legally 
binding agreements with a service provider for portable wireless device 
connectivity off-premises. We also delegate to the Bureau the authority 
to waive any other E-rate rules, to the extent necessary, to effectuate 
this program. Applicants for first phase EDU2011 Program funding must 
submit FCC Form 471 to USAC during the regular application window. We 
encourage applicants to submit FCC Form 471 specifically for the 
wireless Internet access services to be used off premises, and file a 
separate FCC Form 471 for any services to be used on premises. We note 
that support under this program will not be provided for the portable 
devices or equipment, but for the connectivity services.
    38. To be considered for first phase EDU2011 Program funding, E-
rate eligible applicants must have implemented or already be in the 
process of implementing a program to provide off-premise connectivity 
to students or library patrons through the use of portable wireless 
devices. The application must contain the following information:
    (1) A description of the current or planned program, how long it 
has been in operation, and a description of any improvements or other 
changes that would be made if E-rate funding were received for funding 
year 2011;
    (2) Identification of the costs associated with implementing the 
program including, for example, costs for equipment such as e-readers 
or laptops, access and connection charges, teacher training, librarian 
training, or student/parent training;
    (3) Relevant technology plans;
    (4) A description of how the program complies with CIPA and 
adequately protects against waste, fraud, and abuse;
    (5) A copy of internal policies and enforcement procedures 
governing acceptable use of the wireless device off the school's or 
library's premises;
    (6) For schools, a description of the program's curriculum 
objectives, the grade levels included, and the number of students and 
teachers involved in the program; and
    (7) For schools, any data collected on program outcomes.
    39. Selection. After applications are received, for schools, the 
Bureau should consider the extent to which applicants are providing 
innovative and interactive learning programs using portable wireless 
devices for students. For libraries, the Bureau should consider how the 
library's portable wireless device program facilitates access in the 
community to needed services, such as job applications, governmental 
services, job training, and online learning opportunities. Factors the 
Bureau should consider in selecting programs that may be eligible for 
additional funding include: The magnitude of the impact E-rate support 
for off-premise connectivity is likely to have; the number of students 
or library patrons served; the cost of the program; the poverty level 
and current discount rate of the school or library; the financial need 
of the school or library; the location and topography of the school or 
library, so that we can analyze the availability of wireless access; 
the committed school or library resources available to implement the 
entire proposal, including funding for necessary equipment, as well as 
teacher, librarian, and student training and data collection; and the 
extent of CIPA protections and other protections to guard against 
waste, fraud, and abuse.
    40. The Bureau will notify USAC of selected applicants. We expect 
that, if the Bureau decides to award funding for these programs, there 
will be only a handful of selected applicants. Selected applicants will 
receive the identified connectivity support and will not be required to 
cost-allocate the dollar amount of support for the time that portable 
devices are not at the school or library. Applicants will receive funds 
sufficient to cover the connectivity amount eligible for E-rate funding 
based on their discount; they will still be required to pay their non-
discount share. After the trial period, applicants will be required to 
submit a report to the Bureau detailing any data collected as a result 
of the program and a narrative describing lessons learned from the 
program that would assist other schools and libraries desiring to adopt 
similar programs in the future.

B. Streamlining and Simplifying Administrative Requirements

    41. We next adopt proposals to streamline and simplify the E-rate 
programs. First, we amend Sec.  54.508 of our rules to eliminate the E-
rate technology plan requirements for all priority one applications. We 
retain the technology plan requirements for applicants requesting 
priority two funding. Second, we find that applicants are not required 
to have a technology plan in place before a third-party master 
contract's FCC Form 470 is posted. Third, we also amend Sec.  54.508 to 
eliminate the requirement that applicants demonstrate they have a 
budget sufficient to acquire and support the non-discounted elements of 
the plan. Fourth, we permit the disposal of E-rate equipment for 
payment or other consideration, but no sooner than five years after the 
equipment is installed.
1. Technology Plans
    42. We amend Sec. Sec.  54.504 and 54.508 of our rules to eliminate 
the E-rate technology plan requirements for all priority one 
applications. We retain, however, the technology plan requirements for 
applicants requesting priority two funding.
    43. To avoid duplication of technology plan requirements and to 
simplify the application process in

[[Page 75401]]

general, we proposed in the NPRM to eliminate E-rate technology plan 
requirements for applicants seeking priority one services that are 
otherwise subject to state and local technology planning requirements. 
Commenters indicated, however, that determining which applicants 
seeking priority one services are subject to technology plan 
requirements outside of the E-rate program could be difficult, might 
lead to unnecessary violations of program rules, and could be 
administratively difficult to administer. Because the record 
demonstrates that applicants are required to or will likely perform 
technology planning even without the E-rate program requirements, we 
find that eliminating the technology planning requirement entirely for 
priority one funding will better serve the intent of the NPRM proposal 
to simplify the application process, while still adequately addressing 
concerns regarding waste, fraud, and abuse.
    44. Priority One. The Commission must strive to balance the need to 
ensure that E-rate funds are being used for their intended purposes 
with avoiding the imposition of unnecessarily burdensome requirements 
on applicants. Moreover, the Commission must routinely reevaluate its 
program rules to ensure that it has struck the proper balance. After 
careful consideration of our experience and comments in the record, we 
conclude that the proper balance warrants eliminating the Commission's 
technology plan requirements for applicants requesting priority one 
services.
    45. We find that it is reasonable to eliminate the technology plan 
requirement for all priority one service requests, even when the 
applicant is not subject to a state or local technology planning 
requirement, and regardless of the amount of the request. Even without 
a Commission requirement, most entities will continue to evaluate their 
needs by conducting technology planning. Applicants applying for 
Enhancing Education Through Technology (EETT) funding from the 
Department of Education must comply with a technology plan requirement 
nearly identical to the Commission's. The Elementary and Secondary 
Education Act, reauthorized in 2002 as the No Child Left Behind Act, 
also has requirements that overlap with E-Rate's technology planning 
rules. In addition, technology planning is often incorporated into the 
budget and procurement processes of schools and libraries. Thus, we 
find that applicants generally will continue to perform technology 
analyses notwithstanding elimination of the technology plan requirement 
for E-rate.
    46. Furthermore, we find that this change will simplify the current 
application process and will reduce the costs for applicants of 
complying with and administering the E-rate program. Reducing the 
burden on applicants will result in greater E-rate participation, 
particularly for the schools with the fewest resources and greatest 
need to participate in the program. Eliminating the technology plan 
requirement for priority one applications also will reduce costs 
associated with administering the E-rate program.
    47. Moreover, the Commission has other safeguards to ensure that 
priority one funding requests are based ``on the reasonable needs and 
resources of the applicant and are consistent with the goals of the 
program.'' For instance, to ensure that applicants are able to use the 
discounted services effectively, and thereby minimize waste, our rules 
require applicants to certify that they have ``secured access to all of 
the resources, including computers, training, software, maintenance, 
internal connections, and electrical connections, necessary to make 
effective use of the services.'' The Commission has additional 
protections in place to guard against waste, fraud, and abuse in the E-
rate program. Although we find that we no longer need the technology 
play requirement for priority one services in light of the other 
protections in place, we will remain vigilant to ensure that 
eliminating this requirement does not increase opportunities for waste, 
fraud, and abuse.
    48. Priority Two. We conclude that we should retain the requirement 
to have a technology plan for priority two services. We find that 
maintaining a specific technology plan requirement for E-rate 
applicants for priority two services--internal connections and basic 
maintenance of internal connections--continues to serve a valuable 
purpose and therefore outweighs any potential administrative burden. 
Many commenters support this conclusion. First, our experience reflects 
that waste, fraud, and abuse tends to be concentrated in use of 
priority two services. Past experience convinces us that we should not 
at this time eliminate the technology plan requirement for priority two 
services. Second, installing internal connections in schools and 
libraries is a complex and expensive process, with installation 
techniques that vary depending on the nature of the project. Unlike 
priority one services, which are generally recurring services, internal 
connections are one-time upgrades that are designed to produce long-
term benefits to schools and libraries. Maintaining the requirement for 
priority two services will require applicants to plan and justify these 
requests and strategically define their vision for use of these 
technologies.
    49. For the reasons stated above, we decline to adopt proposals 
suggested by commenters either (1) to completely eliminate the 
technology plan requirement for priority two applicants; or (2) to 
establish a bifurcated approach in which only priority two applicants 
not subject to other state or local requirements are required to 
develop technology plans. It would be administratively burdensome for 
USAC to determine which schools and libraries are subject to official 
state and local technology plan requirements and which are not.
    50. While we decline to eliminate the technology plan for priority 
two applicants, we adopt measures to simplify the technology planning 
process. First, we amend Sec.  54.504 of our rules to eliminate the 
requirement that technology plans covering the entire, upcoming funding 
year be in place when the FCC Form 470 is submitted. Under the current 
rule, an applicant may not rely on an approved, existing technology 
plan if it expires prior to the last date of service of the upcoming 
funding year. We believe that the three-year technology plan cycle that 
has evolved for the E-rate program does not accurately reflect how 
schools and libraries plan for their technology needs. For example, if 
a school has developed and is implementing a three-year technology 
plan, it does not make sense to require the school to develop a new 
plan in October (before filing its Form 470) just because the existing 
plan expires before the upcoming funding year ends. The school should 
be able to obtain services under that existing technology plan if it 
covers part of the upcoming funding year and then revise the plan over 
the next several months before it expires. Forcing the applicant to 
prepare another three-year plan so far in advance of the end of the 
current one is administratively burdensome. Technology plans are 
evolving documents, and we want to encourage applicants to have 
technology plans that reflect their current needs. We thus find that 
applicants with approved technology plans that cover at least part of 
the upcoming funding year in effect as of the date of their FCC Form 
470 filings will be deemed to be in compliance with our rules.
    51. We also find that applicants are not required to have a 
technology plan in place before a third-party master

[[Page 75402]]

contract's FCC Form 470 is posted. FCC Forms 470 for master contracts 
typically are filed far in advance of the filing window because of the 
more detailed solicitation process they require. Schools and libraries 
typically have no control or advance knowledge of the solicitation of 
bids for third-party master contracts, and, as such, would have no way 
of knowing when their technology plans would need to be completed. 
Therefore, we find that, if an applicant has filed its own FCC Form 
470, but later chooses to purchase a service from a state master 
contract, the applicant only needs to have a technology plan in 
existence prior to filing its own FCC Form 470. To do otherwise could 
unintentionally discourage applicants from taking service from a master 
contract.
    52. We also amend Sec.  54.508 of our rules to eliminate the 
requirement that applicants demonstrate they have a budget sufficient 
to acquire and support the non-discounted elements of the plan. The E-
rate program already has rules in place to ensure that applicants have 
sufficient resources, and thus this requirement is redundant.
    53. E-Rate Central Petition. E-rate Central filed a petition 
seeking clarification of the language defining ``basic telephone 
services'' for priority one services in the funding year 2008 ESL. The 
actions in this order address E-Rate Central's concerns. Therefore, we 
find that no further Commission action on E-Rate Central's petition is 
necessary.
2. Competitive Bidding Process
    54. FCC Form 470. We retain the competitive bidding and waiting 
period obligations for all service requests, even where applicants are 
subject to state or local procurement obligations, rather than 
subjecting priority one and priority two applications to different 
standards, as proposed in the NPRM. We find, however, that we should 
simplify the FCC Form 470 process for all program participants. Many 
applicants requested that we simplify the FCC Form 470 if we do not 
eliminate it. After consideration of the record and our programmatic 
experience, we conclude that the competitive bidding and waiting period 
requirements have provided consistency and transparency for program 
participants in their search for the most cost-effective provider of E-
rate eligible services. In seeking to achieve the proper balance 
between ensuring program integrity and eliminating excessive 
administrative burdens, we conclude that the preferable course is to 
simplify and redesign the FCC Form 470. We find that the changes we 
adopt will decrease the number of denials that stem purely from 
technical deficiencies rather than the applicant's failure to conduct a 
fair and open competitive bidding process. Streamlining the form to 
include only the information necessary to the competitive bidding 
process will also reduce appeals and increase program participation. 
Accordingly, we amend Sec.  54.504(b) of the Commission's rules to 
reflect accurately the specific information being requested on the FCC 
Form 470 in order to facilitate a fair and open competitive bidding 
process.
    55. We find that requiring the FCC Form 470 produces a better 
competitive bidding process. Currently, schools and libraries are 
required to post an FCC Form 470 to USAC's website so that service 
providers easily can view the services that are requested in one 
centralized location. While many schools and libraries must also follow 
their own state or local procurement processes, those bid requests are 
often limited to publication, for example, in local newspapers. The 
nationwide posting on USAC's website ensures that more service 
providers can obtain notice about the requests for bids. If more 
service providers are viewing and responding to proposals, the 
resulting additional competition should help keep prices lower for 
applicants and, in turn, require fewer dollars from the universal 
service fund. Many service providers noted that they annually review 
the posted FCC Forms 470 and submit bids to provide the requested 
services.
    56. We anticipate that the new, simplified FCC Form 470 will take 
effect prior to the opening of the filing window for funding year 2011. 
However, if an applicant has already submitted an FCC Form 470 (in the 
current format) for funding year 2011, the applicant will not be 
required to submit a new form. Once the revised form has received 
Office of Management and Budget (OMB) approval, all applicants will be 
required to prepare and submit the newly revised form going forward. 
The Wireline Competition Bureau will announce the effective date of the 
new FCC Form 470 once approval has been received from OMB. If an 
applicant has not submitted an FCC Form 470 by the effective date, the 
applicant will need to submit the new FCC Form 470.
3. Clarifying Process for Disposal of Obsolete Equipment
    57. E-rate Program Rules and Requirements. Section 254(h)(3) of the 
Act prohibits an eligible school or library that has purchased 
telecommunications services and network capacity at a discount under 
the E-rate program from reselling or otherwise transferring those 
services, or any equipment components of such service, in consideration 
for money or any other thing of value. In the Schools and Libraries 
Third Report and Order, 69 FR 6181, February 10, 2004, the Commission 
also prohibited schools and libraries from transferring the equipment 
components of eligible services to other schools within three years of 
their purchase, even without receiving money or other consideration, 
unless the donating school or library permanently or temporarily 
closes. The Commission also stated that ``[r]ecipients of support are 
expected to use all equipment purchased with universal service 
discounts at the particular location, for the specified purpose for a 
reasonable amount of time.'' The Act and the Commission's rules, 
however, do not currently specify what schools and libraries are 
permitted do with equipment components of eligible services acquired 
with E-rate support once the equipment is obsolete.
    58. Process for Disposal of Obsolete Equipment. We amend Sec.  
54.513(a) of our rules to permit the disposal of equipment components 
of E-rate services (E-rate equipment) for payment or other 
consideration, but no sooner than five years after the equipment is 
installed. We decline to adopt the reporting and recordkeeping 
requirements proposed in the E-rate Broadband NPRM.
    59. First, we revise our rules to permit the disposal of E-rate 
equipment for payment or other consideration, but no sooner than five 
years after the equipment is installed. We find that section 254(h)(3) 
of the Act was intended to address the concern that schools and 
libraries might resell current telecommunications services and network 
capacity, and does not address obsolete equipment. As it is in the 
public interest and consistent with the Commission's environmental 
initiatives and the goal of making technology affordable for all, we 
encourage schools and libraries to donate and recycle their obsolete 
equipment whenever possible. To further assist this goal, we direct 
USAC to make available on its website and update on an ongoing basis a 
list of donation and recycling locations for communications equipment.
    60. We adopt the five-year threshold for a number of reasons. We 
conclude that five years from the date of installation is a reasonable 
period of time based on the rate of change in communications technology 
and equipment, industry standards for the

[[Page 75403]]

useful life of E-rate eligible equipment, and the need for schools and 
libraries to maintain viable networks that reflect those changes. 
Moreover, we find that adopting a straightforward and easy-to-
understand rule will help reduce the confusion that has led to 
applicants either throwing away equipment or to storing the equipment 
indefinitely because applicants are unsure if disposing of it will 
violate E-rate rules.
    61. We conclude that adopting five years as a minimum threshold 
standard is superior to attempting to discern a specific useful life 
for each piece of equipment under E-rate. As the E-rate program 
supports thousands of different pieces of eligible equipment, and as 
that equipment and the eligible services list is constantly evolving, 
the burden of verifying the useful life for each piece of equipment 
would be unduly onerous. In the Schools and Libraries Third Report and 
Order, we discussed the adoption of useful life criteria in the context 
of transferring services and equipment. In that context, we decided not 
to adopt useful life criteria, finding that ``developing and enforcing 
useful life criteria would add a significant degree of complexity to 
the program, which would result in increased administrative costs and 
burden for both recipients and USAC.'' We agree that detailing a 
specific period of useful life for each of the thousands of types of 
equipment supported under E-rate would be unduly costly and burdensome.
    62. We emphasize that this rule does not require schools and 
libraries to continue using equipment for five years, nor does it 
require disposal five years after installation, but it does prohibit 
resale or disposal before five years has passed. We strongly encourage 
schools and libraries to be the best stewards of E-rate funding 
possible and to continue to fully use equipment purchased with 
universal service funds for as long as the equipment remains viable as 
an effective and efficient technology solution. Additionally, the New 
York State Education Department inquired whether the disposal of 
obsolete equipment by a service provider, free of charge, violates 
Sec.  54.523 of our rules. We conclude that this service does not 
provide the incentive or inducement for selection that Sec.  54.523 is 
designed to prevent, and therefore we find that free of charge disposal 
of obsolete equipment by a service provider does not violate Sec.  
54.523 of our rules.
    63. We decline to adopt a time period of three years, as suggested 
by some commenters. Some schools and libraries transfer equipment from 
the location that originally sought funding for the equipment to other 
locations after three years, as permitted by our rules. Those transfers 
suggest that that equipment may not typically exhaust its useful life 
within three years. Additionally, although in some instances we allow 
applicants to receive funding twice every five years to help, in part, 
allow for updated internal connections, that rule is primarily intended 
to allow funding to be distributed more equitably. It is not a 
benchmark for measuring equipment obsolescence.
    64. Second, we decline to adopt the proposal that would require 
applicants to formally declare that equipment is obsolete. Schools and 
libraries should make this determination in the normal course as they 
create technology plans and determine what equipment is required to 
keep the network running efficiently. Each school and library board has 
its own established procedures for making this determination. We find 
that a formal declaration would serve little if any value, and would 
create an unnecessary administrative burden. Therefore, we decline to 
adopt this proposed condition.
    65. Third, we decline to adopt a rule that schools and libraries 
must notify USAC of the resale or disposal of equipment funded by the 
E-rate program within 90 days of its disposal, or that applicants be 
required to keep a record of the disposal for a period of five years 
following the disposal. We also decline to require schools and 
libraries to track disposal of obsolete equipment on their asset and 
inventory lists beyond what the current rules already require. As we 
decline to adopt the reporting requirement, we see little utility in 
revising the FCC Form 500 as proposed, and we decline to do so. Because 
we are convinced that the remaining value of equipment purchased using 
E-rate funds is generally de minimis after five years, we find that 
such reporting requirements do not justify the substantial 
administrative burden they would impose on both applicants and USAC. 
Nevertheless, the purpose of permitting applicants to dispose of 
equipment for money or other consideration is to encourage recycling 
and optimization of resources. It is not intended to create a profit-
making opportunity for E-rate participants or to create incentives to 
request services that exceed the applicant's immediate needs. Thus, if 
we have reason to believe that this revised rule results in waste or 
abuse, we may impose reporting obligations, recover funding, or take 
other steps to eliminate opportunities for abuse.
    66. Fourth, we decline to adopt, as a condition of compliance with 
our E-rate rules, a specific rule that the disposal process must comply 
with state and local laws. While we expect any schools and libraries 
disposing of obsolete equipment will comply with applicable federal, 
state, and local laws, we find that making such compliance a condition 
of our E-rate program requirements would impose significant 
administrative burdens on USAC to track such compliance, and that such 
burden outweighs any potential benefit of imposing such a requirement.
    67. Finally, we decline to require schools and libraries to return 
to USAC any funds received in exchange for the sale or disposal of 
obsolete E-rate equipment. We sought comment on E-rate Central's 
proposal that would require the return to USAC of any funds greater 
than $1,000 related to the resale or disposal of E-rate equipment. 
Because our intent is to permit disposal only of obsolete equipment, we 
expect that any consideration that schools or libraries receive should 
be nominal. Thus we find that the potential recovery does not warrant 
the administrative burdens that USAC and applicants would face as a 
result of requiring remission of such amounts.
    68. E-Rate Central Petition for Clarification or Waiver. As 
discussed in the E-rate Broadband NPRM, E-Rate Central filed a petition 
for clarification or waiver of the Commission's rules concerning the 
disposal of equipment purchased under the E-rate program. The rules 
adopted in this order address E-Rate Central's Petition for 
Clarification or Waiver. Therefore, we dismiss E-Rate Central's 
petition as moot.

C. Improving Safeguards Against Waste, Fraud and Abuse

    69. Fair and Open Competitive Bidding Rule. We amend Sec.  54.503 
of the Commission's rules to codify the existing requirement that the 
E-rate competitive bidding process be fair and open. The Commission has 
observed that competitive bidding is vital to ensuring that schools and 
libraries--and the E-rate program--receive the best value for their 
limited funds, and to clarify the prohibition against E-rate applicants 
receiving gifts. Although numerous Commission orders already make clear 
that, to comply with the Commission's competitive bidding process 
requirements, applicants and service providers must conduct and 
participate in a fair and open competitive bidding process, we find 
that codification of this requirement is warranted. We remind parties 
that all

[[Page 75404]]

applicants and service providers have had, and will continue to have, 
an obligation to comply with any applicable state or local procurement 
laws, in addition to the Commission's requirements.
    70. As proposed in the E-rate Broadband NPRM, we find that the 
following types of conduct are necessary to satisfy a fair and open 
competitive bidding requirement. As a general matter, all potential 
bidders and service providers must have access to the same information 
and must be treated in the same manner throughout the procurement 
process. Any additions or modifications to the FCC Form 470, RFP, or 
other requirements or specifications must be available to all potential 
providers at the same time and in a uniform manner. Moreover, 
consistent with precedent, it is a violation of the Commission's 
competitive bidding rules if: (1) The applicant has a relationship with 
a service provider that would unfairly influence the outcome of a 
competition or would furnish the service provider with ``inside'' 
information; (2) someone other than the applicant or an authorized 
representative of the applicant prepares, signs, and submits the FCC 
Form 470 and certification; (3) a service provider representative is 
listed as the FCC Form 470 contact person and that service provider is 
allowed to participate in the competitive bidding process; or (4) a 
service provider prepares the applicant's FCC Form 470 or participates 
in the bid evaluation or vendor selection process in any way. In the 
Mastermind Order, the Commission found that an applicant violates the 
Commission's competitive bidding rules if the applicant turns over to a 
service provider the responsibility for ensuring a fair and open 
competitive bidding process. The Commission concluded in the SEND Order 
that a competitive bidding process is undermined when an applicant 
employee with a role in the service provider selection process also has 
an ownership interest in the vendor that is seeking to provide the 
products or services. In the Ysleta Order, the Commission found that an 
applicant violates the Commission's competitive bidding rules if its 
FCC Form 470 does not describe the desired products and services with 
sufficient specificity to enable interested parties to submit 
responsive bids. We emphasize that this is not an exhaustive summary of 
the types of conduct that we have found, and will continue to find, to 
violate the competitive bidding process. Because we cannot anticipate 
and address every possible action that parties may take in the E-rate 
application process, we expect that we will continue to use the appeal 
process as necessary to decide alleged competitive bidding violations.
    71. In addition to this precedent, we address the receipt of gifts 
by applicants from service providers and potential service providers 
under the E-rate program. As noted above, the Commission's rules and 
precedent require that applicants conduct a fair and open competitive 
bidding process. In addition, applicants are required to certify on the 
FCC Form 471 that they have not received anything of value or a promise 
of anything of value other than the services and equipment requested on 
the form. In the E-rate Broadband NPRM, we listed gift-giving as one 
example of prohibited conduct under a fair and open competitive bidding 
process.
    72. We find that the best approach is to make gift rules under the 
E-rate program consistent with the gift rules applicable to federal 
agencies, which permit only certain de minimis gifts. Generally, the 
federal rules prohibit a federal employee from directly or indirectly 
soliciting or accepting a gift (i.e., anything of value) from someone 
who does business with his or her agency or accepting a gift given as a 
result of the employee's official position. The federal rules do, 
however, permit two categories of circumscribed de minimis gifts: (1) 
Modest refreshments that are not offered as part of a meal (e.g., 
coffee and donuts provided at a meeting) and items with little 
intrinsic value intended solely for presentation (e.g., certificates 
and plaques); and (2) items that are worth $20 or less (e.g., pencils, 
pens, hats, t-shirts, and other items worth less than $20, including 
meals), as long as those items do not exceed $50 per employee from any 
one source per calendar year. Similarly, the rule we adopt today also 
allows such de minimis gifts. In determining the amount of gifts from 
any one source, we will consider the aggregate value of all gifts from 
any employees, officers, representatives, agents, independent 
contractors, or directors of the service providers in a given funding 
year. We note that the restriction on gifts is always applicable, and 
is not in effect or triggered only during the time period when the 
competitive bidding process is taking place. Based on our experience, 
gift activities that undermine the competitive bidding process may 
occur outside the bidding period. Accordingly, we amend Sec.  54.503 of 
our rules to prohibit E-rate applicants from soliciting or accepting 
any gift or other thing of value from a service provider participating 
in or seeking to participate in the E-rate program. We further amend 
that rule to make it a violation for any service provider to offer or 
provide any gift or other thing of value to those personnel of eligible 
entities involved with the E-rate program. Like the federal rules, we 
include an exception for gifts to family and personal friends when 
those gifts are made using personal funds of the donor (without 
reimbursement from an employer) and are not related to a business 
transaction or business relationship.
    73. We find that the federal rules offer a fair balance between 
prohibiting gifts that might have undue or improper influence on a 
procurement decision and acknowledging the realities of professional 
interactions, which might occasionally involve giving people coffee or 
other modest refreshments or a token gift. Moreover, the federal rules 
are well-established and have been interpreted frequently, and parties 
can look to these decisions if there are questions about the propriety 
of a particular offering. In addition, we find that this rule is 
appropriate for ease of administration and also to provide clarity for 
service providers and applicants. Finally, we emphasize again that 
schools, libraries, and service providers remain subject to applicable 
state and local restrictions regarding gifts. Thus, to the extent a 
state or local provision is more stringent than the federal 
requirements, violation of the state or local provision constitutes a 
violation of the Commission rule we adopt herein.
    74. AT&T was concerned that a prohibition against gifts might 
prevent companies from making charitable contributions to schools, or 
would deter other philanthropic activities, such as employee donations 
through United Way. The rule we articulate today does not discourage 
companies from making charitable donations to E-rate eligible entities 
in the support of schools--including, for example, literacy programs, 
scholarships, and capital improvements--as long as such contributions 
are not directly or indirectly related to E-rate procurement activities 
or decisions. If contributions have no relationship to the procurement 
of E-rate eligible services and are not given by service providers to 
circumvent our rules, including rules that require schools and 
libraries to pay their own non-discount share for the services they are 
purchasing, such contributions will not violate the prohibition against 
gift-giving. If applicants or service providers are unclear about a 
particular anticipated

[[Page 75405]]

gift, they should seek guidance from USAC or the FCC.
    75. We also offer greater clarity with regard to permissible 
service provider identification number (SPIN) changes following a 
competitive bidding process. In the E-rate Broadband NPRM, we proposed 
to prohibit a service provider from circumventing a competitive bidding 
process by offering a new, lower price for products and services that 
have already been competitively bid and are part of an existing 
contract. The Commission currently permits applicants to change service 
providers for specified reasons (e.g., the service provider went out of 
business or is unable to perform) after a funding commitment has been 
issued through the operational SPIN change process. Applicants must 
wait until after the funding commitment has been issued to enable USAC 
to review and identify any issues related to the competitive bidding 
process of the original service provider. There may be some instances, 
however, where the reason for the SPIN change is not consistent with 
program purposes. For example, the applicant might identify a service 
provider as the winning bidder but intend to change providers through 
the SPIN change process as soon as USAC issues a funding commitment. We 
believe that this type of conduct is inappropriate and is not conducive 
to a fair and open competitive bidding process. Therefore, to alleviate 
uncertainty regarding the types of SPIN changes that are permissible 
following a competitive bidding process, we clarify that once a 
contract for products or services is signed by the applicant and 
service provider, the applicant may not change to a different service 
provider unless (1) there is a legitimate reason to change providers 
(e.g., breach of contract or the service provider is unable to 
perform); and (2) the newly selected service provider received the next 
highest point value in the original bid evaluation, assuming there was 
more than one bidder.
    76. Some commenters challenged the statement in the E-rate 
Broadband NPRM that ``[a] service provider may provide information to 
an applicant about products or services--including demonstrations--
before the applicant posts the FCC Form 470, but not during the bid 
selection process.'' They argue that applicants need vendor information 
during the bid selection process in order to make the best decision 
about the services they are requesting. We agree with these commenters 
and note that, currently, service providers are permitted to supply 
information about their products and services during the 28-day waiting 
period. Our concern regarding vendor communication during the 28-day 
waiting period was not about the specific products or services being 
requested, but rather about ensuring that potential bidders are not 
influencing the bidding process by providing inappropriate assistance 
as explained above. Thus, we clarify that we do not prohibit 
communications during the 28-day waiting period as long as all parties 
are privy to the same information from the applicant during that period 
and the communications are consistent with any applicable state or 
local competitive bidding requirements.

III. Eligible Services List

    77. In this order, we release the ESL for funding year 2011 and 
adopt most of the proposals made in the 2009 ESL Further NPRM, 75 FR 
32692, June 9, 2010, and the 2010 ESL Public Notice. We add dark fiber 
to the ESL as an eligible service. We also retain web hosting as an 
eligible priority one service. Finally, we decline to add the following 
services to the ESL: (1) Software applications that are used in 
connection with wireless devices; (2) enhanced firewalls and intrusion 
detection/intrusion prevention devices; (3) anti-virus and anti-spam 
software; (4) online backup solutions; and (5) unbundled warranties.
    78. We also make slight modifications to the rules pertaining to 
ESL administration. First, as explained below, we find that individual 
eligible and ineligible services should be listed in the ESL only 
rather than in our rules. Second, we require USAC to submit any 
proposed changes to the ESL to the Commission by March 30 of each year. 
Third, the rules will now provide the Commission with flexibility to 
release the ESL by public notice or order. Finally, because we are 
releasing the final ESL for funding year 2011 by this report and order, 
pursuant to our rules, we also authorize USAC to open the annual 
application filing window no earlier than November 29, 2010.
    79. The Commission uses several criteria to determine whether to 
include a service in the ESL. First, under the statute, a service must 
serve an educational purpose. Second, the service should be primarily 
or significantly used to facilitate connectivity. The E-rate program 
does not provide support for content or end-user devices such as 
computers or telephones. Third, due to the financial constraints on the 
fund, we must balance the benefits of particular services with the 
costs of adding to our list of supported services--i.e., if more 
services are eligible for E-rate funding, some schools may receive more 
funding, but some schools may not receive any funding for priority two 
services. We recognize that E-rate may not be able to fund every 
service that potentially serves an educational purpose, and for that 
reason we need to evaluate potential impact of adding additional 
services to the eligible services list. Finally, the Commission must 
exercise discretion in order to balance the goals of the E-rate program 
with the overarching (and potentially competing) goals of universal 
service, such as ensuring affordable rates to all Americans across the 
country. In deciding whether to extend E-rate support to a particular 
service, the Commission must keep in mind that the support ultimately 
is paid for by consumers. This balancing bears on each decision about 
whether to designate a service as eligible or ineligible for E-rate 
support.
1. Eligible Services
    80. Web Hosting. Based on the record before us, we find that web 
hosting should continue to receive priority one funding. Comments 
provided compelling examples of how web hosting is essential for 
facilitating teaching and learning as well as communication among the 
entire school community. For example, teachers use individual web pages 
to post homework assignments, collect completed homework from students, 
post messages to students and parents, and respond to student or parent 
questions. Web pages also can increase learning time outside of school 
by providing students and parents with 24/7 access to classroom 
information and supplemental educational resources. Moreover, parental 
and family engagement in a child's school has been linked to improved 
educational outcomes for students. Web hosting, as the commenters have 
shown, is an example of a service that can provide a substantial 
educational impact for a relatively small cost.
    81. We are also persuaded that features that facilitate the ability 
to communicate, such as blogging, e-mailing over a school or library's 
hosted website, discussion boards, and services that may facilitate 
real-time interactive communication such as instant messaging or chat, 
should be eligible for E-rate funds as part of a web hosting package. 
Therefore, we revise the ESL to include those features of web hosting. 
This decision alters prior decisions limiting web hosting support to 
hosting a school or library's static website and excluded the ability 
to engage in interactive activity such as blogging. We

[[Page 75406]]

recognize that the transfer of messages across a school's hosted 
website is functionally equivalent to other services that facilitate 
the ability to communicate such as e-mail, text messaging, voice mail, 
and paging. We remind applicants, however, that content--including 
content created by third-party vendors, and any features involving data 
input or retrieval--including searching of databases for grades, 
student attendance files, or other reports--remains ineligible. In 
addition, support for web hosting will not include support for the 
applications necessary to run online classes or collaborative meetings.
2. Ineligible Services
    82. Wireless Internet Access Applications. We conclude that 
wireless Internet access applications should remain ineligible for E-
rate support. The E-rate program generally does not provide support for 
software or applications. Our decision does not contradict the Schools 
and Libraries Second Report and Order determination that wireless 
telecommunications services on a school bus or a library's mobile unit 
are eligible for E-rate funding, because in that order the Commission 
decided to fund the telecommunications service used on school buses but 
not any overlying functionalities or applications. Although some 
commenters argue that wireless Internet applications should be funded 
if they are used for an ``educational purpose,'' we find that even if 
certain of these applications do serve educational purposes, they 
should not be funded given the overall constraints on the universal 
service fund, and our desire to maintain the focus of E-rate on its 
core purpose of ensuring communications connectivity. Thus, we are not 
persuaded that expanding eligibility to fund wireless Internet access 
applications at this time is a prudent course of action.
    83. We disagree with commenters that applications for wireless 
devices should be eligible if they are bundled with eligible voice and 
data services. Such an approach would allow providers in effect to 
expand the ESL by bundling ineligible wireless applications with 
eligible services. Although we do not prohibit providers from choosing 
how to offer their services, individual ineligible services within the 
bundle will still need to be cost allocated. To the extent that 
carriers bundle eligible and ineligible services and do not present a 
reasonable cost allocation between the services, we direct USAC to 
continue to provide outreach to applicants during the program integrity 
assurance review process and make determinations based on any 
additional information provided in the discussions and information-
sharing with applicants.
    84. Funds for Learning asserts that the language in the draft 2011 
ESL appears to say that applicants may not receive discounts on any 
data charges used for accessing wireless applications. This language 
was intended to indicate that wireless Internet access service and data 
charges for a service that is solely dedicated to accessing an 
ineligible functionality is ineligible for E-rate funding. For example, 
wireless Internet access service that enables students to access the 
Internet on a laptop computer will still be eligible for E-rate funding 
even if that service happens to allow a student to access applications 
that would not be eligible for E-rate funds. If a wireless Internet 
access service is dedicated to a service or group of services that are 
ineligible, however, the entire service request will be deemed 
ineligible. For example, a wireless service solely dedicated to 
applications that track the location of a school's bus drivers or 
student attendance would be fully ineligible.
    85. Enhanced Firewalls, Intrusion Detection/Intrusion Prevention 
Devices, Anti-Virus and Anti-Spam Software. Firewall services are 
intended to prevent unauthorized access to a school or library's 
network. Anti-virus and anti-spam software and intrusion protection and 
intrusion prevention devices monitor, detect, and deter threats to a 
network from external and internal attacks. We decline to extend E-rate 
support to anti-virus and anti-spam software and intrusion protection 
and intrusion prevention devices. We will continue to fund basic 
firewall protection, but we will not at this time extend E-rate support 
beyond basic firewall protection that is included as part of an 
Internet access service. While some commenters support greater support 
for firewall services, contending that such services are necessary 
protection for Internet services and equipment, we must balance the 
benefits of such protections with the costs of augmenting our list of 
supported services. We are concerned about the financial impact on the 
fund--i.e., if more services are eligible for E-rate funding, fewer 
schools will get funding for priority two services. Although we agree 
that protection from unauthorized access is a legitimate concern, the 
funds available to support the E-rate program are constrained. 
Therefore, we find that, on balance, the limited E-rate funds should 
not be used to support these services.
    86. Unbundled Warranties. We add unbundled warranties to our list 
of ineligible basic maintenance of internal connections (BMIC). This 
conforms to the decision we made last year that unbundled warranties 
are ineligible. The Commission has found that basic maintenance 
services are eligible for universal service support as priority two 
internal connections service if, but for the maintenance at issue, the 
internal connection would not function and serve its intended purpose 
with the degree of reliability ordinarily provided in the marketplace 
to entities receiving such services. USAC has treated as an unbundled 
warranty a separately priced warranty allowing for broken equipment to 
be fixed or, in the event that the problem is beyond repair, replaced. 
We find that an unbundled warranty is an ineligible BMIC service 
because it is purchased as a type of retainer and not as an actual 
maintenance service. That is, BMIC contracts that require an upfront 
payment and that payment is required regardless of whether any service 
is actually performed are not eligible. In light of the limited funds 
available for the program, we decline to include support for service 
that may not need to be performed. To avoid the potential waste of E-
rate resources, therefore, we will continue to disallow E-rate 
discounts for unbundled warranties.
    87. Requests for basic maintenance will continue to be funded as 
internal connections if, but for the maintenance at issue, the service 
would not function and serve its intended purpose with the degree of 
reliability ordinarily provided in the marketplace to entities 
receiving such services. Thus, requests for routine maintenance will 
continue to be funded. In addition, if applicants are able to estimate 
a certain number of hours per year for maintenance, based on the 
current life of their equipment and a history of needed repairs and 
upkeep, they may seek E-rate funds for upfront costs on service 
contracts designed to cover this estimate of repairs and upkeep. 
Reimbursements will be paid on the actual work performed and hours used 
only. For example, if a school determines it will need 30 service hours 
in a given year to maintain its internal connections but uses only 20 
hours, the school will be reimbursed only for 20 hours even if they 
were approved for E-rate funds on 30 hours. We find that this procedure 
will ensure that E-rate funds will be used only for actual maintenance 
performed.
    88. We understand from the comments that there may be confusion 
about the eligibility of manufacturer's warranties. The language in the 
ESL under the entry for ``Miscellaneous Fees and Charges,'' states 
that, ``a

[[Page 75407]]

manufacturer's multi-year warranty provided as an integral part of an 
eligible component without separately identifiable cost can be included 
in the cost of the component.'' We agree with commenters that a 
manufacturer's warranty of no more than three years that is included in 
the price of eligible equipment should continue to be eligible as 
priority two internal connections equipment, and add the clarification 
of the three year period to the ESL. In the same entry for 
``Miscellaneous Fees and Charges,'' however, it states that 
``[e]xtended warranties and service contracts are eligible only for 
that portion associated with the relevant funding year.'' We will 
remove this language from the ESL for funding year 2011 to eliminate 
any implication in the ESL that an unbundled warranty may be eligible 
for E-rate funding.
    89. Other Ineligible Services. We also decline to designate 
scheduling services and online backup solutions as eligible for E-rate 
funding. Given the overall constraints on the universal service fund, 
and our desire to maintain the focus of E-rate on its core purpose of 
ensuring communications connectivity, we are not persuaded that 
expanding eligibility to fund these services at this time is a prudent 
course of action.
3. Administrative Changes Pertaining to the ESL
    90. We adopt the proposal in the 2009 ESL Further NPRM to 
restructure our rules such that the services eligible for support will 
be listed in the ESL and will not specified in the Commission's rules. 
Any reference to specific services or products in the rules will be 
removed and the revised rule regarding the ESL will state that all 
products and services eligible for E-rate support will be listed in the 
ESL. This change will help the Commission ensure that the ESL is 
updated in a timely manner. We find that listing general categories of 
eligible services in the rules and specific types of eligible services 
that fall within those categories of eligible services in the ESL is 
confusing. Moreover, it does not serve the public interest to change 
both the Commission's rules and the ESL each time a new service or 
product is designated eligible (or ineligible) for E-rate support. 
Therefore, to alleviate this confusion, we will list the services and 
products eligible for E-rate support only in the ESL. This change will 
enable the Commission to modify the ESL only as necessary to keep up 
with rapidly changing technology. We note that the Commission will 
continue to seek comment on each funding year's proposed ESL, pursuant 
to our rules. Additionally, we will modify our rules pertaining to the 
ESL when necessary to designate new categories of services as eligible 
for E-rate support.
    91. We also adopt the proposal that USAC should be required to 
submit any proposed changes to the ESL to the Commission by March 30 of 
each year, instead of June 30. Accordingly, we amend Sec.  54.522 of 
our rules. We agree with commenters that requiring USAC to submit the 
proposed ESL earlier will allow additional time for the Commission to 
review the proposal and to review and analyze public comment on the 
proposed ESL. Some commenters also propose that we release the ESL 
earlier than the existing deadline. Although we agree that applicants 
should have ample time to review the final ESL while they prepare their 
funding applications, the existing rule requires the final ESL to be 
released at least 60 days prior to the opening of the funding window. 
We find that this 60 day period, in addition to the period of time 
applicants had to review the proposed changes released in the draft 
ESL, should afford applicants a reasonable amount of time to understand 
any changes to the ESL and prepare their applications.
    92. Finally, we adopt our proposal that the final ESL should no 
longer be required to be released by public notice. We find that it is 
important that the Commission have the flexibility to release the ESL 
through a public notice or an order to account for the situations where 
the Commission will need to provide more detailed explanations as to 
why a service is deemed eligible or ineligible for E-rate funding. We 
wish to dispel any concerns that this change would eliminate the 
opportunity for public comment on any modifications to the ESL. Indeed, 
the proposed rule attached to the 2009 ESL Further NPRM states that 
``[t]he Wireline Competition Bureau will issue a Public Notice seeking 
comment on the Administrator's proposed eligible services list,'' and 
we adopt that proposed rule herein.

IV. Procedural Matters

A. Final Regulatory Flexibility Analysis

    93. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Federal Communications Commission (Commission) 
included an Initial Regulatory Flexibility Analysis (IRFA) of the 
possible significant economic impact on a substantial number of small 
entities of the policies and rules considered in the E-rate Broadband 
NPRM in CC Docket No. 02-6 and GN Docket No. 09-51. The Commission 
sought written public comment on the proposals in the E-rate Broadband 
NPRM, including comment on the IRFA. This Final Regulatory Flexibility 
Analysis (FRFA) conforms to the RFA.

B. Need for, and Objectives of, the Report and Order

    94. The Commission is required by section 254 of the Communications 
Act of 1934, as amended, to promulgate rules to implement the universal 
service provisions of section 254. On May 8, 1997, the Commission 
adopted rules to reform its system of universal service support 
mechanisms so that universal service is preserved and advanced as 
markets move toward competition. Specifically, under the schools and 
libraries universal service support mechanism, also known as the E-rate 
program, eligible schools, libraries, and consortia that include 
eligible schools and libraries may receive discounts for eligible 
telecommunications services, Internet access, and internal connections.
    95. The National Broadband Plan (NBP), issued on March 16, 2010, 
recommended that the Commission take a fresh look at the E-rate program 
and identify potential improvements to reflect changes in technology 
and evolving teaching methods used by schools. In May 2010, the 
Commission issued a Notice of Proposed Rulemaking seeking public 
comment on proposals to ensure that the E-rate program continues to 
help our children and communities prepare for the high-skilled jobs of 
the future and reap the full benefits of the Internet. In this Report 
and Order, the Commission adopts a number of the proposals put forward 
in the E-rate Broadband NPRM.
    96. The revisions adopted by the Commission in the Report and Order 
fall into three conceptual categories. First, the Commission enables 
schools and libraries to better serve students, teachers, librarians, 
and their communities by providing more flexibility to select and make 
available the most cost-effective broadband and other communications 
services. Specifically, the Commission allows applicants to lease fiber 
from the most cost-effective provider, including not-for-profit 
entities, so that applicants can choose the services that best meet 
their needs from a broad set of competitive options and in the most 
cost-effective manner available in the marketplace. It also changes the 
rules to permit schools to allow community use of E-rate funded 
services outside of school hours and supports broadband connections to 
the residential portion of schools that serve students with special

[[Page 75408]]

circumstances. The Commission further indexes E-rate's funding cap to 
inflation to preserve the purchasing power of a successful program. 
Additionally, the Commission seeks proposals for a limited pilot 
program to establish best practices to support off-campus wireless 
connectivity for portable learning devices outside of regular school or 
library operating hours. Second, the Commission simplifies and 
streamlines the E-rate application process by removing the technology 
plan requirement for priority one telecommunications and Internet 
access services, and facilitating the disposal and recycling of 
obsolete equipment supported by E-rate by authorizing schools and 
libraries to receive consideration for such equipment. Third, the 
Commission improves safeguards against waste, fraud, and abuse by 
codifying the requirement that competitive bidding processes be fair 
and open. In addition, the Commission adopts the eligible services list 
for funding year 2011.
    97. As a result of these changes, schools and libraries throughout 
the country can make their limited dollars go further. The changes 
adopted in this Report and Order will increase the ability of students 
and the public to utilize broadband services for educational needs. In 
addition, the changes to simplify the E-rate program will help reduce 
the cost of participating in the program, thereby making the program 
more accessible, particularly to smaller school districts and libraries 
that are often located in more rural areas and may not have staff 
dedicated to managing E-rate applications and related activities.

C. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    98. No comments specifically addressed the IRFA.

D. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply

    99. 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. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. 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 Small Business 
Administration (SBA). Nationwide, there are a total of approximately 
29.6 million small businesses, according to the SBA. A ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of 2002, there were approximately 1.6 million small 
organizations. The term ``small governmental jurisdiction'' is defined 
generally as ``governments of cities, towns, townships, villages, 
school districts, or special districts, with a population of less than 
fifty thousand.'' Census Bureau data for 2002 indicate that there were 
87,525 local governmental jurisdictions in the United States. We 
estimate that, of this total, 84,377 entities were ``small governmental 
jurisdictions.'' Thus, we estimate that most governmental jurisdictions 
are small.
    100. 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 the services and equipment used for internal 
connections.
a. Schools
    101. As noted, ``small entity'' includes non-profit and small 
governmental entities. Under the schools and libraries universal 
service support mechanism, which provides support for elementary and 
secondary schools, an elementary school is generally ``a non-profit 
institutional day or residential school that provides elementary 
education, as determined under state law.'' 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. For-profit schools, 
and schools and libraries with endowments in excess of $50,000,000, are 
not eligible to receive discounts under the program. Certain other 
restrictive definitions apply as well. The SBA has also defined for-
profit, elementary and secondary schools having $7 million or less in 
annual receipts as small entities. In funding year 2007, approximately 
105,500 schools received funding under the schools and libraries 
universal service mechanism. Although we are unable to estimate with 
precision the number of these additional entities that would qualify as 
small entities under SBA's size standard, we estimate that fewer than 
105,500 such schools might be affected annually by our action, under 
current operation of the program.
b. Telecommunications Service Providers
    102. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a size standard for small 
incumbent local exchange services. The closest size standard under SBA 
rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 1,311 incumbent carriers reported that 
they were engaged in the provision of local exchange services. Of these 
1,311 carriers, an estimated 1,024 have 1,500 or fewer employees and 
287 have more than 1,500 employees. Thus, under this category and 
associated small business size standard, we estimate that the majority 
of entities are small.
    103. 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.'' 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. We have therefore 
included small incumbent carriers in this RFA analysis, although we 
emphasize that this RFA action has no effect on the Commission's 
analyses and determinations in other, non-RFA contexts.
    104. 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. This provides that a wired telecommunications carrier is a 
small entity if it employs no more than 1,500 employees. According to 
the Commission's 2008 Trends Report, 300 companies reported that they 
were engaged in the provision of interexchange services. Of these 300 
IXCs, an estimated 268 have 1,500 or fewer employees and 32 have more 
than 1,500 employees. Consequently, the Commission estimates that most 
providers of interexchange services are small businesses.

[[Page 75409]]

    105. 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. This provides that a wired 
telecommunications carrier is a small entity if it employs no more than 
1,500 employees. According to the 2008 Trends Report, 1,005 CAPs and 
competitive local exchange carriers (competitive LECs) reported that 
they were engaged in the provision of competitive local exchange 
services. Of these 1,005 CAPs and competitive LECs, an estimated 918 
have 1,500 or fewer employees and 87 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of 
competitive exchange services are small businesses.
    106. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the Census Bureau has placed wireless firms within this new, 
broad, economic census category. Prior to that time, such firms were 
within the now-superseded categories of ``Paging'' and ``Cellular and 
Other Wireless Telecommunications.'' Under the present and prior 
categories, the SBA has deemed a wireless business to be small if it 
has 1,500 or fewer employees. Because Census Bureau data are not yet 
available for the new category, we will estimate small business 
prevalence using the prior categories and associated data. For the 
category of Paging, data for 2002 show that there were 807 firms that 
operated for the entire year. Of this total, 804 firms had employment 
of 999 or fewer employees, and three firms had employment of 1,000 
employees or more. For the category of Cellular and Other Wireless 
Telecommunications, data for 2002 show that there were 1,397 firms that 
operated for the entire year. Of this total, 1,378 firms had employment 
of 999 or fewer employees, and 19 firms had employment of 1,000 
employees or more. Thus, we estimate that the majority of wireless 
firms are small.
    107. Wireless Telephony. Wireless telephony includes cellular, 
personal communications services, and specialized mobile radio 
telephony carriers. As noted, the SBA has developed a small business 
size standard for Wireless Telecommunications Carriers (except 
Satellite). Under the SBA small business size standard, a business is 
small if it has 1,500 or fewer employees. According to the 2008 Trends 
Report, 434 carriers reported that they were engaged in wireless 
telephony. Of these, an estimated 222 have 1,500 or fewer employees and 
212 have more than 1,500 employees. We have estimated that 222 of these 
are small under the SBA small business size standard.
    108. Common Carrier Paging. As noted, since 2007 the Census Bureau 
has placed paging providers within the broad economic census category 
of Wireless Telecommunications Carriers (except Satellite). Prior to 
that time, such firms were within the now-superseded category of 
``Paging.'' Under the present and prior categories, the SBA has deemed 
a wireless business to be small if it has 1,500 or fewer employees. 
Because Census Bureau data are not yet available for the new category, 
we will estimate small business prevalence using the prior category and 
associated data. The data for 2002 show that there were 807 firms that 
operated for the entire year. Of this total, 804 firms had employment 
of 999 or fewer employees, and three firms had employment of 1,000 
employees or more. Thus, we estimate that the majority of paging firms 
are small.
    109. In addition, in the Paging Second Report and Order, the 
Commission adopted a size standard for ``small businesses'' for 
purposes of determining their eligibility for special provisions such 
as bidding credits and installment payments. A small business is an 
entity that, together with its affiliates and controlling principals, 
has average gross revenues not exceeding $15 million for the preceding 
three years. The SBA has approved this definition. An initial auction 
of Metropolitan Economic Area (``MEA'') licenses was conducted in the 
year 2000. Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven 
companies claiming small business status won 440 licenses. A subsequent 
auction of MEA and Economic Area (``EA'') licenses was held in the year 
2001. Of the 15,514 licenses auctioned, 5,323 were sold. One hundred 
thirty-two companies claiming small business status purchased 3,724 
licenses. A third auction, consisting of 8,874 licenses in each of 175 
EAs and 1,328 licenses in all but three of the 51 MEAs, was held in 
2003. Seventy-seven bidders claiming small or very small business 
status won 2,093 licenses.
    110. Currently, there are approximately 74,000 Common Carrier 
Paging licenses. According to the most recent Trends in Telephone 
Service, 281 carriers reported that they were engaged in the provision 
of ``paging and messaging'' services. Of these, an estimated 279 have 
1,500 or fewer employees and two have more than 1,500 employees. We 
estimate that the majority of common carrier paging providers would 
qualify as small entities under the SBA definition.
c. Internet Service Providers
    111. The 2007 Economic Census places these firms, whose services 
might include voice over Internet protocol (VoIP), in either of two 
categories, depending on whether the service is provided over the 
provider's own telecommunications facilities (e.g., cable and DSL 
ISPs), or over client-supplied telecommunications connections (e.g., 
dial-up ISPs). The former are within the category of Wired 
Telecommunications Carriers, which has an SBA small business size 
standard of 1,500 or fewer employees. The latter are within the 
category of All Other Telecommunications, which has a size standard of 
annual receipts of $25 million or less. The most current Census Bureau 
data for all such firms, however, are the 2002 data for the previous 
census category called Internet Service Providers. That category had a 
small business size standard of $21 million or less in annual receipts, 
which was revised in late 2005 to $23 million. The 2002 data show that 
there were 2,529 such firms that operated for the entire year. Of 
those, 2,437 firms had annual receipts of under $10 million, and an 
additional 47 firms had receipts of between $10 million and $24, 
999,999. Consequently, we estimate that the majority of ISP firms are 
small entities.
d. Vendors of Internal Connections
    112. Telephone Apparatus Manufacturing. The Census Bureau defines 
this category as follows: ``This industry comprises establishments 
primarily engaged in manufacturing wire telephone and data 
communications equipment. These products may be standalone or board-
level components of a larger system. Examples of products made by these 
establishments are central office switching equipment, cordless 
telephones (except cellular), PBX equipment, telephones, telephone 
answering machines, LAN modems, multi-user modems, and other data 
communications equipment, such as bridges, routers, and gateways.'' The 
SBA has developed a small business size standard for Telephone 
Apparatus Manufacturing, which is: All such firms having 1,000 or fewer 
employees. According to Census Bureau data for 2002, there were a total 
of 518 establishments in this category that operated for the entire 
year. Of this total, 511 had employment of under 1,000, and an 
additional seven had employment of 1,000 to 2,499. Thus,

[[Page 75410]]

under this size standard, the majority of firms can be considered 
small.
    113. Radio and Television Broadcasting and Wireless Communications 
Equipment Manufacturing. The Census Bureau defines this category as 
follows: ``This industry comprises establishments primarily engaged in 
manufacturing radio and television broadcast and wireless 
communications equipment. Examples of products made by these 
establishments are: Transmitting and receiving antennas, cable 
television equipment, GPS equipment, pagers, cellular phones, mobile 
communications equipment, and radio and television studio and 
broadcasting equipment.'' The SBA has developed a small business size 
standard for firms in this category, which is: All such firms having 
750 or fewer employees. According to Census Bureau data for 2002, there 
were a total of 1,041 establishments in this category that operated for 
the entire year. Of this total, 1,010 had employment of under 500, and 
an additional 13 had employment of 500 to 999. Thus, under this size 
standard, the majority of firms can be considered small.
    114. Other Communications Equipment Manufacturing. The Census 
Bureau defines this category as follows: ``This industry comprises 
establishments primarily engaged in manufacturing communications 
equipment (except telephone apparatus, and radio and television 
broadcast, and wireless communications equipment).'' The SBA has 
developed a small business size standard for Other Communications 
Equipment Manufacturing, which is: All such firms having 750 or fewer 
employees. According to Census Bureau data for 2002, there were a total 
of 503 establishments in this category that operated for the entire 
year. Of this total, 493 had employment of under 500, and an additional 
7 had employment of 500 to 999. Thus, under this size standard, the 
majority of firms can be considered small.

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

    115. In the Report and Order, the Commission establishes a trial 
program--E-rate Deployed Ubiquitously (EDU) 2011 Pilot Program--to 
investigate the merits and challenges of wireless off-premises 
connectivity services, and to help the Commission determine whether 
they should ultimately be eligible for E-rate support. To be considered 
for first phase EDU2011 Program funding, E-rate eligible applicants 
must have implemented or already be in the process of implementing a 
program to provide off-premise connectivity to students or library 
patrons through the use of portable wireless devices. Applicants also 
must submit certain information to the Wireline Competition Bureau for 
review and consideration as part of the application process as part of 
this trial program. Specifically, the application must contain the 
following information:
    (1) A description of the current or planned program, how long it 
has been in operation, and a description of any improvements or other 
changes that would be made if E-rate funding were received for funding 
year 2011 (July 1, 2011-June 30, 2012);
    (2) Identification of the costs associated with implementing the 
program including, for example, costs for equipment such as e-readers 
or laptops, access and connection charges, teacher training, librarian 
training, or student/parent training;
    (3) Relevant technology plans;
    (4) A description of how the program complies with the Children's 
Internet Protection Act (CIPA) and adequately protects against waste, 
fraud, and abuse;
    (5) A copy of internal policies and enforcement procedures 
governing acceptable use of the wireless device off the school's or 
library's premises;
    (6) For schools, a description of the program's curriculum 
objectives, the grade levels included, and the number of students and 
teachers involved in the program; and
    (7) For schools, any data collected on program outcomes.
    As indicated above, we have assessed the effects of this trial 
program and find that any information submitted by the applicants to 
the Commission as part of this program will not significantly impact 
the burden on small businesses. The trial program is limited to schools 
and libraries that are already implementing or experimenting with 
wireless off-campus learning; therefore, any information collected from 
participants in this program is limited to information about their 
current projects.

F. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    116. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance and reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or part thereof, for small 
entities.
    117. In this Report and Order, as detailed above, the Commission 
adopts a number of the proposals put forward in the E-rate Broadband 
NPRM to help realize the NBP's vision of improving connectivity to 
schools and libraries by upgrading and modernizing the successful E-
rate program. We believe the reforms adopted in this Report and Order 
will not have a significant economic impact on small entities under the 
E-rate program. Rather, the reforms will benefit small entities by 
simplifying the application process, providing more flexibility to 
select and make available the most cost-effective broadband and other 
communications services, and improving safeguards against waste, fraud, 
and abuse, while ensuring that the amount of funding available keeps 
pace with the rate of inflation. Because this Report and Order does not 
adopt additional regulation for service providers and equipment 
vendors, these small entities will experience no significant additional 
burden.

G. Report to Congress

    118. The Commission will send a copy of the Second Report and 
Order, including this FRFA, in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act. In addition, the Commission will send a copy of the Second Report 
and Order, including this FRFA, to the Chief Counsel for Advocacy of 
the SBA. A copy of the Second Report and Order and FRFA (or summaries 
thereof) will also be published in the Federal Register.

H. Paperwork Reduction Act Analysis

    119. This document contains new information collection requirements 
subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-
13. It will be submitted to the Office of Management and Budget (OMB) 
for review under section 3507(d) of the PRA. OMB, the general public, 
and other Federal agencies are invited to comment on the new 
information collection requirements contained in this proceeding. In 
addition, we note that pursuant to the Small Business Paperwork Relief 
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4), we 
previously sought specific comment on how the Commission might further 
reduce the information collection

[[Page 75411]]

burden for small business concerns with fewer than 25 employees.
    120. In this present document, we establish a trial program to 
investigate the merits and challenges of wireless off-premises 
connectivity services, and to help us determine whether and how they 
should ultimately be eligible for E-rate support. We have assessed the 
effects of this trial program and find that any information submitted 
by the applicants to the Commission as part of this program will not 
significantly impact the burden on small businesses. The trial program 
is limited to schools and libraries that are already implementing or 
planning to implement wireless off-campus learning; therefore, any 
information collected from participants in this program is limited to 
information about their current projects.

I. Congressional Review Act

    121. The Commission will include a copy of this Report and Order in 
a report to be sent to Congress and the Government Accountability 
Office pursuant to the Congressional Review Act, see 5 U.S.C. 
801(a)(1)(A).

List of Subjects in 47 CFR Part 54

    Communications Common Carriers, Health Facilities, Infants and 
Children, Libraries, Reporting and Recordkeeping requirements, Schools, 
Telecommunications, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

0
1. The authority citation continues to read as follows:

    Authority: 47 U.S.C. 151, 154(i), 201, 205, 214, and 254 unless 
otherwise noted.


0
2. Amend Sec.  54.501 by revising the section heading, removing 
paragraph (a), redesignating paragraphs (b), (c), and (d) as paragraphs 
(a), (b), and (c), and revising newly redesignated paragraphs (a)(1), 
(b)(1), and (c)(1) to read as follows:


Sec.  54.501  Eligible recipients.

    (a) Schools. (1) Only schools meeting the statutory definitions of 
``elementary school,'' as defined in 20 U.S.C. 7801(18), or ``secondary 
school,'' as defined in 20 U.S.C. 7801(38), and not excluded under 
paragraphs (a)(2) or (3) of this section shall be eligible for 
discounts on telecommunications and other supported services under this 
subpart.
* * * * *
    (b) Libraries. (1) Only libraries eligible for assistance from a 
State library administrative agency under the Library Services and 
Technology Act (Pub. L. 104-208) and not excluded under paragraphs 
(b)(2) or (3) of this section shall be eligible for discounts under 
this subpart.
* * * * *
    (c) Consortia. (1) For purposes of seeking competitive bids for 
supported services, schools and libraries eligible for support under 
this subpart may form consortia with other eligible schools and 
libraries, with health care providers eligible under subpart G, and 
with public sector (governmental) entities, including, but not limited 
to, state colleges and state universities, state educational 
broadcasters, counties, and municipalities, when ordering 
telecommunications and other supported services under this subpart. 
With one exception, eligible schools and libraries participating in 
consortia with ineligible private sector members shall not be eligible 
for discounts for interstate services under this subpart. A consortium 
may include ineligible private sector entities if the pre-discount 
prices of any services that such consortium receives are generally 
tariffed rates.
* * * * *

0
3. Revise Sec.  54.502 to read as follows:


Sec.  54.502  Eligible services.

    (a) Supported services. Supported services are listed in the 
Eligible Services List as updated annually in accordance with paragraph 
(b) of this section. The services in this subpart will be supported in 
addition to all reasonable charges that are incurred by taking such 
services, such as state and federal taxes. Charges for termination 
liability, penalty surcharges, and other charges not included in the 
cost of taking such service shall not be covered by the universal 
service support mechanisms. These supported services fall within the 
following general categories:
    (1) Telecommunications services. For purposes of this subpart, 
supported telecommunications services provided by telecommunications 
carriers include all commercially available telecommunications 
services.
    (2) Telecommunications. For purposes of this subpart, supported 
telecommunications can be provided in whole or in part via fiber by any 
entity.
    (3) Internet access. For purposes of this subpart, Internet access 
is as defined in Sec.  54.5.
    (4) Internal connections and basic maintenance. (i) For purposes of 
this subpart, a service is eligible for support as a component of an 
institution's internal connections if such service is necessary to 
transport information within one or more instructional buildings of a 
single school campus or within one or more non-administrative buildings 
that comprise a single library branch. Discounts are not available for 
internal connections in non-instructional buildings of a school or 
school district, or in administrative buildings of a library, to the 
extent that a library system has separate administrative buildings, 
unless those internal connections are essential for the effective 
transport of information to an instructional building of a school or to 
a non-administrative building of a library or the Commission has found 
that the use of those services meets the definition of educational 
purpose. Internal connections do not include connections that extend 
beyond a single school campus or single library branch. There is a 
rebuttable presumption that a connection does not constitute an 
internal connection if it crosses a public right-of-way.
    (ii) For purposes of this subpart, basic maintenance services shall 
be eligible as an internal connections service if, but for the 
maintenance at issue, the internal connection would not function and 
serve its intended purpose with the degree of reliability ordinarily 
provided in the marketplace to entities receiving such services. Basic 
maintenance services do not include services that maintain equipment 
that is not supported or that enhance the utility of equipment beyond 
the transport of information, or diagnostic services in excess of those 
necessary to maintain the equipment's ability to transport information.
    (iii) Each eligible school or library shall be eligible for support 
for internal connections services, except basic maintenance services, 
no more than twice every five funding years. For the purpose of 
determining eligibility, the five-year period begins in any funding 
year in which the school or library receives discounted internal 
connections services other than basic maintenance services. If a school 
or library receives internal connections services other than basic 
maintenance services that are shared with other schools or libraries 
(for example, as part of a consortium), the shared services will be 
attributed to the school or library

[[Page 75412]]

in determining whether it is eligible for support.
    (b) Eligible Services List. (1) The Administrator shall submit by 
March 30 of each year a draft list of services eligible for support, 
based on the Commission's rules for the following funding year. The 
Wireline Competition Bureau will issue a Public Notice seeking comment 
on the Administrator's proposed eligible services list. At least 60 
days prior to the opening of the window for the following funding year, 
the final list of services eligible for support will be released.
    (2) All supported services are listed in the Eligible Services List 
as updated annually in accordance with paragraph (b)(1) of this 
section.

0
4. Revise Sec.  54.503 to read as follows:


Sec.  54.503  Competitive bidding requirements.

    (a) All entities participating in the schools and libraries 
universal service support program must conduct a fair and open 
competitive bidding process, consistent with all requirements set forth 
in this subpart. Note to paragraph (a): The following is an 
illustrative list of activities or behaviors that would not result in a 
fair and open competitive bidding process: the applicant for supported 
services has a relationship with a service provider that would unfairly 
influence the outcome of a competition or would furnish the service 
provider with inside information; someone other than the applicant or 
an authorized representative of the applicant prepares, signs, and 
submits the FCC Form 470 and certification; a service provider 
representative is listed as the FCC Form 470 contact person and allows 
that service provider to participate in the competitive bidding 
process; the service provider prepares the applicant's FCC Form 470 or 
participates in the bid evaluation or vendor selection process in any 
way; the applicant turns over to a service provider the responsibility 
for ensuring a fair and open competitive bidding process; an applicant 
employee with a role in the service provider selection process also has 
an ownership interest in the service provider seeking to participate in 
the competitive bidding process; and the applicant's FCC Form 470 does 
not describe the supported services with sufficient specificity to 
enable interested service providers to submit responsive bids.
    (b) Competitive Bid Requirements. Except as provided in Sec.  
54.511(c), an eligible school, library, or consortium that includes an 
eligible school or library shall seek competitive bids, pursuant to the 
requirements established in this subpart, for all services eligible for 
support under Sec.  54.502. These competitive bid requirements apply in 
addition to state and local competitive bid requirements and are not 
intended to preempt such state or local requirements.
    (c) Posting of FCC Form 470. (1) An eligible school, library, or 
consortium that includes an eligible school or library seeking to 
receive discounts for eligible services under this subpart, shall 
submit a completed FCC Form 470 to the Administrator to initiate the 
competitive bidding process. The FCC Form 470 and any request for 
proposal cited in the FCC Form 470 shall include, at a minimum, the 
following information, to the extent applicable with respect to the 
services requested:
    (i) A list of specified services for which the school, library, or 
consortia including such entities, anticipates they are likely to seek 
discounts; and
    (ii) Sufficient information to enable bidders to reasonably 
determine the needs of the applicant.
    (2) The FCC Form 470 shall be signed by the person authorized to 
order eligible services for the eligible school, library, or consortium 
including such entities and shall include that person's certification 
under oath that:
    (i) The schools meet the statutory definition of elementary and 
secondary schools found under section 254(h) of the Act, as amended in 
the No Child Left Behind Act of 2001, 20 U.S.C. 7801(18) and (38), do 
not operate as for-profit businesses, and do not have endowments 
exceeding $50 million;
    (ii) The libraries or library consortia eligible for assistance 
from a State library administrative agency under the Library Services 
and Technology Act of 1996 do not operate as for-profit businesses and 
whose budgets are completely separate from any school (including, but 
not limited to, elementary and secondary schools, colleges, and 
universities).
    (iii) All of the individual schools, libraries, and library 
consortia receiving services are or will be covered by:
    (A) Technology plans for using the services requested in the 
application; or
    (B) No technology plan is required by Commission rules.
    (iv) To the extent a technology plan is required by Sec.  54.508, 
the technology plan(s) has/have been/will be approved consistent with 
Sec.  54.508.
    (v) The services the school, library, or consortium purchases at 
discounts will be used primarily for educational purposes and will not 
be sold, resold, or transferred in consideration for money or any other 
thing of value, except as allowed by Sec.  54.513.
    (vi) Support under this support mechanism is conditional upon the 
school(s) and library(ies) securing access to all of the resources, 
including computers, training, software, maintenance, internal 
connections, and electrical connections necessary to use the services 
purchased effectively.
    (vii) All bids submitted for eligible products and services will be 
carefully considered, with price being the primary factor, and the bid 
selected will be for the most cost-effective service offering 
consistent with Sec.  54.511.
    (3) The Administrator shall post each FCC Form 470 that it receives 
from an eligible school, library, or consortium that includes an 
eligible school or library on its website designated for this purpose.
    (4) After posting on the Administrator's website an eligible 
school's, library's, or consortium's FCC Form 470, the Administrator 
shall send confirmation of the posting to the entity requesting 
service. That entity shall then wait at least four weeks from the date 
on which its description of services is posted on the Administrator's 
website before making commitments with the selected providers of 
services. The confirmation from the Administrator shall include the 
date after which the requestor may sign a contract with its chosen 
provider(s).
    (d) Gift Restrictions. (1) Subject to paragraphs (d)(3) and (4) of 
this section, an eligible school, library, or consortium that includes 
an eligible school or library may not directly or indirectly solicit or 
accept any gift, gratuity, favor, entertainment, loan, or any other 
thing of value from a service provider participating in or seeking to 
participate in the schools and libraries universal service program. No 
such service provider shall offer or provide any such gift, gratuity, 
favor, entertainment, loan, or other thing of value except as otherwise 
provided herein. Modest refreshments not offered as part of a meal, 
items with little intrinsic value intended solely for presentation, and 
items worth $20 or less, including meals, may be offered or provided, 
and accepted by any individuals or entities subject to this rule, if 
the value of these items received by any individual does not exceed $50 
from any one service provider per funding year. The $50 amount for any 
service provider shall be calculated as the aggregate value of all 
gifts provided during a funding year by the individuals specified in 
paragraph (d)(2)(ii) of this section.
    (2) For purposes of this paragraph:
    (i) The terms ``school, library, or consortium'' include all 
individuals who are on the governing boards of such

[[Page 75413]]

entities (such as members of a school committee), and all employees, 
officers, representatives, agents, consultants or independent 
contractors of such entities involved on behalf of such school, 
library, or consortium with the Schools and Libraries Program of the 
Universal Service Fund (E-rate Program), including individuals who 
prepare, approve, sign or submit E-rate applications, technology plans, 
or other forms related to the E-rate Program, or who prepare bids, 
communicate or work with E-rate service providers, E-rate consultants, 
or with USAC, as well as any staff of such entities responsible for 
monitoring compliance with the E-rate Program; and
    (ii) The term ``service provider'' includes all individuals who are 
on the governing boards of such an entity (such as members of the board 
of directors), and all employees, officers, representatives, agents, or 
independent contractors of such entities.
    (3) The restrictions set forth in this paragraph shall not be 
applicable to the provision of any gift, gratuity, favor, 
entertainment, loan, or any other thing of value, to the extent given 
to a family member or a friend working for an eligible school, library, 
or consortium that includes an eligible school or library, provided 
that such transactions:
    (i) Are motivated solely by a personal relationship,
    (ii) Are not rooted in any service provider business activities or 
any other business relationship with any such eligible school, library, 
or consortium, and
    (iii) Are provided using only the donor's personal funds that will 
not be reimbursed through any employment or business relationship.
    (4) Any service provider may make charitable donations to an 
eligible school, library, or consortium that includes an eligible 
school or library in the support of its programs as long as such 
contributions are not directly or indirectly related to E-rate 
procurement activities or decisions and are not given by service 
providers to circumvent competitive bidding and other E-rate program 
rules, including those in paragraph (c)(2)(vi) of this section, 
requiring schools and libraries to pay their own non-discount share for 
the services they are purchasing.

0
5. Revise Sec.  54.504 to read as follows:


Sec.  54.504  Requests for services.

    (a) Filing of the FCC Form 471. An eligible school, library, or 
consortium that includes an eligible school or library seeking to 
receive discounts for eligible services under this subpart, shall, upon 
signing a contract for eligible services, submit a completed FCC Form 
471 to the Administrator. A commitment of support is contingent upon 
the filing of an FCC Form 471.
    (1) The FCC Form 471 shall be signed by the person authorized to 
order eligible services for the eligible school, library, or consortium 
and shall include that person's certification under oath that:
    (i) The schools meet the statutory definition of elementary and 
secondary schools found under section 254(h) of the Act, as amended in 
the No Child Left Behind Act of 2001, 20 U.S.C. 7801(18) and (38), do 
not operate as for-profit businesses, and do not have endowments 
exceeding $50 million.
    (ii) The libraries or library consortia eligible for assistance 
from a State library administrative agency under the Library Services 
and Technology Act of 1996 do not operate as for-profit businesses and 
whose budgets are completely separate from any school (including, but 
not limited to, elementary and secondary schools, colleges, and 
universities).
    (iii) The entities listed on the FCC Form 471 application have 
secured access to all of the resources, including computers, training, 
software, maintenance, internal connections, and electrical 
connections, necessary to make effective use of the services purchased, 
as well as to pay the discounted charges for eligible services from 
funds to which access has been secured in the current funding year. The 
billed entity will pay the non-discount portion of the cost of the 
goods and services to the service provider(s).
    (iv) All of the schools and libraries listed on the FCC Form 471 
application are or will be covered by:
    (A) Technology plan(s) for using the services requested in the 
application; or
    (B) No technology plan is required by Commission rules.
    (v) To the extent a technology plan is required by Sec.  54.508, 
status of technology plan(s) has/have been approved or will be approved 
by a state or other authorized body.
    (vi) The entities listed on the FCC Form 471 application have 
complied with all applicable state and local laws regarding procurement 
of services for which support is being sought.
    (vii) The services the school, library, or consortium purchases at 
discounts will be used primarily for educational purposes and will not 
be sold, resold, or transferred in consideration for money or any other 
thing of value, except as allowed by Sec.  54.513.
    (viii) The entities listed in the application have complied with 
all program rules and acknowledge that failure to do so may result in 
denial of discount funding and/or recovery of funding.
    (ix) The applicant understands that the discount level used for 
shared services is conditional, for future years, upon ensuring that 
the most disadvantaged schools and libraries that are treated as 
sharing in the service, receive an appropriate share of benefits from 
those services.
    (x) The applicant recognizes that it may be audited pursuant to its 
application, that it will retain for five years any and all worksheets 
and other records relied upon to fill out its application, and that, if 
audited, it will make such records available to the Administrator.
    (xi) All bids submitted to a school, library, or consortium seeking 
eligible services were carefully considered and the most cost-effective 
bid was selected in accordance with Sec.  54.503 of this subpart, with 
price being the primary factor considered, and is the most cost-
effective means of meeting educational needs and technology plan goals.
    (2) [Reserved]
    (b) Mixed eligibility requests. If 30 percent or more of a request 
for discounts made in an FCC Form 471 is for ineligible services, the 
request shall be denied in its entirety.
    (c) Rate disputes. Schools, libraries, and consortia including 
those entities, and service providers may have recourse to the 
Commission, regarding interstate rates, and to state commissions, 
regarding intrastate rates, if they reasonably believe that the lowest 
corresponding price is unfairly high or low.
    (1) Schools, libraries, and consortia including those entities may 
request lower rates if the rate offered by the carrier does not 
represent the lowest corresponding price.
    (2) Service providers may request higher rates if they can show 
that the lowest corresponding price is not compensatory, because the 
relevant school, library, or consortium including those entities is not 
similarly situated to and subscribing to a similar set of services to 
the customer paying the lowest corresponding price.
    (d) Service substitution. (1) The Administrator shall grant a 
request by an applicant to substitute a service or product for one 
identified on its FCC Form 471 where:
    (i) The service or product has the same functionality;
    (ii) The substitution does not violate any contract provisions or 
state or local procurement laws;

[[Page 75414]]

    (iii) The substitution does not result in an increase in the 
percentage of ineligible services or functions; and
    (iv) The applicant certifies that the requested change is within 
the scope of the controlling FCC Form 470, including any associated 
Requests for Proposal, for the original services.
    (2) In the event that a service substitution results in a change in 
the pre-discount price for the supported service, support shall be 
based on the lower of either the pre-discount price of the service for 
which support was originally requested or the pre-discount price of the 
new, substituted service.
    (3) For purposes of this rule, the broad categories of eligible 
services (telecommunications service, Internet access, and internal 
connections) are not deemed to have the same functionality with one 
another.
    (e) Mixed eligibility services. A request for discounts for a 
product or service that includes both eligible and ineligible 
components must allocate the cost of the contract to eligible and 
ineligible components.
    (1) Ineligible components. If a product or service contains 
ineligible components, costs must be allocated to the extent that a 
clear delineation can be made between the eligible and ineligible 
components. The delineation must have a tangible basis, and the price 
for the eligible portion must be the most cost-effective means of 
receiving the eligible service.
    (2) Ancillary ineligible components. If a product or service 
contains ineligible components that are ancillary to the eligible 
components, and the product or service is the most cost-effective means 
of receiving the eligible component functionality, without regard to 
the value of the ineligible component, costs need not be allocated 
between the eligible and ineligible components. Discounts shall be 
provided on the full cost of the product or service. An ineligible 
component is ``ancillary'' if a price for the ineligible component 
cannot be determined separately and independently from the price of the 
eligible components, and the specific package remains the most cost-
effective means of receiving the eligible services, without regard to 
the value of the ineligible functionality.
    (3) The Administrator shall utilize the cost allocation 
requirements of this subparagraph in evaluating mixed eligibility 
requests under paragraph (e)(1) of this section.
    (f) Filing of FCC Form 473. All service providers eligible to 
provide telecommunications and other supported services under this 
subpart shall submit annually a completed FCC Form 473 to the 
Administrator. The FCC Form 473 shall be signed by an authorized person 
and shall include that person's certification under oath that:
    (1) The prices in any offer that this service provider makes 
pursuant to the schools and libraries universal service support program 
have been arrived at independently, without, for the purpose of 
restricting competition, any consultation, communication, or agreement 
with any other offeror or competitor relating to those prices, the 
intention to submit an offer, or the methods or factors used to 
calculate the prices offered;
    (2) The prices in any offer that this service provider makes 
pursuant to the schools and libraries universal service support program 
will not be knowingly disclosed by this service provider, directly or 
indirectly, to any other offeror or competitor before bid opening (in 
the case of a sealed bid solicitation) or contract award (in the case 
of a negotiated solicitation) unless otherwise required by law; and
    (3) No attempt will be made by this service provider to induce any 
other concern to submit or not to submit an offer for the purpose of 
restricting competition.


0
6. Amend Sec.  54.505 by revising paragraph (b)(4) to read as follows:


Sec.  54.505  Discounts.

* * * * *
    (b) * * *
    (4) School districts, library systems, or other billed entities 
shall calculate discounts on supported services described in Sec.  
54.502(b) that are shared by two or more of their schools, libraries, 
or consortia members by calculating an average based on the applicable 
discounts of all member schools and libraries. School districts, 
library systems, or other billed entities shall ensure that, for each 
year in which an eligible school or library is included for purposes of 
calculating the aggregate discount rate, that eligible school or 
library shall receive a proportionate share of the shared services for 
which support is sought. For schools, the average discount shall be a 
weighted average of the applicable discount of all schools sharing a 
portion of the shared services, with the weighting based on the number 
of students in each school. For libraries, the average discount shall 
be a simple average of the applicable discounts to which the libraries 
sharing a portion of the shared services are entitled.
* * * * *



Sec.  54.506  [Removed and Reserved]

0
7. Remove and reserve Sec.  54.506.

0
8. Amend Sec.  54.507 by revising paragraphs (a), (g) introductory 
text, and (g)(1)(i), to read as follows:


Sec.  54.507  Cap.

    (a) Amount of the annual cap. In funding year 2010 and subsequent 
funding years, the $2.25 billion funding cap on federal universal 
service support for schools and libraries shall be automatically 
increased annually to take into account increases in the rate of 
inflation as calculated in paragraph (a)(1) of this section.
    (1) Increase Calculation. To measure increases in the rate of 
inflation for the purposes of this paragraph (a), the Commission shall 
use the Gross Domestic Product Chain-type Price Index (GDP-CPI). To 
compute the annual increase as required by this paragraph (a), the 
percentage increase in the GDP-CPI from the previous year will be used. 
For instance, the annual increase in the GDP-CPI from 2008 to 2009 
would be used for the 2010 funding year. The increase shall be rounded 
to the nearest 0.1 percent by rounding 0.05 percent and above to the 
next higher 0.1 percent and otherwise rounding to the next lower 0.1 
percent. This percentage increase shall be added to the amount of the 
annual funding cap from the previous funding year. If the yearly 
average GDP-CPI decreases or stays the same, the annual funding cap 
shall remain the same as the previous year.
    (2) Public notice. When the calculation of the yearly average GDP-
CPI is determined, the Wireline Competition Bureau shall publish a 
public notice in the Federal Register within 60 days announcing any 
increase of the annual funding cap based on the rate of inflation.
    (3) Amount of unused funds. All funds collected that are unused 
shall be carried forward into subsequent funding years for use in the 
schools and libraries support mechanism in accordance with the public 
interest and notwithstanding the annual cap.
    (i) The Administrator shall report to the Commission, on a 
quarterly basis, funding that is unused from prior years of the schools 
and libraries support mechanism.
    (ii) Application of unused funds. On an annual basis, in the second 
quarter of each calendar year, all funds that are collected and that 
are unused from prior years shall be available for use in the next full 
funding year of the schools and libraries mechanism in accordance with 
the public interest and notwithstanding

[[Page 75415]]

the annual cap as described in this paragraph (a).
* * * * *
    (g) Rules of priority. The Administrator shall act in accordance 
with paragraph (g)(1) of this section with respect to applicants that 
file an FCC Form 471, as described in Sec.  54.504(a), when a filing 
period described in paragraph (c) of this section is in effect. The 
Administrator shall act in accordance with paragraph (g)(2) of this 
section with respect to applicants that file an FCC Form 471, as 
described in Sec.  54.504(a), at all times other than within a filing 
period described in paragraph (c) of this section.
    (1) * * *
    (i) Schools and Libraries Corporation shall first calculate the 
demand for telecommunications, telecommunications services, voice-mail, 
and Internet access for all discount categories as determined by the 
schools and libraries discount matrix in Sec.  54.505(c). These 
services shall receive first priority for the available funding.
* * * * *

0
9. Revise Sec.  54.508 to read as follows:


Sec.  54.508  Technology plans.

    (a) Applicants must develop a technology plan when requesting 
discounts for internal connections and basic maintenance for internal 
connections. Applicants must document the date on which the technology 
plan was created. The technology plan must include the following 
elements:
    (1) A clear statement of goals and a realistic strategy for using 
telecommunications and information technology to improve education or 
library services;
    (2) A professional development strategy to ensure that the staff 
understands how to use these new technologies to improve education or 
library services;
    (3) An assessment of the telecommunication services, hardware, 
software, and other services that will be needed to improve education 
or library services; and
    (4) An evaluation process that enables the school or library to 
monitor progress toward the specified goals and make mid-course 
corrections in response to new developments and opportunities as they 
arise.
    (b) Relevance of approval under Enhancing Education through 
Technology. Technology plans that meet the standards of the U.S. 
Department of Education's Enhancing Education Through Technology 
(EETT), 20 U.S.C. 6764, are sufficient for satisfying paragraphs (a)(1) 
through (4) of this section. Furthermore, to the extent that the U.S. 
Department of Education adopts future technology plan requirements that 
require one or more of the four elements described in paragraph (a) of 
this section, such plans will be acceptable for satisfying those 
elements of paragraph (a) of this section. Applicants with such plans 
will only need to supplement such plans with the analysis needed to 
satisfy those elements of paragraph (a) of this section not covered by 
the future Department of Education technology plan requirements.
    (c) Timing of certification. As required under Sec. Sec.  
54.503(c)(2)(iii) and 54.504(a)(1)(iv), applicants must certify that 
they have prepared any required technology plans. They must also 
confirm, in FCC Form 486, that their plan was approved before they 
began receiving services pursuant to it.
    (d) Parties qualified to approve technology plans required in this 
subpart. Applicants required to prepare and obtain approval of 
technology plans under this subpart must obtain such approval from 
either their state, the Administrator, or an independent entity 
approved by the Commission or certified by the Administrator as 
qualified to provide such approval. All parties who will provide such 
approval must apply the standards set forth in paragraphs (a) and (b) 
of this section.

0
10. Amend Sec.  54.511 by revising paragraphs (a), (c)(1) introductory 
text, (c)(1)(ii), and (d)(1), and removing paragraph (c)(3).
    The revisions read as follows:


Sec.  54.511  Ordering services.

    (a) Selecting a provider of eligible services. In selecting a 
provider of eligible services, schools, libraries, library consortia, 
and consortia including any of those entities shall carefully consider 
all bids submitted and must select the most cost-effective service 
offering. In determining which service offering is the most cost-
effective, entities may consider relevant factors other than the pre-
discount prices submitted by providers, but price should be the primary 
factor considered.
* * * * *
    (c) Existing contracts. (1) A signed contract for services eligible 
for discounts pursuant to this subpart between an eligible school or 
library as defined under Sec.  54.501 or consortium that includes an 
eligible school or library and a service provider shall be exempt from 
the requirements set forth in Sec.  54.503 as follows:
* * * * *
    (ii) A contract signed after July 10, 1997, but before the date on 
which the universal service competitive bid system described in Sec.  
54.503 is operational, is exempt from the competitive bid requirements 
only with respect to services that are provided under such contract 
between January 1, 1998 and December 31, 1998.
* * * * *
    (d)(1) The exemption from the competitive bid requirements set 
forth in paragraph (c) of this section shall not apply to voluntary 
extensions or renewals of existing contracts.
* * * * *

0
11. Amend Sec.  54.513 by revising paragraph (a) and redesignating 
paragraphs (b) and (c) as paragraphs (c) and (d) and adding new 
paragraph (b) to read as follows:


Sec.  54.513  Resale and transfer of services.

    (a) Prohibition on resale. Eligible supported services provided at 
a discount under this subpart shall not be sold, resold, or transferred 
in consideration of money or any other thing of value, except as 
provided in paragraph (b) of this section.
    (b) Disposal of obsolete equipment components of eligible services. 
Eligible equipment components of eligible services purchased at a 
discount under this subpart shall be considered obsolete if the 
equipment components have has been installed for at least five years. 
Obsolete equipment components of eligible services may be resold or 
transferred in consideration of money or any other thing of value, 
disposed of, donated, or traded.
* * * * *


Sec.  54.517  [Removed and Reserved]


0
12. Remove and Reserve Sec.  54.517.

0
13. Revise Sec.  54.518 to read as follows:


Sec.  54.518  Support for wide area networks.

    To the extent that schools, libraries or consortia that include an 
eligible school or library 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 provided 
under this subpart.

0
14. Revise Sec.  54.519 by revising paragraphs (a) introductory text, 
(a)(6), and (b) to read as follows:


Sec.  54.519  State telecommunications networks.

    (a) Telecommunications services. State telecommunications networks 
may secure discounts under the universal service support mechanisms on 
supported telecommunications services

[[Page 75416]]

(as described in Sec.  54.502(a)) on behalf of eligible schools and 
libraries (as described in Sec.  54.501) or consortia that include an 
eligible school or library. Such state telecommunications networks 
shall pass on such discounts to eligible schools and libraries and 
shall:
* * * * *
    (6) Comply with the competitive bid requirements set forth in Sec.  
54.503.
    (b) Internet access and installation and maintenance of internal 
connections. State telecommunications networks either may secure 
discounts on Internet access and installation and maintenance of 
internal connections in the manner described in paragraph (a) of this 
section with regard to telecommunications, or shall be eligible, 
consistent with Sec.  54.502(a), to receive universal service support 
for providing such services to eligible schools, libraries, and 
consortia including those entities.


Sec.  54.522  [Removed and Reserved]

0
15. Remove and reserve Sec.  54.522.

[FR Doc. 2010-29386 Filed 12-2-10; 8:45 am]
BILLING CODE 6712-01-P


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