[Federal Register Volume 62, Number 148 (Friday, August 1, 1997)]
[Rules and Regulations]
[Pages 41294-41311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-20017]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 54 and 69

[CC Docket No. 96-45; 97-21; FCC 97-253]


Changes to the Board of Directors of the National Exchange 
Carrier Association, Inc. and Federal-State Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: The Report and Order released July 18, 1997, promulgates rules 
directing the National Exchange Carrier Association, Inc. (NECA) to 
create an independently functioning not-for-profit subsidiary through 
which it will administer temporarily certain portions of the federal 
universal service support mechanisms. We also direct that NECA create 
an unaffiliated, not-for-profit corporation to manage the application 
and other processes relating to administering the schools and libraries 
program. We further direct that NECA create another unaffiliated, not-
for-profit corporation to manage specified portions of the rural health 
care program. To ensure continuity in, and efficient administration of, 
the schools and libraries and rural health care programs, we also 
conclude that these corporations should continue to perform their 
designated functions even after the date on which the permanent 
administrator is appointed. We also direct NECA's independent 
subsidiary to create a special committee of that subsidiary's Board of 
Directors with the power and authority to make binding decisions on 
designated issues relating to the universal service support mechanisms 
for high cost areas and low-income consumers. Finally, in this Order we 
establish requirements by which the temporary and permanent 
administrators will calculate, and the Commission will approve, the 
quarterly universal service contribution factors.

EFFECTIVE DATES: August 1, 1997 except for Secs. 54.709, 54.711, 
54.713, and 69.614(c) which are effective September 2, 1997.

FOR FURTHER INFORMATION CONTACT: Valerie Yates, Legal Counsel, Common 
Carrier Bureau, (202) 418-1500, or Sheryl Todd, Common Carrier Bureau, 
(202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order adopted July 17, 1997, and released July 18, 1997. The full 
text of the Report and Order is available for inspection and copying 
during normal business hours in the FCC Reference Center (Room 239), 
1919 M St., NW, Washington, DC. Pursuant to the Telecommunications Act 
of 1996, the Commission released a Notice of Proposed Rulemaking and 
Order Establishing a Joint Board, Federal-State Board on Universal 
Service, CC Docket 96-45, on March 8, 1996 (61 FR 10499 (March 14, 
1996)), a Recommended Decision on November 8, 1996 (61 FR 63778 
(December 2, 1996)), a Public Notice on November 18, 1996 (61 FR 63778 
(December 2, 1996)) seeking comment on rules to implement sections 254 
and 214(e) of the Act relating to universal service, and a Notice of 
Proposed Rulemaking, CC Docket 97-21, on January 10, 1997 (62 FR 2636 
(January 17, 1997)). As required by the Regulatory Flexibility Act 
(RFA), the Report and Order contains a Final Regulatory Flexibility 
Analysis. Pursuant to section 604 of the RFA, the Commission performed 
a comprehensive analysis of the Report and Order with regard to small 
entities and small incumbent local exchange carriers.

Summary of Report and Order:

A. Appointment of NECA as Temporary Administrator

    1. Appointment of NECA as Temporary Administrator. In the Universal 
Service Order, we adopted the Joint Board's recommendation to appoint 
NECA the temporary administrator of the universal service support 
mechanisms, subject to the condition that NECA make certain changes to 
its governance that would make it more representative of non-ILEC 
interests.
    2. Adoption of the January 10th Proposal. We conclude that, as 
modified below, NECA's January 10th proposal to establish a subsidiary 
with a separate board of directors will satisfy the condition 
established in the Universal Service Order that NECA must comply with 
the Joint Board's directive to provide ``significant, meaningful 
representation'' for non-ILEC interests in the temporary administration 
of the new universal service support mechanisms. We direct NECA to 
establish USAC in such a way that USAC will be permitted to advocate 
positions before the Commission and its staff only on administrative 
matters relating to the universal service support mechanisms. We 
further conclude that, until January 1, 1998, NECA will continue to 
administer the current universal service, Lifeline Assistance, and LTS 
programs. USAC shall prepare for and administer the revised low-income 
and high cost programs. We therefore direct NECA to establish USAC, in 
accordance with the January 10 proposal as modified by the specific 
requirements of this Order, to administer temporarily the universal 
service support mechanisms for high cost areas and low-income 
consumers, as well as to perform certain designated functions 
pertaining to the universal service support mechanisms for schools and 
libraries and rural health care providers. We direct that USAC be

[[Page 41295]]

incorporated under the laws of Delaware, as an independent, not-for-
profit subsidiary corporation of NECA. We further direct NECA to submit 
to the Commission for approval proposed articles of incorporation, 
bylaws, and any documents necessary to incorporate USAC, within 14 
calendar days of release of this Order, in order to ensure prior to 
USAC's incorporation that all requirements of this Order have been 
satisfied. The Commission will approve or modify the proposed documents 
in a Public Notice.

B. USAC Board of Directors

    3. Size and Composition of USAC Board. We direct NECA to establish 
the USAC Board with 17 directors that will represent a cross-section of 
industry and beneficiary interests. The USAC Board shall be comprised 
of: Three directors representing ILECs; two directors representing 
IXCs; one director representing commercial mobile radio service (CMRS) 
providers, which includes cellular, Personal Communications Services 
(PCS), paging, and Specialized Mobile Radio (SMR) companies; one 
director representing CLECs; one director representing cable operators; 
one director representing information service providers; three 
directors representing eligible schools; one director representing 
eligible libraries; one director representing eligible rural health 
care providers; one director representing low-income consumers; one 
director representing state telecommunications regulators; and one 
director representing state consumer advocates. The group of three ILEC 
directors will consist of one director representing the BOCs and GTE, 
one director representing other ILECs having annual operating revenues 
in excess of $40 million, and one director representing small ILECs 
having annual operating revenues of $40 million or less to ensure fair 
representation of the diversity of ILEC interests. We conclude that any 
individual, including a current member of NECA's Board of Directors, 
who is nominated and appointed in accordance with the procedures set 
forth below, should be entitled to serve on the USAC Board. Of the two 
IXC directors, one director will represent IXCs with more than $3 
billion in annual operating revenues, and one director will represent 
IXCs with annual operating revenues of $3 billion or less.
    4. Selection and Appointment of USAC Board Members. Members of the 
industry or non-industry groups that will be represented on the Board 
are directed to submit their nominees selected by consensus for USAC 
directors to the Chairman of the Federal Communications Commission 
within 14 calendar days of the publication of this Order in the Federal 
Register. A copy of nominations also should be filed with the Secretary 
of the Commission. In order for us to be able to confirm the identity 
and credentials of the board member nominees, each nomination should be 
accompanied by professional and biographical information, such as the 
nominee's resume or professional biography. Only members of the 
industry or non-industry groups that a Board member will represent may 
submit a nomination for that position (e.g., only CMRS providers may 
submit nominations for the CMRS position on the Board and only IXCs 
with more than $3 billion in annual operating revenues may submit 
nominations for the IXC Board member who will represent IXCs of that 
size). In order to minimize controversy surrounding the selection and 
appointment of Board members and to expedite the appointment process, 
we strongly urge members of the industry and other groups represented 
on the Board (e.g., IXCs, CMRS providers, schools) to nominate, by 
consensus, a candidate for each position on the Board who possesses 
substantial experience in, and knowledge of, telecommunications issues.
    5. The Chairman of the Federal Communications Commission will 
review the nominations submitted to the Commission by industry and non-
industry groups and select the members of the USAC Board of Directors. 
If a group fails to reach consensus on a candidate to serve on the USAC 
Board and instead submits the names of more than one nominee for a 
single Board member position, the Chairman of the Federal 
Communications Commission will select an individual or individuals who 
will serve on the USAC Board. Similarly, if an industry or beneficiary 
group fails to submit even a single nomination for a USAC Board member 
position, the Chairman of the Federal Communications Commission will 
select an individual from the appropriate industry or non-industry 
group to serve on the USAC Board for the duration of the board member's 
term.
    6. We direct that, within 14 calendar days of the Chairman's 
selection of USAC Board members, all USAC Board members be appointed to 
the USAC Board, and the USAC Board hold its first meeting. Members of 
the USAC Board will be appointed for two-year terms. Board members may 
be re-appointed for subsequent terms pursuant to the initial nomination 
and appointment process described above. In the event that a Board 
member vacates his or her seat prior to the completion of his or her 
term, USAC will notify the Chief, Common Carrier Bureau (Bureau) of 
such vacancy and a successor will be chosen pursuant to the initial 
nomination and appointment process described above.

C. Functions of USAC

    7. In General. In connection with the temporary administration of 
the universal service support mechanisms for schools and libraries and 
rural health care providers, USAC will be directly responsible for 
billing contributors, collecting contributions to the universal service 
support mechanisms, and disbursing universal service support funds. 
USAC also will be responsible for administering the universal service 
support mechanisms for high cost areas and low-income consumers. In 
addition, as discussed below, the High Cost and Low Income Committee of 
the USAC Board will be responsible for implementing and overseeing 
designated aspects of the support mechanisms for high cost areas and 
low-income consumers. USAC, including members of the High Cost and Low 
Income Committee, will be directly accountable to the Commission for 
the performance of their respective responsiblities. Thus, the 
Commission may take appropriate action including, for example, 
directing the removal of one or more directors or recommending the 
performance of an audit by an independent auditor, if the Commission 
finds that USAC or the High Cost and Low Income Committee is not 
performing its functions in accordance with Commission rules or if it 
is determined that USAC's administrative expenses are unreasonable.
    8. Billing and Collection. The billing and collection process, for 
which USAC will be solely responsible, involves several steps: (1) 
Collection of information regarding contributing entities' end-user 
telecommunications revenues; (2) calculation of quarterly universal 
service contribution factors; (3) calculation of individual entities' 
contributions; (4) billing of contributors; and (5) receipt of 
universal service contributions. USAC will perform these functions for 
all of the universal service support programs (i.e., high cost, low-
income, schools and libraries, and rural health care providers).
    9. For purposes of collecting information regarding contributing 
entities' end-user telecommunications revenues, USAC will distribute, 
receive, and process the Universal Service Worksheet (Worksheet), which 
directs each contributing carrier or entity to

[[Page 41296]]

provide identification information and information regarding end-user 
telecommunications revenues on a semi-annual basis. Following receipt 
of the Worksheets, USAC will calculate the total of all of contributing 
entities' interstate, intrastate, and international end-user 
telecommunications revenues. This sum will represent the total 
universal service contribution base and will be used to calculate the 
quarterly contribution factors.
    10. Consistent with our determinations in the Universal Service 
Order, we conclude that during each funding year, there will be four 
quarterly sets of universal service contribution factors. Universal 
service contribution factors shall be based on the ratio of quarterly 
projected costs of the support mechanisms, including administrative 
expenses, to the applicable revenue base. USAC will adjust the 
contribution factors for each quarter based on quarterly demand for 
services and administrative costs, subject to any funding caps 
established in the Universal Service Order.
    11. Based on historic demand, the High Cost and Low Income 
Committee will determine quarterly projected demand for support for the 
high cost and low-income programs and submit those projections, as well 
as the underlying data used to calculate the projections, to the 
Commission for review at least 60 days before the start of each 
quarter. Once these figures are approved by the Commission, USAC shall 
use these projections to calculate the interstate and international 
end-user telecommunications revenues contribution factor. Similarly, 
the Schools and Libraries and Rural Health Care Corporations shall 
submit all quarterly projections of demand for their respective 
programs, including the underlying data used to calculate the 
projections, to the Commission for review at least 60 days before the 
start of each quarter. Once these figures are approved by the 
Commission, USAC shall use these projections to calculate the quarterly 
interstate, intrastate, and international end-user telecommunications 
revenues contribution factor.
    12. At least 60 days before the start of each quarter, USAC also 
will project its administrative costs and submit those projected costs 
to the Commission for review for reasonableness. USAC shall not 
allocate all of its administrative costs to the high cost and low-
income programs' quarterly cost projections. USAC's costs that can be 
directly attributed to the schools and libraries or rural health care 
programs should be identified so that they can be included in the 
projected administrative expenses of the relevant programs. USAC's 
joint and common costs associated with billing and collection of 
contributions or disbursement of funds also should be identified. One-
fourth of USAC's joint and common costs should be included in the 
projected administrative expenses of the high cost, low-income, schools 
and libraries, and rural health care programs, respectively. Once these 
figures are approved by the Commission, USAC shall use the projections 
of its costs to administer the high cost and low-income programs along 
with the approved High Cost and Low Income Committee's projections of 
demand to calculate the interstate and international end-user 
telecommunications revenues contribution factor. Similarly, at least 60 
days before the start of each quarter, the Schools and Libraries and 
Rural Health Care Corporations will project their quarterly 
administrative costs for the respective Corporations and submit those 
projected costs to the Commission for review. Once these figures are 
approved by the Commission, USAC shall use these projections, USAC's 
projected administrative costs allocated to the schools and libraries 
and to rural health care programs, and the Corporations' approved 
projections of demand to calculate the quarterly interstate, 
intrastate, and international end-user telecommunications revenues 
contribution factor for the schools and libraries and rural health care 
support programs. In addition to the actual projections of 
administrative expenses, USAC and the Corporations must submit to the 
Commission and the Common Carrier Bureau the underlying data used to 
calculate their projections. By receiving USAC's and the Corporations' 
projections of administrative expenses and the data supporting those 
projections, the Commission will be able to determine whether USAC's 
and the Corporations' administrative expenses are reasonable and take 
appropriate action if it is determined that their projected expenses 
are unreasonable. In addition, USAC will submit the latest total 
revenue base information that it has collected from the Worksheets to 
the Commission at least 60 days before the start of each quarter.
    13. USAC must obtain Commission approval of all projections of 
demand and administrative expenses before using them to calculate the 
contribution factors and before applying the factors to calculate 
individual contributions. The quarterly projections of demand and 
administrative expenses, total revenue base information submitted by 
USAC, the Committee, and the Corporations, and the proposed quarterly 
contribution factors will be announced by the Commission in a Public 
Notice and will be made available on the Commission's website. If the 
Commission takes no action within 14 days of the date of the Public 
Notice announcing the projections of demand and administrative expenses 
and the contribution factors, then the projections and contribution 
factors will be deemed approved by the Commission. The Commission 
reserves the right to set projections of demand or administrative 
expenses at amounts that the Commission determines will serve the 
public interest at any time within the 14-day period following release 
of the Commission's Public Notice.
    14. After the Commission approves the projections of demand by the 
Schools and Libraries and Rural Health Care Corporations and the High 
Cost and Low Income Committee and the projected administrative expenses 
of the Schools and Libraries and Rural Health Care Corporations and 
USAC, USAC will calculate and apply the quarterly contribution factors 
to determine each entity's contribution and bill and collect 
contributions from contributors. To calculate an individual entity's 
quarterly contribution, USAC will multiply the entity's universal 
service contribution base (i.e., its interstate, intrastate, and 
international end-user telecommunications revenues or its interstate 
and international end-user telecommunications revenues) by the relevant 
universal service contribution factor. USAC then will bill each 
contributor for the amount of its contribution. Contributors must remit 
all contributions to USAC by the contribution due date. USAC will file 
with the Commission and the Bureau periodic reports regarding the 
status of contributors' payments and failure to make payments.
    15. If, in any quarter, contributions exceed universal service 
support payments and administrative costs, contributions for the 
following quarter will be reduced by an amount that takes into account 
the unused funds from the previous quarter. Similar to our rules 
governing NECA's administration of the TRS fund, if contributions in 
one quarter are inadequate to meet demand, USAC may request authority 
from the Commission to borrow funds commercially subject to any 
spending or collection caps, with such debt secured by future universal 
service contributions. In such event, contributions for subsequent 
quarters will be increased by an amount to cover

[[Page 41297]]

the added costs associated with borrowing funds.
    16. Disbursements. In disbursing universal service support in 
connection with the support mechanisms for high cost areas and low-
income consumers, USAC will review and process data submitted by 
service providers and disburse payments to eligible service providers, 
as directed by the High Cost and Low Income Committee. In disbursing 
universal service support in connection with the support mechanisms for 
schools, libraries, and rural health care providers, USAC will be 
directed by the Schools and Libraries and Rural Health Care 
Corporations to disburse payments to service providers. Eligible 
schools, libraries, and rural health care providers will be instructed 
to provide to USAC and the Schools and Libraries Corporation or Rural 
Health Care Corporation copies of a form designating the services 
provided to the school, library or health care provider and the support 
amount due to the service provider. We direct the Schools and Libraries 
and Rural Health Care Corporations to authorize USAC to disburse the 
appropriate payment amounts as quickly as possible, but no later than 
20 days following receipt of the forms. We direct USAC to distribute 
universal service support to eligible service providers as quickly as 
possible, but no later than 20 days following receipt by USAC of the 
Corporations' authorization to disburse funds under the schools, 
libraries and rural health care programs.

D. Creation and Functions of High Cost and Low Income Committee

    17. Consistent with Delaware law, we direct the USAC Board to adopt 
bylaws providing for the creation of a special committee of its Board 
to be designated the High Cost and Low Income Committee, which will 
have the power and authority to bind the USAC Board on issues relating 
specifically to the universal service support mechanisms for high cost 
areas and low-income consumers.
    18. The Committee will consist of 10 USAC Board members, including 
seven service provider representatives (i.e., the three representatives 
of ILECs, two representatives of IXCs, one representative of CMRS 
providers, and one representative of CLECs) and the low-income, state 
consumer advocate, and state telecommunications regulator 
representatives described above.
    19. The High Cost and Low Income Committee will have the power and 
authority to make binding decisions on issues related to the 
administration of the high cost and low-income support mechanisms, as 
specifically delineated in USAC's bylaws, except on issues related to 
USAC's billing, collection, and disbursement functions discussed above. 
For example, the Committee will have binding authority to make 
decisions related to how USAC projects demand for the high cost and 
low-income programs, any forms needed for the programs, and processing 
of such forms. The Committee also will have binding authority to set 
the amounts of high cost and low-income support that USAC will disburse 
to eligible telecommunications carriers.
    20. Based on the authority granted to the administrator under 
Commission universal service rules to audit contributors and carriers 
that report data to the administrator, we conclude that the Committee 
should have the authority to recommend the performance of such audits 
of telecommunications carriers receiving universal service support, 
when its members find it necessary to do so. We note that the 
Commission independently may direct the performance of audits of 
telecommunications carriers receiving high cost or low-income universal 
service support. In the event that a majority of the members of the 
Committee is unable to reach a decision, the Chairman of the Committee 
is authorized to cast an additional vote to resolve the deadlock.

E. Creation of Schools and Libraries and Rural Health Care Corporations

    21. As noted above, we reconsider, on our own motion, our decision 
to require the administrator to select a subcontractor to manage the 
application process for eligible schools and libraries and instead 
direct NECA to incorporate two not-for-profit, unaffiliated 
corporations that will be responsible for administering the schools and 
libraries and rural health care programs, except with regard to those 
matters directly related to billing, collection, and disbursement of 
funds. Accordingly, as soon as possible following release of this 
Order, NECA shall incorporate the Corporations as unaffiliated, not-
for-profit corporations under the laws of Delaware. The Corporations 
shall be designated the Schools and Libraries Corporation and Rural 
Health Care Corporation. NECA initially shall establish the Schools and 
Libraries and Rural Health Care Corporations and then take such steps 
as are necessary and appropriate under Delaware and federal law to make 
the Corporations independent of, and unaffiliated with, NECA and USAC. 
We direct NECA to submit to the Commission for approval the proposed 
articles of incorporation, bylaws, and any documents necessary to 
incorporate the Corporations, by July 31, 1997, in order to permit us 
to determine prior to NECA's establishing the Corporations whether the 
requirements of this Order have been satisfied.
    22. To ensure continuity in, and efficient administration of, the 
schools and libraries and rural health care programs, we conclude that 
the Corporations should continue to perform their designated functions 
even after the date on which the permanent administrator is appointed. 
In making this determination, we reconsider the scope of the functions 
that will be performed by the temporary administrator and by the 
permanent administrator, which will be selected pursuant to the FACA. 
Specifically, we provide that both USAC and, subsequently, the 
permanent administrator will share responsibility with the Corporations 
for administering the schools and libraries and rural health care 
programs as detailed in section G herein. As reflected in those 
sections, we assign to the Corporations responsibility for 
administering significant portions of the schools and libraries and 
rural health care programs, respectively, and assign to both USAC and 
the permanent administrator responsibility for collection and 
disbursement functions associated with the schools and libraries and 
rural health care programs.
    23. To the extent that we are modifying the scope of the functions 
to be performed by the temporary and permanent administrators in 
connection with the administration of the schools and libraries and 
rural health care programs in a manner that differs from the scope 
defined in our Universal Service Order, we also modify our charge to 
the federal advisory committee that will be recommending to the 
Commission a permanent administrator. Its task will now be to identify 
and recommend as permanent administrator the candidate that is best 
suited to perform the functions that we have set out in section C 
above. As a condition of the appointment of a permanent administrator, 
we also require that the entity selected as the permanent administrator 
take whatever steps as are necessary or ordered by the Commission to 
maintain the relationship and division of responsibilities with the 
Corporations as described in this Order.

F. Boards of Directors of Schools and Libraries and Rural Health Care 
Corporations

    24. The Board of Directors of the Schools and Libraries Corporation 
will

[[Page 41298]]

consist of seven members, including three schools representatives, one 
libraries representative, one service provider representative, one 
independent director, and the CEO of the corporation. The three 
directors representing schools and one director representing libraries 
will be the same directors as those representing schools and libraries 
on the USAC Board. The Chairman of the Federal Communications 
Commission will select, simultaneously with selection of the USAC Board 
members, an individual not affiliated with schools, libraries, or 
service providers to serve as an independent director of the Schools 
and Libraries Corporation Board. An individual not affiliated with 
schools, libraries, or service providers is one who, for example, does 
not have a direct financial interest in schools, libraries, or service 
providers and/or who is not employed by one of these entities. The USAC 
Board will select the service provider representative who will serve on 
the Schools and Libraries Corporation Board from among the service 
provider representatives on the USAC Board within seven calendar days 
of the USAC Board's first meeting. Once the service provider 
representative has been appointed to the Schools and Libraries 
Corporation Board, those six Board members (including the independent 
director and the schools and libraries representatives) will submit a 
CEO candidate to the Chairman for approval. The chosen CEO also will 
serve on the Board of the Schools and Libraries Corporation. We note 
that, unlike the other directors on the Schools and Libraries 
Corporation's Board, the independent director and CEO will not serve on 
the USAC Board.
    25. The Board of Directors of the Rural Health Care Corporation 
will consist of five members, including two rural health care 
representatives, one service provider representative, one independent 
director, and a CEO. One of the rural health care provider 
representatives also will be the director representing rural health 
care providers on the USAC Board. In a forthcoming public notice 
soliciting nominations for the USAC Board of Directors, interested 
parties also will be instructed to nominate a second rural health care 
provider representative to serve only on the Board of Directors of the 
Rural Health Care Corporation. The Chairman of the Federal 
Communications Commission will select the second representative of 
rural health care providers who will serve only on the Board of the 
Rural Health Care Corporation simultaneously with the selection of the 
members of the USAC Board. The Chairman of the Federal Communications 
Commission also will select, simultaneously with the selection of the 
USAC Board members, an individual not affiliated with rural health care 
providers or service providers to serve as an independent director of 
the Rural Health Care Corporation Board. An individual not affiliated 
with rural health care providers or service providers is one who, for 
example, does not have a direct financial interest in rural health care 
providers or service providers and/or who is not employed by one of 
these entities. The USAC Board will select a service provider 
representative to serve on the Rural Health Care Corporation's Board 
from among the service provider representatives on the USAC Board 
within seven calendar days of the USAC Board's first meeting. Once the 
service provider representative has been appointed to the Rural Health 
Care Corporation Board, the four Board members (including the 
independent director and the rural health care provider 
representatives) will submit a CEO candidate to the Chairman for 
approval. The chosen CEO also will serve on the Board of the Rural 
Health Care Corporation. We note that the independent director, CEO, 
and one rural health care provider representative will not serve on the 
USAC Board.
    26. We conclude that, with the exceptions discussed above, the 
Corporations' directors representing schools, libraries, health care 
providers, and telecommunications service providers should be the same 
directors as those on the USAC Board representing schools, libraries, 
rural health care providers, and telecommunications service providers. 
Therefore, the four USAC Board members representing schools and 
libraries and the one USAC Board member representing rural health care 
providers will be appointed to the Boards of Directors of the Schools 
and Libraries and Rural Health Care Corporation, respectively, 
contemporaneously with their appointment to the USAC Board.
    27. Like the members of the USAC Board, all of the Corporations' 
Board members shall be appointed for two-year terms. Board members may 
be reappointed for subsequent terms pursuant to the appointment process 
used initially to select the Corporations' Board members, as discussed 
above. In the event that a Corporation's Board member vacates his or 
her seat prior to the completion of his or her term, the Corporations 
will notify the Bureau of such vacancy and a successor will be chosen 
pursuant to the process used initially to select the Corporation's 
Board members. Removal of members of the Corporations' Board must be 
consistent with Delaware law and may only occur with the approval of 
the Chairman of the Federal Communications Commission.

G. Functions of Schools and Libraries and Rural Health Care 
Corporations

    28. The Schools and Libraries and Rural Health Care Corporations 
will perform all functions relating to administering the support 
mechanisms for eligible schools and libraries and rural health care 
providers, except those directly related to billing and collecting 
contributions and disbursing support, as discussed above. In 
administering the support mechanisms for eligible schools and libraries 
and rural health care providers, the Corporations must comply with all 
Commission rules. The Corporations' functions will include, but will 
not be limited to: (1) administering the application process for 
eligible schools, libraries, and rural health care providers, including 
the dissemination, processing, and review of applications for service 
from schools, libraries, and rural health care providers; (2) creating 
and maintaining a website on which applications for services will be 
posted on behalf of schools, libraries, and rural health care providers 
seeking to attract the competitive bids of service providers; (3) 
performing outreach and public education functions, by, for example, 
communicating with interested parties about the availability of, and 
requirements for receiving, universal service support for schools, 
libraries, and rural health care providers; (4) reviewing bills for 
services that are submitted by schools, libraries, and rural health 
care providers on which service providers designate the amount of 
universal service support they should receive for services rendered and 
on which schools, libraries, and rural health care providers confirm 
that they have received such services; (5) submitting all quarterly 
projections of demand and their own administrative expenses to the 
Commission; (6) informing USAC, based on the information contained in 
the bills for services provided, of the amount of universal service 
support to be disbursed to service providers; (7) authorizing the 
performance of audits of schools and libraries and rural health care 
provider beneficiaries of universal service support; (8) and any other 
function relating to the administration of the schools and libraries 
and rural health care programs that is not

[[Page 41299]]

specifically assigned to USAC. With regard to authorizing the 
performance of audits of schools and libraries, we clarify our decision 
in the Universal Service Order that the Commission, in consultation 
with the Department of Education, should engage and direct an 
independent auditor to conduct audits of schools and libraries. Because 
it will assume many of the functions related to the administration of 
schools and libraries program and will work closely with eligible 
schools and libraries, we conclude that the Schools and Libraries 
Corporation, rather than the Commission in consulation with Department 
of Education, is better suited to determine when the performance of 
audits of schools and libraries should occur. For this reason, we 
conclude that the Schools and Libraries Corporation, rather than the 
Department of Education, should be authorized, in consultation with us, 
to engage and direct the individual audit of schools and libraries.
    29. Furthermore, we clarify our provision in the Universal Service 
Order that the administrator should project school, library, and rural 
health care provider demand for funds for the purpose of calculating 
the universal service contribution factors, and monitor such demand for 
the purpose of determining when, in the case of the schools and 
libraries program, the $2 billion trigger has been reached, and when, 
in the case of the rural health care program, the $400 million annual 
cap has been reached. We specify that the Corporations, rather than 
USAC or the permanent administrator, will monitor demand for the 
purpose of determining when the $2 billion trigger has been reached in 
the case of the schools and libraries program and when the $400 million 
cap has been reached in the case of the rural health care providers 
program. Once the $2 billion trigger has been reached, the Schools and 
Libraries Corporation will be responsible for implementing the rules of 
priority under which it will determine, consistent with our Universal 
Service rules, the procedures by which the remaining funds will be 
disbursed under the schools and libraries program. In addition, we 
clarify that the Schools and Libraries and Rural Health Care 
Corporations' administrative expenses shall be applied to their 
respective programs' annual funding caps.
    30. We also conclude that the Schools and Libraries Corporation may 
review and certify schools' and libraries' technology plans when a 
state agency has indicated that it will be unable to review such plans 
within a reasonable time. We anticipate that consistent with the 
Universal Service Order, the Department of Education and the Institute 
for Museum and Library Services will recommend to the Commission 
alternative review measures. Upon receipt of such recommendations, the 
Commission will determine whether to adopt alternative review measures. 
Furthermore, we clarify our statement in the Universal Service Order 
that the administrator should classify schools and libraries as urban 
or rural and use the discount matrix adopted in the Universal Service 
Order to set the discount rate that will be applied to eligible 
interstate services purchased by schools and libraries.

H. Implementation Issues

    31. Creation and Scope of Authority of USAC. As noted above, we 
direct NECA to establish USAC as a separate subsidiary. This separate 
subsidiary will have separate directors, pursuant to the requirements 
set forth above, and will maintain separate books of account from those 
of NECA's other operations. We direct that the appointment of NECA as 
the temporary administrator will become effective coincident with 
NECA's incorporation of the USAC subsidiary and the Corporations. We 
direct USAC to develop the necessary database systems, hire and train 
personnel, and discuss with contributors the assessment of universal 
service support requirements. We emphasize that, in its role as the 
temporary administrator, USAC may engage only in activities directly 
related to administration of the universal service support mechanisms. 
We further find that USAC Board and High Cost and Low Income Committee 
meetings shall be open to the public and shall be held in Washington, 
DC., because this city is easily accessible and also may be 
particularly convenient for the many interested parties that have 
offices or representatives in the Washington, DC. area. We also 
conclude that USAC Board members shall be entitled to receive 
reimbursement for expenses directly incurred as a result of their 
participation on the USAC Board.
    32. Creation and Scope of Authority of Schools and Libraries and 
Rural Health Care Corporations. We direct NECA to incorporate the 
Schools and Libraries and Rural Health Care Corporations and to take 
such steps as are necessary to ensure that the Corporations are 
unaffiliated with either NECA or USAC once the Corporations begin to 
perform their universal service functions. We assign to the Schools and 
Libraries Corporation and the Rural Health Care Corporation the 
authority to perform the functions designated in section G. above. We 
anticipate that the Corporations may need to engage in transactions 
with either NECA or USAC to enable them to begin operations as quickly 
as possible. Such transactions may include contracts for services of 
NECA and/or USAC employees, loans for the administration of the 
universal service support mechanisms, and transfers of assets. Start-up 
funds for the Corporations may not come from the TRS Fund or from TRS 
administrative accounts. We expect, however, that the Corporations will 
hire individuals other than NECA or USAC employees to perform functions 
unrelated to USAC's functions as described in section IV.H., such as 
reviewing schools' and libraries' technology plans. We also anticipate 
that the Corporations may seek to borrow start-up funds directly from 
commercial lenders.
    33. We emphasize that, in administering the schools and libraries 
and rural heath care programs, the Corporations may engage only in 
activities directly related to administration of the program for which 
each was created. We further find that the Corporations' Board meetings 
shall be open to the public and shall be held in Washington, DC, 
because this city is easily accessible and also may be particularly 
convenient for the many interested parties that have offices or 
representatives in the Washington, DC area. We also conclude that the 
Corporations' Board members shall be entitled to receive reimbursement 
for expenses directly incurred as a result of their participation on 
that Corporation's Board.
    34. Intercorporate Transactions. As noted above, we anticipate that 
USAC and the Corporations may engage in transactions with NECA. We 
expect that NECA, USAC, and the Corporations will engage in such 
transactions whenever doing so would minimize expenses. We direct NECA 
and USAC to provide such services, including loaning start-up funds, 
upon the request of the Corporations on reasonable terms. As with the 
Corporations' start-up funds, mentioned above, start-up funds for USAC 
may not come from the TRS fund or from TRS administrative expense 
accounts. All transactions that occur between NECA and USAC must be 
conducted on an arm's length basis. For transactions between NECA and 
USAC, NECA will be subject to the Commission's affiliate transaction 
rules. We also direct NECA to revise its cost allocation manual (CAM) 
to reflect the formation of USAC.
    35. Accounting and Auditing Requirements. Concerns about fraud,

[[Page 41300]]

waste, and abuse occurring in universal service support programs lead 
us to impose specific accounting and auditing requirements for USAC and 
the Schools and Libraries and Rural Health Care Corporations. Thus, 
USAC will maintain books of account in accordance with generally 
accepted accounting principles (GAAP) that are separate from NECA's 
books of account. Similarly, the Corporations will maintain books of 
account in accordance with GAAP that are separate from USAC's books of 
account and separate from each other. We direct that an audit be 
performed of USAC's and the Corporations' books on an annual basis by 
an independent auditor. In our Accounting Safeguards Order, 62 FR 2918 
(January 21, 1997), we established specific audit procedures applicable 
to separate subsidiaries of the BOCs under section 272(d) of the Act. 
Because we conclude that oversight of the administration of the 
universal service support mechanisms is necessary to ensure the 
integrity of the support mechanisms, we apply to USAC and the 
Corporations audit requirements similar to those contained in 
Sec. 53.209 et seq. of our rules. Before selecting the independent 
auditor, USAC and the Corporations shall submit to the staff of the 
Bureau preliminary audit requirements, including the proposed scope of 
the audit and the extent of the compliance and substantive testing. The 
Bureau will review the preliminary audit requirements to determine 
whether they are adequate to meet the audit objectives. The Bureau will 
make any modifications that it deems necessary to the audit 
requirements. After the audit requirements have been approved by the 
Bureau, USAC and the Corporations each shall engage an independent 
auditor to conduct an agreed-upon procedures audit following the 
procedures determined by the Bureau. In making its selection, neither 
USAC nor the Corporations shall engage an independent auditor that has 
been involved in designing the accounting or reporting systems under 
review in the audit. In addition, USAC and the Corporations each shall 
require the independent auditor selected to develop a detailed audit 
program based on the final audit requirements and submit such audit 
program to the Bureau staff, which will determine whether any 
modifications are necessary for purposes of incorporating the proposed 
audit program into the final audit program.
    36. Because the audit program is an agreed-upon procedures audit 
that will be conducted to assure that USAC's and the Corporations' 
administration of the support mechanisms serves the public interest, 
USAC and the Corporations each shall require the independent auditor it 
selects to inform the Bureau, during the course of an audit, of any 
revisions the auditor makes to the final audit program or scope of the 
audit. USAC shall require the independent auditor to notify the Bureau 
of any meetings with USAC or NECA in which audit findings are 
discussed, so that the Bureau can be kept apprised of audit results and 
can ensure that the audit program is conducted in accordance with 
Commission rules. Similarly, the Corporations shall require the 
independent auditor to notify the Bureau of any meetings with the 
Corporations in which audit findings are discussed. In addition, USAC 
and the Corporations each shall require the independent auditor 
selected to submit to the Bureau any accounting or rule interpretations 
that either USAC or the Corporations find necessary to make to complete 
the audit. By receiving the above information, the Bureau will be able 
to ensure that the auditor examines areas the Bureau has determined 
require review and that the Commission's rules are being followed.
    37. USAC and the Corporations each shall require the independent 
auditor selected, within 60 days after the end of the audit period, but 
prior to discussing the audit findings with USAC, NECA, or the 
Corporations, to submit a draft of the audit report to the Bureau. We 
conclude that submission of the audit report to the Bureau in this time 
period will permit an orderly release of the report while also allowing 
the Bureau to assess the validity of the report's findings and the 
adequacy of the work product. The independent auditor may request 
additional time to perform additional audit work as recommended by the 
Bureau staff. USAC and the Corporations each shall require the 
independent auditor selected to submit the audit to USAC and the 
Corporations, respectively, for their response to the audit findings. 
Within 30 days after receiving the audit report, USAC and the 
Corporations each shall respond to the audit findings and send a copy 
of their response to the Bureau staff. USAC and the Corporations also 
shall submit to the Bureau staff any reply that the independent auditor 
may provide relating to USAC's and the Corporations' response. In 
addition to the annual audit, we direct that a close-out audit of 
USAC's and the Corporations' operations should be performed within six 
months of the permanent administrator's beginning operations.
    38. Recovery of Administrative Expenses. The permanent 
administrator's, USAC's, Schools and Libraries Corporation's, and Rural 
Health Care Corporation's annual administrative expenses, which may 
include, but are not limited to, salaries, equipment costs, costs 
associated with borrowing funds, operating expenses, directors' 
reimbursement for expenses, and costs associated with auditing 
contributors or support recipients, should be commensurate with the 
administrative expenses of programs of similar size. Once projections 
of the next quarter's administrative expenses have been approved by the 
Commission, USAC shall disburse funds to the Schools and Libraries and 
Rural Health Care Corporations for administrative expenses for the next 
quarter. The Corporations shall submit to the Commission projected 
quarterly budgets at least 60 days prior to the start of every quarter. 
The Corporations' first projected budgets will include administrative 
expenses, including any interest, incurred prior to the first budget 
filing deadline. USAC will disburse payments to the Corporations on a 
quarterly basis. Each of the Corporations will receive such payments 
from the permanent administrator under the same terms as payments will 
be received from USAC pursuant to this Order.
    39. Nondisclosure of Information. The Commission will have full 
access to all data received by the permanent administrator, USAC, and 
the Corporations. Requests for Commission nondisclosure can be made 
under Sec. 0.459 of the Commission's rules at the time that the subject 
data is submitted to USAC or the Corporations. As required by our 
rules, such requests for nondisclosure must contain a statement of the 
reasons for withholding the materials from disclosure (e.g., 
competitive harm) and the facts supporting that statement. In any 
event, all decisions regarding disclosure of company-specific 
information will be made by the Commission. Therefore, we will require 
the administrator, USAC, and the Corporations to keep confidential all 
data obtained from universal service contributors, not to use such data 
except for purposes of administering the universal service support 
mechanisms, and not to disclose such data in company-specific form 
unless directed to do so by the Commission.
    40. Universal Service Worksheet. The Universal Service Worksheet, 
which directs each contributing carrier or

[[Page 41301]]

entity to provide, on a semi-annual basis, identification information 
and information regarding end-user telecommunications revenues. After 
the Worksheet has been approved by the Office of Management and Budget 
pursuant to the Paperwork Reduction Act of 1995, copies of the 
Worksheet may be obtained from USAC or the FCC website. Carriers and 
contributing entities are required to provide on the Worksheet gross, 
end-user interstate, intrastate, and international telecommunications 
revenues information. An officer of the contributing carrier or entity 
must certify to the truth and accuracy of the Worksheet. The Worksheet 
will be subject to verification by the Commission, the permanent 
administrator, or USAC at the discretion of the Commission. Failure to 
file the Worksheet or to submit required contributions may subject the 
contributor to the enforcement provisions of the Act and any other 
applicable law. The permanent administrator or USAC will advise the 
Commission of any enforcement issues that arise and provide any 
suggested response.
    41. Bureau Authority to Modify Reporting Requirements. Because it 
is difficult to determine in advance precisely the information that 
will be needed to administer the new universal service programs, the 
Bureau will have delegated authority to waive, reduce, or eliminate 
contributor reporting requirements that may prove unnecessary. The 
Bureau also will have delegated authority to require any additional 
contributor reporting requirements necessary to the sound and efficient 
administration of the universal service programs.
    42. Transition to Permanent Administrator. We emphasize that our 
appointment of NECA as the temporary administrator of the universal 
service support mechanisms subject to its establishment of USAC and the 
Corporations does not suggest that NECA or USAC will be selected as the 
permanent administrator, nor does it suggest that NECA or USAC will 
receive special consideration in the selection of a permanent 
administrator. We condition NECA's appointment as temporary 
administrator on NECA's and USAC's agreeing to the requirements of this 
Order, including making available, if NECA is not appointed permanent 
administrator, any and all intellectual property, including, but not 
limited to, all records and information generated by or resulting from 
its performance as temporary administrator, to whomever the Commission 
directs, free of charge. Similarly, although the Corporations will 
continue to have the same role in administering the schools and 
libraries and rural health care programs once a permanent administrator 
has been appointed as they will have with the temporary administrator, 
we nevertheless require the Corporations, as a condition of their role 
in the administration process, to make available to whomever the 
Commission may direct, free of charge, any and all intellectual 
property, including, but not limited to, all records and information 
generated by or resulting from their role in administering the 
universal service support mechanisms if their participation in 
administering the schools and libraries and rural health care programs 
should discontinue at any time. NECA, USAC, and the Corporations must 
specify any property they propose to exclude from the foregoing 
category of property based on the existence of such property prior to 
NECA's assumption of duties pursuant to this Order. We note that a 
federal advisory committee will be established to recommend to the 
Commission a permanent administrator of the universal service support 
mechanisms. Under the circumstances just described, we also direct 
NECA, USAC, and the Corporations to cooperate fully with the permanent 
administrator's efforts to assume its duties.

Procedural Matters

I. Final Regulatory Flexibility Analyses

    43. This Order achieves two main goals. First, we amend our rules 
to direct NECA to establish an independently functioning subsidiary 
(USAC) so that, as required by the Universal Service Order, non-ILEC 
interests are represented in the administration of the universal 
service support mechanisms. We further direct NECA to create two 
unaffiliated corporations to administer specific aspects of the 
universal service support mechanisms for schools and libraries and 
rural health care providers, respectively. For purposes of the 
Regulatory Flexibility Act (RFA), we certify, pursuant to 5 U.S.C.605 
that these actions will not have a significant impact on a substantial 
number of small entities. Second, in this Order, we set forth the 
procedures that the permanent administrator and temporary administrator 
will follow to determine the amount of required universal service 
contributions and to collect such contributions from carriers and other 
affected entities. For this part of the Order, we have prepared a Final 
Regulatory Flexibility Analysis (FRFA), as required by 5 U.S.C. 603.
Certification
    44. In the NECA NPRM, the Commission tentatively certified that the 
rules it proposed to adopt in this proceeding would not have a 
significant economic impact on a substantial number of small entities 
because the proposed rules did not pertain to small entities. We did 
not receive any comments concerning our proposed certification. For the 
reasons stated below, we certify that the rules directing NECA to 
create USAC to administer temporarily certain aspects of the universal 
service support mechanisms and directing NECA to establish two 
unaffiliated corporations to administer specific aspects of the schools 
and libraries and rural health care programs, will not have a 
significant economic impact on a substantial number of small entities. 
This certification conforms to the RFA, as amended by the Small 
Business Regulatory Fairness Act of 1996 (SBREFA).
    45. The NECA NPRM certified that no regulatory flexibility analysis 
was required because the proposed rule changes applied only to NECA, 
and NECA is not a small organization within the meaning of the RFA. 
NECA is a non-profit, quasi-governmental association created to 
administer the Commission's interstate access tariff and revenue 
distributions processes and is not dominant in its field. Furthermore, 
we found that the amendments to our rules proposed in the NECA NPRM did 
not apply to other ``small business concerns'' because they proposed to 
modify the composition of NECA's Board of Directors.
    46. In the NECA NPRM, we tentatively concluded that NECA's 
governance structure needed to become more representative of the 
industry as whole in order for NECA to be appointed the temporary 
administrator. In the Universal Service Order, we appointed NECA 
temporary administrator on the condition that NECA make changes in its 
governance that would render it more representative of non-ILEC 
interests. This Order adopts rules directing NECA to create an 
independently functioning subsidiary (i.e.., USAC) to temporarily 
administer certain aspects of the universal service support mechanisms 
and directing NECA to create two unaffiliated corporations to 
administer certain aspects of the schools and libraries and rural 
health care programs. We have not received any comments requesting that 
we modify our initial certification that this rule change will not have 
a

[[Page 41302]]

significant economic impact on a substantial number of small entities. 
We therefore certify pursuant to section 605(b) of the RFA that the 
rules adopted in this Order directing NECA to create an independent 
subsidiary to administer temporarily certain aspects of the universal 
service support mechanisms and directing NECA to create two 
unaffiliated corporations to administer certain aspects of the schools 
and libraries and rural health care programs, will not have a 
significant impact on a substantial number of small entities.
Final Regulatory Flexibility Analysis
    47. As required by section 603 of the RFA, an Initial Regulatory 
Flexibility Analysis (IRFA) was incorporated in the 254 NPRM. The 
Commission also prepared an IRFA in conjunction with the Recommended 
Decision, seeking written public comment on the proposals in the 254 
NPRM and Recommended Decision and included a FRFA in the Universal 
Service Order. In our NECA NPRM, we tentatively certified that the rule 
amendments under consideration would not have a significant economic 
impact on a substantial number of small entities. We did not receive 
any comments concerning the proposed certification. The Commission's 
FRFA in this Order conforms to the RFA, as amended.
Need for and Objectives of This Order and the Rules Adopted Herein.
    48. The Commission is required by sections 254(a)(2) and 410(c) of 
the Act, as amended by the 1996 Act, to promulgate these rules to 
implement promptly the universal service provisions of section 254. In 
the Universal Service Order, we adopted rules whose principal goal is 
to reform our system of universal service support mechanisms so that 
universal service is preserved and advanced as markets move toward 
competition. The rules adopted in this Order clarify the structure and 
responsibilities of the temporary administrator and unaffiliated 
corporations and describe the steps these three entities must undertake 
in administering the universal service support mechanisms adopted in 
the Commission's Universal Service Order.
Summary and Analysis of the Significant Issues Raised by Public 
Comments in Response to the IRFA.
    49. No comments in response to the IRFA in addition to those 
described in the Universal Service Order were filed.
Description and Estimates of the Number of Small Entities to Which the 
Rules Adopted in This Report and Order Will Apply.
    50. In the FRFA to the Universal Service Order, we described and 
estimated the number of small entities that would be affected by the 
new universal service rules, including the rule requiring 
telecommunications carriers and other entities to contribute to the 
universal service support mechanisms. The rules adopted here, which set 
forth the procedures by which contributions will be made to the 
universal service support mechanisms, will apply to the same 
telecommunications carriers and entities affected by the universal 
service rules. We therefore incorporate by reference paragraphs 890-922 
of the Universal Service Order, which describe and estimate the number 
of affected telecommunications carriers and entities.
Summary Analysis of the Projected Reporting, Recordkeeping, and Other 
Compliance Requirements and Significant Alternatives and Steps Taken to 
Minimize the Significant Economic Impact on a Substantial Number of 
Small Entities Consistent with Stated Objectives
    Summary of Projected Reporting, Recordkeeping and Other Compliance 
Requirements. 51. Section 254(d) states ``that all telecommunications 
carriers that provide interstate telecommunications services shall make 
equitable and nondiscriminatory contributions'' toward the preservation 
and advancement of universal service. The Universal Service Order FRFA 
describes the obligation of telecommunications carriers and other 
providers of telecommunications services to contribute to the universal 
service support mechanisms and the concomitant requirement that they 
provide information regarding their end-user telecommunications 
revenues. This Order establishes the specific procedures that 
telecommunications carriers and other providers of telecommunications 
services will follow in providing such information to the administrator 
and temporary administrator. To compute carrier contributions, 
contributors must submit a semi-annual universal service Worksheet. The 
Worksheet will require all contributors to submit information relating 
to revenues derived from end users for telecommunications or 
telecommunications services to the administrator and temporary 
administrator of the support mechanisms. Contributors also will be 
required to submit a quarterly payment to the administrator or 
temporary administrator of the support mechanisms. Contributors that 
provide services to schools, libraries, and rural health care providers 
may be eligible to receive a credit against their contributions. 
Contributors seeking a credit must submit to the administrator or 
temporary administrator additional information regarding the services 
provided at less than their pre-discount price to receive the credit. 
Approximately 5,000 telecommunications carriers and providers will be 
required to submit revenue information and payments. We sought to limit 
the information requirements to the minimum necessary for evaluating 
and processing the application and to deter possible abuse of process. 
These tasks may require some legal and accounting skills.
    Significant Alternatives and Steps Taken to Minimize Significant 
Economic Impact on a Substantial Number of Small Entities Consistent 
with Stated Objectives. 52. Pursuant to section 254(d), we concluded in 
the Universal Service Order that carriers with annual contributions of 
less than $100 will be exempt from universal service contribution and 
reporting requirements. Nothing in this proceeding leads us to alter 
our conclusion in the FRFA of the Universal Service Order that the de 
minimis exception in section 254(d) may not properly be interpreted to 
except, on the basis of their size, small carriers and other 
telecommunications providers from the obligation to contribute to the 
universal service support mechanisms or to decrease the relative amount 
that they must contribute.
Report to Congress
    53. The Commission shall send a copy of the FRFA and certification, 
along with the Report and Order, in a report to Congress pursuant to 
the SBREFA, 5 U.S.C. 801(a)(1)(A). A copy of the certification also 
will be sent to the Chief Counsel for Advocacy of the SBA. Finally, a 
copy or a summary of this FRFA and certification also will be published 
in the Federal Register.

J. Effective Date

    54. With respect to the rules adopted herein that are not subject 
to the PRA, we find good cause to depart from the general requirement 
of 5 U.S.C. 553(d) that final rules take effect not less than 30 days 
after their publication in the Federal Register. We find good cause to 
make the rules effective upon

[[Page 41303]]

publication in the Federal Register for the reasons described below.
    55. First, the speedy establishment of both the USAC subsidiary and 
the Corporations, is crucial to the Commission's effort to implement 
promptly and effectively the new universal service program mandated by 
section 254 of the Act. The Commission's Universal Service Order 
requires that the program begin by January 1, 1998. To initiate the 
program, and most notably the schools and libraries program by that 
date, the USAC subsidiary and the Corporations must complete quickly a 
number of administrative functions. USAC and the Corporations may not 
begin to perform these functions until certain preliminary tasks, some 
of which may require substantial, time-consuming deliberations among 
interested parties, are completed. Such preliminary tasks include the 
incorporation of both USAC and the Corporations and the appointment of 
these entities' Boards of Directors.
    56. We also find good cause to make the rules governing 
establishment of the USAC subsidiary and the Corporations and 
appointment of these entities' Boards of Directors effective upon 
publication in the Federal Register. We make this determination because 
the rules adopted here are based, at least in part, on the reform 
proposal that NECA filed with the Commission on January 10, 1997, in 
which NECA expressed willingness to immediately begin establishing a 
subsidiary corporation to administer temporarily the universal service 
support mechanisms. Furthermore, NECA has had notice of its appointment 
as temporary administrator since the release of the Universal Service 
Order on May 8, 1997, designating NECA as the temporary administrator. 
Under these circumstances, the purpose of 5 U.S.C. Sec. 553(d), to 
ensure an adequate period in which regulated entities may prepare to 
comply with new rules, can be met without affording the usual 30-day 
period prior to the rules' effective date. For this and the other 
reasons described above, we find good cause to make the rules regarding 
the establishment of the USAC subsidiary and the appointment of its 
Board members effective upon publication in the Federal Register.

Ordering Clauses

    57. Accordingly, it is ordered that, pursuant to sections 1, 4(i), 
218-220, 254 and 403 of the Communications Act of 1934, as amended, 47 
U.S.C. 151, 154(i), 201-05, 218-20, 254 and 403, that parts 54 and 69 
of the Commission's rules, 47 CFR parts 54 and 69, are amended, as 
specified below. The collections of information contained within 
sections are contingent upon approval by the Office of Management and 
Budget.
    58. It is further ordered that, pursuant to section 553(d)(3) of 
the Administrative Procedures Act, 5 U.S.C. 553(d)(3), except for 
Secs. 54.709, 54.711, 54.713, and 69.614(c) subject to the Paperwork 
Reduction Act (PRA), the rules adopted in this order shall, for good 
cause shown, become effective August 1, 1997.
    59. It is further ordered That, pursuant to section 5(c)(1) of the 
Communications Act of 1934, as amended, 47 U.S.C. 155(c)(1), authority 
is delegated to the Chairman of the Commission to perform the following 
functions: (1) To review nominations to the USAC Board and select USAC 
Board members; (2) to review the nomination for the rural health care 
representative and select the representative who will serve only on the 
Rural Health Care Board; (3) to select the independent directors who 
will serve on the Schools and Libraries and Rural Health Care 
Corporation's Boards; and (4) to review and approve candidates for 
Corporation CEO positions.
    60. It is further ordered that, pursuant to section 5(c)(1) of the 
Communications Act of 1934, as amended, 47 U.S.C. 155(c)(1), authority 
is delegated to the Chief, Common Carrier Bureau to perform the 
following functions: (1) To waive, reduce, or eliminate any contributor 
reporting requirements that prove to be unnecessary or to require 
contributors to submit any additional reporting requirements that the 
Bureau deems necessary to the efficient administration of the universal 
service support mechanisms; and (2) to oversee and to modify, as 
necessary, the annual audit of USAC and the Schools and Libraries and 
Rural Health Care Corporations.
    61. It is further ordered that, pursuant to sections 1 and 4(i) of 
the Communications Act of 1934, as amended, 47 U.S.C. 151, 154(i), the 
members of the industry or non-industry groups that will be represented 
on the Board are directed to submit their nominees selected by 
consensus for USAC directors to the Chairman of the Federal 
Communications Commission within 14 calendar days of the publication of 
this Order in the Federal Register.

List of Subjects

47 CFR Part 54

    Universal service.

47 CFR Part 69

    Communications common carriers.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

    Parts 54 and 69 of title 47 of the Code of Federal Regulations 
(CFR) are amended as follows:

PART 54--UNIVERSAL SERVICE

    1. The authority citation for part 54 continues to read as follows:

    Authority: 47 U.S.C. 1, 4(i), 201, 214, and 254 unless otherwise 
noted.

    2. Section 54.5 is amended by revising the definition of 
``Administrator'' and adding the following new definitions in 
alphabetical order to read as follows:


Sec. 54.5  Terms and Definitions.

* * * * *
    Administrator. The term ``Administrator'' shall refer to the 
National Exchange Carrier Association, Inc. until the date that an 
independent subsidiary of the National Exchange Carrier Association, 
Inc. is incorporated and has commenced the administration of the 
universal service support mechanisms. On that date and until the 
permanent Administrator has commenced the permanent administration of 
the universal service support mechanisms, the term ``Administrator'' 
shall refer to the independent subsidiary established by the National 
Exchange Carrier Association, Inc. for the purpose of temporarily 
administering the portions of the universal service support mechanisms 
described in Sec. 69.616. On the date that the entity selected to 
permanently administer the universal service support mechanisms 
commences operations and thereafter, the term ``Administrator'' shall 
refer to such entity.
* * * * *
    Contributor. The term ``contributor'' shall refer to an entity 
required to contribute to the universal service support mechanisms 
pursuant to Sec. 54.703.
* * * * *
    High Cost and Low Income Committee. The term ``High Cost and Low 
Income Committee'' shall refer to a committee of the Board of Directors 
of the Administrator's independent subsidiary that will have the power 
and authority to bind the independent subsidiary's Board of Directors 
on issues relating to the administration of the high

[[Page 41304]]

cost and low-income support mechanisms, as described in Sec. 69.615.
* * * * *
    Rural Health Care Corporation. The term ``Rural Health Care 
Corporation'' shall refer to the corporation created pursuant to 
Sec. 69.617 that shall administer specified portions of the universal 
service support mechanisms, as described in Sec. 69.618.
* * * * *
    Schools and Libraries Corporation. The term ``Schools and Libraries 
Corporation'' shall refer to the corporation created pursuant to 
Sec. 69.617 that shall administer specified portions of the universal 
service support mechanisms, as described in Sec. 69.619.
* * * * *
    3. Section 54.504 is amended by revising the first sentence of 
paragraph (b)(1), revising paragraph (b)(2)(vii), and revising the 
first sentence of paragraph (b)(3) to read as follows:


Sec. 54.504  Requests for service.

* * * * *
    (b) * * *
    (1) Schools, libraries, and consortia, including those entities 
wishing to receive discounts for eligible services under this subpart, 
shall submit requests for services to the Schools and Libraries 
Corporation. * * *
    (2) * * *
    (vii) The school, library, or consortium including those entities 
has a technology plan that has been certified by its state, the Schools 
and Libraries Corporation, or an independent entity approved by the 
Commission.
    (3) After posting a description of services from a school, library, 
or consortium of these entities on the school and library website, the 
Schools and Libraries Corporation shall send confirmation of the 
posting to the entity requesting services. * * *
* * * * *
    4. Section 54.505 is amended by revising introductory paragraphs 
(b)(3) and (c) to read as follows:


Sec. 54.505  Discounts.

* * * * *
    (b) * * *
    (3) The Schools and Libraries Corporation shall classify schools 
and libraries as ``urban'' or ``rural'' based on location in an urban 
or rural area, according to the following designations.
* * * * *
    (c) Matrix. The Schools and Libraries Corporation shall use the 
following matrix to set a discount rate to be applied to eligible 
interstate services purchased by eligible schools, school districts, 
libraries, or library consortia based on the institution's level of 
poverty and location in an ``urban'' or ``rural'' area.
* * * * *
    5. Section 54.507 is amended by revising the first sentence of 
paragraph (a), the second sentence of paragraph (c), removing the word 
``administrator'' and adding, in its place, the word ``Administrator'' 
in paragraph (e), and revising paragraphs (f)(1), and (f)(4) to read as 
follows:


Sec. 54.507  Cap.

    (a) Amount of the annual cap. The annual cap on federal universal 
service support for schools and libraries shall be $2.25 billion per 
funding year, and all funding authority for a given funding year that 
is unused shall be carried forward into subsequent years for use in 
accordance with demand, with two exceptions. * * *
* * * * *
    (c) * * * The Schools and Libraries Corporation shall maintain a 
running tally of the funds already committed for the existing funding 
year on the school and library website.
* * * * *
    (f) * * *
    (1) The Schools and Libraries Corporation shall post a message on 
the school and library website, notify the Commission, and take 
reasonable steps to notify the educational and library communities that 
commitments for the remaining $250 million of support will only be made 
available to the most economically disadvantaged schools and libraries 
(those in the two most disadvantaged categories) for the next 30 days 
or the remainder of the funding year, whichever is shorter.
* * * * *
    (4) The Administrator shall notify the Schools and Libraries 
Corporation of any funds still remaining after all requests submitted 
by schools and libraries described in paragraphs (f)(2) and (f)(3) of 
this section during the 30-day period have been met. The Schools and 
Libraries Corporation shall direct the Administrator to allocate the 
remaining available funds to all other eligible schools and libraries 
in the order in which their requests have been received by the Schools 
and Libraries Corporation, until the $250 million is exhausted or the 
funding year ends.
    6. Section 54.509 is amended by removing the word ``administrator'' 
in paragraph (a) and adding, in its place, the word ``Administrator,'' 
and revising paragraphs (b) and (c) to read as follows:


Sec. 54.509  Adjustments to the discount matrix.

* * * * *
    (b) Reduction in percentage discounts. If the estimates schools and 
libraries make of their future funding needs lead the Schools and 
Libraries Corporation to predict that total funding requests for a 
funding year will exceed the available funding, the Schools and 
Libraries Corporation shall calculate the percentage reduction to all 
schools and libraries, except those in the two most disadvantaged 
categories, necessary to permit all requests in the next funding year 
to be fully funded.
    (c) Remaining funds. If funds remain under the cap at the end of 
the funding year in which discounts have been reduced below those set 
in the matrices above, the Administrator shall inform the Schools and 
Libraries Corporation of such remaining funds. The Schools and 
Libraries Corporation then shall consult with the Commission to 
establish the best way to distribute those funds.
    7. Section 54.516 is amended by revising paragraph (b) to read as 
follows:


Sec. 54.516  Auditing.

* * * * *
    (b) Production of records. Schools and libraries shall produce such 
records at the request of any auditor appointed by a state education 
department, the Schools and Libraries Corporation, or any state or 
federal agency with jurisdiction.
* * * * *
    8. Section 54.603 is amended by revising paragraph (b)(2), the 
first sentence of paragraph (b)(3), paragraph (b)(4), and paragraph 
(b)(5) to read as follows:


Sec. 54.603  Competitive bidding.

* * * * *
    (b) * * *
    (2) The Rural Health Care Corporation shall post each request for 
eligible services that it receives from an eligible health care 
provider on the corporation's website designated for this purpose.
    (3) After posting a description of services from a health care 
provider on the website, the Rural Health Care Corporation shall send 
confirmation of the posting to the entity requesting services. * * *
    (4) After selecting a telecommunications carrier, the health care 
provider shall certify to the Rural Health Care Corporation that the 
provider is selecting the most cost-effective method of providing the 
requested service or services, where the most cost-effective method of 
providing a service is defined as the method that costs the least after 
consideration of the features, quality of transmission, reliability, 
and other factors that the

[[Page 41305]]

health care provider deems relevant to choosing a method of providing 
the required health care services. The health care provider shall 
submit to the Rural Health Care Corporation paper copies of the 
responses or bids received in response to the requested services.
    (5) The confirmation from the Rural Health Care Corporation shall 
include the date after which the requester may sign a contract with its 
chosen telecommunications carrier(s).
    9. Section 54.609 is amended by revising the second sentence of 
paragraph (b) to read as follows:


Sec. 54.609  Calculating support.

* * * * *
    (b) * * * Absent documentation justifying the amount of universal 
service support requested for health care providers participating in a 
consortium, the Rural Health Care Corporation shall not allow 
telecommunications carriers to offset, or receive reimbursement for, 
the amount eligible for universal service support.


Sec. 54.701  Administrator of universal service support mechanisms. 
[Amended]

    10. Section 54.701 is amended by removing the words ``Temporary 
Administrator'' wherever they occur.
    11. Sections 54.709, 54.711, 54.713, and 54.715 are added to 
subpart H to read as follows:


Sec. 54.709  Computations of required contributions to universal 
service support mechanisms.

    (a) Contributions to the universal service support mechanisms shall 
be based on contributors' end-user telecommunications revenues and 
contribution factors determined quarterly by the Administrator.
    (1) For funding the schools and libraries and rural health care 
programs, the subject revenues will be contributors' interstate, 
intrastate, and international revenues derived from domestic end users 
for telecommunications or telecommunications services. For funding the 
high cost and low-income programs, the subject revenues will be 
contributors' interstate and international revenues derived from 
domestic end users for telecommunications or telecommunications 
services.
    (2) The quarterly universal service contribution factors shall be 
based on the ratio of total projected quarterly expenses of the 
universal service support programs to total end-user telecommunications 
revenues. The Commission shall determine two contribution factors, one 
of which shall be applied to interstate and international end-user 
telecommunications revenues and the other of which shall be applied to 
interstate, intrastate, and international end-user telecommunications 
revenues. The Commission shall approve the Administrator's, the Schools 
and Libraries Corporation's, and the Rural Health Care Corporation's 
quarterly projected costs of universal service support programs, taking 
into account demand for support and administrative expenses. The total 
subject revenues shall be compiled by the Administrator based on 
information contained in the Universal Service Worksheets described in 
Sec. 54.711(a)
    (3) Total projected expenses for universal service support programs 
for each quarter must be approved by the Commission before they are 
used to calculate the quarterly contribution factors and individual 
contributions. For each quarter, the High Cost and Low Income Committee 
or the permanent Administrator once the permanent administrator is 
chosen and the Schools and Libraries and Rural Health Care Corporations 
must submit their projections of demand for the high cost and low-
income programs, the schools and libraries program, and rural health 
care program, respectively, and the basis for those projections, to the 
Commission and the Common Carrier Bureau at least 60 calendar days 
prior to the start of that quarter. For each quarter, the Administrator 
and the Schools and Libraries and Rural Health Care Corporations must 
submit their projections of administrative expenses for the high cost 
and low-income programs, the schools and libraries program and the 
rural health care program, respectively, and the basis for those 
projections to the Commission and the Common Carrier Bureau at least 60 
calendar days prior to the start of that quarter. The projections of 
demand and administrative expenses and the contribution factors shall 
be announced by the Commission in a Public Notice published in the 
Federal Register and shall be made available on the Commission's 
website. The Commission reserves the right to set projections of demand 
and administrative expenses at amounts that the Commission determines 
will serve the public interest at any time within the 14-day period 
following publication of the Commission's Public Notice. If the 
Commission takes no action within 14 days of the date of the Public 
Notice announcing the projections of demand and administrative 
expenses, the projections of demand and administrative expenses, and 
contribution factors shall be deemed approved by the Commission. Once 
the projections are approved, the Administrator shall apply the 
quarterly contribution factors to determine individual contributions.
    (4) The Administrator shall bill contributors and collect 
contributions on a quarterly basis.
    (b) If the contributions received by the Administrator in a quarter 
exceed the amount of universal service support program contributions 
and administrative costs for that quarter, the excess payments will be 
carried forward to the following quarter. The contribution factors for 
the following quarter will take into consideration the projected costs 
of the support mechanisms for that quarter and the excess contributions 
carried over from the previous quarter.
    (c) If the contributions received by the Administrator in a quarter 
are inadequate to meet the amount of universal service support program 
payments and administrative costs for that quarter, the Administrator 
shall request authority from the Commission to borrow funds 
commercially, with such debt secured by future contributions. 
Subsequent contribution factors will take into consideration the 
projected costs of the support mechanisms and the additional costs 
associated with borrowing funds.
    (d) If a contributor fails to file a Universal Service Worksheet by 
the date on which it is due, the Administrator shall bill that 
contributor based on whatever relevant data the Administrator has 
available, including, but not limited to, the number of lines 
presubscribed to the contributor and data from previous years, taking 
into consideration any estimated changes in such data.


Sec. 54.711  Contributor reporting requirements.

    (a) Contributions shall be calculated and filed in accordance with 
the Universal Service Worksheet. The Universal Service Worksheet sets 
forth information that the contributor must submit to the Administrator 
on a semi-annual basis. The Commission shall announce by Public Notice 
published in the Federal Register and on its website the manner of 
payment and dates by which payments must be made. An officer of the 
contributor must certify to the truth and accuracy of the Universal 
Service Worksheet, and the Commission or the Administrator may verify 
any information contained in the Universal Service Worksheet at the 
discretion of the Commission. Inaccurate or untruthful information 
contained in the Universal Service Worksheet may lead

[[Page 41306]]

to prosecution under the criminal provisions of Title 18 of the United 
States Code. The Administrator shall advise the Commission of any 
enforcement issues that arise and provide any suggested response.
    (b) The Commission shall have access to all data reported to the 
Administrator, Rural Health Care Corporation, and Schools and Libraries 
Corporation. Contributors may make requests for Commission 
nondisclosure of company-specific information under Sec. 0.459 of this 
chapter at the time that the subject data are submitted to the 
Administrator. The Commission shall make all decisions regarding 
nondisclosure of company-specific information. The Administrator, Rural 
Health Care Corporation, and Schools and Libraries Corporation shall 
keep confidential all data obtained from contributors, shall not use 
such data except for purposes of administering the universal service 
support programs, and shall not disclose such data in company-specific 
form unless directed to do so by the Commission.
    (c) The Bureau may waive, reduce, or eliminate contributor 
reporting requirements that prove unnecessary and require additional 
reporting requirements that the Bureau deems necessary to the sound and 
efficient administration of the universal service support mechanisms.


Sec. 54.713  Contributors' failure to report or to contribute.

    A contributor that fails to file a Universal Service Worksheet and 
subsequently is billed by the Administrator shall pay the amount for 
which it is billed. The Administrator may bill a contributor a separate 
assessment for reasonable costs incurred because of that contributor's 
filing of an untruthful or inaccurate Universal Service Worksheet, 
failure to file the Universal Service Worksheet, or late payment of 
contributions. Failure to file the Universal Service Worksheet or to 
submit required quarterly contributions may subject the contributor to 
the enforcement provisions of the Act and any other applicable law. The 
Administrator shall advise the Commission of any enforcement issues 
that arise and provide any suggested response. Once a contributor 
complies with the Universal Service Worksheet filing requirements, the 
Administrator may refund any overpayments made by the contributor, less 
any fees, interest, or costs.


Sec. 54.715  Administrator's functions.

    The Administrator shall have the same functions as the independent 
subsidiary set out in Sec. 69.616 of this chapter.

PART 69--ACCESS CHARGES

    12. The authority citation for part 69 is revised to read as 
follows:

    Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254, 
403.

    13. Section 69.600 is added to read as follows:


Sec. 69.600  Definitions.

    High Cost and Low Income Committee. The term ``High Cost and Low 
Income Committee'' shall refer to a committee of the Board of Directors 
of the Administrator's independent subsidiary that will have the power 
and authority to bind the independent subsidiary's Board of Directors 
on issues relating to the administration of the high cost and low-
income support mechanisms, as described in Sec. 69.615.
    Rural Health Care Corporation. The term ``Rural Health Care 
Corporation'' shall refer to the corporation created pursuant to 
Sec. 69.617 that shall administer specified portions of the universal 
service support mechanisms, as described in Sec. 69.618.
    Schools and Libraries Corporation. The term ``Schools and Libraries 
Corporation'' shall refer to the corporation created pursuant to 
Sec. 69.617 that shall administer specified portions of the universal 
service support mechanisms, as described in Sec. 69.619.
    14. Section 69.603 is amended by revising paragraphs (c), (d), and 
(e), removing paragraph (f), and redsignating paragraphs (g), (h), and 
(i) as (f), (g), and (h) to read as follows:


Sec. 69.603  Association functions.

* * * * *
    (c) Upon the incorporation and commencement of operations by the 
association's independent subsidiary that, pursuant to Sec. 69.613(a), 
will administer temporarily specified portions of the universal service 
support mechanisms, the association shall no longer administer the 
Universal Service charge, including the direct billing to and 
collection of associated revenues on a monthly basis from interexchange 
carriers pursuant to Sec. 60.116 of this chapter and the distribution 
of these revenues to qualified telephone companies based on their share 
of expenses assigned to the Universal Service Factor portion of the 
interstate allocation pursuant to Sec. 36.631 of this chapter. Such 
functions shall be assumed by the independent subsidiary of the 
association as provided in Sec. 69.613. Commencing on January 1, 1998, 
the billing and collection of universal service support for high cost 
areas shall be performed in a manner consistent with Sec. 54.709 of 
this chapter.
    (d) Upon the incorporation and commencement of operations by the 
association's independent subsidiary that, pursuant to Sec. 69.613, 
will administer temporarily specified portions of the universal service 
support mechanisms, the association shall no longer administer the 
Lifeline Assistance charge, including the direct billing to and 
collection of associated revenues on a monthly basis from interexchange 
carriers pursuant to Sec. 69.117, and the distribution of these 
revenues to qualified telephone companies based on their share of 
expenses assigned to the Lifeline Assistance Fund pursuant to 
Sec. 36.741 of this chapter and of End User Common Line charges 
associated with the operation of Sec. 69.104(j) through (l). Such 
functions shall be assumed by the independent subsidiary of the 
association as provided in Sec. 69.613. Commencing on January 1, 1998, 
the billing and collection of Lifeline support shall be performed in a 
manner consistent with Sec. 54.709 of this chapter.
    (e) Upon the incorporation and commencement of operations by the 
association's independent subsidiary that, pursuant to Sec. 69.613, 
will administer temporarily specified portions of the universal service 
support mechanisms, the association shall no longer compute, in 
accordance with Secs. 69.105 and 69.612, the mandatory Long Term 
Support payment of telephone companies that are not association Common 
Line tariff participants, bill or collect the appropriate amounts on a 
monthly basis from such telephone companies, or distribute Long Terms 
Support revenue among association Carrier Common Line tariff 
participants. Such functions shall be assumed by the independent 
subsidiary of the association as provided in Sec. 69.613. Commencing on 
January 1, 1998, the computation, billing, and collection of Long Term 
Support shall be performed in a manner consistent with Sec. 54.303 of 
this chapter.
* * * * *
    15. Sections 69.613 through 69.622 are added to subpart G to read 
as follows:


Sec. 69.613  Temporary administrator of universal service support 
mechanisms.

    (a) The association shall establish an independent subsidiary 
through which the association shall administer temporarily the portions 
of the universal service support mechanisms described in Sec. 69.616 
until the permanent Administrator is established and ready

[[Page 41307]]

to commence operations. The independent subsidiary shall be 
incorporated under the laws of Delaware and shall be designated the 
Universal Service Administrative Company. The association shall submit 
the independent subsidiary's proposed articles of incorporation, 
bylaws, and any other documents necessary to incorporate the 
independent subsidiary to the Commission by August 1, 1997 for review 
prior to the independent subsidiary's incorporation.
    (b) As a condition of its appointment as the temporary 
Administrator of the universal service support mechanisms, the 
association shall agree to make available, if the association or its 
independent subsidiary is not appointed permanent Administrator, any 
and all intellectual property, including, but not limited to, all 
records and information generated by or resulting from the independent 
subsidiary's temporary administration of the universal service support 
mechanisms, and to make such property available to whomever the 
Commission directs, free of charge. Such property includes, but is not 
limited to, databases, processing systems, computer software programs, 
lists, records, information, or equipment created or purchased and used 
in the temporary administration of the universal service support 
mechanisms. The association must specify any property it proposes to 
exclude from the foregoing types of property based on the existence of 
such property prior to the effective date of the association's 
appointment as the temporary Administrator.
    (c) As a further condition of its appointment as the temporary 
Administrator of the universal service support mechanisms, the 
association and the independent subsidiary must provide services to the 
Corporations, such as contracting for the services of association or 
independent subsidiary employees, loans or transfers of assets, upon 
the request of the Corporations and on reasonable terms.


Sec. 69.614  Independent subsidiary Board of Directors.

    (a) The independent subsidiary described in Sec. 69.613(a) shall 
have a Board of Directors separate from the association's Board of 
Directors. Except as expressly permitted, the association's Board of 
Directors shall be prohibited from participating in the functions of 
the independent subsidiary.
    (b) The independent subsidiary's Board of Directors shall consist 
of 17 directors:
    (1) Three directors shall represent incumbent local exchange 
carriers, with one director representing the Bell Operating Companies 
and GTE, one director representing ILECs (other than the Bell Operating 
Companies) with annual operating revenues in excess of $40 million, and 
one director representing ILECs (other than the Bell Operating 
Companies) with annual operating revenues of $40 million or less;
    (2) Two directors shall represent interexchange carriers, with one 
director representing interexchange carriers with more than $3 billion 
in annual operating revenues and one director representing 
interexchange carriers with annual operating revenues of $3 billion or 
less;
    (3) One director shall represent commercial mobile radio service 
(CMRS) providers;
    (4) One director shall represent competitive local exchange 
carriers;
    (5) One director shall represent cable operators;
    (6) One director shall represent information service providers;
    (7) Three directors shall represent schools that are eligible to 
receive discounts pursuant to Sec. 54.501 of this chapter;
    (8) One director shall represent libraries that are eligible to 
receive discounts pursuant to Sec. 54.501 of this chapter;
    (9) One director shall represent rural health care providers that 
are eligible to receive supported services pursuant to Sec. 54.601 of 
this chapter;
    (10) One director shall represent low-income consumers;
    (11) One director shall represent state telecommunications 
regulators; and
    (12) One director shall represent state consumer advocates.
    (c) The industry and non-industry groups that will be represented 
on the independent subsidiary's Board of Directors as specified in 
Sec. 69.614(b)(1) through (12) shall nominate by consensus the 
independent subsidiary's directors. Each of these industry and non-
industry groups shall submit the name of its nominee for a seat on the 
independent subsidiary's Board of Directors, along with relevant 
professional and biographical information about the nominee, to the 
Chairman of the Federal Communications Commission within 14 calendar 
days of the publication of these rules in the Federal Register. Only 
members of the industry or non-industry group that a Board member will 
represent may submit a nomination for that position.
    (d) The Chairman of the Federal Communications Commission shall 
review the nominations submitted by industry and non-industry groups 
and shall select the independent subsidiary's Board of Directors. If an 
industry or non-industry group does not reach consensus on a nominee or 
fails to submit a nomination for a position on the independent 
subsidiary's Board of Directors, the Chairman of the Federal 
Communications Commission shall select an individual to represent such 
group on the independent subsidiary's Board of Directors.
    (e) The directors on the independent subsidiary's Board shall be 
appointed for two-year terms and may be reappointed for subsequent 
terms pursuant to the initial nomination and appointment process 
described in paragraph (d) of this section. If a Board member vacates 
his or her seat prior to the completion of his or her term, the 
independent subsidiary will notify the Common Carrier Bureau of such 
vacancy, and a successor will be chosen pursuant to the initial 
nomination and appointment process described in paragraph (d) of this 
section
    (f) The independent subsidiary's Board of Directors shall convene 
its first meeting within 14 calendar days of the appointment of the 
directors to the independent subsidiary's Board.
    (g) All meetings of the independent subsidiary's Board of Directors 
shall be open to the public and held in Washington, D.C.
    (h) Each member of the independent subsidiary's Board of Directors 
shall be entitled to receive reimbursement for expenses directly 
incurred as a result of his or her participation on the independent 
subsidiary's Board of Directors.


Sec. 69.615  High Cost and Low Income Committee.

    The independent subsidiary's Board of Directors shall require in 
its bylaws the creation of a High Cost and Low Income Committee with 
the power and authority to bind the independent subsidiary's Board of 
Directors on issues relating to the administration of the high cost and 
low-income support mechanisms, as specifically delineated in the 
independent subsidiary's bylaws. The High Cost and Low-Income Committee 
will consist of ten members: the seven service provider representatives 
(i.e., the representatives listed in Sec. 69.614(b)(1) through (4)) and 
the low-income, state consumer advocate, and state telecommunications 
regulator representatives. In the event that a majority of the members 
of the Committee is unable to reach a decision, the Chairman of the 
Committee is authorized to cast an additional vote to resolve the 
deadlock.

[[Page 41308]]

Sec. 69.616  Independent subsidiary functions.

    (a) The independent subsidiary shall be solely responsible for 
administering the universal service support mechanisms for high-cost 
areas and low-income consumers, including billing contributors, 
collecting contributions to the universal service support mechanisms, 
and disbursing universal service support funds. The independent 
subsidiary also shall be required to perform any other duties of the 
Administrator that relate to the billing, collection, and disbursement 
of funds that are specified elsewhere in the Commission's universal 
service rules.
    (b) With respect to the universal service support mechanisms for 
schools, libraries, and rural health care providers, the independent 
subsidiary shall be responsible for billing contributors to the 
universal service support mechanisms, collecting contributions to the 
universal service support mechanisms, and disbursing universal service 
support funds within 20 days following receipt of authorization to 
disburse such funds from the Schools and Libraries Corporation and 
Rural Health Care Corporation.
    (c) The independent subsidiary may advocate positions before the 
Commission and its staff only on administrative matters relating to the 
universal service support mechanisms.
    (d) The independent subsidiary shall maintain books of account 
separate from those of the association. The independent subsidiary's 
books of account shall be maintained in accordance with generally 
accepted accounting principles. The independent subsidiary may borrow 
start-up funds from NECA. Such funds may not be drawn from the 
Telecommunications Relay Services (TRS) fund or TRS administrative 
expense accounts.


Sec. 69.617  Schools and Libraries Corporation and Rural Health Care 
Corporation.

    (a) Schools and Libraries and Rural Health Care Corporations. The 
association shall incorporate two unaffiliated corporations. The two 
corporations shall be not-for-profit, non-stock corporations 
incorporated in the state of Delaware. The corporations shall be 
designated the Schools and Libraries Corporation and the Rural Health 
Care Corporation. After incorporating the Schools and Libraries 
Corporation and the Rural Health Care Corporation, the association 
shall take such steps as are necessary to make the Corporations 
independent of, and unaffiliated with, the association and independent 
subsidiary. The association shall submit to the Commission for approval 
the proposed articles of incorporation, bylaws, and any documents 
necessary to incorporate the Schools and Libraries Corporation and 
Rural Health Care Corporation by August 1, 1997. The Schools and 
Libraries Corporation and Rural Health Care Corporation should continue 
to perform their designated functions, as described in Secs. 69.618 and 
69.619, after the date on which the permanent Administrator is selected 
and commences operations.
    (b) Schools and Libraries Corporation's Board of Directors. The 
Board of Directors of the Schools and Libraries Corporation shall 
consist of seven directors and will be composed as follows:
    (1) The three directors representing eligible schools on the 
independent subsidiary's Board of Directors also shall serve on the 
Board of Directors of the Schools and Libraries Corporation;
    (2) The director representing eligible libraries on the independent 
subsidiary's Board of Directors also shall serve on the Board of 
Directors of the Schools and Libraries Corporation.
    (3) One director representing one of the categories of 
telecommunications service providers on the independent subsidiary's 
Board of Directors also shall serve on the Schools and Libraries 
Corporation's Board of Directors. The independent subsidiary's Board of 
Directors shall select the telecommunications service provider 
representative who will serve on the Schools and Libraries 
Corporation's Board of Directors within seven calendar days of the 
first meeting of the independent subsidiary's Board of Directors;
    (4) One independent director who does not represent schools, 
libraries, or service providers shall be selected by the Chairman of 
the Federal Communications Commission to serve on the Schools and 
Libraries Corporation's Board of Directors. The Chairman of the Federal 
Communications Commission will select such an independent director 
simultaneously with selection of the independent subsidiary's Board 
members.
    (5) The directors representing schools, libraries, and service 
providers and the independent director on the Schools and Libraries 
Corporation's Board of Directors shall submit to the Chairman of the 
Federal Communications Commission a candidate to serve as the Chief 
Executive Officer (CEO) of the Schools and Libraries Corporation. The 
chosen CEO shall serve on the Schools and Libraries Corporation's Board 
of Directors.
    (c) Rural Health Care Corporation's Board of Directors. The Board 
of Directors of the Rural Health Care Corporation shall consist of five 
directors and will be composed as follows:
    (1) The director representing rural health care providers on the 
independent subsidiary's Board of Directors also shall serve on the 
Rural Health Care Corporation's Board of Directors;
    (2) An additional director representing rural health care providers 
also shall serve on the Rural Health Care Corporation's Board of 
Directors. Interested parties shall submit nominations for the 
additional director representing rural health care providers 
simultaneously with submitting nominations for the independent 
subsidiary's Board of Directors, as described in Sec. 69.614(c). The 
Chairman of the Federal Communications Commission will select the 
additional rural health care provider representative simultaneously 
with the selection of the members of the independent subsidiary's Board 
of Directors.
    (3) One director representing one of the categories of 
telecommunications service providers on the independent subsidiary's 
Board of Directors also shall serve on the Rural Health Care 
Corporation's Board of Directors. The independent subsidiary's Board of 
Directors shall select the telecommunications service provider 
representative who will serve on the Rural Health Care Corporation's 
Board within seven calendar days of the first meeting of the 
independent subsidiary's Board of Directors;
    (4) One independent director who does not represent rural health 
care providers or service providers shall be selected by the Chairman 
of the Federal Communications Commission to serve on the Rural Health 
Care Corporation's Board of Directors. The Chairman will select, 
simultaneously with selection of the independent subsidiary's Board of 
Directors, the independent director to serve on the Rural Health Care 
Corporation's Board of Directors;
    (5) The directors representing rural health care providers and 
service providers and the independent director on the Rural Health Care 
Corporation's Board of Directors shall submit to the Chairman of the 
Federal Communications Commission a candidate to serve as the chief 
executive officer (CEO) of the Rural Health Care Corporation. The 
chosen CEO shall serve on the Rural Health Care Corporation's Board of 
Directors.

[[Page 41309]]

    (d) All of the Board members of the Schools and Libraries 
Corporation and Rural Health Care Corporation shall be appointed for 
two-year terms. Directors may be reappointed for subsequent terms 
pursuant to the appointment process used initially to select the 
Corporations' Boards of Directors described in Sec. 69.617 (b) and (c). 
In the event that a director vacates his or her seat prior to the 
completion of his or her term, the Corporation will notify the Common 
Carrier Bureau of such vacancy and a successor will be chosen pursuant 
to the initial nomination and appointment process described in 
Sec. 69.617(b) and (c). Removal of members from the Board of the 
Schools and Libraries Corporation or Rural Health Care Corporation may 
only occur with the approval of the Chairman of the Federal 
Communications Commission.
    (e) All Board of Directors meetings of the Rural Health Care 
Corporation and the Schools and Libraries Corporation shall be open to 
the public and held in Washington, D.C.
    (f) Each member of the Board of Directors of the Rural Health Care 
Corporation and Schools and Libraries Corporation shall be entitled to 
receive reimbursement for expenses directly incurred as a result of his 
or her participation on such Board of Directors.


Sec. 69.618  Rural Health Care Corporation functions.

    (a) The Rural Health Care Corporation shall perform the following 
functions as they relate to the support mechanisms for eligible rural 
health care providers:
    (1) Administering the application process for rural health care 
providers, including the dissemination, processing, and review of 
applications for service from rural health care providers;
    (2) Creating and maintaining a website on which applications for 
services will be posted on behalf of rural health care providers;
    (3) Performing outreach and public education functions;
    (4) Reviewing bills for services that are submitted by rural health 
care providers on which service providers designate the amount of 
universal service support they should receive for services rendered and 
on which rural health care providers and confirm that they have 
received such services;
    (5) Monitoring demand for the purpose of determining when the $400 
million cap has been reached in the case of the rural health care 
providers program;
    (6) Submitting to the Commission all quarterly projections of 
demand and administrative expenses, as described in Sec. 54.709(a)(3) 
of this chapter;
    (7) Informing the independent subsidiary, as quickly as possible, 
but no later than 20 days following the Rural Health Care Corporation's 
receipt of the bills for services, of the amount of universal service 
support to be disbursed to service providers;
    (8) Authorizing the performance of audits of rural health care 
provider beneficiaries of universal service support; and
    (9) Any other function relating to the administration of the rural 
health care program that is not specifically assigned to the 
independent subsidiary.
    (b) The Rural Health Care Corporation shall maintain books of 
account separate from those of the association, the independent 
subsidiary, and the Schools and Libraries Corporation. The Rural Health 
Care Corporation's books of account shall be maintained in accordance 
with generally accepted accounting principles.
    (c) The Rural Health Care Corporation may borrow start-up funds 
from the association or the independent subsidiary, but such funds may 
not come from the Telecommunications Relay Services (TRS) fund or TRS 
administrative expense accounts.
    (d) The Rural Health Care Corporation shall make available to 
whomever the Commission directs, free of charge, any and all 
intellectual property, including, but not limited to, all records and 
information generated by or resulting from its role in administering 
the rural health care program, if its participation in administering 
the rural health care program ends. The Rural Health Care Corporation 
must specify any property it proposes to exclude from the foregoing 
types of property based on the existence of such property prior to the 
incorporation of the Rural Health Care Corporation.


Sec. 69.619  Schools and Libraries Corporation functions.

    (a) The Schools and Libraries Corporation shall perform the 
following functions as they relate to the support mechanisms for 
eligible schools and libraries:
    (1) administering the application process for schools and libraries 
including the dissemination, processing, and review of applications for 
service from schools and libraries;
    (2) creating and maintaining a website on which applications for 
services will be posted on behalf of schools and libraries;
    (3) performing outreach and public education functions;
    (4) reviewing bills for services that are submitted by schools and 
libraries and on which service providers designate the amount of 
universal service support they should receive for services rendered and 
on which schools and libraries confirm that they have received such 
services;
    (5) monitoring demand for the purpose of determining when the $2 
billion trigger has been reached in the case of the schools and 
libraries program;
    (6) submitting to the Commission all quarterly projections of 
demand and administrative expenses, as described in Sec. 54.709(a)(3) 
of this chapter;
    (7) informing the independent subsidiary, as quickly as possible, 
but no later than 20 days following the Schools and Libraries 
Corporation's receipt of the bills for services, of the amount of 
universal service support to be disbursed to service providers;
    (8) authorizing the performance of audits of schools and libraries 
beneficiaries of universal service support; and
    (9) any other function relating to the administration of the 
schools and libraries programs that is not specifically assigned to the 
independent subsidiary.
    (b) The Schools and Libraries Corporation shall implement the rules 
of priority in accordance with Sec. 54.507(f) of this chapter.
    (c) The Schools and Libraries Corporation may review and certify 
schools' and libraries' technology plans when a state agency has 
indicated that it will be unable to review such plans within a 
reasonable time.
    (d ) The Schools and Libraries Corporation shall classify schools 
and libraries as urban or rural and use the discount matrix established 
in Sec. 54.505(c) of this chapter to set the discount rate to be 
applied to services purchased by eligible schools and libraries.
    (e) The Schools and Libraries Corporation shall maintain books of 
account separate from those of the association, the independent 
subsidiary, and the Rural Health Care Corporation. The Schools and 
Libraries Corporation's books of account shall be maintained in 
accordance with generally accepted accounting principles.
    (f ) The Schools and Libraries Corporation may borrow start-up 
funds from the association or the independent subsidiary, but such 
funds may not come from the Telecommunications Relay Services (TRS) 
fund or TRS administrative expense accounts.
    (g) The Schools and Libraries Corporation shall make available to

[[Page 41310]]

whomever the Commission directs, free of charge, any and all 
intellectual property, including, but not limited to, all records and 
information generated by or resulting from its role in administering 
the schools and libraries program, if its participation in 
administering the schools and libraries program ends. The Schools and 
Libraries Corporation must specify any property it proposes to exclude 
from the foregoing types of property based on the existence of such 
property prior to the incorporation of the Schools and Libraries 
Corporation.


Sec. 69.620  Administrative expenses of independent subsidiary, Schools 
and Libraries Corporation, and Rural Health Care Corporation.

    (a) The annual administrative expenses of the independent 
subsidiary, Schools and Libraries Corporation, and Rural Health Care 
Corporation should be commensurate with the administrative expenses of 
programs of similar size and may include, but are not limited to, 
salaries of officers and operations personnel, the costs of borrowing 
funds, equipment costs, operating expenses, directors' expenses, and 
costs associated with auditing contributors or support recipients.
    (b) The independent subsidiary, Schools and Libraries Corporation, 
and Rural Health Care Corporation shall submit to the Commission 
projected quarterly budgets at least 60 days prior to the start of 
every quarter. The Commission must approve the projected quarterly 
budgets before the independent subsidiary disburses funds for 
administrative expenses to the Schools and Libraries Corporation and 
Rural Health Care Corporation. The Schools and Libraries Corporation's 
and Rural Health Care Corporation's administrative expenses shall be 
paid from the universal support mechanisms. The administrative expenses 
of the Schools and Libraries Corporation and Rural Health Care 
Corporation shall be deducted from their respective programs' annual 
funding, which is capped at $2.25 billion in the case of the schools 
and libraries program, as established in Sec. 54.507 of this chapter, 
and capped at $400 million in the case of the rural health care 
providers program, as established in Sec. 54.623 of this chapter. The 
Schools and Libraries Corporation and Rural Health Care Corporation 
shall receive payments for administrative expenses from the permanent 
Administrator under the same terms as they shall receive payments 
pursuant to this paragraph.


Sec. 69.621  Audits of independent subsidiary, Schools and Libraries 
Corporation, and Rural Health Care Corporation.

    The independent subsidiary, the Schools and Libraries Corporation, 
and the Rural Health Care Corporation shall obtain and pay for annual 
audits conducted by independent auditors to examine their operations 
and books of account to determine, among other things, whether they are 
properly administering the universal service support mechanisms to 
prevent fraud, waste, and abuse:
    (a) Before selecting an independent auditor, the independent 
subsidiary, Schools and Libraries Corporation, and Rural Health Care 
Corporation shall submit preliminary audit requirements, including the 
proposed scope of the audits and the extent of compliance and 
substantive testing, to the Common Carrier Bureau Audit Staff;
    (b) The Common Carrier Bureau Audit Staff shall review the 
preliminary audit requirements to determine whether they are adequate 
to meet the audit objectives. The Common Carrier Bureau Audit Staff 
shall prescribe modifications that shall be incorporated into the final 
audit requirements;
    (c) After the audit requirements have been approved by the Common 
Carrier Bureau Audit Staff, the independent subsidiary, Schools and 
Libraries Corporation, and Rural Health Care Corporation each shall 
engage within 30 calendar days an independent auditor to conduct the 
annual audit required by this subsection. In making their selections, 
the independent subsidiary, Schools and Libraries Corporation, and 
Rural Health Care Corporation shall not engage any independent auditor 
who has been involved in designing any of the accounting or reporting 
systems under review in the audit;
    (d) The independent auditors selected by the independent 
subsidiary, Schools and Libraries Corporation, and Rural Health Care 
Corporation to conduct the annual audits shall develop detailed audit 
programs based on the final audit requirements and submit them to the 
Common Carrier Bureau Audit Staff. The Common Carrier Bureau Audit 
Staff shall review the audit programs and make modifications, as 
needed, that shall be incorporated into the final audit programs. 
During the course of the audits, the Common Carrier Bureau Audit Staff 
may direct the independent auditors to take any actions necessary to 
ensure compliance with the audit requirements;
    (e) During the course of the audits, the independent auditors 
shall:
    (1) Inform the Common Carrier Bureau Audit Staff of any revisions 
to the final audit programs or to the scope of the audits;
    (2) Notify the Common Carrier Bureau Audit Staff of any meetings 
with the independent subsidiary, the association, Schools and Libraries 
Corporation, or Rural Health Care Corporation in which audit findings 
are discussed;
    (3) Submit to the Chief of the Common Carrier Bureau, any 
accounting or rule interpretations necessary to complete the audit.
    (f) Within 60 calendar days after the end of the audit period, but 
prior to discussing the audit findings with the independent subsidiary, 
the association, Schools and Libraries Corporation, or Rural Health 
Care Corporation, the independent auditors shall be instructed to 
submit drafts of the audit reports to the Common Carrier Bureau Audit 
Staff;
    (g) The Common Carrier Bureau Audit Staff shall review the audit 
findings and audit workpapers and offer its recommendations concerning 
the conduct of the audits or the audit findings to the independent 
auditors. Exceptions of the Common Carrier Bureau Audit Staff to the 
findings and conclusions of the independent auditors that remain 
unresolved shall be included in the final audit reports;
    (h) Within 15 calendar days after receiving the Common Carrier 
Bureau Audit Staff's recommendations and making any revisions to the 
audit reports, the independent auditors shall submit the audit reports 
to the respective audit subjects for their responses to the audit 
findings. At this time they must also send copies of their audit 
findings to the Common Carrier Bureau Audit Staff. The independent 
auditors shall be provided additional time to perform additional audit 
work recommended by the Common Carrier Bureau Audit Staff;
    (i) Within 30 calendar days after receiving the audit reports, the 
audit subjects shall respond to the audit findings and send copies of 
their responses to the Common Carrier Bureau Audit Staff. Any reply 
that the independent auditors wish to make to the audit subjects' 
responses shall be sent to the Common Carrier Bureau Audit Staff as 
well as the audit subjects. The audit subjects' responses and the 
independent auditors' replies shall be included in the final audit 
reports;
    (j) Within 10 calendar days after receiving the responses of the 
audit subjects, the independent auditors shall file with the Commission 
the final audit reports;
    (k) Based on the final audit reports, the Chief of the Common 
Carrier Bureau may take any action necessary to ensure that the 
universal service support

[[Page 41311]]

mechanisms operate in a manner consistent with the requirements of part 
54 of this chapter, as well as such other action as is deemed necessary 
and in the public interest.


Sec. 69.622  Transition to the permanent Administrator.

    (a) If the association or the independent subsidiary is not 
appointed the permanent Administrator, the association, independent 
subsidiary, Schools and Libraries Corporation, and Rural Health Care 
Corporation shall cooperate fully in making the permanent Administrator 
operational.
    (b) The association and independent subsidiary shall take all steps 
necessary to maintain the division of responsibilities between the 
association, independent subsidiary, Schools and Libraries Corporation, 
and Rural Health Care Corporation as set forth in parts 54 and 69 of 
this chapter or such other steps that the Commission may order.

[FR Doc. 97-20017 Filed 7-31-97; 8:45 am]
BILLING CODE 6712-01-U