[Federal Register Volume 63, Number 141 (Thursday, July 23, 1998)]
[Proposed Rules]
[Pages 39549-39552]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-19707]


=======================================================================
-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 54 and 69

[CC Docket Nos. 97-21 and 96-45; DA 98-1336]


Federal Universal Service Support Mechanisms

AGENCY: Federal Communications Commission.

ACTION: Proposed rule; request for comments.

-----------------------------------------------------------------------

SUMMARY: In this document, the Commission seeks comment on the Report 
and Proposed Plan of Reorganization (Plan) filed on July 1, 1998 by the 
Universal Service Administrative Company (USAC), the Schools and 
Libraries Corporation (SLC), and the Rural Health Care Corporation 
(RHCC). The Plan proposes a revised administrative structure of the 
federal universal service support mechanisms. RHCC filed a Separate 
Statement of the Rural Health Care Corporation and Request for Three 
Changes in the Plan, dissenting from certain provisions of the proposed 
Plan. In this document, the Commission also seeks comment on other 
issues regarding the administration of the federal universal service 
support mechanisms, including processes for Commission review of 
actions by USAC, SLC, and RHCC.

DATES: Comments are due on or before August 5, 1998 and Reply Comments 
are due on or before August 12, 1998.

ADDRESSES: One original and six copies of all comments and reply 
comments should be sent to the Commission's Secretary, Magalie Roman 
Salas, Office of the Secretary, Federal Communications Commission, 1919 
M Street, N.W., Room 222, Washington, D.C. 20554. All filings should 
refer to USAC Plan of Reorganization, CC Docket Nos. 97-21 and 96-45, 
and DA 98-1336. Parties also may file comments electronically via the 
Internet at: <http://www.fcc.gov/e-file/ecfs.html>. Only one copy of an 
electronic submission must be submitted. In completing the transmittal 
screen, commenters should include their full name, Postal Service 
mailing address, and the lead docket number for this proceeding, which 
is Docket No. 97-21. Parties not submitting their comments via the 
Internet are also asked to submit their comments on diskette. Parties 
submitting diskettes should submit them to Sheryl Todd, Accounting 
Policy Division, 2100 M Street, N.W., Room 8606, Washington, D.C. 
20554. Such a submission should be on a 3.5 inch diskette formatted in 
an IBM compatible format using WordPerfect 5.1 for Windows or 
compatible software. The diskette should be accompanied by a cover 
letter and should be submitted in ``read only'' mode. The diskette 
should be clearly labelled with the party's name, proceeding (including 
the lead docket number in this case, Docket No. 97-21), type of 
pleading (comment or reply comment), date of submission, and the name 
of the electronic file on the diskette. Each diskette should contain 
only one party's pleadings, preferably in a single electronic file. In 
addition, parties must send copies to the Commission's copy contractor, 
International Transcription Service, Inc., 1231 20th Street, N.W., 
Washington, D.C. 20037.

FOR FURTHER INFORMATION CONTACT: Sharon Webber, Attorney, Common 
Carrier Bureau, Accounting Policy Division, (202) 418-7400 or Adrian 
Wright, Common Carrier Bureau, Accounting Policy Division, (202) 418-
7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
document released on July 15, 1998. The full text of this document and 
the Plan are available for public inspection during regular business 
hours in the FCC Reference Center, Room 239, 1919 M Street, N.W., 
Washington, D.C., 20554. An electronic copy of the complete plan of 
reorganization also may be found on the Commission's Universal Service 
Web Page at <www.fcc.gov/ccb/universal__service/usacjuly.pdf>.

Background

    1. In connection with supplemental appropriations legislation 
enacted on May 1, 1998, Congress requested that the Commission propose 
a single entity to administer the support mechanisms for schools and 
libraries and rural health care providers. In its Report to Congress, 
the Commission proposed to merge the Schools and Libraries Corporation 
(SLC) and the Rural Health Care Corporation (RHCC) into the Universal 
Service Administrative Company (USAC) as the single entity responsible 
for administering the universal service support mechanisms for schools, 
libraries and rural health care providers by January 1, 1999. The 
Commission indicated that USAC, SLC and RHCC would be required jointly 
to prepare and submit a plan of reorganization, for approval by the 
Commission.
    2. On July 1, 1998, SLC, RHCC and USAC filed a Report and Proposed 
Plan of Reorganization (Plan) for revising the administrative structure 
of the federal universal service support mechanisms. RHCC filed a 
Separate Statement of the Rural Health Care Corporation and Request for 
Three Changes in the Plan (RHCC Statement), proposing certain 
modifications to the Plan. In this document, we seek comment from 
interested parties on issues raised by the Plan and the RHCC Statement. 
We also seek comment on other issues regarding the administration of 
the federal universal service support mechanisms, including processes 
for Commission review of actions by USAC, RHCC and SLC, divestiture of 
USAC from the National Exchange Carrier Association (NECA), and 
compensation limitations.

Issues for Comment

Revised Administrative Structure

    3. USAC, SLC, and RHCC have proposed a plan to merge SLC and RHCC 
into USAC as the single entity responsible for administering the 
universal service support mechanisms for schools, libraries and rural 
health care providers by January 1, 1999. As described more fully in 
the Plan, USAC would consist of three divisions--the High Cost & Low 
Income Division, the Schools and Libraries Division, and the Rural 
Health Care Division. The current USAC Board consists of seventeen 
members representing a cross-section of industry and beneficiary 
interests. Under the revised administrative structure, the USAC Board 
of Directors (the Board) would consist of seventeen

[[Page 39550]]

members plus the USAC Chief Executive Officer (CEO). In addition, the 
Plan proposes that two new committees of the USAC Board would be 
established to oversee the schools and libraries and rural health care 
support mechanisms. Any action taken by the Rural Health Care, Schools 
and Libraries, and High Cost and Low Income committees with regard to 
their respective support mechanisms would be binding on the Board, 
unless such action is presented for review to the full Board by the 
USAC CEO and the Board disapproves of such action by a two-thirds vote 
of a quorum of directors. However, all committee budgetary matters 
would be presented to the full USAC Board and could be disapproved by a 
two-thirds vote of a quorum of directors. Under the Plan, the USAC CEO 
would manage all three universal service support mechanisms.
    4. We seek comment on whether vesting the consolidated USAC with 
the administrative responsibilities for all of the universal service 
support mechanisms would best further the goals of efficient 
administration and accountability. We also seek comment on whether the 
Plan fulfills the goal of administrative efficiency while preserving 
the distinct missions of the three universal service support 
mechanisms. We seek comment on any other administrative structures the 
Commission could adopt. To the extent that parties suggest alternative 
structures, we urge them to provide as much detail as possible, and to 
evaluate fully the benefits and disadvantages of such structure in 
comparison to USAC's Plan. We also seek comment on the proposed 
functions and composition of the three committees of the Board, as 
described in the Plan.
    5. Although the Plan is silent on the selection process for the 
USAC CEO, we seek comment on whether the Commission should adopt the 
procedure that currently applies to the selection of a CEO for SLC and 
RHCC. Under that procedure, the consolidated USAC Board would submit to 
the Chairman of the Commission a candidate to serve as the USAC CEO. 
Final selection of that individual would be subject to the approval of 
the Chairman of the Commission.
    6. In the RHCC Statement, RHCC proposes three modifications to the 
proposed Plan. First, RHCC proposes that two additional rural health 
care representatives serve on the USAC Board and that the Plan identify 
the individuals who initially would serve on the combined Board and the 
individuals who would serve on the initial Rural Health Care Committee. 
Second, RHCC proposes that the RHCC Committee have the authority to 
bind the full USAC Board with regard to all of the Committee's 
programmatic functions and that Committee decisions not be subject to 
disapproval by a two-thirds vote of a quorum of the Board. Third, while 
RHCC agrees that the CEO should have the authority to hire and fire the 
division heads, RHCC proposes that the RHCC division head be granted 
the authority to hire and fire division staff. We seek comment on 
RHCC's proposals.

Compensation Limitations

    7. In the Commission's recent order regarding funding for the 
schools and libraries universal service support mechanism, the 
Commission concluded that the Administrator must, as a condition of its 
continued service, compensate all officers and employees of SLC and 
RHCC at an annual rate of pay, including any non-regular payments, 
bonuses, or other compensation, that does not exceed the rate of basic 
pay in effect for Level I of the Executive Schedule under section 5312 
of Title 5 of the United States Code. The Commission further stated 
that such level of compensation would apply, effective July 1, 1998, to 
all officers and employees of SLC and RHCC, as currently organized, as 
well as to all such officers and employees in the consolidated 
administrative corporation following reorganization on January 1, 1999. 
We seek comment on whether compensation limitations also should apply 
to all USAC officers and employees, including, for example, those 
responsible for administering the support mechanisms for high cost 
areas and low income consumers as well as those responsible for 
performing the billing and collection functions for all of the support 
mechanisms. We also seek comment on whether such compensation 
limitations should apply to officers and employees of NECA.

USAC's Permanence and Divestiture From NECA

    8. In the Report to Congress, the Commission proposed that the 
revised administrative structure be made permanent, subject to the 
Commission's review and determination after one year that the new 
structure is administering the distribution of universal service 
support and benefits to eligible entities in an efficient, effective 
and competitively neutral manner. We seek comment on the Commission's 
proposal to designate USAC as the permanent Administrator. In the 
Report to Congress, the Commission further proposed that, pending 
Commission review of USAC's performance after one year, USAC should be 
divested from NECA. The Plan proposes to divest USAC from NECA as soon 
as possible. We seek comment on the proposed divestiture of USAC from 
NECA and the timing of such divestiture.

FCC Oversight

    9. The Commission has always retained ultimate control over the 
operation of the federal universal service support mechanisms through 
its authority to establish the rules governing the support mechanisms 
and to review all decisions concerning administration of the support 
mechanisms. The consolidated USAC would continue to be accountable to 
the Commission pursuant to the procedures that currently apply to USAC, 
SLC, and RHCC. SLC and RHCC have the authority to direct the 
performance of audits of schools and libraries and rural health care 
provider beneficiaries of universal service support. The Commission 
also oversees the structure and content of the annual independent audit 
that USAC, SLC, and RHCC are required to undertake.
    10. The Commission will levy a forfeiture for a violation of the 
Act under section 503(b)(1)(B) and (2)(C) of the Act. Furthermore, 
persons found willfully to have made false statements to the Commission 
may be subject to criminal penalties under Title 18 of the United 
States Code.
    11. We note that parties already have asked the Commission what 
procedures will be used to review decisions by SLC, RHCC, and USAC. Any 
affected party may seek review from the Commission using existing 
Commission procedures. However, until a revised administrative 
structure is adopted, we strongly encourage parties seeking relief from 
a decision of USAC, SLC, or RHCC to seek initial reconsideration from 
SLC, RHCC or the High Cost and Low Income Committee, as appropriate.
    12. In the Report to Congress, the Commission proposed to establish 
specific appeal procedures under which administrative decisions made by 
USAC would be reviewable by the Commission. We seek comment on the 
following proposal: An affected party would be permitted to file with 
the Common Carrier Bureau (the Bureau), within sixty days of an action 
taken by USAC, a petition for Commission review. The Bureau would have 
delegated authority to rule on such petition and if the Bureau took no 
action within sixty days, USAC's decision would be deemed approved by 
the Bureau. As with other decisions made by the Bureau acting pursuant 
to its

[[Page 39551]]

delegated authority, parties could seek Commission review of the 
Bureau's decision. The Bureau also would have the authority to review 
the decisions of USAC at any time on the Bureau's own motion. The 
Bureau would conduct de novo review of appeals from USAC decisions. If 
an application for discounted services or support is approved, and that 
approval is appealed to the Commission, the pendency of that appeal 
would not affect the eligibility of the applicant to receive discounted 
services, nor would it prevent reimbursement of carriers for discounted 
services provided to such applicants. We seek comment on all aspects of 
this proposal. At the same time, we propose to limit the Bureau's 
authority to issues that are not novel questions of fact, law or 
policy. We seek comment on this proposal. We also seek comment on 
whether state procurement rules or other state experiences may serve as 
useful models in addressing appeals of USAC's decisions.
    13. In addition, we seek comment on whether a party affected by a 
decision made by the division staff should be required to seek relief 
from the appropriate committee of the Board before filing an appeal 
with the Commission. Similarly, if the relief sought pertains to a 
matter that is solely within the jurisdiction of the full USAC Board, 
we seek comment on whether the affected party should be required to 
seek relief from the full USAC Board before filing an appeal with the 
Commission. We also seek comment on the timing issues that would be 
raised if the USAC CEO chose to bring the matter before the full USAC 
Board under the supermajority procedure. In addition, we seek comment 
on other ways in which the appeals process may be made as fair and 
efficient as possible.
    14. To foster greater accountability of the consolidated USAC 
entity, the Commission proposed in the Report to Congress that, in 
connection with its annual audit, USAC prepare and file with Congress 
and the Commission an annual report describing all significant aspects 
of its structure and operations for the preceding year. We seek comment 
on this proposal and on ways to structure such a report to enhance the 
Commission's oversight of USAC's administration and operations.
    15. We seek comment on whether there are any additional enforcement 
mechanisms that the Commission should invoke. Furthermore, we seek 
comment on what action the Commission should take if it is determined 
that an application was approved and funds subsequently disbursed 
erroneously.

Regulatory Flexibility Analysis

    16. The Regulatory Flexibility Act (RFA) requires that a regulatory 
flexibility analysis be prepared for notice and comment rulemaking 
proceedings, unless the agency certifies that ``the rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities.'' The RFA generally defines ``small entity'' as 
having the same meaning as the terms ``small business,'' ``small 
organization,'' and ``small governmental jurisdiction.'' A small 
organization is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
This regulatory flexibility analysis supplements our prior 
certification and analyses.
    17. Supplemental Regulatory Flexibility Certification. In the NECA 
Governance Order, the Commission directed NECA, as a condition of its 
service as temporary Administrator of the universal service support 
mechanisms, to create an independent subsidiary, USAC, to administer 
temporarily certain aspects of the universal service support mechanisms 
and to establish SLC and RHCC to administer specific aspects of the 
universal service mechanisms for schools and libraries and rural health 
care providers. In that Order, the Commission concluded that NECA is 
not a small organization within the meaning of the RFA, finding that 
NECA is a non-profit association that was created to administer the 
Commission's interstate access tariff and revenue distribution 
processes. On this basis, the Commission certified pursuant to the RFA 
that the rules adopted in the NECA Governance Order would not have a 
significant economic impact on a substantial number of small entities.
    18. This document seeks comment on the proposed plan to merge SLC 
and RHCC into USAC as the single entity responsible for the 
administration of the universal service support mechanisms for schools, 
libraries and rural health care providers. We also seek comment on a 
proposal to require USAC to prepare and file with Congress and the 
Commission an annual report describing all significant aspects of its 
structure and operations for the preceding year. For the same reasons 
stated in the NECA Governance Order, we find that NECA is not a small 
organization within the meaning of the RFA. Similarly, USAC, as a 
wholly-owned, non-profit subsidiary of NECA, is not a small 
organization. SLC and RHCC are non-profit corporations created by NECA 
as a condition of its service as temporary Administrator. Even if NECA, 
USAC, SLC and RHCC are small entities, we certify that the 
reorganization of SLC, RHCC, and USAC proposed here will affect 
directly only those four entities and thus will not have a direct, 
significant impact on a substantial number of small entities. We 
therefore certify, pursuant to RFA, 5 USC 605(b), that this action will 
not have a significant economic impact on a substantial number of small 
entities.
    19. Supplemental Regulatory Flexibility Analysis. This document 
seeks comment on the proposed procedures under which administrative 
decisions made by USAC would be reviewable by the Commission. This 
document also seeks comment on the enforcement mechanisms the 
Commission should invoke in connection with the universal service 
support mechanisms. We previously performed a regulatory flexibility 
analysis regarding the implementation of the universal service support 
mechanisms. This supplemental regulatory flexibility analysis addresses 
possible changes to our previous analyses that might result from our 
proposal here.
    20. The Commission is required by sections 254(a)(2) and 410(c) of 
the Act to propose rules to implement properly the universal service 
support mechanisms. In this document, the Commission proposes 
procedures under which administrative decisions made by USAC would be 
reviewable by the Commission. This document also seeks comment on 
whether a party affected by a decision made by the division staff of 
USAC should be required to seek relief from the appropriate committee 
of the USAC Board before filing an appeal with the Commission. Specific 
appeal procedures are necessary to ensure that the Commission retains 
ultimate authority over the implementation of universal service support 
mechanisms. The description of the small entities to which the proposed 
rules would apply is set forth in the Universal Service Order and 
continues to apply to our analysis. The Commission proposes a two-level 
appeal process. We do not believe that such a requirement will have a 
significant economic impact on the small entities affected by the 
process. Affected parties will benefit from review by the appropriate 
committee of the full USAC Board instead of having to resort to full 
Commission review in the first instance. We seek comment on these 
tentative conclusions.
    21. The Commission's Office of Public Affairs Reference Operations 
Division, will send a copy of this document,

[[Page 39552]]

including this certification, to the Chief Counsel for Advocacy of the 
Small Business Administration.

Ex Parte

    22. Pursuant to 47 CFR 1.1206, this proceeding will be conducted as 
a permit-but-disclose proceeding in which ex parte communications are 
permitted subject to disclosure.

List of Subjects

47 CFR Part 54

    Healthcare providers, Libraries, Schools, Telephone.

47 CFR Part 69

    Communications common carriers.

Federal Communications Commission.
Kathryn C. Brown,
Chief Common Carrier Bureau.

Statement of Commissioner Harold Furchtgott-Roth

Re: Proposal to Revise Administrative Structure for Federal Universal 
Service Support Mechanisms; (CC Docket No 96-45)

July 15, 1998.
    Today the Common Carrier Bureau releases a Public Notice seeking 
comment on the Universal Service Administrative Company's (USAC) 
proposed plan for reorganization of the universal service 
administrative structures. The proposal for consolidating the three 
corporations is a good first step in reaching a more rational and 
efficient structure to administer universal service. I also appreciate 
that the Bureau is following up on the Commission's commitment in its 
May 8, 1998 report to Congress to ``establish a procedure under which 
administrative decisions made by USAC would be reviewable by the 
Commission.'' I have reservations, however, about the details of these 
proposals, including the specific functions of the consolidated entity 
and the Bureau's proposed procedures for Commission oversight.
    Section 2005(b)(2)(A) of Senate Bill 1768, which prompted these 
revisions, provides for an extremely limited administrative entity:
    [T]he entity proposed by the Commission to administer the program--
(i) is limited to implementation of the FCC rules for applications for 
discounts and processing the application necessary to determine 
eligibility for discounts under section 254(h) of the Communications 
Act of 1934 (47 U.S.C. 254(h)) as determined by the Commission: (ii) 
may not administer the program in any manner that requires that entity 
to interpret the intent of Congress in establishing the programs or 
interpret any rule promulgated by the Commission in carrying out the 
programs, without appropriate consultation and guidance from the 
Commission.
    In light of such limited administrative functions, I fail to see 
the need for such bureaucratic corporations with formal multiple 
committees. If the overall entity is prohibited from setting policy and 
limited to the function of processing applications, then any 
subcommittee must be similarly constrained. But what kinds of decisions 
will any subcommittee be making that would be of such paramount 
interest to the program that it would be necessary to bind the full 
USAC board absent a supermajority? In establishing an entity to review 
and process the applications, the Commission is merely contracting out 
administrative functions. All decisions regarding where the money 
should be going and how it should be distributed should--indeed must--
be made by the Commission.
    I am also concerned that the Commission itself is insufficiently 
involved in the decision-making process under the Bureau's proposal. 
For example, an affected party would file a petition for review first 
with the Common Carrier Bureau, who would have specific delegated 
authority to rule on the petitions with possible appeal to the full 
Commission. I would prefer that the full Commission be more actively 
involved in overseeing the administration of these new programs. For 
example. unless amended, this process would allow for Bureau approval 
of USAC decisions without an order explaining their reasoning. My 
concerns regarding sufficient Commission involvement earlier in the 
process are only exacerbated by the Bureau's proposal to allow 
applicants to receive discounted services and carriers to be reimbursed 
during the pendency of such an appeal. Thus, If the Bureau failed to 
act for any number of reasons, public funds would still be disbursed 
while a potentially valid challenge remained. What assurances are there 
for taxpayers that erroneous payments will be returned?
    I also fail to see the need for any party to be required to appeal 
a USAC staff decision first to the USAC Board, and possibly even to the 
relevant committee of the Board, as proposed. USAC has no policy-making 
or adjudicative authority. As such, an affected party should be able to 
seek relief directly from the full Commission, or the Bureau if 
appropriate under delegated authority.
    Moreover, my concerns regarding appropriate Commission oversight 
are heightened by the fact that the proposed committees of USAC would 
have the power to bind the USAC Board regarding matters within their 
expertise, absent a supermajority of the full USAC Board voting to 
override the committee's actions. Matters within the Schools and 
Libraries Committee's expertise. For example, include ``developing and 
implementing other distinctive program functions.'' I am concerned with 
such open-ended authority, especially in light of the protracted 
procedure for Commission review. I encourage parties to take these 
issues into account when commenting on the proposed structure.
    I believe that the full Commission must take a more active role in 
the direct oversight of these quasi-public companies. Congress clearly 
favors a more efficient organization of only limited administrative 
functions, without the ability to ``interpret the intent of Congress'' 
or ``any rule promulgated by the Commission.\1\ While a good start, 
this public notice fails to ensure meaningful and early Commission 
involvement in budgetary decisions and the policy-making process.\2\
---------------------------------------------------------------------------

    \1\ Section 2005(b) of Senate Bill 1768.
    \2\ For example, I am concerned about the degree of oversight 
that is being exercised regarding administrative and start-up costs. 
In their latest filing, the Schools and Libraries Corporation 
indicates that it paid NECA $1.86 million in start-up costs, more 
than three time the original estimate, and it is still not able to 
provide an accurate estimate of all its administrative costs for the 
first quarter. Third Quarter 1998 Fund Size Requirements for the 
Schools and Libraries Universal Service Program, dated May 1, 1998.
---------------------------------------------------------------------------

    Finally, I remain concerned that the report fails to address fully 
the issues raised by the GAO report regarding the legality of the 
Commission creating any new corporations without specific statutory 
authority. I fail to see how the Commission can direct that these 
corporations continue to act without first receiving the requisite 
authorization from Congress, and urge others to comment on this aspect 
of the revised organization.

[FR Doc. 98-19707 Filed 7-22-98; 8:45 am]
BILLING CODE 6712-01-M