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###### Federal Communications Commission

          - 47 CFR Part 54 
          - [CC Docket No. 96-45, FCC 01-143] 

# AGENCY:

Federal Communications Commission. 

# ACTION:

Notice of proposed rule. 

# SUMMARY:

In this document, the Commission proposes a revised method for allocating discounts to schools and libraries under the federal universal service mechanism when there is insufficient funding to support all requests for internal connections. The Commission also seeks comment on proposed administrative modifications to our rules to provide additional time for recipients under the schools and libraries universal service support mechanism to implement contracts or agreements with service providers for non-recurring services. 

# DATES:

Comments are due on or before May 23, 2001. Reply comments are due on or before May 30, 2001. 

# ADDRESSES:

                        All filings must be sent to the Commission's Secretary, Magalie Roman Salas, Office of the Secretary, Federal Communications Commission, 445 12th Street, S.W., Washington, D.C. 20554. Parties should also send three paper copies of their filings to Sheryl Todd, Accounting Policy Division, Common Carrier Bureau, Federal Communications Commission, 445 Twelfth Street, S.W., Room 5-B540, Washington, D.C. 20554. Parties who choose to file by paper should also submit their comments on diskette. These diskettes should be submitted to Sheryl Todd, Accounting Policy Division, Common Carrier Bureau, Federal Communications Commission, 445 Twelfth Street, S.W., Room 5-B540, Washington, D.C. 20554. The diskette should be clearly labeled with the commenter's name, proceeding, including the lead docket number in the proceeding (CC Docket No. 96-45), type                               ( print page 23205)                            of pleading (comment or reply comment), date of submission, and the name of the electronic file on diskette. In addition, commenters must send diskette copies to the Commission's copy contractor, International Transcription Services, Inc., 1231 20th Street, N.W., Washington, D.C. 20037.                     

# FOR FURTHER INFORMATION CONTACT:

Katherine Tofigh, Attorney, Common Carrier Bureau, Accounting Policy Division, (202) 418-7400. 

# SUPPLEMENTARY INFORMATION:

This is a summary of the Commission's Further Notice of Proposed Rulemaking (FNPRM) in CC Docket No. 96-45 released on April 30, 2001. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 Twelfth Street, S.W., Washington, D.C., 20554. 

## I. Introduction 

                    1. The Commission's rules require schools and libraries to implement services for which discounts have been committed by the Administrator within the funding year for which the discounts were sought. The Commission's May 8, 1997,                     *Universal Service Order,*62 FR 32862 (June 17, 1997), established a calendar funding year (January 1—December 31) for schools and libraries receiving universal service support. On September 10, 1997, the Common Carrier Bureau released a                     *Public Notice,*62 FR 48280, September 15, 1997, seeking comment on Universal Service Support Distribution Options for School, Libraries, and Rural Health Care Providers. The Commission subsequently issued its                     *Fifth Reconsideration Order,*63 FR 38089, July 15, 1998, which changed the funding year for schools and libraries support to a fiscal year (July 1-June 30).                 

                    2. In the                     *Tenth Reconsideration Order,*64 FR 22806, April 28, 1999, the Commission extended the deadline for schools and libraries to use their discounts on non-recurring services from June 30, 1999 to September 30, 1999, which allowed schools and libraries to implement non-recurring services in the summer months, when schools were in recess. On May 4, 2000, the Common Carrier Bureau (Bureau) extended the Year 2 deadline for schools and libraries to use their discounts on non-recurring services from June 30, 2000 (the end of the funding period) to September 30, 2000.                 

3. In this Further Notice of Proposed Rulemaking (FNPRM), we propose a revised method for allocating discounts to schools and libraries under the federal universal service mechanism when there is insufficient funding to support all requests for internal connections. Specifically, we seek comment on a proposed rule change to give funding priority to requests for internal connections made by individual schools and libraries that did not receive funding commitments for internal connections during the previous funding year. With many schools and libraries having already benefited from several years of discounts for internal connections under the existing mechanism, we conclude that it is appropriate to reconsider the rules of priority to ensure that discounts continue to go to those most in need. 

4. We also seek comment on proposed administrative modifications to our rules to provide additional time for recipients under the schools and libraries universal service support mechanism to implement contracts or agreements with service providers for non-recurring services. First, we propose to extend the deadline for receipt of non-recurring services from June 30, to September 30 following the close of the funding year. Second, we propose to establish a deadline for the implementation of non-recurring services for certain qualified applicants who are unable to complete implementation by the September 30 deadline. These minor administrative modifications should provide applicants with greater flexibility without compromising program integrity. Finally, on our own motion, we waive the June 30, 2001 deadline for implementation of non-recurring services for all Funding Year 3 applicants and extend the deadline to September 30, 2001. 

## II. Discussion 

### A. Funding Priority for Internal Connections 

                    5. The Commission did not envision demand for the schools and libraries universal service support mechanism at the level we are currently experiencing. In the                     *Fifth Order on Reconsideration,*                     and the                     *Eleventh Order on Reconsideration,*64 FR 33785, June 24, 1999, the Commission anticipated that the fund would provide full support for telecommunications services and Internet access, and would provide support for internal connections for the neediest applicants. In Funding Year 4, however, the Administrator estimates that there will not be enough funding for the neediest applicants, who are eligible for a 90 percent discount. The Commission is committed to ensuring that discounts under this support mechanism are targeted to the schools and libraries with the greatest need. Therefore, we believe it is appropriate to reconsider the Commission's rules of priority to ensure that support goes to the neediest applicants. The Commission seeks comments on two options, relating to the distribution of support for internal connections. The first option would be to maintain the Commission's rules as currently written, which direct that the remaining funds be prorated by discount band. The second option would be to give funding priority to requests for internal connections made by individual schools and libraries that did not receive funding commitments for internal connections during the previous funding year.                

6. Our current rules require that the Administrator allocate the available funds among applicants in the 90 percent discount level on a pro rata basis, so that each applicant would receive only a portion of the amount requested. The Commission has several concerns about the application of the current rules of priority. If applicants were to receive only a pro rata portion of the support they requested, schools and libraries might not receive sufficient funding to permit completion of a useful system of internal connections. As a result, schools and libraries would be in a position of hiring contractors to perform only a portion of an internal connection project. It is possible that some schools may be unable to complete even part of their internal connection project, because they are unable to finance the additional funding burden. The Commission is also concerned that applicants eligible for 90 percent discounts could receive funding commitments on internal connections for two years in a row, while other schools that are also economically disadvantaged, albeit not to the same degree, could receive no discounts at all. Therefore, some needy schools will get no support, while others receive support for several consecutive years. In light of these concerns, we seek comment on whether we should keep the funding priority rules without modification. 

                    7. The Commission proposes and seeks comment on a second option. For each funding year, starting with Funding Year 4, funding priority would be given to requests for internal connections made by individual schools and libraries that did not receive funding commitments for internal connections during the previous funding year in order of discount level. Specifically, for both shared services and site-specific services, the                           ( print page 23206)                        Administrator would examine each application to determine which individual sites within that application had not received funding for internal connections in the prior funding year. These individual sites would be funded in order of discount level. We seek comment on this proposal.                 

8. By adopting the proposed rule change, we would be able to fund requests for internal connections from many needy schools and libraries that did not receive funding in the previous funding year. As a result, we would be able to better target discounts to schools and libraries that are more in need of discounts. We tentatively conclude that this approach would be more consistent with the Commission's commitment to ensuring that discounts under this support mechanism are targeted to the schools and libraries with the greatest need. While we recognize that some applicants' requests would not be funded during the current funding year, those applicants could apply for discounts for internal connections during the following funding year. We also note that the rule change could be implemented with relative ease, because little or no additional information would be necessary from the applicants. Currently, the necessary information relating to individual schools and libraries is collected as part of Item 22 of the applicant's FCC Form 471. 

### B. Modification of Implementation Schedule for Non-Recurring Services 

9. We also propose to revise the Commission's rules relating to the implementation of non-recurring services. In doing so, we note that we have found it necessary to waive the implementation deadline for nonrecurring services for Funding Years 1 and 2. We again find it necessary to waive that rule for Funding Year 3. As noted by the Court of Appeals for the D.C. Circuit, agency rules are presumed valid. The Commission's rules, however, may be waived for good cause shown, where the particular facts make strict compliance inconsistent with the public interest. Waiver of the deadline for implementation of non-recurring services is therefore appropriate only if special circumstances warrant a deviation from the general rule, and such a deviation would serve the public interest.

10. Currently, the Commission's rules require schools and libraries to implement services for which discounts have been committed by the Administrator within the funding year the discounts were granted. In Funding Years 1 and 2, we found it necessary to extend this service implementation deadline from June 30 to September 30, thereby allowing schools and libraries to implement non-recurring services in the summer months, when schools were in recess. We find that many schools and libraries have been unable to meet the June 30 implementation deadline in previous years due to a variety of reasons, including delays in funding commitments and events beyond the service provider's control, such as manufacturing delays and natural disasters. For these reasons, we find good cause to waive, on our own motion, the June 30, 2001 deadline for implementation of non-recurring services for all Funding Year 3 applicants and extend the deadline to September 30, 2001. 

11. We conclude that the public interest is best served if all schools and libraries receiving Funding Year 3 discounts on non-recurring services have the benefit of an extension of the deadline. Similar to the Commission's actions in Funding Year 1 and Funding Year 2, we also grant Funding Year 3 applicants a limited exemption from the Commission's competitive bidding requirements. Contracts for non-recurring services approved for Funding Year 3 discounts may be voluntarily extended until September 30, 2001. 

12. Based on this record that has necessitated extensions during the last three funding years, we propose to modify our rules relating to the use of funds for non-recurring services. We tentatively conclude that it is appropriate for schools and libraries to have the flexibility of additional time to implement non-recurring services. We propose a rule change that would allow schools and libraries to implement non-recurring services by September 30, following the close of the funding year. We seek comment on this proposal. 

13. For certain qualified applicants who are unable to meet the September 30 deadline, we propose to extend the deadline for implementation of non-recurring services. Specifically, we propose to implement a rule to permit qualified applicants to extend the deadline for implementation of non-recurring services if they satisfy one of the following proposed criteria: applicants whose funding commitment decision letters were issued by the Administrator on or after March 1 of the funding year; applicants who received service provider change authorizations or service substitution authorizations from the Administrator on or after March 1 of the funding year; applicants whose service providers were unable to complete implementation for reasons beyond the service provider's control; or applicants who have their funding disbursements delayed while the Administrator investigates their application for program compliance. Under the proposed rule, if one of the conditions was satisfied before March 1, they would have until the subsequent September 30 to complete implementation. If one of the conditions was satisfied after March 1, applicants would have until September 30 of the following year to complete implementation. We seek comment on this proposal. 

14. As noted, in each year of the program, the Commission has ordered a waiver of its rules and extended the deadline for receipt of non-recurring services. Changing the deadline would provide schools and libraries, as well as the Administrator, with the certainty of a deadline that experience has shown is more realistic, based on the needs of the various program participants. We tentatively conclude that the proposed rule change provides clarity to the Administrator and applicants by establishing a deadline for implementation of non-recurring services for schools and libraries that are unable to meet the original deadline due to circumstances beyond their control. Implementation of this policy should ensure schools and libraries are not penalized when they are not responsible for missing the installation deadline. Ultimately, these administrative modifications to the rules should allow all schools and libraries to schedule implementation of non-recurring services over the summer months.

15. In addition, we also propose to grant a limited extension of the Commission's competitive bidding rules for contracts for non-recurring services. Under this proposal, contracts for non-recurring services could be voluntarily extended to coincide with the appropriate deadline for implementation. Parties would not, however, be able to extend other contractual provisions beyond the dates established by the Commission's rules without complying with the competitive bidding process. We seek comment on this proposal.

## III. Procedural Matters

### A. Initial Regulatory Flexibility Analysis

                    16. As required by the Regulatory Flexibility Act (RFA), the Commission has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the possible significant economic impact on small entities by the policies and rules proposed in this FNPRM. Written public comments are requested on this IRFA. Comments must be identified as                           ( print page 23207)                        responses to the IRFA and must be filed by the deadlines for comments on the FNPRM provided. The Commission will send a copy of the FNPRM, including this IRFA, to the Chief Counsel for Advocacy of the Small Business Administration (SBA). In addition, the FNPRM and IRFA (or summaries thereof) will be published in the                     **Federal Register**                    .                

#### 1. Need for, and Objectives of, the Proposed Rules 

17. In this FNPRM, we propose a revised method for allocating discounts to schools and libraries under the federal universal service mechanism when there is insufficient funding to support all requests for internal connections. Specifically, we seek comment on a proposed rule change to give funding priority to requests for internal connections made by individual schools and libraries that did not receive funding commitments for internal connections during the previous funding year.

18. We also seek comment on proposed administrative modifications to our rules to provide additional time for recipients under the schools and libraries universal service support mechanism to implement contracts or agreements with service providers for non-recurring services. First, we propose to extend the deadline for receipt of non-recurring services from June 30, to September 30 following the close of the funding year. Second, we propose to establish a deadline for the implementation of non-recurring services for certain qualified applicants who are unable to complete implementation by the September 30 deadline.

#### 2. Legal Basis

19. The legal basis for this FNPRM is contained in sections 1 through 4, 201 through 205, 254, 303(r), and 403 of the Communications Act of 1934, as amended by the Telecommunications Act of 1996, and § 1.411 of the Commission's rules.

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

20. The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if adopted. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. A small business concern is one that: Is independently owned and operated; is not dominant in its field of operation; and satisfies any additional criteria established by the Small Business Administration (SBA). A small organization is generally “any not-for-profit enterprise which is independently owned and operated and is not dominant in its field.” Nationwide, as of 1992, there were approximately 275,801 small organizations. “Small governmental jurisdiction” generally means “governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than 50,000.” As of 1992, there were approximately 85,006 such jurisdictions in the United States. This number includes 38,978 counties, cities, and towns; of these, 37,566, or 96 percent, have populations of fewer than 50,000. The Census Bureau estimates that this ratio is approximately accurate for all governmental entities. Thus, of the 85,006 governmental entities, we estimate that 81,600 (96 percent) are small entities.

21. Under the schools and libraries universal service support mechanism, which provides support for elementary and secondary schools and libraries, an elementary school is generally “a non-profit institutional day or residential school that provides elementary education, as determined under state law.” A secondary school is generally as “a non-profit institutional day or residential school that provides secondary education, as determined under state law,” and not offering education beyond grade 12. For-profit schools and libraries, and schools and libraries with endowments in excess of $50,000,000, are not eligible to receive discounts under the program, nor are libraries whose budgets are not completely separate from any schools. Certain other statutory definitions apply as well. The SBA has defined as small entities elementary and secondary schools and libraries having $5 million or less in annual receipts. In funding year 2 (July 1, 1999 to June 20, 2000) approximately 83,700 schools and 9,000 libraries received funding under the schools and libraries universal service mechanism. Although we are unable to estimate with precision the number of these entities that would qualify as small entities under SBA's definition, we estimate that fewer than 83,700 schools and 9,000 libraries would be affected annually by the rules proposed in this FNPRM, under current operation of the program.

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

22. The measures under consideration in this FNPRM would, if adopted, result in no additional reporting. 

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

23. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its proposed approach, which may include the following four alternatives (among others): The establishment of differing compliance and reporting requirements or timetables that take into account the resources available to small entities; the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; the use of performance, rather than design, standards; and an exemption from coverage of the rule, or part thereof, for small entities.

24. The Commission seeks comment on two alternatives relating to the allocation of discounts to schools and libraries under the federal universal service mechanism when there is insufficient funding to support all requests for internal connections. Under the Commission's current rules, the Administrator would allocate the available funds among applicants in the 90 percent discount level on a pro rata basis, so that each applicant would receive only a portion of the amount requested. If applicants were to receive only a pro rata portion of the support they requested, we are concerned that less affluent schools and libraries would be unable to finance the additional funding burden. We seek to minimize the impact on schools and libraries with less resources and propose to give funding priority to requests for internal connections made by individual schools and libraries that did not receive funding commitments for internal connections during the previous funding year.

                    25. In addition, the Commission seeks comments on two proposals relating to the deadline for implementation of non-recurring services. First, the Commission proposes to extend the deadline for implementation of non-recurring services from June 30 of each funding year to September 30. Second, the Commission proposes to establish an extended deadline for certain qualified applicants who are unable to meet the September 30 deadline. Under these proposals, we aim to provide schools and libraries with additional                           ( print page 23208)                        time to complete installation and minimize the harm that may affect small entities due to the shorter deadline.                

#### 6. Federal Rules That May Duplicate, Overlap, or Conflict With the Proposed Rules

26. None. 

### B. Comment Due Dates and Filing Procedures

                    27. We invite comment on the issues and questions set forth in the FNPRM of Proposed Rulemaking and Initial Regulatory Flexibility Analysis contained herein. Pursuant to applicable procedures set forth in §§ 1.415 and 1.419 of the Commission's rules, interested parties may comment on or before May 23, 2001, and reply comment on or before May 30, 2001. Comments may be filed using the Commission's Electronic Comment Filing System (ECFS) or by filing paper copies.                     *See*                     Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24,121, May 1, 1998.                 

## V. Ordering Clauses

28. Pursuant to the authority contained in sections 1-4, 201-205, 254, 303(r), and 403 of the Communications Act of 1934, as amended, and §§ 0.91, 0.291, 1.3, and 1.411 of the Commission's rules, this Further Notice of Proposed Rulemaking and Order is adopted.

29. The deadline for the implementation of non-recurring services in Funding Year 3 of the schools and libraries universal support mechanism for all applicants is extended from June 30, 2001 to September 30, 2001.

30. Applicants in Funding Year 3 may extend existing contracts for non-recurring services until September 30, 2001, without having to comply with the Commission's competitive bidding requirements.

31. The Commission's Consumer Information Bureau, Reference Information Center, shall send a copy of this Further Notice of Proposed Rulemaking and Order, including the Initial Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.

Federal Communications Commission

Magalie Roman Salas,

Secretary.

[FR Doc. 01-11514 Filed 5-7-01; 8:45 am] 

BILLING CODE 6712-01-P