[Federal Register Volume 75, Number 110 (Wednesday, June 9, 2010)]
[Proposed Rules]
[Pages 32699-32719]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-12930]


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

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 02-6; GN Docket No. 09-51; FCC 10-83]


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

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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

SUMMARY: In this document, the Federal Communications Commission 
(Commission) seeks comment on several potential reforms that would cut 
red tape by eliminating rules that have not effectively served their 
intended purpose, while continuing to protect against waste, fraud, and 
abuse. In addition, the Commission seeks comment on how to provide 
stability and certainty for the funding of internal connections that 
are necessary to deliver higher bandwidth services to the classroom and 
how to expand access to funding for internal connections for schools 
and libraries serving impoverished populations. Finally, the

[[Page 32700]]

Commission seeks comment on indexing the funding cap to inflation, 
which would make additional funding available to support current and 
new services to deliver the full benefits of the Internet to all.

DATES: Comments on the proposed rules are due on or before July 9, 2010 
and reply comments are due on or before July 26, 2010. Written comments 
on the Paperwork Reduction Act proposed information collection 
requirements must be submitted by the public, Office of Management and 
Budget (OMB), and other interested parties on or before August 9, 2010. 
If you anticipate that you will be submitting comments, but find it 
difficult to do so within the period of time allowed by this notice, 
you should advise the contact listed below as soon as possible.

ADDRESSES: You may submit comments, identified by CC Docket No. 02-6 
and GN Docket No. 09-51, by any of the following methods:
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Federal Communications Commission's Web Site: http://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting 
comments.
    <bullet> People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by e-mail: <a href="/cdn-cgi/l/email-protection#34727777010400745257571a535b42"><span class="__cf_email__" data-cfemail="43050000767377032520206d242c35">[email protected]</span></a> or phone: (202) 
418-0530 or TTY: (202) 418-0432.
    <bullet> In addition to filing comments with the Secretary, a copy 
of any comments on the Paperwork Reduction Act information collection 
requirements contained herein should be submitted to the Federal 
Communications Commission via e-mail to <a href="/cdn-cgi/l/email-protection#e2b2b0a3a2848181cc858d94"><span class="__cf_email__" data-cfemail="35656774755356561b525a43">[email protected]</span></a> and to Nicholas A. 
Fraser, Office of Management and Budget, via e-mail to <a href="/cdn-cgi/l/email-protection#1e50777d7671727f6d415f3041586c7f6d7b6c5e71737c307b716e30797168"><span class="__cf_email__" data-cfemail="8cc2e5efe4e3e0edffd3cda2d3cafeedffe9fecce3e1eea2e9e3fca2ebe3fa">[email protected]</span></a> or via fax at 202-395-5167.

For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Regina Brown at (202) 418-0792 or 
James Bachtell at (202) 418-2694, Wireline Competition Bureau, 
Telecommunications Access Policy Division or TTY: (202) 418-0484. For 
additional information concerning the Paperwork Reduction Act 
information collection requirements contained in this document, send an 
e-mail to <a href="/cdn-cgi/l/email-protection#df8f8d9e9fb9bcbcf1b8b0a9"><span class="__cf_email__" data-cfemail="f7a7a5b6b7919494d9909881">[email protected]</span></a> and to Nicholas A. Fraser, Office of Management 
and Budget, via e-mail to <a href="/cdn-cgi/l/email-protection#93ddfaf0fbfcfff2e0ccd2bdccd5e1f2e0f6e1d3fcfef1bdf6fce3bdf4fce5"><span class="__cf_email__" data-cfemail="6d23040e0502010c1e322c43322b1f0c1e081f2d02000f4308021d430a021b">[email protected]</span></a> or via fax 
at 202-395-5167.


SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Notice of Proposed Rulemaking in CC Docket No. 02-6, GN Docket No. 09-
51, FCC 10-83, adopted May 20, 2010, and released May 20, 2010. The 
complete text of this document is available for inspection and copying 
during normal business hours in the FCC Reference Information Center, 
Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. 
The document may also be purchased from the Commission's duplicating 
contractor, Best Copy and Printing, Inc., 445 12th Street, SW., Room 
CY-B402, Washington, DC 20554, telephone (800) 378-3160 or (202) 863-
2893, facsimile (202) 863-2898, or via the Internet at http://www.bcpiweb.com. It is also available on the Commission's Web site at 
http://www.fcc.gov.
    Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's rules, 
47 CFR 1.415, 1.419, interested parties may file comments and reply 
comments on or before the dates indicated on the first page of this 
document. Comments may be filed using: (1) The Commission's Electronic 
Comment Filing System (ECFS), (2) the Federal Government's eRulemaking 
Portal, or (3) by filing paper copies. See Electronic Filing of 
Documents in Rulemaking Proceedings, 63 FR 24121, May 1, 1998.
    <bullet> Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/ 
or the Federal eRulemaking Portal: http://www.regulations.gov. Filers 
should follow the instructions provided on the Web site for submitting 
comments.
    <bullet> For ECFS filers, if multiple docket or rulemaking numbers 
appear in the caption of this proceeding, filers must transmit one 
electronic copy of the comments for each docket or rulemaking number 
referenced in the caption. In completing the transmittal screen, filers 
should include their full name, U.S. Postal Service mailing address, 
and the applicable docket or rulemaking number. Parties may also submit 
an electronic comment by Internet e-mail. To get filing instructions, 
filers should send an e-mail to <a href="/cdn-cgi/l/email-protection#d2b7b1b4a192b4b1b1fcb5bda4"><span class="__cf_email__" data-cfemail="d1b4b2b7a291b7b2b2ffb6bea7">[email protected]</span></a>, and include the following 
words in the body of the message, ``get form.'' A sample form and 
directions will be sent in response.
    <bullet> Paper Filers: Parties who choose to file by paper must 
file an original and four copies of each filing. If more than one 
docket or rulemaking number appears in the caption of this proceeding, 
filers must submit two additional copies for each additional docket or 
rulemaking number.
    Filings can be sent by hand or messenger delivery, by commercial 
overnight courier, or by first-class or overnight U.S. Postal Service 
mail (although we continue to experience delays in receiving U.S. 
Postal Service mail). All filings must be addressed to the Commission's 
Secretary, Office of the Secretary, Federal Communications Commission.
    <bullet> The Commission's contractor will receive hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary at 236 
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing 
hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be 
held together with rubber bands or fasteners. Any envelopes must be 
disposed of before entering the building.
    <bullet> Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743.
    <bullet> U.S. Postal Service first-class, Express, and Priority 
mail should be addressed to 445 12th Street, SW., Washington, DC 20554.
    People with Disabilities: To request materials in accessible 
formats for people with disabilities (Braille, large print, electronic 
files, audio format), send an e-mail to <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="1d7b7e7e282d295d7b7e7e337a726b">[email protected]</a> or call the 
Consumer & Governmental Affairs Bureau at (202) 418-0530 (voice) or 
(202) 418-0432 (TTY). Contact the FCC to request reasonable 
accommodations for filing comments (accessible format documents, sign 
language interpreters, CART, etc.) by e-mail: <a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="41272222747175012722226f262e37">[email protected]</a>; phone: 
(202) 418-0530 or (202) 418-0432 (TTY).
    In addition, one copy of each pleading must be sent to each of the 
following:
    <bullet> The Commission's duplicating contractor, Best Copy and 
Printing, Inc., 445 12th Street, SW., Room CY-B402, Washington, DC 
20554; Web site: http://www.bcpiweb.com; phone: 1-800-378-3160; and
    <bullet> Charles Tyler, Telecommunications Access Policy Division, 
Wireline Competition Bureau, 445 12th Street, SW., Room 5-A452, 
Washington, DC 20554; e-mail: <a href="/cdn-cgi/l/email-protection#84c7ece5f6e8e1f7aad0fde8e1f6c4e2e7e7aae3ebf2"><span class="__cf_email__" data-cfemail="97d4fff6e5fbf2e4b9c3eefbf2e5d7f1f4f4b9f0f8e1">[email protected]</span></a> or telephone number 
(202) 418-7400.

Filings and comments are also available for public inspection and 
copying during regular business hours at the FCC Reference Information 
Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 
20554. Copies may also be purchased from the

[[Page 32701]]

Commission's duplicating contractor, BCPI, 445 12th Street, SW., Room 
CY-B402, Washington, DC 20554. Customers may contact BCPI through its 
Web site: http://www.bcpiweb.com, by e-mail at <a href="/cdn-cgi/l/email-protection#d5b3b6b695b7b6a5bca2b0b7fbb6bab8"><span class="__cf_email__" data-cfemail="13757070537170637a6476713d707c7e">[email protected]</span></a>, by 
telephone at (202) 488-5300 or (800) 378-3160 (voice), (202) 488-5562 
(TTY), or by facsimile at (202) 488-5563.
    Comments and reply comments must include a short and concise 
summary of the substantive arguments raised in the pleading. Comments 
and reply comments must also comply with Sec.  1.49 and all other 
applicable sections of the Commission's rules. We direct all interested 
parties to include the name of the filing party and the date of the 
filing on each page of their comments and reply comments. All parties 
are encouraged to utilize a table of contents, regardless of the length 
of their submission. We also strongly encourage parties to track the 
organization set forth in the NPRM in order to facilitate our internal 
review process.
    Initial Paperwork Reduction Act of 1995 Analysis: This document 
contains proposed information collection requirements. The Commission, 
as part of its continuing effort to reduce paperwork burdens, invites 
the general public and the Office of Management and Budget (OMB) to 
comment on the information collection requirements contained in this 
document, as required by the Paperwork Reduction Act of 1995, Public 
Law 104-13. Public and agency comments are due August 9, 2010.
    Comments on the proposed information collection requirements should 
address: (a) Whether the proposed collection of information is 
necessary for the proper performance of the functions of the 
Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility, and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents, including the use of automated 
collection techniques or other forms of information technology. In 
addition, pursuant to the Small Business Paperwork Relief Act of 2002, 
Public Law 107-198, see 44 U.S.C. 3506(c)(4), we seek specific comment 
on how we might further reduce the information collection burden for 
small business concerns with fewer than 25 employees.
    OMB Control Number: 3060-0853.
    Title: FCC Form 479, Certification by Administrative Authority to 
Billed Entity of Compliance with Children's Internet Protection Act; 
FCC Form 486, Receipt of Service Confirmation Form, FCC Form 500, 
Funding Commitment Change Request Form.
    Form Number(s): FCC Forms 479, 486, 500.
    Type of Review: Revision of a currently approved collection.
    Respondents: Business or other for-profit and not-for-profit 
institutions.
    Number of Respondents and responses: 45,300 respondents and 45,300 
responses.
    Estimated Time per Response: .25-1.5 hours (average time per 
response).
    Obligation to Respond: Required to obtain or retain benefits.
    Frequency of Response: Annual and on occasion reporting 
requirements, recordkeeping and third party disclosure requirements.
    Total Annual Burden: 63,720 hours.
    Total Annual Cost: N/A.
    Privacy Act Impact Assessment: No impact.
    Nature of Extent of Confidentiality: The Commission is not 
requesting that the respondents submit confidential information to the 
FCC. Respondents may, however, request confidential treatment for 
information they believe to be confidential under 47 CFR 0.459 of the 
Commission's rules.
    Needs and Uses: The existing information collection requires 
schools and libraries to report on the FCC Form 500 to the Universal 
Service Administrative Company (USAC) the disposal of equipment 
purchased with an E-rate discount for payment or other consideration. 
This revision has no effect on FCC Forms 479 and 486 (and Internet 
policy statement), which are also part of this information collection. 
This revision specifically pertains to the FCC Form 500. This revision 
also adds or corrects the burden for the provision of Internet safety 
policy to the FCC. The Internet safety policy requirement was proposed 
in a Notice of Proposed Rulemaking, FCC 09-96, CC Docket 02-6 (75 FR 
2826, dated January 19, 2010 and approved by OMB on March 25, 2010). At 
this time of submission to the OMB, it is uncertain which proposed rule 
will be finalized to account for the Internet safety policy burden. 
Therefore, we have included it in this submission.
    Specifically, the revised FCC Form 500 would require a school or 
library disposing of equipment to report the following information to 
USAC: (1) The applicant's name, entity number, address, and telephone 
number; (2) the name, address, telephone number, and e-mail address of 
the applicant's authorized point of contact; (3) the date of the 
disposal of obsolete equipment; (4) the name of each piece of equipment 
disposed of, including the date of purchase and the funding request 
number(s) associated with the disposed equipment; (5) any payment, 
trade-in value, or other consideration received for such disposal of 
equipment; (6) the name of the entity that paid or otherwise gave the 
applicant valuable consideration for the equipment; (7) formal 
declaration by the school board or other authorized body or individual 
that the equipment subject to disposal is surplus; and (8) 
certification that the information provided on the form is true and 
accurate to the best of the applicant's knowledge, evidenced by the 
signature of someone authorized to so certify by the applicant and the 
date.
    Requiring schools and libraries to submit this information as part 
of the FCC Form 500 could facilitate our ongoing efforts to mitigate 
waste, fraud and abuse. Additionally, it would allow USAC and the 
Commission to better assess how long program participants are using 
equipment purchased with E-rate discounts prior to disposal of any 
obsolete equipment, and to track what E-rate program participants do 
with equipment they no longer use. Moreover, such revision would 
require limited information, all of which is easy to obtain whenever a 
school or library seeks to dispose of obsolete equipment.

I. Introduction

    1. In sum, this NPRM seeks comment on a package of potential 
reforms to the E-rate program that could be implemented in funding year 
2011 (July 1, 2011-June 30, 2012). These proposed reforms include:
    <bullet> Streamlining the application and competitive bidding 
processes for telecommunications and Internet access in an effort to 
further reduce the administrative burden on applicants, while at the 
same time maintaining appropriate safeguards to mitigate potential 
waste, fraud, and abuse;
    <bullet> Codifying the requirement developed in Commission 
precedent that competitive bidding processes be ``fair and open'' to 
enhance the Commission's ability to enforce its rules in cases 
involving waste, fraud and abuse;
    <bullet> Simplifying the way schools calculate their discounts and 
conforming the E-rate definition of ``rural'' to the Department of 
Education's definition;
    <bullet> Supporting 24/7 online learning by eliminating the current 
rule that requires schools to allocate the cost of wireless Internet 
access service between funded, in-school use and non-funded uses away 
from school premises;

[[Page 32702]]

    <bullet> Providing greater flexibility to recipients to choose the 
most cost-effective bandwidth solutions for their connectivity needs by 
allowing the leasing of low-cost fiber from municipalities and other 
entities that are not telecommunications carriers;
    <bullet> Expanding the reach of broadband in residential schools 
that serve populations facing unique challenges, such as Tribal schools 
or schools for children with physical, cognitive, or behavioral 
disabilities;
    <bullet> Creating a new, predictable funding mechanism for internal 
connections so that more schools and libraries have the ability to use 
the most technologically advanced applications, including video 
streaming to the classroom, to provide superior learning opportunities;
    <bullet> Indexing the current $2.25 billion cap on E-rate 
disbursements to inflation to maintain the purchasing power of the 
current program and enable continued support for high speed broadband 
and internal connections in the future; and
    <bullet> Creating a process for schools and libraries to dispose of 
obsolete equipment without running afoul of the prohibition on 
reselling equipment and services purchased using E-rate funds.

II. Streamlining the Application Process

    2. In this section, we discuss several proposals designed to 
improve and simplify the current E-rate application process. It is the 
intent that the adoption of these proposals will result in greater E-
rate participation and will reduce the costs associated with 
administering the E-rate program. To the extent we can minimize the 
potential for inadvertent errors that do not fundamentally threaten 
program integrity, we should reduce the number of appeals of funding 
decisions that consume resources at both USAC and the Commission, 
resulting in faster decisions on funding and greater certainty for both 
applicants and service providers. About 15 percent of appeals to the 
Commission involve issues relating to alleged non-compliance with 
technology plan and competitive bidding requirements.
    3. Specifically, we propose to eliminate technology plan 
requirements for priority one applicants that otherwise are subject to 
State and local technology planning requirements. We also propose to 
eliminate the FCC Form 470 posting and the 28-day waiting period before 
applicants can enter into contracts for those priority one applicants 
that are subject to public procurement requirements. We propose to 
retain our current technology planning and competitive bidding 
requirements for applicants seeking priority two services. In order to 
provide greater clarity regarding our competitive bidding requirements 
for priority one and priority two services, we propose to codify a rule 
requiring all applicants to conduct competitive bidding processes that 
are fair and open. We also seek comment on other proposals that 
streamline the application process. For instance, we propose to 
significantly streamline the FCC Form 470 and 471 online application 
process and require that those forms be completed and submitted 
electronically. We also propose to revise our discount rules so that 
schools will calculate discounts on supported services by using the 
average discount rate for the entire school district rather than the 
weighted average for each school building. Finally, we propose to adopt 
a new definition of ``rural area'' for the purpose of determining 
whether an E-rate applicant qualifies for the rural discount.

1. Technology Plans

    4. We propose to amend Sec.  54.508 of our rules to eliminate E-
rate technology plan requirements for priority one applicants that 
otherwise are subject to State and local technology planning 
requirements. We seek comment on this proposal. The provision of 
priority one services (i.e., telecommunications services and Internet 
access) is fairly straightforward for many applicants and, therefore, a 
technology plan for these services may represent an unnecessarily 
complex and burdensome program requirement. According to one commenter, 
the U.S. Department of Education and most, if not all, States already 
require technology planning, and therefore our requirement is largely 
duplicative.
    5. We recognize, however, that the selection of the optimal package 
of telecommunications and Internet access solutions can be more 
complicated for larger school districts that typically have a greater 
array of competitive options for their broadband connectivity. We seek 
comment on whether a separate E-rate mandated technology plan 
requirement remains useful for larger telecommunications and Internet 
access service priority one funding requests, even for those applicants 
that are subject to other State or local requirements. For example, 
should we retain the E-rate technology plan requirement for applicants 
that request more than a specified amount of funding for priority one 
services, such as $1 million.
    6. We propose to retain the FCC technology plan requirement for all 
priority two service requests and seek comment on this proposal. 
Priority two services and equipment are specifically tailored to the 
needs and requirements of the individual applicant. The FCC requirement 
for a detailed technology plan for internal connections therefore may 
continue to serve valuable purposes. They can help the school, school 
district, or library ensure that (i) it is requesting the appropriate 
amount of equipment necessary to satisfy network demands, (ii) it has 
taken into account any unique installation requirements, appropriate 
placement of facilities, and time demands, including possible 
disruption to the classroom or library services during installation, 
and (iii) it has considered and selected the most cost-effective 
implementation methods. We also seek comment on whether the current 
third-party approval process should be retained to the extent that we 
continue to require technology plans.

2. Competitive Bidding Process

    7. FCC Form 470. We propose to simplify significantly the 
application process for priority one services, e.g., telecommunications 
services and Internet access services by adding Sec.  54.510 to our 
rules. Specifically, we propose to eliminate the requirement that 
applicants for priority one services file an FCC Form 470 and wait 28 
days before signing a contract with their selected service provider, as 
long as those applicants are subject to public procurement 
requirements. That is, for priority one services, an applicant that is 
subject to public procurement requirements would no longer be required 
to comply with Sec.  54.504(b) of the Commission's rules. Instead, the 
applicant would initiate the application process for priority one 
services by filing an FCC Form 471. Applicants for priority one funding 
would still comply with their State and local procurement laws and 
processes when entering into E-rate eligible service contracts and with 
the Commission's requirement that the competitive bidding process be 
fair and open. We emphasize that compliance with local and State 
procurement requirements would remain a condition of receiving E-rate 
funding.
    8. The elimination of the FCC Form 470 process and the 28-day 
waiting period for most priority one applicants could streamline the 
application process and make it easier for eligible institutions to 
receive support for essential priority one services such as 
telecommunications and Internet access services. The complexity of the 
FCC Form 470 and its associated deadlines, category selections, multi-
year contract and contract extension requirements, in and of 
themselves, have been the basis

[[Page 32703]]

for a multitude of funding request denials by USAC. Eliminating these 
requirements for priority one services could reduce the number of 
unnecessary application funding denials and reduce the administrative 
burden on program participants and USAC during the application process. 
Fewer unnecessary reviews should also result in faster processing of 
applications for priority one services.
    9. Eliminating the FCC Form 470 and 28-day waiting period for 
priority one applications should not jeopardize the integrity of the 
fund in those situations where State and local governments already have 
prescribed procurement regulations in place that public schools and 
libraries must follow before entering into a contract for goods or 
services. Purchasing thresholds also are set by State and local 
policymakers to ensure that bidding occurs for desired products and 
services and the most cost-effective bids are selected. In addition, 
public schools and libraries are held accountable by State and local 
authorities for violating State and local procurement regulations. 
Further, priority one services such as telecommunications and Internet 
access are more likely to be purchased as commodities based on volume 
and distance, as opposed to being priced by project. Commenters note 
there have been relatively few instances of alleged waste, fraud, or 
abuse associated with priority one requests. Eliminating these 
requirements could free up USAC program resources now spent applying 
these rules to priority one service applications, and allow more 
resources for reviewing other areas in which there is a greater chance 
of waste, fraud, and abuse. Nevertheless, we invite comment as to 
whether this proposed change would inadvertently increase instances of 
waste, fraud, and abuse.
    10. We propose that priority one applicants not subject to State or 
local bidding requirements--for example, private schools or some 
charter schools--continue to be required to follow the current E-rate 
competitive bidding process by posting an FCC Form 470 and waiting 28 
days to select a service provider. We believe that this would be less 
burdensome than requiring those applicants to learn and follow State or 
local procurement requirements that do not actually apply to them. We 
also propose that an applicant located in a State that does not have 
procurement rules in place would still need to follow the Commission's 
existing Form 470 process to satisfy the E-rate competitive bidding 
requirement. We seek comment on these proposals.
    11. We propose to retain, for the present time, the Commission's 
existing competitive bidding requirements as set forth in Sec.  54.504 
of the Commission's rules for applications requesting support for 
priority two services. We can re-evaluate the need for these 
requirements after gaining practical experience from the outcome of the 
rule changes proposed here. Unlike most priority one services, priority 
two services are specifically tailored to the needs and requirements of 
the individual applicant. Configurations and prices can vary widely. In 
addition, on average, priority two requests generally involve greater 
amounts of money, per applicant, than priority one requests. We seek 
comment on these proposals.
    12. Fair and Open Competitive Bidding Rule. The Commission 
previously has addressed specific situations in which the fairness of 
an applicant's competitive bidding process has been compromised because 
of improper conduct by the applicant, service provider, or both. 
Although the Commission has held in numerous orders that the 
competitive bidding process must be fair and open, there is currently 
no codified Commission rule specifically requiring that the competitive 
bidding process be conducted by an E-rate applicant in a fair and open 
manner.
    13. We therefore propose to amend Sec.  54.510 of our rules to 
codify the requirement that an applicant must conduct a fair and open 
bidding process when seeking bids for services eligible for E-rate 
support. This rule will apply to all applicants for both priority one 
and priority two services--including applicants not filing FCC Forms 
470--and will apply in addition to State and local procurement 
requirements. In addition, all applicants for both priority one and 
priority two must still comply with the Commission's rule requiring the 
careful consideration of all bids submitted, the selection of the most 
cost-effective bid for services or equipment, with price as the primary 
factor considered, and the selection of the service that is the most 
cost-effective means of meeting educational needs and technology plan 
goals. Because we are proposing merely to codify an existing 
requirement, this should not increase the burden on E-rate applicants 
that are already following our competitive bidding rules. We propose to 
codify this requirement to emphasize that, even without a Commission-
established competitive bidding process in some instances, the 
Commission still requires any and all competitive bidding processes in 
which E-rate applicants participate to be conducted in a fair and open 
manner. We seek comment on this proposal.
    14. We are deeply concerned about practices that thwart Commission 
and other public competitive bidding policies and create conditions for 
waste of funds intended to promote access to telecommunications and 
information services. As the Commission has observed, competitive 
bidding is vital to limiting waste and assisting schools and libraries 
in receiving the best value for their limited funds. Codifying the 
requirement for a fair and open bidding process will assist in our 
continuing effort to ensure that the fund is being utilized by 
applicants as Congress intended, without waste, fraud, or abuse, by 
deterring program participants from engaging in any conduct that 
undermines the Commission's competitive bidding process as well as any 
State or local procurement processes. We do not believe that the 
Commission's fair and open process requirement will conflict with State 
and local procurement laws.
    15. If we codify this rule, we propose to provide illustrative 
guidance of the types of conduct that would satisfy or violate the 
rule, which could be updated periodically based on experience gained 
through investigations involving waste, fraud and abuse. Generally 
speaking, all potential bidders and service providers should have 
access to the same information, they should be treated in the same 
manner throughout the procurement process, and they should not have 
additional information beyond the contents of an applicant's FCC Form 
470 or RFP, if the applicant uses these documents to initiate bidding. 
While the lists set forth below are not exhaustive, we propose that the 
following behaviors constitute inappropriate conduct during the 
competitive bidding process. Moreover, we believe that any party with a 
potential financial interest in the E-rate program (for example, a 
subcontractor to a service provider) also could not engage in the 
prohibited activities described below:
    <bullet> An applicant may not have a relationship with a service 
provider that would unfairly influence the outcome of a competition or 
would furnish the service provider with ``inside'' information;
    <bullet> An applicant may not turn over its responsibility for 
ensuring a fair and open competitive bidding process to a service 
provider.
    <bullet> Applicant employees or board members may not serve on any 
board of any type of telecommunications, Internet access, or internal 
connections service provider that participates in the E-rate program in 
the same State;

[[Page 32704]]

    <bullet> Service providers may not offer or provide gifts, 
including meals, to employees or board members of the applicant;
    <bullet> Applicant employees with any role in the selection of 
vendors may not have an ownership interest in a vendor that is seeking 
to provide products or services.
    <bullet> Once a contract for products or services is signed by the 
applicant and service provider, a different service provider may not 
circumvent the bidding process and offer a new, lower price for the 
same products and services.
    16. In addition, we seek comment on a proposal that applicants 
using the FCC Form 470 bidding process should also comply with the 
following requirements.
    <bullet> An applicant using the FCC Form 470 bidding process must 
describe the desired products and services with sufficient specificity 
to enable interested parties to submit responsive bids;
    <bullet> An applicant must identify the correct category of service 
on the FCC Form 470, e.g., telecommunications, Internet access, or 
internal connections so that it can receive bidders for the services it 
seeks;
    <bullet> Only an applicant or an authorized representative of the 
applicant can prepare, sign, and submit the FCC Form 470 and 
certification;
    <bullet> An applicant cannot list a service provider representative 
as the FCC Form 470 contact person and allow that service provider to 
participate in the competitive bidding process;
    <bullet> A service provider may not help an applicant prepare the 
FCC Form 470 or participate in the bid evaluation or vendor selection 
process in any way;
    <bullet> A service provider may provide information to an applicant 
about products or services--including demonstrations--before the 
applicant posts the FCC Form 470, but not during the bid selection 
process.
    17. We reiterate that these lists do not include every possible 
scenario in which we would find an applicant in violation of our 
competitive bidding rules. We seek comment on whether these proposed 
requirements and examples are appropriate and whether there are others 
we should specifically adopt as part of a codified rule to provide 
guidance to program participants.

3. Application Process Streamlining

    18. We note that the Commission is currently seeking comment on 
significantly streamlined FCC Forms 470 and 471 for funding year 2011. 
Additionally, we are working with USAC in developing an improved online 
system that provides applicants with the tools and access to data 
necessary to participate more effectively and efficiently in the 
program. All forms should be available for online submission, and 
applicants should be able to upload requested information 
electronically. Applicants also should be able to save, retrieve, and 
edit previously filed applications and use these forms as the basis for 
future funding requests, thereby improving the efficiency of submission 
and processing of applications. We seek feedback from all interested 
parties on these planned user enhancements.
    19. Because these forms and systems upgrades will dramatically 
improve the online experience for applicants, we propose to require all 
applicants to file their FCC Forms 470 and 471 electronically. We 
believe that the electronic submission of these forms will improve the 
efficiency of submitting and processing applications. It will also save 
administrative costs as USAC will not have to enter data into its 
electronic system from paper submissions, which will free up additional 
funding for supported services. Electronic completion and submission 
also would likely result in fewer errors on the form. We seek comment 
on this proposal.

4. Discount Matrix Streamlining

    20. Discount calculation. We propose to revise our discount rules 
so that schools will calculate discounts on supported services by using 
the average discount rate for the entire school district rather than 
the weighted average for each school building. Currently, school 
districts, library systems, or other billed entities are required to 
calculate discounts for services that are shared by two or more of 
their schools, libraries, or consortia members by calculating an 
average based on the discounts of all member schools and libraries. 
School districts, library systems, or other billed entities are 
required to ensure that, for each year in which an eligible school or 
library is included for purposes of calculating the aggregate discount 
rate, that eligible school or library receives a proportionate share of 
the shared services for which support is sought. For schools, the 
average discount is the weighted average of the applicable discount of 
all schools sharing a portion of the shared services, with the 
weighting based on the number of students in each school. For 
libraries, the average discount is a simple average of the applicable 
discounts to which the libraries sharing a portion of the shared 
services are entitled.
    21. We agree with E-rate Provider Services (EPS) that calculating 
discounts by individual school adds a significant level of complexity 
to the application process, as the discounts must be calculated 
separately by school and checked individually by USAC. Accordingly, we 
propose to revise Sec.  54.505(b)(4) of our rules to require applicants 
to: (1) Calculate a single discount percentage rate for the entire 
school district by dividing the total number of students eligible for 
the National School Lunch Program by the total number of students in 
the district; and (2) then compare that single figure against the 
discount matrix to determine the school district's discount for 
priority one and priority two services. All schools and libraries 
within that school district would then receive the same discount rate. 
We seek comment on our proposal. We also seek comment on whether there 
should be a similar requirement for library systems and how this 
proposed rule would affect consortium applications.
    22. This proposed discount percentage rate calculation could 
streamline the application process by simplifying the way in which 
schools compute their discount percentage rate and reduce the 
administrative burden on USAC by no longer requiring USAC to verify 
each individual school's discount percentage rate. Additionally, it 
could significantly reduce the amount of information necessary for 
block 4 of the FCC Form 471 application. This proposal could also 
eliminate applicants' submission of multiple FCC Form 471 applications 
at different discount levels. Moreover, it could reduce the incentive 
for districts to purchase priority two equipment at a 90 percent 
discount rate and transfer it after three years to a school with a 
lower discount rate. We also seek comment on other ways to accomplish 
these goals. We also seek comment on how to determine if a school 
district can receive the additional discount available for some 
applicants located in rural areas. Currently, the urban/rural 
designation is based on the physical address of each individual school 
or library. Some applicants have a mixture of urban and rural entities 
on the same application. Should these districts be considered urban? 
Should their urban/rural status depend on the number of entities within 
the district that fall within each category?
    23. Rural Definition. We propose to adopt a new definition of 
``rural area'' for the purpose of determining whether an E-rate 
applicant qualifies for the rural discount. A school's E-rate discount 
level is determined in part by whether

[[Page 32705]]

it is classified as urban or rural. In some discount bands, schools and 
libraries in rural areas receive 5 percent to 10 percent more in 
discounts than those schools and libraries in urban areas. We look at 
this proposed change with the recognition that the reason certain 
discounts are provided to schools and libraries located in rural areas 
is because those schools and libraries sometimes face significant 
challenges due to their remote location. As we seek comment on this 
proposed change in definition, it is not with the intent to reduce 
discounts to certain rural schools but rather to ensure that the funds 
are targeted appropriately.
    24. In 1997, the Commission adopted for the E-rate program the 
definition of ``rural area'' used by the U.S. Department of Health and 
Human Service's Office of Rural Health Care Policy (ORHP). Under ORHP's 
definition, an area is rural if it is not located in a county within a 
Metropolitan Statistical Area (MSA) as defined by the Office of 
Management and Budget (OMB), or if it is specifically identified as 
``rural'' in the Goldsmith Modification to Census data. In the 2003 
Schools and Libraries Third Report and Order, the Commission sought 
comment on a new definition of ``rural area.'' At that time, the 
Commission commented that a new definition was necessary because ORHP 
was no longer using the definition adopted by the Commission and had 
not updated the Goldsmith Modification to the 2000 Census data.
    25. We now propose that, for E-rate purposes, an area will be 
considered rural based on the methodology and locale codes used by the 
U.S. Department of Education's National Center for Education Statistics 
(NCES), also known as urban-centric locale codes. We propose that any 
school or library that is within a territory that is classified as 
``town-distant,'' ``town-remote,'' ``rural-distant,'' or ``rural-
remote'' by an NCES urban-centric locale code will be considered rural 
for purposes of calculating its E-rate discount level. We propose 
revising Sec. Sec.  54.505(b)(3) and 54.5 of our rules to reflect this 
approach.
    26. First, it is reasonable for the E-rate program, which benefits 
schools and libraries, to use the Department of Education's definition 
because it is specifically targeted to schools. By contrast, the 
current ORHP definition defines rural areas for rural health grant 
purposes only. Second, commenters have noted that the urban-centric 
locale codes pinpoint more precisely whether a school is located in a 
rural area. Rather than determining whether the school's county or 
census tract is located in a rural area under the ORHP definition, the 
urban-centric locale codes determine whether a particular address is 
rural based on its proximity to metropolitan areas and on population 
size and density. The locale codes can be more specific because they 
are based solely on settlement patterns and are not constrained by 
political or geographic boundaries such as census tracts. Third, one of 
the reasons proffered by the Commission for selecting its original 
definition of ``rural area''--that it was less burdensome to schools 
and libraries and that the information was readily available to the 
public--applies to the new definition as well. In particular, it should 
be administratively straightforward for a school to discover its 
categorization, because the Department of Education's Web site has the 
coding system broken down by State, and the information is readily 
available. We seek comment on this proposal.

III. Providing Greater Flexibility To Select Broadband Services

    27. We propose to support wireless Internet access service even 
when the portable device is used off school property, provide greater 
flexibility to use low-cost fiber for broadband connectivity, and 
expand access to broadband for students who live at their schools due 
to geographic challenges or in order to receive specialized 
instruction. Each of these proposals is described in further detail 
below. We also seek comment on additional ways in which the Commission 
can better allocate E-rate funding to support educational purposes more 
directly and to more effectively target our funding to broadband 
services.

1. Wireless Services Outside of School

    28. We propose to adopt the National Broadband Plan recommendation 
to provide full E-rate support for wireless Internet access service 
used with a portable learning devices that are used off premises. We 
seek comment on this proposal. Currently, the E-rate program supports 
wireless Internet access on school grounds. If a device that provides 
wireless Internet access service, such as a laptop, is taken off school 
grounds, however, applicants are required to cost-allocate the dollar 
amount of support for the time that the device is not at school. If 
that same device is left at school all of the time, the program would 
pay 100 percent of the applicant's non-discount share. As such, our 
rules prevent students from fully utilizing learning opportunities that 
the devices can provide in the home.
    29. Advances in technology have enabled students to continue to 
learn well after the school bell rings and from virtually anywhere. As 
noted in the NBP, ``Online educational systems are rapidly taking 
learning outside the classroom, creating a potential situation where 
students with access to broadband at home will have an even greater 
advantage over those students who can only access these resources at 
their public schools and libraries.'' We propose to modify our rules so 
that we can lessen the digital divide between those who are fortunate 
enough to subscribe to broadband at home and those who do not.
    30. Recent data demonstrates that the widespread availability of 
wireless laptop computing for students is linked to improved 
educational outcomes. For example, the Maine Learning and Technology 
Initiative (MLTI) provided a laptop to every seventh- and eighth-grade 
student in the State as part of its mission to transform teaching and 
learning in Maine's public schools. A study of the MLTI conducted by 
the Maine Education Policy Research Institute at the University of 
Southern Maine found that eighth-grade student writing, as measured by 
the Maine Educational Assessment (MEA), the State's standardized 
assessment, improved significantly after laptop implementation in 
middle schools. Laptop initiatives have been deployed at the regional 
and district level as well. In Henrico County in Richmond, Virginia, a 
three-year study released in 2008, revealed that 1-to-1 laptop use was 
associated with higher test scores in biology, history, chemistry, 
reading and Earth science. Both of these laptop programs have 
incorporated student connectivity to the Internet in home and school 
environments.
    31. We emphasize that this proposal only relates to support for 
Internet access monthly service, and not the purchase of devices or 
equipment, such as mobile broadband cards, smartphones, or e-books. 
This proposal, therefore, would allow E-rate funding for Internet 
access services, which are already eligible, to be used to facilitate 
learning both on and off premises. It also would permit funding for 
connectivity that schools may increasingly utilize in the future to 
provide customized educational content to students.
    32. We note that that the requirements of the Children's Internet 
Protection Act and the Protecting Children in the 21st Century Act 
still would apply to services being used off-premises. In addition, 
consistent with the Act, the Commission requires schools and libraries 
to certify, among other things, that services obtained through 
discounts

[[Page 32706]]

from the E-rate program will be used solely for educational purposes. 
We recognize that usage in the school or library typically occurs under 
the supervision of school or library personnel. We seek comment on what 
other safeguards, if any, we should consider imposing to mitigate 
against the risk of non-educational use at home that is not directly 
supervised by the recipient of funding.
    33. We seek comment on whether recipients of funding should be 
required to have policies and procedures in place to mitigate the risk 
that E-rate funded wireless connectivity is not used for educational 
uses off-premises. For instance, should recipients be required to have 
policies relating to acceptable use off-premises? We seek comment on 
whether the residents of the households of students may use E-rate 
funded connectivity (so long as it is for educational purposes) 
because, for example, such use may be fundamental to promoting digital 
literacy skills for both the students and the other household members 
who support the child's educational experience, and whether such use is 
consistent with the educational purposes requirement of the statute. In 
our recent decision to permit schools to make E-rate funded connections 
available to the community, in order to reduce the likelihood of waste, 
fraud, and abuse, and to guard against potential additional costs being 
imposed on the E-rate program, we set forth certain conditions 
regarding other uses of school facilities that choose to allow the 
community to use their E-rate funded services. Among other things, the 
Commission required that: (1) Schools participating in the E-rate 
program not be permitted to request funding for more services than are 
necessary for educational purposes; and (2) consistent with the Act, a 
school's discounted services or network capacity may not be ``sold, 
resold, or transferred by such user in consideration for money or any 
other thing of value.'' Should similar or other requirements be imposed 
if we expand support for wireless connectivity off-premises to guard 
against waste, fraud, and abuse?
    34. We seek comment on whether providing E-rate funds for wireless 
Internet access to portable devices in offsite locations would result 
in increased demand for wireless connectivity in the E-rate program, 
and if so, how that would affect other requests for E-rate funding, 
given the overall annual funding cap. According to one 2008 survey, 
more than 27 percent of school districts were implementing in at least 
one grade or on pilot basis some form of one-on-one computing program 
with Internet connected wireless devices for use in the classroom and 
at home. We seek comment on how funding for wireless connectivity might 
increase over the next several years if we were to adopt this rule. If 
commenters believe that this rule change would limit the ability of 
eligible users to obtain other services, we seek comment on whether the 
Commission should limit wireless Internet access for mobile devices on 
a trial basis by, for example, capping the number of monthly service 
contracts per school district or some other method of allocating 
funding. We seek comment on whether we should implement this proposal 
on an interim basis for funding year 2011 and subsequently evaluate how 
to implement a permanent rule based on that experience.

2. Expanded Access to Low-Cost Fiber

    35. We seek comment on permitting recipients to receive support for 
the lease of fiber, even if unlit, from third parties that are not 
telecommunications carriers, such as municipalities and other community 
or anchor institutions, to allow schools and libraries more flexibility 
to select the most cost-effective broadband solutions. Dark fiber was 
conditionally eligible for E-rate discounts prior to Funding Year 2004. 
In the Schools and Libraries Third Report and Order, released in 2003, 
however, the Commission found that, pending resolution of the 
regulatory status of dark fiber, it would not be eligible for E-rate 
discounts.
    36. Fiber networks are used by both the public sector and 
governmental agencies for broadband Internet access today. A number of 
commenters in the record of the National Broadband Plan asserted that 
dark fiber may be a more cost-effective option for applicants--and 
therefore the program--in many instances. Several commenters expressed 
support for giving recipients more flexibility to use dark fiber as 
part of their broadband solutions. In order to provide greater 
flexibility to E-rate participants to reduce their overall cost of 
broadband and increase their bandwidth, we now propose to make leased 
dark fiber from any source eligible for funding as a priority one 
service.
    37. We propose to add leased dark fiber to the ESL, pursuant to 
section 254(h)(2)(A) of the Act. We propose to add leased fiber with 
the same conditions as when it was on the ESL previously. That is, 
applicants would be able to lease fiber capacity that does not include 
modulating electronics, as long as they provide the electronics. In 
addition, the leased fiber must be used immediately. Under such an 
approach, applicants would, for instance, be able to lease dark fiber 
that may be owned by State, regional or local governmental entities, 
when that is the most cost-effective solution to their connectivity 
needs. We also seek comment on any other operational issues that may 
arise with the addition of leased fiber, such as dark fiber, to the 
ESL.

3. Expanding Access for Residential Schools That Serve Unique 
Populations

    38. We seek comment on whether we should allow schools that serve 
unique populations to receive E-rate funding for priority one and 
priority two services delivered to residential areas. In the Schools 
and Libraries Second Report and Order, recognizing that the technology 
needs of participants in the E-rate program are complex and unique to 
each participant, the Commission clarified the scope of educational 
purposes. Specifically, the Commission defined educational purposes as 
``[A]ctivities that are integral, immediate, and proximate to the 
education of students, or in the case of libraries, integral, 
immediate, and proximate to the provision of library services to 
library patrons, qualify as ``educational purposes.'' The Commission 
concluded that activities that occur on library or school property are 
presumed to be integral, immediate, and proximate to the education of 
students or the provision of library services to library patrons. The 
Commission thus concluded that in certain limited instances, the use of 
telecommunications services offsite would be considered integral, 
immediate, and proximate to the education of students or the provision 
of library services to library patrons, and thus, would be considered 
to be an educational purpose.
    39. In the Universal Service First Report and Order, the Commission 
limited the eligibility of internal connections by limiting support for 
a service ``only if it is necessary to transport information all the 
way to individual classrooms.'' The Commission subsequently elaborated 
on this policy in the Universal Service Fourth Order on 
Reconsideration, explaining that E-rate support is ``not available for 
internal connections in non-instructional buildings used by a school 
district unless those internal connections are essential for the 
effective transport of information within instructional buildings.'' 
Consistent with these orders, funding for internal connections to 
dormitory rooms, study centers within dormitories, teachers' centers, 
and residential programs have

[[Page 32707]]

been found to be ineligible for support under the E-rate program.
    40. We recognize, however, that this rule does not take into 
account the special circumstances of institutions that provide 
residential living arrangements to meet the unique challenges of 
certain student populations. We propose to revise our rules to allow 
schools with residential areas on their grounds to receive E-rate 
funding for priority one and priority two services in those residential 
areas in circumstances where the students do not have access to 
comparable schooling or training if they were to reside at home. 
Specifically, we seek comment on whether the use of priority one and 
priority two services at a dormitory on a school campus could be 
considered integral, immediate, and proximate to the education of 
students, and thus, considered to be used for educational purposes, 
when the school is serving students with medical needs, cognitive, or 
behavioral disabilities, or who have no option but to live at school 
due to challenging terrain or their home's distance from a school. For 
example, in West Virginia, students at the West Virginia School for the 
Deaf and Blind reside in dormitories on the same campus as the school, 
away from their parents, to receive schooling. These students are 
unable to go home or to a public library to access the Internet after 
school hours. The West Virginia School for the Deaf and Blind, however, 
pursuant to our rules, is unable to receive funding for services 
provided to these residential facilities, thus, requiring the school to 
cost-allocate between the eligible and ineligible uses of its services 
on the school's campus. Currently, our rules state that service is 
eligible for support as a component of the institution's internal 
connections only if it is necessary to transport information all the 
way to individual classrooms. We invite comment on whether we should 
amend our eligibility limitation imposed on internal connections, and 
if so, how we should amend that limitation with regard to schools 
described above. In addition, should we require that support for 
services to dormitories be limited to only to those schools whose 
operating expenses are funded, in whole or in part, with State or 
Federal funds? We seek comment on any other possible conditions or 
limitations to extending support to schools for services provided to 
dormitories located on a school's campus to target finite funding to 
those schools for which funding may be truly necessary to access 
advanced telecommunications and information services and to minimize 
the potential for waste, fraud, and abuse.

4. Targeting Support for Broadband Services

    41. Finally, we seek comment on other ways to reallocate funding so 
that finite amounts of E-rate dollars can be better targeted to satisfy 
the educational needs of students and library patrons. We recognize 
that schools and libraries face significant challenges in obtaining 
higher bandwidth necessary to support emerging needs at a time when 
budgets are stagnant or declining. According to one report, more than 
half of school districts surveyed faced problems in obtaining funding 
for higher bandwidth services, and two-thirds of those surveyed 
reported conserving bandwidth by restricting certain online 
applications such as streaming video. At the same time, more advanced 
applications such as media streaming and video conferencing, distance 
or online learning, multimedia applications that make learning more 
engaging and relevant, and one-to-one programs that enable students to 
engage in continuous learning hold great promise for educating the next 
generation. We therefore seek comment on specific proposals to re-
prioritize E-rate funding to support higher bandwidth connectivity that 
will enable such applications to be delivered to students and libraries 
across the country.
    42. In the short-term, the demand for wireless services and 
increased bandwidth for broadband will likely increase. We seek comment 
on whether there are specific telecommunications services, Internet 
access services, or priority two services on the current ESL that 
should receive a lower priority in E-rate funding so that we can target 
funding toward higher bandwidth connectivity. For example, should dial-
up Internet access continue to be funded as a priority one service or 
instead, should greater priority be given to applicants seeking support 
for broadband services? Similarly, should we give a higher priority to 
advanced telecommunications and broadband services, rather than voice 
telecommunications services? We recognize that budgets are challenged 
for State and local authorities around the country, but also emphasize 
that our objective in managing this finite program is to achieve the 
maximum benefits of access to the full range of content and 
applications that the Internet can deliver, not to fund voice telephone 
service that schools and libraries across the country were paying for 
in full before the inception of the E-rate program. We seek comment on 
these and any other proposals commenters might suggest to meet the goal 
of generating the most return for each E-rate dollar.

IV. Expanding the Reach of Broadband to the Classroom

    43. Internal connections, such as routers or hubs, are essential to 
the effective use of broadband within schools and libraries because 
they enable students and library patrons to utilize higher bandwidth 
applications in multiple locations within a school or library. As 
schools and libraries are increasingly utilizing higher bandwidth 
services to meet educational and community needs, they need to upgrade 
and replace their existing internal connections as well in order to 
fully utilize the broadband services they are purchasing. Without 
upgraded Internet access and the internal connections necessary to 
bring the connection all the way to the classroom or library patron, 
many users simply will be unable to utilize the many applications 
available in today's marketplace, such as high-definition video 
streaming, that support online learning. Demand for priority one 
services has grown from $800 million in 1998 to approximately $2 
billion in 2009. As noted above, only schools and libraries with the 
highest discount levels are receiving priority two subsidies, and the 
availability of priority two funding gets smaller as applicants apply 
for more funding for priority one services. The net result is the E-
rate program is funding high-capacity pipes to a single point of entry 
at the school (or library) but not providing any support for the 
equipment that enables the computer terminals or laptops across the 
school or library to access that high-capacity pipe. Further, without 
changes to the way in which we allocate funding for internal 
connections, it is quite possible that in funding year 2011, E-rate 
support for telecommunications services and Internet access could 
eliminate the availability of any funding for internal connections.
    44. In this NPRM, we seek comment on how to ensure that schools and 
libraries receive funding for internal connections (priority two 
services). We have two important goals in mind: (1) Providing funding 
for internal connections to more schools and libraries than in the 
past; and (2) ensuring a predictable amount of funding available to 
schools and libraries for internal connections each year.

[[Page 32708]]

1. Predictable Internal Connections Funding for More Schools and 
Libraries

    45. One option would be to allocate funding for internal 
connections based on a per student cap per school district, to which 
the applicant's discount rate would be applied. Under this option, 
libraries would be eligible to receive the same amount of funding as 
the public school districts within which they are located. To ensure 
that a predictable amount of funding is available for internal 
connections, we could set aside a defined amount of funding before 
funding is allocated to telecommunications and Internet access, current 
priority one services. If we choose this option, we also could 
eliminate the 2-in-5 rule. Another option would be to eliminate support 
for basic maintenance for internal connections, or, in the alternative, 
to cap the amount available for basic maintenance. We seek comment on 
whether and, if so, how we could phase in any of these proposals on a 
trial basis to examine the distributional impacts of such rule changes. 
In what funding year should any of these options be implemented? 
Commenters should provide specific proposals on the timing and staging 
of specific reforms. We further describe these options below and seek 
comment.
    46. We believe that these options for reforming how we fund 
internal connections could have several advantages over our current 
rules. First, the current discount matrix and rules of priority have 
the effect of providing funding to a limited number of school districts 
that have the very highest percentage of students eligible for free or 
reduced price school lunch, while providing nothing to other districts 
that are significantly impoverished. Second, many stakeholders have 
expressed a desire for a more predictable funding mechanism whereby 
schools and libraries would know on a yearly basis how much funding 
they will receive for internal connections. This predictability is 
essential so that schools and libraries can better plan for their 
future technological needs. If, for instance, a certain amount of total 
funding would be designated for internal connections, USAC would be 
able to issue funding commitment decision letters earlier for priority 
two projects, enabling schools and libraries to begin projects more 
quickly.
    47. Capped Amount. To create a more predictable funding mechanism 
for priority two services, we seek comment on establishing a flat per 
student cap per school district for each funding year, with the 
applicant's discount rate applied after the cap is determined. For 
example, if the cap were set at $15 per student, a school district that 
has 100,000 students would have a cap of $1.5 million in internal 
connections funding. If the district were eligible for an 75 percent 
discount (that is, a school with 50 percent to 74 percent of its 
students eligible for free or reduced price lunch), it would be 
eligible to receive up to $1.125 million for internal connections each 
year. If that same school district was eligible for a 30 percent 
discount (that is, a school with 20 percent to 34 percent of its 
students eligible for free or reduced price lunch), it could receive up 
to $450,000. Under this option, libraries would receive the same 
discount as the public school districts in which they are located. We 
seek comment on this option and any alternatives that would increase 
predictability of priority two funding while meeting the goal of 
ensuring internal connections funding to more schools and libraries.
    48. We also seek comment on whether there should be a minimum 
amount for which a school, library, or school district is eligible, not 
tied to the number of students. For instance, should we establish a 
baseline amount of support that would be provided to an eligible 
facility, and then a variable amount of support depending on the number 
of students? If a minimum amount is established, what should it be? We 
note that smaller applicants might receive less funding because of 
their smaller number of students; however, some types of equipment are 
not necessarily usage-sensitive. Should there be additional funding 
provided to rural applicants, either by establishing a higher dollar 
amount for rural applicants or a higher discount level?
    49. We recognize that schools and libraries at the highest discount 
levels could receive significantly less funding if we were to establish 
a capped amount than they receive under the current rules. However, in 
the near future, as demand for priority one services grows, it is 
likely that, absent changes to the current funding structure, there 
will be no funding available for internal connections for even the 
highest-discount applicants. In addition, those same schools and 
libraries may be able to realize savings on their purchase of priority 
one services if they have greater freedom to use lower-cost fiber, as 
proposed above, which could free up additional money in their budget to 
pay for internal connections. And in any event, we are concerned that 
the same few schools continue to receive all of the available funding, 
year after year, while many schools that have nearly as many students 
in poverty receive no funding for internal connections.
    50. Set Aside for Internal Connections. We seek comment on revising 
Sec.  54.507 of our rules to set aside a defined amount of funding from 
the $2.25 billion fund for internal connections before priority one 
funding is allocated. We seek comment on an appropriate amount to set 
aside for internal connections. For instance, would $500 million be an 
appropriate amount to set aside for internal connections? Depending on 
the amount set aside, it is possible that all of the requests for 
priority one would not be funded. If so, our rules of priority would 
operate to fund requests from the highest-discount schools first, and 
it is possible that recipients with the lowest discounts (namely, 
schools that serve very few students eligible for free or reduced price 
school lunch) would no longer receive any funding from the E-rate 
program. We seek comment on whether we should change our rules of 
priority to effectuate an alternative result.
    51. Threshold for Priority Two Funding. We seek comment on the 
appropriate threshold for any revised methodology for internal 
connections funding. Today, the money effectively is channeled to 
school districts that have 75 percent or more students eligible for 
free or reduced-price school lunch. We seek comment on how to focus 
funding on improving internal connections to a broader group of needy 
schools, school districts, and libraries. For instance, should we adopt 
rule changes that would enable school districts where 35 percent or 50 
percent of students are eligible for NSLP to obtain predictable funding 
for internal connections. We encourage parties to submit factual 
analyses of the distributional impact of alternative thresholds into 
the record.
    52. Revised Discount Matrix. Many commenters have suggested that 
the Commission should revise the priority two discount matrix to enable 
more school districts to obtain funding for internal connections. SECA 
and other commenters argue that altering the discount rate is an 
effective way to increase the availability of priority two funds and 
more evenly distribute priority funds to a greater number of entities. 
Additionally, we note that other governmental programs that award 
funding for similar purposes require recipients to pay 15 or 20 percent 
of the total cost. An approach that strengthens incentives for 
applicants to find the most cost-effective services to meet their needs 
is an important tool to maximize the public benefits of a finite amount 
of governmental funding, and could

[[Page 32709]]

further our efforts to curb waste, fraud, and abuse by applicants and 
service providers. We seek comment on a revised discount matrix for 
internal connections and ask whether we should adjust the current level 
of additional discount provided to rural schools and libraries. 
Commenters should set forth with specificity an alternative proposed 
discount matrix.
    53. Eliminate the 2-in-5 Rule. We seek comment, in conjunction with 
the options detailed above, on eliminating Sec.  54.506(c), the 2-in-5 
rule, which limits an eligible entity's receipt of discounts on 
internal connections to twice every five funding years. In the Schools 
and Libraries Third Report and Order, the Commission sought to make 
funds for internal connections available to more eligible schools and 
libraries on a regular basis by limiting the frequency with which 
applicants may receive priority two discounts. Further, the Commission 
concluded that, by precluding a particular entity from receiving 
support for priority two discounts every year, the rule would 
strengthen incentives for applicants not to waste program resources by 
replacing or upgrading equipment on an annual basis but rather to fully 
use equipment purchased with universal service funds.
    54. However, the 2-in-5 rule has not served its intended purposes. 
Today, funding for maintenance represents roughly 15 percent of all 
priority two funding, with the very largest school districts receiving 
most of that funding. The rule has not increased the availability of 
priority two funding to more eligible schools and libraries on a 
regular basis. In addition, because the availability of funding is 
dependent, in part, on the amount of funding sought by higher-discount 
eligible entities, the 2-in-5 rule actually has increased the 
unpredictability of priority two funding. Additionally, commenters 
argue that, instead of increasing the incentive for applicants to not 
waste program resources, the rule has encouraged schools to undertake 
large projects that might not be necessary and discriminates against 
schools that undertake smaller, more long-term projects. We seek 
comment on any potential implications the elimination of the 2-in-5 
rule may have upon current recipients of funding for maintenance and 
how to address such implications.
    55. Application by School District. We seek comment on requiring 
schools and libraries to submit applications for internal connections 
by school district, not by individual school. Schools that operate 
independently from a school district, however, such as private schools 
and some charter schools, should still apply for discounts 
individually. We propose, therefore, that any school that is part of an 
organized school district must apply as part of that district, with 
libraries receiving the same discount as the public school districts in 
which they are located. Requiring schools to apply by school district 
could help streamline the process and will simplify the discount 
calculation for schools. Additionally, it would ensure that libraries 
receive funding for internal connections and at the same discount level 
as schools located within their school district.
    56. Eliminate Funding for Basic Maintenance for Internal 
Connections. We seek comment on options for modifying the funding of 
basic maintenance of internal connections. Currently, the ESL lists 
basic maintenance as a supported priority two service. In the Universal 
Service First Report and Order, the Commission determined that support 
for internal connections includes ``basic maintenance services'' that 
are ``necessary to the operation of the internal connections network.'' 
Subsequently, in the Schools and Libraries Third Report and Order, the 
Commission provided further detail on which maintenance services are 
``necessary'' under the terms of the Universal Service First Report and 
Order. The Commission found that basic maintenance services are 
eligible for universal service support as an internal connections 
service if, but for the maintenance at issue, the internal connection 
would not function and serve its intended purpose with the degree of 
reliability ordinarily provided in the marketplace to entities 
receiving such services. At that time, the Commission sought to 
identify maintenance as a separate category for priority two funding in 
part to provide greater transparency regarding the use of internal 
connections funding. It appears, however, some recipients of funding 
for maintenance may be using such funding to pay for ongoing 
information technology support functions, which siphons funding away 
from other critical uses.
    57. One option would be to eliminate E-rate funding for basic 
maintenance of internal connections. We seek comment on whether funding 
of basic maintenance for internal connections should remain on the ESL. 
First, given that funding for the E-rate program is finite and there is 
a consistent level of unmet demand, we have concerns that our current 
rules inadvertently result in basic maintenance effectively taking 
precedence over funding the internal connections that are necessary to 
deliver higher bandwidth applications like high definition video 
streaming to schools and libraries. We believe it may be preferable to 
spread funding more broadly across needy schools and libraries for 
internal connections than to provide funding for maintenance of 
networks for a limited number of school districts. Second, it may be 
the case that funding for basic maintenance is used to pay for 
``warranties'' on equipment or to support significant information 
technology departments. Given the limited funding available for 
internal connections, we question whether the E-rate should be 
supporting ongoing tech support to address potential problems when 
there is such unmet demand for actual equipment that will enable 
services definitely to be used. We recognize that maintenance in some 
form is important for services to be available, but are concerned that 
our current rules fail to impose appropriate limitations. Third, under 
our current allocation method, the same schools and school districts 
receive large amounts of funding year after year for basic maintenance, 
while others receive nothing. In order to achieve our inclusion 
objectives, the limited funding available could be better utilized to 
pay for facilities for schools and libraries serving high poverty 
populations that have never received funding for internal connections. 
At least until priority two funding has been distributed more broadly, 
we ask whether the funding should be used to support initial 
installation of internal connections rather than pay for maintenance 
for entities that have already had their internal connections funded 
through the E-rate program. Finally, eliminating funding for basic 
maintenance could provide additional incentives for schools and 
libraries to evaluate carefully the reliability of different solutions 
from various providers and think seriously about maintenance costs when 
constructing their internal networks.
    58. Another option would be to cap basic maintenance payments and 
reimburse requests that are based on actual repair and maintenance 
costs only. Specifically, consistent with the internal connections 
approach, we seek comment on establishing a per student cap per school 
district for each funding year, with the applicant's discount rate 
applied after the cap is determined. For example, if the per student 
cap were $2, a school district with 100,000 students would have a total 
of up to $200,000 in E-rate funding for basic maintenance for internal 
connections. If the district were eligible for a 75 percent discount, 
it

[[Page 32710]]

could be eligible to receive up to $150,000 for maintenance each year. 
Under this option, libraries would be eligible for up to the same 
discount as the public school district in which they are located. We 
believe that this approach would help to ensure that funding for basic 
maintenance for internal connections is allocated more equitably among 
the schools and libraries that most need funding support for 
maintenance. To address the potential waste that occurs by funding 
maintenance based on estimated costs, we also propose to limit funding 
for maintenance to actual expenses for repair and maintenance. In order 
to make this change, we propose to change E-rate program rules to allow 
applicants to seek E-rate funds for basic maintenance for internal 
connections in the funding year following the funding year in which 
they sought and received repairs on internal connections. We seek 
comment, therefore, on revising Sec.  54.507(d) of the Commission's 
rules to allow applicants to request funding for basic maintenance that 
was received in the prior funding year.
    59. For either option (eliminating funding for basic maintenance of 
internal connections or capping such funding), we seek comment on 
whether such a change should be phased in over some number of funding 
years, and, if so, how. In either case, the requirement that applicants 
seek funding for only basic maintenance would remain unchanged. 
Specifically, we would continue to find ineligible any services that 
include maintenance of equipment that is not supported by E-rate or 
that enhances the utility of equipment beyond the transport of 
information, as well as diagnostic services in excess of those 
necessary to maintain the equipment's ability to transport information. 
Additionally, we seek comment on any other methods we could use to 
ensure support for basic maintenance is distributed equitably and in a 
way that is based on actual repair costs. For example, one alternative 
method could be that funding for basic maintenance could be distributed 
in the next funding year after the costs were incurred based on the 
actual amount for labor and parts or equipment.

2. Indexing the Annual Funding Cap to Inflation

    60. We propose to amend Sec.  54.507 of our rules to index the E-
rate program funding cap to the rate of inflation, on a prospective 
basis, so that the program maintains its current purchasing power in 
2010 dollars. Many commenters responding to the NBP Public Notice #15 
support adjusting the annual E-rate funding cap to take into account 
inflation, suggesting that increasing the cap will allow schools and 
libraries to continue to benefit from upgraded connections that deliver 
faster and more efficient broadband service as demand for greater 
capacity increases. In order to maintain predictability, however, we 
propose that during periods of deflation, the funding cap will remain 
at the level from the previous funding year. We seek comment on these 
proposals.
    61. We propose using the gross domestic product chain-type price 
index (GDP-CPI), which is released quarterly. This is the same index 
used by the Commission to inflation-adjust revenue thresholds used for 
classifying carrier categories for various accounting and reporting 
purposes. It also is used to calculate adjustments to the annual 
funding cap for the high cost loop support mechanism, which subsidizes 
service provided by rural telephone companies. The Commission has noted 
that the Bureau of Economic Analysis of the Department of Commerce, 
which produces the index, considers the GDP-CPI a more accurate measure 
of price changes than other indices for the Commission's purposes. The 
GDP-CPI is used by the Commission since it reflects price changes in 
all sectors of the economy. While inflation is currently very low, 
implementation of such a proposal could result in the E-rate cap 
growing from $2.25 billion to approximately $2.55 billion over the next 
five years if inflation were to occur similar to the historical rate 
for the last five years. We seek comment on this proposal and on 
whether there are better ways to index the E-rate funding cap to 
inflation.

V. Creating a Process for Disposal of Obsolete Equipment

    62. We propose to amend Sec.  54.513 of our rules establishing how 
participants in the E-rate program may dispose of obsolete equipment 
purchased with E-rate discounts. We also propose revising an FCC form 
to report such equipment disposals to USAC. The changes we propose seek 
to balance the competing concerns of providing schools and libraries 
the flexibility to dispose of obsolete equipment and the need to guard 
against waste, fraud, and abuse within the E-rate program. We seek 
comment on our proposed changes provided below.
    63. Process for Disposal of Obsolete Equipment. We seek comment on 
permitting the disposal of E-rate equipment for payment or other 
consideration, subject to four of E-Rate Central's proposed five 
principles. We propose to revise Sec.  54.513 of our rules to provide 
for the disposal of equipment for payment or other consideration where 
such equipment has exhausted its useful life. We clarify that, to the 
extent a school or library chooses to dispose of equipment purchased 
using E-rate funds and does not receive monetary payment or other 
consideration, it may do so without complying with these proposed 
rules. As BellSouth suggests, the Commission encourages schools and 
libraries to recycle the equipment when feasible. We do not believe, 
however, that it is necessary to adopt a requirement that applicants 
return any non-de minimis value, as discussed below. Specifically, we 
believe that the Act's prohibition on the sale, resale, or transfer of 
telecommunications services and network capacity was intended to 
prevent applicants from profiting from supported services during the 
time that the applicant is supposed to be using them. We do not believe 
this prohibition extends to when the applicant is no longer utilizing 
equipment purchased with the assistance of E-rate funds because the 
equipment is past its useful life. Thus, we propose to allow schools 
and libraries to dispose of equipment for payment or other 
consideration under the following conditions: (1) The equipment has 
exhausted its useful life but no sooner than five years after the 
equipment is installed; (2) the equipment is formally declared to be 
surplus by the school board, information technology officer, or other 
authorized body or individual; (3) the school or library notifies USAC 
within 90 days of disposal and keeps a record of the disposal for a 
period of five years following the disposal; and (4) the disposal 
process fully complies with State and local laws, where applicable. We 
discuss these conditions separately below.
    64. First, we propose that schools and libraries be permitted to 
sell or trade in equipment after the equipment has exhausted its useful 
life. We agree with commenters that there should be a rebuttable 
presumption of no less than five years from the installation date for 
the useful life of any equipment purchased using E-rate funds. 
Commenters note that the absence of rules specifically addressing the 
disposal of equipment purchased under the E-rate program when it has 
reached the end of its useful life has led some schools and libraries 
to place obsolete, out-of-service equipment in school basements or 
other on-campus storage locations. Such indefinite storage imposes 
additional needless costs on schools and libraries. Additionally, our

[[Page 32711]]

silence may have encouraged some schools or libraries to simply throw 
away unused equipment, even though that same equipment could be put to 
use by others. We seek comment on permitting the disposal of E-rate 
equipment for payment or other consideration, subject to certain 
conditions. Specifically, we seek comment on whether five years is a 
reasonable minimum time period for retaining equipment components 
purchased using an E-rate discount. Further, this proposal would count 
five years from the date of installation. We seek comment on whether 
that is the appropriate date from which to count five years or whether 
some other date, such as purchase date, is more appropriate. We note 
that our proposal would not require schools and libraries to continue 
using the equipment for five years, but they could not resell or trade 
it in before five years had passed.
    65. Second, we seek comment on the proposal suggested by commenters 
to require applicants to formally declare that the equipment is 
surplus. We propose to require that the school board or other 
authorized body make the formal declaration. We note that E-rate 
Central proposed that an internal auditor may make the formal 
declaration. While we do not believe that is typically the function of 
an internal auditor, we do not preclude schools or libraries from 
having such a person make the declaration at their discretion. We 
believe this formal process will prevent applicants from disposing of 
equipment prematurely. We also propose that the formal declaration be 
subject to the Commission's document retention rules, as detailed in 
Sec.  54.516.
    66. Third, we propose that schools and libraries notify USAC of the 
resale or trade of equipment funded via the E-rate program within 90 
days of its disposal. We also propose that applicants be required to 
keep a record of the disposal for a period of five years following the 
disposal. To implement this requirement, we propose to revise the FCC 
Form 500 (Adjustment to Funding Commitment and Modification to Receipt 
of Service Confirmation), as discussed below, to require applicants to 
submit certain information to USAC documenting the resale or trade of 
their equipment. We seek comment on these proposals.
    67. In setting forth these proposed conditions, we do not propose 
to require the return of any funds that are related to the resale or 
trade of E-rate equipment. Thus, we do not propose the adoption of E-
Rate Central's suggestion that program participants must refund any 
non-de minimis consideration received due to the disposal of any 
obsolete equipment to the E-rate program. The value of equipment after 
five years of purchase in all likelihood would be so small that it 
would not justify requiring schools to return a portion of the proceeds 
to USAC. As SECA notes, the administrative and financial burden on USAC 
and applicants of documenting and processing any such refunds would far 
outweigh the value of the funds being returned since such refunds would 
be minimal. Further, requiring applicants to return any funds related 
to the disposal of E-rate equipment could deter them from disposing 
unneeded equipment. We seek comment on these proposals.
    68. Revised FCC Form 500. Currently, to help the Commission track 
the use of equipment components purchased with E-rate discounts, 
schools and libraries are required to ``maintain asset and inventory 
records of equipment purchased as components of supported internal 
connections services sufficient to verify the actual location of such 
equipment for a period of five years after purchase.'' Similarly, if a 
school or library closes and transfers services or equipment components 
thereof to another school or library, the transferor ``must notify 
[USAC] of the transfer, and both the transferor and recipient must 
maintain detailed records documenting the transfer and the reason for 
the transfer for a period of five years.'' Consistent with the 
Commission's recordkeeping and reporting requirements, we propose to 
revise the FCC Form 500 to require schools and libraries to report to 
USAC the disposal of equipment purchased with an E-rate discount for 
payment or other consideration. Specifically, the revised FCC Form 500 
would require a school or library disposing of equipment to report the 
following information to USAC:
    (A) The applicant's name, entity number, address, and telephone 
number;
    (B) The name, address, telephone number, and e-mail address of the 
applicant's authorized point of contact;
    (C) The date of the disposal of obsolete equipment;
    (D) The name of each piece of equipment disposed of, including the 
date of purchase and the funding request number(s) associated with the 
disposed equipment;
    (E) Any payment, trade-in value, or other consideration received 
for such disposal of equipment;
    (F) The name of the entity that paid or otherwise gave the 
applicant valuable consideration for the equipment;
    (G) Formal declaration by the school board or other authorized body 
or individual that the equipment subject to disposal is surplus; and
    (H) Certification that the information provided on the form is true 
and accurate to the best of the applicant's knowledge, evidenced by the 
signature of someone authorized to so certify by the applicant and the 
date.
    69. Requiring schools and libraries to submit this information as 
part of the FCC Form 500 could facilitate our ongoing efforts to 
mitigate waste, fraud and abuse. Collecting this information would 
allow USAC and the Commission to better assess how long program 
participants are using equipment purchased with E-rate discounts prior 
to disposal of any obsolete equipment, and to track what E-rate program 
participants do with equipment they no longer use. Moreover, such 
revision would require limited information, all of which is easy to 
obtain whenever a school or library seeks to dispose of obsolete 
equipment. We seek comment on revising the FCC Form 500 and ways in 
which to further minimize any potential burdens on applicants while 
guarding against waste, fraud, and abuse in the E-rate program. We also 
seek comment on the information that we propose to obtain from 
applicants and whether less or more information would be appropriate.

VI. Procedural Matters

A. Initial Regulatory Flexibility Analysis

    70. As required by the Regulatory Flexibility Act (``RFA''), see 5 
U.S.C. 603, the Commission prepared this Initial Regulatory Flexibility 
Analysis (``IRFA'') of the possible significant economic impact on 
small entities by the policies and rules proposed in this Notice of 
Proposed Rulemaking (NPRM). Written public comments are requested on 
this IRFA. Comments must be identified as responses to the IRFA and 
must be filed on or before the dates indicated on the first page of 
this NPRM. The Commission will send a copy of the NPRM, including the 
IRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration. In addition, the Notice and IRFA (or summaries thereof) 
will be published in the Federal Register.
1. Need for, and Objectives of, the Proposed Rules
    71. The Commission is required by section 254 of the Communications 
Act of 1934, as amended, to promulgate

[[Page 32712]]

rules to implement the universal service provisions of section 254. On 
May 8, 1997, the Commission adopted rules to reform its system of 
universal service support mechanisms so that universal service is 
preserved and advanced as markets move toward competition. 
Specifically, under the schools and libraries universal service support 
mechanism, also known as the E-rate program, eligible schools, 
libraries, and consortia that include eligible schools and libraries 
may receive discounts for eligible telecommunications services, 
Internet access, and internal connections.
    72. This NPRM is one in a series of rulemaking proceedings designed 
to implement the National Broadband Plan's (NBP) vision of improving 
and modernizing the universal service programs. The Joint Statement on 
Broadband, released with the National Broadband Plan, identifies 
comprehensive universal service fund (USF) reform as an essential goal 
for the Federal Communications Commission (Commission). In meeting the 
objectives set forth in these documents, this NPRM seeks comment on 
reforms to focus spending on more productive uses that will better 
serve the current educational needs of schools and libraries, while 
maintaining the overall size of the E-rate program in relation to the 
rate of inflation. This NPRM also seeks comment on potential reforms 
that would eliminate rules that have not effectively served their 
intended purpose, while continuing to protect against waste, fraud, and 
abuse.
2. Legal Basis
    73. The legal basis for the NPRM is contained in sections 1 through 
4, 201-205, 254, 303(r), and 403 of the Communications Act of 1934, as 
amended by the Telecommunications Act of 1996, 47 U.S.C. 151 through 
154, 201 through 205, 254, 303(r), and 403.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    74. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A small business concern is one that: (1) Is independently owned 
and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the SBA. Nationwide, 
there are a total of approximately 29.6 million small businesses, 
according to the SBA. A ``small organization'' is generally ``any not-
for-profit enterprise which is independently owned and operated and is 
not dominant in its field.'' Nationwide, as of 2002, there were 
approximately 1.6 million small organizations. The term ``small 
governmental jurisdiction'' is defined generally as ``governments of 
cities, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' Census 
Bureau data for 2002 indicate that there were 87,525 local governmental 
jurisdictions in the United States. We estimate that, of this total, 
84,377 entities were ``small governmental jurisdictions.'' Thus, we 
estimate that most governmental jurisdictions are small.
    75. Small entities potentially affected by the proposals herein 
include eligible schools and libraries and the eligible service 
providers offering them discounted services, including 
telecommunications service providers, Internet Service Providers 
(ISPs), and vendors of the services and equipment used for internal 
connections.
a. Schools
    76. As noted, ``small entity'' includes non-profit and small 
governmental entities. Under the schools and libraries universal 
service support mechanism, which provides support for elementary and 
secondary schools, an elementary school is generally ``a non-profit 
institutional day or residential school that provides elementary 
education, as determined under State law.'' A secondary school is 
generally defined as ``a non-profit institutional day or residential 
school that provides secondary education, as determined under State 
law,'' and not offering education beyond grade 12. For-profit schools, 
and schools and libraries with endowments in excess of $50,000,000, are 
not eligible to receive discounts under the program. Certain other 
restrictive definitions apply as well. The SBA has also defined for-
profit, elementary and secondary schools having $7 million or less in 
annual receipts as small entities. In funding year 2007, approximately 
105,500 schools received funding under the schools and libraries 
universal service mechanism. Although we are unable to estimate with 
precision the number of these additional entities that would qualify as 
small entities under SBA's size standard, we estimate that fewer than 
105,500 such schools might be affected annually by our action, under 
current operation of the program.
b. Telecommunications Service Providers
    77. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a size standard for small 
incumbent local exchange services. The closest size standard under SBA 
rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 1,311 incumbent carriers reported that 
they were engaged in the provision of local exchange services. Of these 
1,311 carriers, an estimated 1,024 have 1,500 or fewer employees and 
287 have more than 1,500 employees. Thus, under this category and 
associated small business size standard, we estimate that the majority 
of entities are small.
    78. We have included small incumbent local exchange carriers in 
this RFA analysis. A ``small business'' under the RFA is one that, 
inter alia, meets the pertinent small business size standard (e.g., a 
telephone communications business having 1,500 or fewer employees), and 
``is not dominant in its field of operation.'' The SBA's Office of 
Advocacy contends that, for RFA purposes, small incumbent local 
exchange carriers are not dominant in their field of operation because 
any such dominance is not ``national'' in scope. We have therefore 
included small incumbent carriers in this RFA analysis, although we 
emphasize that this RFA action has no effect on the Commission's 
analyses and determinations in other, non-RFA contexts.
    79. Interexchange Carriers. Neither the Commission nor the SBA has 
developed a definition of small entities specifically applicable to 
providers of interexchange services (IXCs). The closest applicable 
definition under the SBA rules is for wired telecommunications 
carriers. This provides that a wired telecommunications carrier is a 
small entity if it employs no more than 1,500 employees. According to 
the Commission's 2008 Trends Report, 300 companies reported that they 
were engaged in the provision of interexchange services. Of these 300 
IXCs, an estimated 268 have 1,500 or fewer employees and 32 have more 
than 1,500 employees. Consequently, the Commission estimates that most 
providers of interexchange services are small businesses.

[[Page 32713]]

    80. Competitive Access Providers. Neither the Commission nor the 
SBA has developed a definition of small entities specifically 
applicable to competitive access services providers (CAPs). The closest 
applicable definition under the SBA rules is for wired 
telecommunications carriers. This provides that a wired 
telecommunications carrier is a small entity if it employs no more than 
1,500 employees. According to the 2008 Trends Report, 1,005 CAPs and 
competitive local exchange carriers (competitive LECs) reported that 
they were engaged in the provision of competitive local exchange 
services. Of these 1,005 CAPs and competitive LECs, an estimated 918 
have 1,500 or fewer employees and 87 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of 
competitive exchange services are small businesses.
    81. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the Census Bureau has placed wireless firms within this new, 
broad, economic census category. Prior to that time, such firms were 
within the now-superseded categories of ``Paging'' and ``Cellular and 
Other Wireless Telecommunications.'' Under the present and prior 
categories, the SBA has deemed a wireless business to be small if it 
has 1,500 or fewer employees. Because Census Bureau data are not yet 
available for the new category, we will estimate small business 
prevalence using the prior categories and associated data. For the 
category of Paging, data for 2002 show that there were 807 firms that 
operated for the entire year. Of this total, 804 firms had employment 
of 999 or fewer employees, and three firms had employment of 1,000 
employees or more. For the category of Cellular and Other Wireless 
Telecommunications, data for 2002 show that there were 1,397 firms that 
operated for the entire year. Of this total, 1,378 firms had employment 
of 999 or fewer employees, and 19 firms had employment of 1,000 
employees or more. Thus, we estimate that the majority of wireless 
firms are small.
    82. Wireless Telephony. Wireless telephony includes cellular, 
personal communications services, and specialized mobile radio 
telephony carriers. As noted, the SBA has developed a small business 
size standard for Wireless Telecommunications Carriers (except 
Satellite). Under the SBA small business size standard, a business is 
small if it has 1,500 or fewer employees. According to the 2008 Trends 
Report, 434 carriers reported that they were engaged in wireless 
telephony. Of these, an estimated 222 have 1,500 or fewer employees and 
212 have more than 1,500 employees. We have estimated that 222 of these 
are small under the SBA small business size standard.
    83. Common Carrier Paging. As noted, since 2007 the Census Bureau 
has placed paging providers within the broad economic census category 
of Wireless Telecommunications Carriers (except Satellite). Prior to 
that time, such firms were within the now-superseded category of 
``Paging.'' Under the present and prior categories, the SBA has deemed 
a wireless business to be small if it has 1,500 or fewer employees. 
Because Census Bureau data are not yet available for the new category, 
we will estimate small business prevalence using the prior category and 
associated data. The data for 2002 show that there were 807 firms that 
operated for the entire year. Of this total, 804 firms had employment 
of 999 or fewer employees, and three firms had employment of 1,000 
employees or more. Thus, we estimate that the majority of paging firms 
are small.
    84. In addition, in the Paging Second Report and Order, the 
Commission adopted a size standard for ``small businesses'' for 
purposes of determining their eligibility for special provisions such 
as bidding credits and installment payments. A small business is an 
entity that, together with its affiliates and controlling principals, 
has average gross revenues not exceeding $15 million for the preceding 
three years. The SBA has approved this definition. An initial auction 
of Metropolitan Economic Area (``MEA'') licenses was conducted in the 
year 2000. Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven 
companies claiming small business status won 440 licenses. A subsequent 
auction of MEA and Economic Area (``EA'') licenses was held in the year 
2001. Of the 15,514 licenses auctioned, 5,323 were sold. One hundred 
thirty-two companies claiming small business status purchased 3,724 
licenses. A third auction, consisting of 8,874 licenses in each of 175 
EAs and 1,328 licenses in all but three of the 51 MEAs, was held in 
2003. Seventy-seven bidders claiming small or very small business 
status won 2,093 licenses.
    85. Currently, there are approximately 74,000 Common Carrier Paging 
licenses. According to the most recent Trends in Telephone Service, 281 
carriers reported that they were engaged in the provision of ``paging 
and messaging'' services. Of these, an estimated 279 have 1,500 or 
fewer employees and two have more than 1,500 employees. We estimate 
that the majority of common carrier paging providers would qualify as 
small entities under the SBA definition.
c. Internet Service Providers
    86. The 2007 Economic Census places these firms, whose services 
might include voice over Internet protocol (VoIP), in either of two 
categories, depending on whether the service is provided over the 
provider's own telecommunications facilities (e.g., cable and DSL 
ISPs), or over client-supplied telecommunications connections (e.g., 
dial-up ISPs). The former are within the category of Wired 
Telecommunications Carriers, which has an SBA small business size 
standard of 1,500 or fewer employees. The latter are within the 
category of All Other Telecommunications, which has a size standard of 
annual receipts of $25 million or less. The most current Census Bureau 
data for all such firms, however, are the 2002 data for the previous 
census category called Internet Service Providers. That category had a 
small business size standard of $21 million or less in annual receipts, 
which was revised in late 2005 to $23 million. The 2002 data show that 
there were 2,529 such firms that operated for the entire year. Of 
those, 2,437 firms had annual receipts of under $10 million, and an 
additional 47 firms had receipts of between $10 million and 
$24,999,999. Consequently, we estimate that the majority of ISP firms 
are small entities.
d. Vendors of Internal Connections
    87. Telephone Apparatus Manufacturing. The Census Bureau defines 
this category as follows: ``This industry comprises establishments 
primarily engaged in manufacturing wire telephone and data 
communications equipment. These products may be standalone or board-
level components of a larger system. Examples of products made by these 
establishments are central office switching equipment, cordless 
telephones (except cellular), PBX equipment, telephones, telephone 
answering machines, LAN modems, multi-user modems, and other data 
communications equipment, such as bridges, routers, and gateways.'' The 
SBA has developed a small business size standard for Telephone 
Apparatus Manufacturing, which is: All such firms having 1,000 or fewer 
employees. According to Census Bureau data for 2002, there were a total 
of 518 establishments in this category that operated for the entire 
year. Of this total, 511 had employment of under 1,000, and an 
additional 7 had employment of 1,000 to 2,499. Thus,

[[Page 32714]]

under this size standard, the majority of firms can be considered 
small.
    88. Radio and Television Broadcasting and Wireless Communications 
Equipment Manufacturing. The Census Bureau defines this category as 
follows: ``This industry comprises establishments primarily engaged in 
manufacturing radio and television broadcast and wireless 
communications equipment. Examples of products made by these 
establishments are: Transmitting and receiving antennas, cable 
television equipment, GPS equipment, pagers, cellular phones, mobile 
communications equipment, and radio and television studio and 
broadcasting equipment.'' The SBA has developed a small business size 
standard for firms in this category, which is: All such firms having 
750 or fewer employees. According to Census Bureau data for 2002, there 
were a total of 1,041 establishments in this category that operated for 
the entire year. Of this total, 1,010 had employment of under 500, and 
an additional 13 had employment of 500 to 999. Thus, under this size 
standard, the majority of firms can be considered small.
    89. Other Communications Equipment Manufacturing. The Census Bureau 
defines this category as follows: ``This industry comprises 
establishments primarily engaged in manufacturing communications 
equipment (except telephone apparatus, and radio and television 
broadcast, and wireless communications equipment).'' The SBA has 
developed a small business size standard for Other Communications 
Equipment Manufacturing, which is: all such firms having 750 or fewer 
employees. According to Census Bureau data for 2002, there were a total 
of 503 establishments in this category that operated for the entire 
year. Of this total, 493 had employment of under 500, and an additional 
7 had employment of 500 to 999. Thus, under this size standard, the 
majority of firms can be considered small.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    90. The specific proposals under consideration in the NPRM would 
not, if adopted, result in additional recordkeeping requirements for 
small businesses.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    91. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance and reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or part thereof, for small 
entities.
    92. In this NPRM, we seek comment on a package of potential reforms 
to the E-rate program that can be implemented in funding year 2011 
(July 1, 2011-June 30, 2012). We seek to improve and modernize the 
program by streamlining the E-rate application process, providing 
greater flexibility to choose the most cost-effective and educationally 
useful broadband services, and expanding the reach of broadband to the 
classroom. More particularly, these proposed reforms include: improving 
and simplifying the current E-rate application process; codifying the 
requirement that competitive bidding processes be ``fair and open''; 
simplifying the way schools calculate their discounts; conforming the 
E-rate definition of ``rural'' to the Department of Education's 
definition; allowing greater flexibility in the use of wireless 
Internet access for educational purposes away from school grounds; 
allowing recipients the option of leasing low-cost fiber; expanding the 
reach of broadband in residential schools that serve populations facing 
unique challenges; creating a predictable funding mechanism that would 
provide a per student amount for internal connections each year, while 
eliminating support for basic maintenance of internal connections; 
indexing the current $2.25 billion cap on E-rate disbursements to 
inflation; and creating a process for schools and libraries to dispose 
of obsolete equipment.
    93. As note, we believe the proposals and options being put out for 
comment will not have a significant economic impact on small entities 
under the E-rate program. Indeed the proposals and options will benefit 
small entities by simplifying the application process, eliminating 
burdensome restrictions on the purchase of certain broadband 
technologies, creating a more stable and predictable funding pool, and 
allowing more applicants to receive program funding, while ensuring 
that the amount of funding available keeps pace with the rate of 
inflation. Because this NPRM does not propose additional regulation for 
service providers and equipment vendors, these small entities will 
experience no significant additional burden. We nonetheless invite 
commenters, in responding to the questions posed and tentative 
conclusions in the NPRM, to discuss any economic impact that such 
changes may have on small entities, and possible alternatives.
6. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules
    94. None.

B. Paperwork Reduction Act Analysis

    95. This document contains proposed modified information collection 
requirements. The Commission, as part of its continuing effort to 
reduce paperwork burdens, invites the general public and the Office of 
Management and Budget (OMB) to comment on the information collection 
requirements contained in this document, as required by the Paperwork 
Reduction Act of 1995, Public Law 104-13. In addition, pursuant to the 
Small Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(c)(4), we seek specific comment on how we might further 
reduce the ``information collection burden for small business concerns 
with fewer than 25 employees.''

C. Ex Parte Presentations

    96. These matters shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. Persons 
making oral ex parte presentations are reminded that memoranda 
summarizing the presentations must contain summaries of the substance 
of the presentations and not merely a listing of the subjects 
discussed. More than a one or two sentence description of the views and 
arguments presented is generally required. Other requirements 
pertaining to oral and written presentations are set forth in Sec.  
1.1206(b) of the Commission's rules.


List of Subjects in 47 CFR Part 54

    Communications common carriers, Health facilities, Infants and 
children, Libraries, Reporting and recordkeeping requirements, Schools, 
Telecommunications, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Proposed Rules

    For the reasons discussed in the preamble, the Federal 
Communications

[[Page 32715]]

Commission proposes to amend 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

    1. The authority citation continues to read as follows:

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

    2. Section 54.5 is amended by revising the definition for ``Rural 
area'' to read as follows:


Sec.  54.5  Terms and definitions.

* * * * *
    Rural area. For purposes of the rural health care universal service 
support mechanism, a ``rural area'' is an area that is entirely outside 
of a Core Based Statistical Area; is within a Core Based Statistical 
Area that does not have any Urban Area with a population of 25,000 or 
greater; or is in a Core Based Statistical Area that contains an Urban 
Area with a population of 25,000 or greater, but is within a specific 
census tract that itself does not contain any part of a Place or Urban 
Area with a population of greater than 25,000. ``Core Based Statistical 
Area'' and ``Urban Area'' are as defined by the Census Bureau and 
``Place'' is as identified by the Census Bureau.
* * * * *
    3. Section 54.500 is revised to read as follows:


Sec.  54.500  Terms and definitions.

    (a) Applicant. For purposes of this subpart, an ``applicant'' is an 
eligible school or library, or a consortium that includes an eligible 
school or library.
    (b) Billed entity. A ``billed entity'' is the entity that remits 
payment to service providers for services rendered to eligible schools 
and libraries.
    (c) Educational purposes. For purposes of this subpart, activities 
that are integral, immediate, and proximate to the education of 
students, or in the case of libraries, integral, immediate and 
proximate to the provision of library services to library patrons, 
qualify as ``educational purposes.'' Activities that occur on library 
or school property are presumed to be integral, immediate, and 
proximate to the education of students or the provision of library 
services to library patrons.
    (d) Elementary school. An ``elementary school'' is a non-profit 
institutional day or residential school, including a public elementary 
charter school, that provides elementary education, as determined under 
State law.
    (e) Internal connections. For purposes of this subpart, a service 
is eligible for support as a component of an institution's ``internal 
connections'' if such service is necessary to transport information 
within one or more instructional buildings of a single school campus or 
within one or more non-administrative buildings that comprise a single 
library branch.
    (f) Library. A ``library'' includes:
    (1) A public library;
    (2) A public elementary school or secondary school library;
    (3) An academic library;
    (4) A research library, which for the purpose of this section means 
a library that:
    (i) Makes publicly available library services and materials 
suitable for scholarly research and not otherwise available to the 
public; and
    (ii) Is not an integral part of an institution of higher education; 
and
    (5) A private library, but only if the State in which such private 
library is located determines that the library should be considered a 
library for the purposes of this definition.
    (g) Library consortium. A ``library consortium'' is any local, 
statewide, regional, or interstate cooperative association of libraries 
that provides for the systematic and effective coordination of the 
resources of schools, public, academic, and special libraries and 
information centers, for improving services to the clientele of such 
libraries. For the purposes of these rules, references to library will 
also refer to library consortium.
    (h) Lowest corresponding price. ``Lowest corresponding price'' is 
the lowest price that a service provider charges to non-residential 
customers who are similarly situated to a particular school, library, 
or library consortium for similar services.
    (i) Master contract. A ``master contract'' is a contract negotiated 
with a service provider by a third party, the terms and conditions of 
which are then made available to an eligible school, library, rural 
health care provider, or consortium that purchases directly from the 
service provider.
    (j) Minor contract modification. A ``minor contract modification'' 
is a change to a universal service contract that is within the scope of 
the original contract and has no effect or merely a negligible effect 
on price, quantity, quality, or delivery under the original contract.
    (k) National school lunch program. The ``national school lunch 
program'' is a program administered by the U.S. Department of 
Agriculture and State agencies that provides free or reduced price 
lunches to economically disadvantaged children. A child whose family 
income is between 130 percent and 185 percent of applicable family size 
income levels contained in the nonfarm poverty guidelines prescribed by 
the Office of Management and Budget is eligible for a reduced price 
lunch. A child whose family income is 130 percent or less of applicable 
family size income levels contained in the nonfarm income poverty 
guidelines prescribed by the Office of Management and Budget is 
eligible for a free lunch.
    (l) Pre-discount price. The ``pre-discount price'' means, in this 
subpart, the price the service provider agrees to accept as total 
payment for its telecommunications or information services. This amount 
is the sum of the amount the service provider expects to receive from 
the eligible school or library and the amount it expects to receive as 
reimbursement from the universal service support mechanisms for the 
discounts provided under this subpart.
    (m) Priority one services. For purposes of this subpart, ``priority 
one services'' are telecommunications services, Internet access, and 
information services as designated annually by the Commission in the 
Eligible Services List.
    (n) Priority two services. For purposes of this subpart, ``priority 
two services'' are internal connections, as designated annually by the 
Commission in the Eligible Services List.
    (o) Rural area. For purposes of this subpart, a ``rural area'' is 
within a territory whose locale code is classified as either rural-
fringe, rural-distant, or rural-remote by the U.S. Department of 
Education's National Center for Education Statistics.
    (p) Secondary school. A ``secondary school'' is a non-profit 
institutional day or residential school that provides secondary 
education, as determined under State law. A secondary school does not 
offer education beyond grade 12.
    (q) State telecommunications network. A ``State telecommunications 
network'' is a State government entity that procures, among other 
things, telecommunications offerings from multiple service providers 
and bundles such offerings into packages available to schools, 
libraries, or rural health care providers that are eligible for 
universal service support, or a State government entity that provides, 
using its own facilities, such telecommunications offerings to such 
schools, libraries, and rural health care providers.
    4. Section 54.501 is amended by revising paragraph (a) to read as 
follows:

[[Page 32716]]

Sec.  54.501  Eligibility for service provided by telecommunications 
carriers.

    (a) Telecommunications carriers shall be eligible for universal 
service support under this subpart for providing supported services to 
eligible applicants.
* * * * *
    5. Revise Sec.  54.502 is to read as follows:


Sec.  54.502  Supported services.

    (a) Telecommunications services. For purposes of this subpart, 
supported telecommunications services provided by telecommunications 
carriers include all commercially available telecommunications services 
in addition to all reasonable charges that are incurred by taking such 
services, such as State and Federal taxes. Charges for termination 
liability, penalty surcharges, and other charges not included in the 
cost of taking such service shall not be covered by the universal 
service support mechanisms. Supported telecommunications services are 
designated annually in the Eligible Services List by the Commission in 
accordance with Sec.  54.503 of the Commission's rules.
    (b) Internet access and information services. For purposes of this 
subpart, supported Internet access and information services include 
basic conduit access to the Internet and the services defined in Sec.  
54.5 of the Commission's rules as Internet access. Supported Internet 
access and information services are designated annually by the 
Commission in the Eligible Services List in accordance with Sec.  
54.503 of the Commission's rules.
    (c) Internal connections. For purposes of this subpart, supported 
internal connections are defined in Sec.  54.500(e) as eligible 
services. Discounts are not available for internal connections in non-
instructional buildings of a school or school district, or in 
administrative buildings of a library, to the extent that a library 
system has separate administrative buildings, unless those internal 
connections are essential for the effective transport of information to 
an instructional building of a school or to a non-administrative 
building of a library. Internal connections do not include connections 
that extend beyond a single school campus or single library branch. 
There is a rebuttable presumption that a connection does not constitute 
an internal connection if it crosses a public right-of-way. Supported 
internal connections are defined and listed in the Eligible Services 
List as updated annually in accordance with Sec.  54.503 of the 
Commission's rules.
    (d) Non-telecommunications carriers shall be eligible for universal 
service support under this subpart for providing the supported services 
described in paragraph (b) and (c) of this section for eligible 
schools, libraries, and consortia including those entities. Such 
services provided by non-telecommunications carriers shall be subject 
to all the provisions of this subpart, except Sec. Sec.  54.501(a), 
54.502(a), and 54.515.
    6. Sec.  54.504 [Amended]
    a. Remove paragraphs (a) and (b);
    b. Redesignate paragraph (c) as paragraph (a);
    c. Redesignate paragraphs (d), (e), (f), (g), and (h) as paragraphs 
(b), (c), (d), (e), and (f);
    d. Revise newly designated paragraphs (a) introductory text, (a)(1) 
introductory text, (a)(1)(iv), (a)(1)(v), (a)(1)(vii), (a)(1)(xi), (e) 
introductory text, (e)(1), and (e)(2).
    The revisions read as follows:


Sec.  54.504  Requests for services.

    (a) Filing of FCC Form 471. An applicant seeking to receive 
discounts for eligible services as designated by the Commission on the 
eligible services list under this subpart shall, upon signing a 
contract for eligible services, submit a completed FCC Form 471 to the 
Administrator. A commitment of support is contingent upon the filing of 
FCC Form 471.
    (1) The FCC Form 471 shall be signed by the person authorized to 
order telecommunications services for the applicant and shall include 
that person's certification under oath that:
* * * * *
    (iv) All of the schools and libraries listed on the FCC Form 471 
application are:
    (A) Covered by an individual or higher-level technology plan for 
using the services requested in the application that meets the 
requirements of Sec.  54.508 of the Commission's rules;
    (B) Are not covered by a technology plan because the application 
requests only eligible priority one services as defined in Sec.  
54.500(1) and the applicant is subject to State or local technology 
planning requirements; or
    (C) Are not covered by a technology plan because the application 
requests only basic telecommunications services.
    (v) The applicant's technology plan(s) has/have been/will be 
approved by a State or other authorized body consistent with Sec.  
54.508 of this subpart.
* * * * *
    (vii) The services the applicant purchases at discounts will be 
used solely for educational purposes and will not be sold, resold, or 
transferred in consideration for money or any other thing of value. 
Services that the applicant purchases at discounts are not deemed sold, 
resold, or transferred in consideration for money or any other thing of 
value if disposed pursuant to Sec.  54.513.
* * * * *
    (xi) All bids submitted to an applicant seeking eligible services 
were carefully considered and the most cost-effective bid was selected 
in accordance with Sec.  54.510 of this subpart, with price being the 
primary factor considered, and is the most cost-effective means of 
meeting educational needs and technology plan goals.
* * * * *
    (e) Rate disputes. If they reasonably believe that the lowest 
corresponding price is unfairly high or low, applicants may have 
recourse to the Commission, regarding interstate rates, and to State 
commissions, regarding intrastate rates.
    (1) Applicants may request lower rates if the rate offered by the 
carrier does not represent the lowest corresponding price.
    (2) Service providers may request higher rates if they can show 
that the lowest corresponding price is not compensatory, because the 
relevant applicant is not similarly situated to and subscribing to a 
similar set of services to the customer paying the lowest corresponding 
price.
* * * * *
    7. Section 54.505 is amended by revising paragraph (b) introductory 
text, (b)(3)(i), (b)(3)(ii), and (b)(4) to read as follows:


Sec.  54.505  Discounts.

* * * * *
    (b) Discount percentages. The discounts available to eligible 
schools and libraries shall range from 20 percent to 90 percent of the 
pre-discount price for eligible services as designated by the 
Commission. The discounts available to a particular applicant shall be 
determined by indicators of poverty and high cost.
* * * * *
    (3) * * *
    (i) Schools and libraries whose locale code is city, suburb, town-
fringe, or rural-fringe, as measured by the U.S. Department of 
Education's National Center for Education Statistics, shall be 
designated as urban.
    (ii) Schools and libraries whose locale code is town-distant, town-
remote, rural-distant, or rural-remote, as measured by the U.S. 
Department of Education's National Center for Education Statistics, 
shall be designated as rural.

[[Page 32717]]

    (4) Applicants shall calculate discounts on supported services 
described in Sec.  54.502 or other supported special services described 
in Sec.  54.503 by first calculating a single discount percentage rate 
for the entire school district by dividing the total number of students 
eligible for the National School Lunch Program or other alternative 
eligible mechanism by the total number of students in the district. 
Applicants shall then compare that single figure against the discount 
matrix to determine the school district's discount for priority one and 
priority two services. All schools and libraries within that school 
district shall receive the same discount rate.
* * * * *
    8. Section 54.507 is amended by revising paragraphs (a), (c), and 
(d) introductory text, to read as follows:


Sec.  54.507  Cap.

    (a) Amount of the annual cap. The annual funding cap on Federal 
universal service support for schools and libraries shall be $2.25 
billion in funding year 2010. In funding year 2011 and subsequent 
funding years, the funding cap shall be automatically increased 
annually to take into account increases in the rate of inflation as 
calculated in (a)(1) of this section. All funds collected that are 
unused shall be carried forward into subsequent funding years for use 
in the schools and libraries support mechanism in accordance with the 
public interest and notwithstanding the annual cap.
    (1) Increase Calculation. To measure increases in the rate of 
inflation for annual automatic increase purposes, the Commission shall 
use the Gross Domestic Product Chain-type Price Index (GDP-CPI). To 
compute the annual increase, the average of the GDP-CPI for four 
quarters shall be calculated by adding the four GDP-CPI quarters and 
dividing the sum by 4. The increase shall be rounded to the nearest 0.1 
percent by rounding 0.05 percent and above to the next higher 0.1 
percent and otherwise rounding to the next lower 0.1 percent. This 
percentage increase shall be applied to the amount of the annual 
funding cap from the previous funding year. If the yearly average GDP-
CPI decreases or stays the same, the annual funding cap shall remain 
the same as the previous year.
    (2) Public Notice. When the calculation of the yearly average GDP-
CPI is determined, the Commission shall publish a Public Notice in the 
Federal Register within 60 days announcing any increase of the annual 
funding cap based on the rate of inflation.
* * * * *
    (c) Requests. Funds shall be available to fund discounts for 
applicants on a first-come-first-served basis, with requests accepted 
beginning on the first of July prior to each funding year. The 
Administrator shall maintain on the Administrator's Web site a running 
tally of the funds already committed for the existing funding year. The 
Administrator shall implement an initial filing period that treats all 
applicants filing within that period as if their applications were 
simultaneously received. The initial filing period shall begin on the 
date that the Administrator begins to receive applications for support, 
and shall conclude on a date to be determined by the Administrator. The 
Administrator may implement such additional filing periods as it deems 
necessary.
    (d) Annual filing requirement. Applicants shall file new funding 
requests for each funding year no sooner than the July 1 prior to the 
start of that funding year. Applicants must use recurring services for 
which discounts have been committed by the Administrator within the 
funding year for which the discounts were sought. The deadline for 
implementation of non-recurring services will be September 30 following 
the close of the funding year. An applicant may request and receive 
from the Administrator an extension of the implementation deadline for 
non-recurring services if it satisfies one of the following criteria:
* * * * *
    9. Revise Sec.  54.508 to read as follows:


Sec.  54.508  Technology plans.

    (a) When plan is necessary and content. Applicants seeking only 
basic telecommunications services do not need to develop a technology 
plan when requesting schools and libraries universal service support. 
Applicants must develop a technology plan when requesting schools and 
libraries universal service support;
    (1) For eligible priority one services if they are not subject to 
State or local technology planning requirements and;
    (2) For eligible priority two services. Applicants must document 
the date on which the technology plan was created. The technology plan 
must comply with State and local technology planning requirements or 
meet the standards established by the U.S. Department of Education's 
Enhancing Education through Technology, 20 U.S.C. 6764, or the U.S. 
Institute for Museum and Library Services. The technology plan must 
include the following elements:
    (b) Approval. Applicants required to prepare technology plans under 
this subpart must have such plan(s) approved. An applicant that has 
developed a technology plan approved by the State, the U.S. Department 
of Education's Enhancing Education through Technology, or the U.S. 
Institute for Museum and Library Services has an approved plan for 
purposes of the universal service program. Other applicants must obtain 
approval from either the Administrator or an independent entity 
approved by the Commission or certified by the Administrator as 
qualified to provide such approval. All parties who will provide such 
approval must apply the standards set forth in paragraph (a) of this 
section.
    (c) Timing of certification. Applicants must certify on the FCC 
Form 471 that they have prepared a technology plan, if required. 
Applicants must also confirm in FCC Form 486 that their technology plan 
was approved before they began receiving services pursuant to it.
    10. Add Sec.  54.510 to read as follows:


Sec.  54.510  Competitive bidding requirements.

    (a) All entities participating in the schools and libraries 
universal service support program must conduct a fair and open 
competitive bidding process, consistent with all requirements set forth 
in this subpart.
    (b) Competitive bid requirements. An applicant shall:
    (1) Seek competitive bids for all eligible priority one services in 
accordance with State or local procurement requirements. If requested 
by the Administrator, each applicant bears the burden of demonstrating 
compliance with State or local procurement requirements. Unless there 
is an existing contract signed on or before July 10, 1997, pursuant to 
Sec.  54.511(c), an applicant that is not subject to State or local 
procurement requirements shall follow the FCC Form 470 posting 
requirements as set forth in paragraph (c) of this section to meet the 
competitive bidding requirements.
    (2) Seek competitive bids for all eligible priority two services 
pursuant to the requirements established in this subpart, except as 
provided in Sec.  54.511(c). These competitive bid requirements apply 
in addition to State and local competitive bid requirements and are not 
intended to preempt such State and local requirements.
    (c) Posting of FCC Form 470. (1) An applicant seeking to receive 
discounts for eligible internal connections products and services under 
this subpart shall post an FCC Form 470 to

[[Page 32718]]

initiate the competitive bidding process. An eligible applicant that is 
not subject to State or local procurement requirements and that is 
seeking to receive for eligible priority one service shall post an FCC 
Form 470 to initiate the competitive bidding process. The FCC Form 470 
and any request for proposal cited in the FCC Form 470 should include:
    (i) A list of specified services for which the applicant 
anticipates they are likely to seek discounts; and
    (ii) Sufficient information to enable bidders to reasonably 
determine the needs of the applicant.
    (2) The FCC Form 470 shall be signed by the person authorized to 
order eligible services for the eligible applicant and shall include 
that person's certification under oath that:
    (i) The schools meet the statutory definition of elementary and 
secondary schools found under section 254(h) of the Act, as amended in 
the No Child Left Behind Act of 2001, 20 U.S.C. 7801(18) and (38), do 
not operate as for-profit businesses, and do not have endowments 
exceeding $50 million;
    (ii) The libraries or library consortia eligible for assistance 
from a State library administrative agency under the Library Services 
and Technology Act of 1996 do not operate as for-profit businesses and 
whose budgets are completely separate from any school (including, but 
not limited to, elementary and secondary schools, colleges, and 
universities).
    (iii) All of the individual schools, libraries, and library 
consortia receiving eligible services are covered by:
    (A) Individual technology plans for using the internal connections 
products or services requested in the application that meets the 
requirements of Sec.  54.508; or
    (B) No technology plan is required by the Commission's rules.
    (iv) The technology plan(s) has/have been/will be approved 
consistent with Sec.  54.508 or no technology plan is required.
    (v) The services the applicant purchases at discounts will be used 
solely for educational purposes and will not be sold, resold, or 
transferred in consideration for money or any other thing of value 
except as allowed by Sec.  54.513.
    (vi) Support under this support mechanism is conditional upon the 
school(s) and library(ies) securing access to all of the resources, 
including computers, training, software, maintenance, internal 
connections, and electrical connections necessary to use the services 
purchased effectively.
    (vii) All bids submitted for eligible priority one and priority two 
products and services will be carefully considered, with price being 
the primary factor, and the bid selected will be for the most cost-
effective offering consistent with Sec.  54.511.
    (3) The Administrator shall post each FCC Form 470 that it receives 
from an eligible school, library, or consortium that includes an 
eligible school or library on its Web site designated for this purpose.
    (4) After posting on the Administrator's Web site an applicant's 
FCC Form 470, the Administrator shall send confirmation of the posting 
to the entity requesting service. That entity shall then wait at least 
four weeks from the date on which its description of services is posted 
on the Administrator's Web site before making commitments with the 
selected providers of services. The confirmation from the Administrator 
shall include the date after which the requestor may sign a contract 
with its chosen provider(s).
    11. Section 54.511 is amended by revising paragraphs (a), (b), 
(c)(1) introductory text, (c)(1)(ii), (c)(2), (d)(1), removing 
paragraph (c)(3), and adding paragraph (e) to read as follows:


Sec.  54.511  Ordering services.

    (a) Selecting a provider of eligible services. In selecting a 
provider of eligible services, applicants shall carefully consider all 
bids submitted and must select the most cost-effective service 
offering. In determining which service offering is the most cost-
effective, entities may consider relevant factors other than the pre-
discount prices submitted by providers but price should be the primary 
factor considered.
    (b) Lowest corresponding price. Providers of eligible services 
shall not charge applicants a price above the lowest corresponding 
price for supported services, unless the Commission, with respect to 
interstate services or the State commission with respect to intrastate 
services, finds that the lowest corresponding price is not 
compensatory. Promotional rates offered by a service provider for a 
period of more than 90 days must be included among the comparable rates 
upon which the lowest corresponding price is determined.
    (c) Existing contracts. (1) A signed contract for services eligible 
for discounts pursuant to this subpart between an eligible school or 
library as defined under Sec.  54.501 or consortium that includes an 
eligible school or library and a service provider shall be exempt from 
the requirements set forth in Sec.  54.510(b), (c)(3), and (c)(4) as 
follows:
* * * * *
    (ii) A contract signed after July 10, 1997, but before the date on 
which the universal service competitive bid system described in Sec.  
54.510 is operational, is exempt from the competitive bid requirements 
only with respect to services that are provided under such contract 
between January 1, 1998 and December 31, 1998.
    (2) For an applicant that takes service under or pursuant to a 
master contract, the date of execution of that master contract 
represents the applicable date for purposes of determining whether and 
to what extent the applicant is exempt from the competitive bid 
requirements.
    (d)(1) The exemption from the competitive bid requirements set 
forth in paragraph (c) of this section shall not apply to voluntary 
extensions or renewals of existing contracts.
* * * * *
    (e) Contract requirements. All contracts for eligible products and 
services must comply with State and local contract laws. Applicants 
must have a contract or legally binding agreement in place when filing 
the FCC Form 486. Applicants bear the burden of demonstrating 
compliance with State and local contract laws and should be prepared to 
provide the necessary documentation of such compliance at any time 
during the application review process.
    12. Section 54.513 is amended by revising the section heading and 
adding paragraph (d) to read as follows:


Sec.  54.513  Resale and transfer of services and disposal of surplus 
equipment.

* * * * *
    (d) Disposal of Surplus Equipment That Has Exhausted Its Useful 
Life. At least five years after its installation date, surplus 
equipment may be resold for payment or other consideration if:
    (1) The equipment has exhausted its useful life;
    (2) The school board or other authorized body formally declares the 
equipment to be surplus;
    (3) The school or library notifies USAC within 90 days of reselling 
or trading the equipment using FCC Form 500 and keeps a record of such 
disposal for a period of five years following the disposal; and
    (4) The disposal process substantially complies with State and 
local laws, where applicable.
    13. Section 54.519 is amended by revising paragraphs (a), (a)(6), 
and (b) to read as follows:

[[Page 32719]]

Sec.  54.519  State telecommunications networks.

    (a) Telecommunications services. State telecommunications networks 
may secure discounts under the universal service support mechanisms on 
supported telecommunications services (as described in Sec.  54.502) on 
behalf of applicants. Such State telecommunications networks shall pass 
on such discounts to applicants and shall:
* * * * *
    (6) Comply with the competitive bid requirements set forth in Sec.  
54.510(b).
    (b) Internet access and installation and maintenance of internal 
connections. State telecommunications networks either may secure 
discounts on Internet access and installation and maintenance of 
internal connections in the manner described in paragraph (a) of this 
section with regard to telecommunications, or shall be eligible, 
consistent with Sec.  54.502(d), to receive universal service support 
for providing such services to applicants.

[FR Doc. 2010-12930 Filed 6-8-10; 8:45 am]
BILLING CODE 6712-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>