[Federal Register Volume 75, Number 110 (Wednesday, June 9, 2010)]
[Proposed Rules]
[Pages 32692-32699]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-12931]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 02-6; FCC 09-105]


Schools and Libraries Universal Service Support Mechanism

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) addresses matters related to the eligibility of products 
and services under the schools and libraries universal service support 
mechanism, also known as the E-rate program. Specifically, in this 
Further Notice of Proposed Rulemaking (FNPRM), we propose that the 
following services should not be eligible for funding under the E-rate 
program--separately priced firewall services, anti-virus/anti-spam 
software, scheduling services, wireless Internet access applications, 
and web hosting. We propose to revise the Commission's rules to 
establish that the Commission should not be required to list individual 
products and services (e.g., voice mail) in the rules, but that such 
products and services will be listed in the Eligible Services List 
(ESL). We propose to require the Universal Service Administrative 
Company (USAC) to submit any proposed changes to the ESL to the 
Commission no later than March 30th of each year. Finally, we propose 
to eliminate the requirement that the ESL be released by public notice.

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 should be submitted 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, 
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#5a1c19196f6a6e1a3c3939743d352c"><span class="__cf_email__" data-cfemail="eea8adaddbdedaae888d8dc0898198">[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#bceceefdfcdadfdf92dbd3ca"><span class="__cf_email__" data-cfemail="a5f5f7e4e5c3c6c68bc2cad3">[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#1b5572787374777a68445a35445d697a687e695b747679357e746b357c746d"><span class="__cf_email__" data-cfemail="743a1d171c1b1815072b355a2b320615071106341b19165a111b045a131b02">[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: Cara Voth, Wireline Competition 
Bureau, Telecommunications Access Policy Division, (202) 418-7400 or 
TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Notice of Proposed Rulemaking in CC Docket No. 02-6, FCC 09-105, 
adopted December 1, 2009, and released December 2, 2009. 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.

Synopsis of the Notice of Proposed Rulemaking

I. Introduction

    1. In this FNPRM, we seek comment on whether particular services 
should be designated as eligible for E-rate support. Specifically, we 
tentatively conclude that the Eligible Services List (ESL) should not 
include separately priced firewall services, anti-virus/anti-spam 
software, scheduling services, wireless Internet access applications, 
and web hosting should not be eligible for funding under the E-rate 
program. Alternatively, we propose that web hosting should be eligible 
for E-rate program funds as a Priority 2 service. We also propose to 
change our rules to establish that the Commission no longer needs to 
list individual products and services in the rules, but that such 
products and services will be listed in the ESL. We propose to change 
our rules to require the Universal Service Administrative Company 
(USAC) to submit any proposed changes to the ESL

[[Page 32693]]

to the Commission no later than March 30th of each year. Finally, we 
tentatively conclude to revise our rules to eliminate the requirement 
that the ESL be released by public notice.

II. Background

    2. Under 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. Section 254 of the Communications Act of 
1934, as amended (the Act), gives the Commission the authority to 
designate ``telecommunications services'' and certain additional 
services eligible for support under the E-rate program. The Commission 
may also designate services eligible for E-rate support as part of its 
authority to enhance, to the extent technically feasible and 
economically reasonable, access to advanced telecommunications and 
information services for all public and non-profit elementary and 
secondary school classrooms and libraries.
    3. Since the initial implementation of the E-rate program in 1998, 
and consistent with the Commission's rules and requirements, USAC has 
developed procedures and guidelines to ensure that E-rate funding is 
provided only for eligible services. Initially, the Commission directed 
USAC, in consultation with the Commission, to determine whether 
particular services fell within the eligibility criteria established 
under the Act and the Commission's rules and policies. USAC began to 
update and post to its Web site on an annual basis a list of services 
and products eligible to receive discounts under the E-rate program, 
now known as the ESL. In consultation with the Wireline Competition 
Bureau (Bureau), USAC updated the list to reflect any changes in rules 
that had occurred during the previous year and to address issues that 
arose in the application review process.
    4. On December 23, 2003, the Commission adopted section 54.522 of 
its rules, formalizing the process for updating the ESL for the E-rate 
program. Specifically, under section 54.522 of the Commission's rules, 
the Commission must seek comment on USAC's proposed ESL and issue a 
public notice attaching the final ESL for the upcoming funding year at 
least 60 days prior to the opening of the application funding window 
for the E-rate program. In its current form, the ESL is divided into 
five main categories--telecommunications service, Internet access, 
internal connections, basic maintenance of internal connections, and 
miscellaneous.
    5. In the ESL NPRM (73 FR 48352, August 19, 2008), released in July 
2008, the Commission sought comment on issues related to eligible 
services that had been raised by commenters but had not yet been 
resolved through the ESL public notice and revision process. The 
Commission also sought comment on which rules, if any, would need to be 
amended to implement any changes made as a result of the ESL NPRM. 
Comments on the ESL NPRM were due on September 18, 2008, and reply 
comments were due on October 3, 2008.

III. Discussion

A. Services

    6. In this FNPRM, we seek comment on the tentative conclusions we 
make regarding services discussed in the ESL NPRM that have not been 
addressed already. We tentatively conclude that separately priced 
firewall services, anti-virus and anti-spam software, teleconferencing 
scheduling services, and wireless Internet access applications, should 
not be added to the ESL. Additionally, we tentatively conclude that web 
hosting should not be eligible for funding under the E-rate program, 
or, alternatively, should only be eligible for E-rate program funds as 
a Priority 2 service.
    7. Firewall. We tentatively conclude that we should decline to add 
separately priced firewall services to the ESL. In the 2007 ESL, the 
Commission clarified that only basic firewall services that are 
provided as a standard component of a vendor's Internet access service 
are eligible for E-rate program discounts. The E-rate program already 
funds basic firewall services, giving applicants a basic level of 
protection. We tentatively conclude that the inclusion of separately 
priced firewall services is not essential and may have an adverse 
effect on funds available for other already eligible services. We seek 
comment on this tentative conclusion and also ask that commenters 
provide examples of how separately priced firewalls are used by schools 
and libraries so that we can determine whether we should reexamine our 
tentative conclusion. We also seek comment on a suggested updated 
definition of basic firewall services and whether that would provide 
better guidance to applicants on what types of basic firewall services 
are eligible for E-rate funding.
    8. Anti-Virus/Anti-Spam Software. We tentatively conclude that we 
should not add anti-virus and anti-spam software to the ESL and seek 
comment on this tentative conclusion. Anti-virus and anti-spam software 
is not an Internet access service itself but is a separate software 
application designed to enhance the operation of Internet access 
service. Only a few categories of software are eligible for E-rate 
funding, however, including operating system software, e-mail software, 
and software for a server-based, shared voice mail system. We 
tentatively conclude that anti-virus and anti-spam software should not 
be added to the list of eligible software under internal connections 
because this software does not fit into the categories of software that 
are currently on the ESL. Even if anti-virus and anti-spam software are 
generally considered necessary for the operation of e-mail, we believe 
that such products should not be funded because their addition to the 
ESL may have an adverse affect on the funds available for other 
services. We seek comment on these tentative conclusions.
    9. Scheduling Services. We tentatively conclude that we should not 
adopt scheduling services as eligible for E-rate funding. As explained 
above, only operating system software, e-mail software, and software 
for a server-based, shared voice mail system have been approved for E-
rate funding. Scheduling software allows schools and libraries to use 
video teleconferencing for distance learning by coordinating between 
locations. We believe that scheduling services, while potentially 
useful for schools and libraries, does not fit into the categories of 
software that are currently on the ESL. We also find that schools and 
libraries are able to use video teleconferencing for distance learning 
without scheduling services and therefore such services are not 
essential. The E-rate program is operated with a finite amount of 
funding and we tentatively conclude that funds should not be shifted 
from necessary components to add scheduling services to the program. We 
seek comment on this tentative conclusion.
    10. Web Hosting. Web hosting, as an unbundled Internet access 
service, was added to the ESL in October 2003, for funding year 2004. 
In funding year 2004, Web hosting was described as an Internet service 
provided by an Internet service provider that will host a school or 
library's Web site (http://www.schoolname.org) as part of a bundled 
service offering, or as an optional service. Because Web hosting is 
listed in the ESL as Internet access, it is funded under the E-rate 
program as a Priority 1 service. Although Web hosting has been included 
as part of Internet access, we now seek comment on whether Web hosting 
should

[[Page 32694]]

continue to be eligible for funding under the category of Priority 1 
Internet access. We tentatively conclude that Web hosting should not be 
eligible for funding under the E-rate program, or, alternatively, 
should only be eligible for E-rate program funds as a Priority 2 
service. We tentatively conclude that we should remove Web hosting from 
the ESL because, while many school districts find Web hosting to be a 
useful way to post information for parents and the community, we do not 
believe it is essential to the educational purposes of schools and 
libraries. We seek comment on this tentative conclusion.
    11. If we decide to retain Web hosting on the ESL, we tentatively 
conclude that Web hosting is not Internet access or an information 
service and it should move to Priority 2. In funding year 2004, there 
was a presumption in the ESL description of Web hosting that Web 
hosting was to be provided by an Internet service provider. In today's 
marketplace, Web hosting vendors are not necessarily Internet service 
providers, and although a basic Web hosting service is comprised of the 
physical rental of space on a vendor's server for the hosting of an 
applicant's Web site, Web hosting service has greatly evolved with a 
variety of optional features. To the extent the Commission adopts the 
tentative conclusion that Web hosting service is eligible as a Priority 
2 service, what aspects of this service should be eligible and how 
should an eligible Priority 2 Web hosting service be described in the 
ESL? Also, should contracts between Web hosting vendors and applicants 
be itemized to show the pricing of E-rate eligible features and 
elements of Web hosting?
    12. Wireless Internet Access Applications. We tentatively conclude 
that certain wireless Internet access applications including, but not 
limited to, services that could be used on school buses to transmit 
emergency information, track students, and locate buses with GPS 
technology, are ineligible for E-rate support. We seek comment on this 
tentative conclusion. To the extent commenters support E-rate funding 
on these services we seek comment on how or why these applications 
would serve an educational purpose. Like scheduling software, we find 
that wireless Internet access applications are non-essential services 
and we tentatively conclude that we should not add them to the ESL at 
this time. We seek comment on this tentative conclusion.

B. Administrative Matters Related to the ESL

    13. Commission's Rules Regarding Eligible Services. Currently, 
sections 54.502 and 54.503 of the Commission's rules state that 
telecommunications carriers may provide telecommunications, Internet 
access, and internal connections; section 54.506 defines internal 
connections; section 54.517 provides that non-telecommunications 
carriers may provide voice mail, Internet access, and internal 
connections; and section 54.518 describes the wide area network 
services that will be supported. We tentatively conclude that the rules 
should be restructured so that all of the provisions relating to 
eligible services be located in the same place and seek comment on this 
tentative conclusion. We seek comment on the proposed restructure of 
these rules.
    14. The Commission rules that address the services that are 
eligible for E-rate support generally provide that telecommunications, 
Internet access, internal connections, and basic maintenance are 
eligible for E-rate support. They also, however, refer to specific 
services such as voice mail or wide area network. The ESL also lists 
specific services that are eligible for E-rate support, e.g., Centrex 
is listed as a supported service under the telecommunications services 
category. Applicants may be confused by the differences between the 
Commission's rules and the ESL. Thus, we propose that the rules 
regarding eligible services should make clear that the specific 
services eligible for support under the general categories of 
telecommunications, Internet access, and internal connections will be 
listed in the ESL and not specifically named in the Commission's rules. 
We tentatively conclude that any reference to specific services or 
products in the rules should be removed and instead the rules should 
state that all products and services eligible for E-rate support will 
be listed in the ESL. We seek comment on this tentative conclusion.
    15. Section 54.522 of the Commission's rules provides a process by 
which the ESL can be changed from funding year to funding year. The 
process requires USAC to submit any proposed changes to the ESL for the 
following funding year by June 30th of each year to the Commission so 
that the Commission can release such proposals by public notice for 
comment. Any final changes to the ESL for the following funding year 
are voted on and released after this comment period. We find that this 
process provides the public with ample notice of any potential changes 
to the eligibility status of certain products and services. Requiring 
the Commission to change its rules with the addition of each new 
service or change to the ESL does not enable USAC and Commission to 
keep up with the rapidly changing needs of schools and libraries to 
access telecommunications and advanced services. We find that our 
tentative conclusion to remove from our rules all references to 
specific services eligible for support will provide the Commission with 
the flexibility to make E-rate discounts available on new and improved 
products and services in a fluid yet predictable environment. We seek 
comment on the reasons we have provided for our tentative conclusion. 
We also seek comment on any alternative proposals or ideas that would 
better inform the public of the services that are eligible for E-rate 
support.
    16. Because we tentatively conclude that reference to specific 
services should not be made in the rules, we propose to remove section 
54.518 from our rules. Section 54.518 states that applicants cannot 
receive E-rate support to build or purchase a WAN. Instead, the 
program's requirements pertaining to WANs will be included in the ESL. 
We emphasize that this proposal will not change the current eligibility 
of WANs. We seek comment on our tentative conclusion to delete this 
rule.
    17. In addition, we tentatively conclude that we should change the 
name of the category of supported services currently called ``Internet 
access'' to ``Internet access and information services'' in the ESL. We 
have defined Internet access as ``basic conduit access to the 
Internet.'' The current ESL, however, also includes e-mail under the 
category of ``Internet access.'' While e-mail uses the Internet, it is 
not, itself, Internet access. As such, we believe including 
``information services'' in the descriptive title of the category would 
more accurately reflect the type of services eligible. We seek comment 
on this proposed change.
    18. Commission's Rules Regarding the ESL Process. We tentatively 
conclude that we should change the process by which the Commission 
adopts changes to the ESL. First, we tentatively conclude that USAC 
should file its proposed ESL with the Commission no later than March 
30th each year. Section 54.522 of the Commission's rules requires USAC 
to submit a draft ESL with any proposed changes to the Commission by 
June 30th of each year. The Commission then releases a public notice 
seeking comment on USAC's proposed ESL. Section 54.522 of the

[[Page 32695]]

Commission's rules requires the Commission to release the final ESL at 
least 60 days prior to the opening of the application filing window for 
the next E-rate funding year. For the last two years, USAC has opened 
the application filing window in early November for funding year 2008 
and early December for funding year 2009. The current rule, therefore, 
allows approximately three months for the Commission to release the 
proposed draft of the ESL, for the public to review and comment on the 
draft, and for the Commission to release the final ESL. We have found 
that we have not had enough time to complete all of the steps required 
by the rule and release the final ESL 60 days prior to the opening of 
the application filing window. Indeed, on at least three prior 
occasions, as we have done this year, we have waived section 54.522 to 
allow USAC to open the application filing window without having to wait 
60 days from the release of the final ESL. We find that requiring USAC 
to submit the proposed ESL earlier will allow additional time for the 
Commission to review the proposal and to review and analyze public 
comment on the proposed ESL. In the alternative, we seek comment from 
the public on any other methods by which we can streamline this process 
and keep it one that allows for ample public notice and opportunities 
for public participation.
    19. We also tentatively conclude that we should change the 
provision in section 54.522 of the Commission's rules that requires the 
Commission to issue a public notice seeking comment on USAC's proposed 
annual changes to the ESL and another public notice announcing the 
release of the final ESL for the upcoming funding year. Specifically, 
we believe the rules should be changed to remove the requirement that 
the ESL be released as a public notice by the Commission. This will 
provide the Commission with flexibility to provide, for example, more 
detailed explanations regarding changes to the ESL in an order when it 
deems necessary. We seek comment on this tentative conclusion.

Procedural Matters

Initial Regulatory Flexibility Act Analysis

    20. The Regulatory Flexibility Act (RFA), see 5 U.S.C. 603, 
requires that an agency prepare a regulatory flexibility analysis for 
notice-and-comment rulemaking proceedings, unless the agency certifies 
that ``the rule will not, if promulgated, have a significant economic 
impact on a substantial number of small entities.'' See 5 U.S.C. 
605(b). The RFA generally defines ``small entity'' as having the same 
meaning as the terms ``small business,'' ``small organization,'' and 
``small governmental jurisdiction.'' 5 U.S.C. 601(6). In addition, the 
term ``small business'' has the same meaning as the term ``small 
business concern'' under the Small Business Act. 5 U.S.C. 601(3). A 
``small business concern'' is one which: (1) Is independently owned and 
operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the Small Business 
Administration (SBA). 15 U.S.C. 632.
    21. As required by the Regulatory Flexibility Act (RFA), the 
Commission has prepared this Initial Regulatory Flexibility Analysis 
(IRFA) of the possible significant economic impact on small entities by 
the policies and rules proposed in the FNPRM. Written public comments 
are requested on this IRFA. Comments must be identified as responses to 
the IRFA and must be filed by the deadlines for comments on the NPRM. 
The Commission will send a copy of this FNPRM, including this IRFA, to 
the Chief Counsel for Advocacy of the Small Business Administration 
(SBA). In addition, the FNPRM (or summary thereof) will be published in 
the Federal Register.

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

    22. The Commission is required by section 254 of the Act to 
promulgate rules to implement the universal service provisions of 
section 254. On May 8, 1997, the Commission adopted rules to reform its 
system of universal service support mechanisms so that universal 
service is preserved and advanced as markets move toward competition. 
Specifically, under the schools and libraries universal service support 
mechanism, also known as the E-rate program, eligible schools, 
libraries, and consortia that include eligible schools and libraries 
may receive discounts for eligible telecommunications services, 
Internet access, and internal connections. Since the initial 
implementation of the E-rate program, USAC has developed various 
procedures and guidelines, consistent with the Commission's rules and 
requirements, to ensure that funding is provided only for eligible 
services.
    23. Pursuant to the Commission's rules, the Commission released the 
Public Notice seeking comment on USAC's proposed ESL for Funding Year 
2010. The ESL indicates whether specific products or services are 
eligible for discounts under the E-rate program. In 2009 ESL Public 
Notice, we noted that this proceeding is limited to determining what 
services are eligible under the Commission's current rules and is 
generally not intended to be a vehicle for changing any eligibility 
rules. We also noted, however, that the Commission sought comment on 
various issues including the eligibility of specific services in the 
ESL NPRM released last year and invited parties that wanted their ESL 
NPRM comments considered in response to the public notice to refile 
those comments.
    24. In the FNPRM, we seek comment on the Commission's tentative 
conclusion that the ESL should not add separately-priced firewall 
services, anti-virus/anti-spam software, scheduling services, and 
wireless Internet access applications. The Commission agrees with 
commenters that these services are either not eligible under the Act or 
are not essential to furthering the goals and purposes of the E-rate 
program. Further, we agree with commenters that paying for the discount 
on these services would have an adverse effect on services that are 
already being funded. We also seek comment on the Commission's 
tentative conclusion that Web hosting should not be eligible for 
funding under the E-rate program, or, alternatively, should only be 
eligible for E-rate program funds as a Priority 2 service. The 
Commission does not believe that Web hosting is essential to the 
educational purposes of schools and libraries. We also seek comment on 
changes to our rules to establish that specific eligible products and 
services should be listed in the ESL as opposed to being listed 
individually in the rules. We seek comment on our tentative conclusions 
on the process for developing the ESL, including requiring the 
Universal Service Administrative Company (USAC) to submit any proposed 
changes to the ESL to the Commission no later than March 30th of each 
year. Finally, we seek comment on the Commission's tentative conclusion 
to revise our rules to eliminate the requirement that the ESL be 
released by public notice, which would provide the Commission the 
flexibility to release the ESL by order. All of these administrative 
changes would bring clarity and transparency to the ESL process and 
would benefit all participants in the program.

2. Legal Basis

    25. The legal basis for the FNPRM is contained in sections 1 
through 4, 201 through 205, 254, 303(r), and 403 of the Communications 
Act of 1934, as amended by the Telecommunications Act of 1996, 47 
U.S.C. 151 through 154, 201 through 205, 254, 303(r), and 403,

[[Page 32696]]

and section 1.411 of the Commission's rules, 47 CFR 1.411.
3. Description and Estimate of the Number of Small Entities to Which 
Rules May Apply
    26. 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 22.4 million small businesses, 
according to SBA data. 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. ``Small governmental 
jurisdiction'' generally means ``governments of cities, counties, 
towns, townships, villages, school districts, or special districts, 
with a population of less than 50,000.'' 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.
    27. 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.
    28. Schools. As noted, ``small entity'' includes non-profit and 
small government 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 
statutory definitions apply as well. The SBA has 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 entities that would qualify as small entities under 
SBA's size standard, we estimate that fewer than 105,500 schools might 
be affected annually by our action, under current operation of the 
program.
    29. Libraries. As noted, ``small entity'' includes non-profit and 
small government entities. Under the schools and libraries universal 
service support mechanism, which provides support for libraries, the 
definition of library includes public libraries, public elementary 
school or secondary school libraries, academic libraries, certain 
research libraries and private libraries where the state has determined 
that the library should be considered a library for purposes of this 
definition. For-profit libraries are not eligible to receive discounts 
under the program, nor are libraries whose budgets are not completely 
separate from any schools. Certain other statutory definitions apply as 
well. The SBA has defined for-profit libraries having $7 million or 
less in annual receipts as small entities. In funding year 2007 
approximately 10,950 libraries received funding under the schools and 
libraries universal service mechanism. Although we are unable to 
estimate with precision the number of these entities that would qualify 
as small entities under SBA's size standard, we estimate that fewer 
than 10,950 libraries might be affected annually by our action, under 
current operation of the program.
    30. 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. Consequently, the Commission 
estimates that most providers of incumbent local exchange service are 
small businesses that may be affected by the rules and policies adopted 
herein.
    31. 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.
    32. 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 few employees and 32 have more 
than 1,500 employees. Consequently, the Commission estimates that most 
providers of interexchange services are small businesses that may be 
affected by the rules and policies adopted herein.
    33. 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 few employees and 87 have more than 1,500 employees. 
Consequently, the

[[Page 32697]]

Commission estimates that most providers of competitive exchange 
services are small businesses that may be affected by the rules and 
policies adopted herein.
    34. Wireless Telecommunications. Neither the Commission nor the SBA 
has developed a definition of small entities specifically for wireless 
telephony. The closest definition is the SBA definition for wireless 
telecommunications (except satellite). Under this definition, a 
cellular licensee is a small entity if it employs no more than 1,500 
employees. According to the 2008 Trends Report, 434 providers 
classified themselves as providers of wireless telephony, including 
cellular telecommunications, Personal Communications Service, and 
Specialized Mobile Radio (SMR) Telephony Carriers. Of these 437 
wireless telephony providers, an estimated 222 have 1,500 or few 
employees and 212 have more than 1,500 employees. Consequently, the 
Commission estimates that more than half of the providers of wireless 
telephony services are small businesses that may be affected by the 
rules and policies adopted herein.
    35. Other Wireless Services. Neither the Commission nor the SBA has 
developed a definition of small entities specifically applicable to 
wireless services other than wireless telephony. The closest applicable 
definition under the SBA rules is again that of wireless 
telecommunications (except satellite), under which a service provider 
is a small entity if it employs no more than 1,500 employees. According 
to the 2008 Trends Report, 69 providers classified themselves as 
wireless data carriers or other mobile service providers. Of these 69 
providers, an estimated 65 have 1,500 or few employees and 4 have more 
than 1,500 employees. Consequently, the Commission estimates that most 
providers of wireless services other than wireless telephony are small 
businesses that may be affected by the rules and policies adopted 
herein.
    36. Paging and Messaging Service Providers. In the Paging Third 
Report and Order, we developed a small business size standard for 
``small businesses'' and ``very 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. Additionally, a ``very small business'' is an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues that are not more than $3 million for the preceding 
three years. An auction of Metropolitan Economic Area licenses 
commenced on February 24, 2000, and closed on March 2, 2000. Of the 985 
licenses auctioned, 440 were sold. Fifty-seven companies claiming small 
business status won. At present, there are approximately 24,000 
Private-Paging site-specific licenses and 74,000 Common Carrier Paging 
licenses. According to Commission data, 281 carriers reported that they 
were engaged in the provision of paging services, messaging services, 
or other mobile services. Of those, the Commission estimates that 279 
are small, under the SBA approved small business size standard.
    37. Internet Service Providers. Under the category of Internet 
service provider, a small business is one having annual receipts of $23 
million or less. According to SBA data, there are a total of 2,829 
firms with annual receipts of less than $10 million, and an additional 
111 firms with annual receipts of $10 million or more. Thus, the number 
of On-line Information Services firms that are small under the SBA's 
$18 million size standard is between 2,829 and 2,940. Further, some of 
these Internet Service Providers (ISPs) might not be independently 
owned and operated. Consequently, we estimate that there are fewer than 
2,940 small entity ISPs that may be affected by the decisions and rules 
of the present action.
    38. Vendors of Internal Connections--Communications Equipment 
Manufacturers. The Commission has not developed a definition of small 
entities applicable to the manufacturers of internal network 
connections. The most applicable definitions of a small entity are the 
definitions under the SBA rules applicable to manufacturers of ``Radio 
and Television Broadcasting and Wireless Communications Equipment 
Manufacturing'' and ``Other Communications Equipment Manufacturing.'' 
According to the SBA's regulations, manufacturers of these types of 
communications equipment must have 750 or fewer employees in order to 
qualify as a small business. The most recent available Census Bureau 
data indicates that there are 1,187 companies with fewer than 1,000 
employees in the United States that manufacture radio and television 
broadcasting and communications equipment, and 271 companies with less 
than 1,000 employees that manufacture other communications equipment. 
Some of these manufacturers might not be independently owned and 
operated. Consequently, we estimate that there are fewer than 1,458 
small entity internal connections manufacturers that may be affected by 
the decisions and rules of the present action.
    39. Vendors of Internal Connections--Wireless Communications 
Equipment Manufacturers. The SBA has established a small business size 
standard for radio and television broadcasting and wireless 
communications equipment manufacturing. Under this standard, firms are 
considered small if they have 750 or fewer employees. Census Bureau 
data for 1997 indicate that, for that year, there were a total of 1,215 
establishments in this category. Of those, there were 1,150 that had 
employment under 500, and an additional 37 that had employment of 500 
to 999. The percentage of wireless equipment manufacturers in this 
category is approximately 61 percent, so the Commission estimates that 
the number of wireless equipment manufacturers with employment under 
500 was actually closer to 706, with an additional 23 establishments 
having employment of between 500 and 999. Given the above, the 
Commission estimates that the majority of wireless communications 
equipment manufacturers are small businesses.

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

    40. The FNPRM does not result in additional recordkeeping 
requirements for small businesses. To the extent that new items are 
added to the ESL, schools, libraries and service providers will merely 
have additional choices of services eligible for discount when they 
voluntarily participate in the E-rate program. Likewise, removing or 
not adding a service to the ESL would have no additional impact on 
recordkeeping requirements.

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

    41. 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

[[Page 32698]]

coverage of the rule, or part thereof, for small entities.
    42. In the FNPRM, we seek comment on a number of issues related to 
services eligible for E-rate discounts, including issues raised by the 
commenters that may not have been addressed as part of prior ESL 
proceedings. Specifically, we determine that anti-virus and anti-spam 
software and other services should not be added to the ESL. We believe 
that keeping these services off the ESL will not have an adverse impact 
on small entities since the services were never funded in the first 
place. Applicants and service providers have never had an expectation 
that E-rate discounts would apply to these services and will therefore 
not be harmed by a decision to maintain the status quo. We seek comment 
on this tentative conclusion.
    43. We also make the tentative conclusion that web hosting be 
removed from the ESL. We propose, however, that this change should be 
implemented in the funding year following the rule change. This will 
give applicants affected by the removal of web hosting time to find 
alternative funds for the service, if necessary. Delaying the removal 
of web hosting will also mitigate any economic impact on those small 
entities providing the service. In addition, we propose additional 
outreach from USAC to inform and educate applicants and service 
providers on the change. We seek comment on these proposals to mitigate 
the impact of removing web hosting and seek comment generally on the 
economic impact of this tentative decision.
    44. We also make tentative conclusions regarding administrative 
matters such as restructuring the eligible services rules, requiring 
USAC to submit a proposed draft ESL to the Commission on March 30th of 
each year, and revising our rules to state that all products and 
services eligible for E-rate support will be named in the ESL. We 
believe these changes will have no economic impact on entities 
participating in the E-rate program and, indeed, will benefit 
participants by making the rules and application process easier to 
understand and administer. We welcome, however, comments from parties 
that have opinions different from those reached in this analysis.

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

    45. None.

Paperwork Reduction

    46. This FNPRM does not contain proposed information collection(s) 
subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-
13. In addition, therefore, it does not contain any new or modified 
``information collection burden for small business concerns with fewer 
than 25 employees,'' pursuant to the Small Business Paperwork Relief 
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

Ex Parte Presentations

    47. These matters shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. 47 CFR 
1.1200 through 1.1216. 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. 
47 CFR 1.1206(b)(2). Other requirements pertaining to oral and written 
presentations are set forth in section 1.1206(b) of the Commission's 
rules. 47 CFR 1.1206(b).

C. Comment Filing Procedures

    48. Pursuant to sections 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 (1998).
    <bullet> Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: http://fjallfoss.fcc.gov/ecfs2/ or the Federal eRulemaking Portal: http://www.regulations.gov.
    <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.
    <bullet> Filings can be sent by hand or messenger delivery, by 
commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail. All filings must be addressed to the Commission's 
Secretary, Office of the Secretary, Federal Communications Commission.
    <bullet> Effective December 28, 2009, all hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary must 
be delivered to FCC Headquarters at 445 12th St., SW., Room TW-A325, 
Washington, DC 20554. 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 must be addressed to 445 12th Street, SW., Washington DC 20554.
    <bullet> In addition, one copy of each comment or reply comment 
must be sent to 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#51123930233d34227f05283d3423113732327f363e27"><span class="__cf_email__" data-cfemail="84c7ece5f6e8e1f7aad0fde8e1f6c4e2e7e7aae3ebf2">[email protected]</span></a>.
    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="dcbabfbfe9ece89cbabfbff2bbb3aa">[email protected]</a> or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).

Ordering Clauses

    49. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 1 through 4, 201-205, 254, 303(r), and 403 of the 
Communications Act of 1934, as amended, 47 U.S.C. 151 through 154, 201 
through 205, 254, 303(r), and 403, this further notice of proposed 
rulemaking is adopted.
    50. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this further notice of proposed rulemaking, including the 
Initial Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 54

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


[[Page 32699]]


Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Proposed Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission proposes to amend 47 CFR part 54 to read 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.

Subpart F--Universal Service Support for Schools and Libraries

    2. Section 54.502 is revised 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. All supported telecommunications services 
are defined and listed in the Eligible Services List as updated 
annually 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 all the services defined in 
Sec.  54.5 of the Commission's rules as Internet access. All supported 
Internet access and information services are defined and listed in the 
Eligible Services List as updated annually in accordance with Sec.  
54.503 of the Commission's rules.
    (c) Internal connections.
    (1) For purposes of this subpart, a service is eligible for support 
as a component of an institution's internal connections if such service 
is necessary to transport information within one or more instructional 
buildings of a single school campus or within one or more non-
administrative buildings that comprise a single library branch. 
Discounts are not available for internal connections in non-
instructional buildings of a school or school district, or in 
administrative buildings of a library, to the extent that a library 
system has separate administrative buildings, unless those internal 
connections are essential for the effective transport of information to 
an instructional building of a school or to a non-administrative 
building of a library. 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. All 
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.
    (2) Basic maintenance services. For purposes of this subpart, basic 
maintenance services shall be eligible as an internal connections 
service if, but for the maintenance at issue, the internal connection 
would not function and serve its intended purpose with the degree of 
reliability ordinarily provided in the marketplace to entities 
receiving such services. Basic maintenance services do not include 
services that maintain equipment that is not supported or that enhance 
the utility of equipment beyond the transport of information, or 
diagnostic services in excess of those necessary to maintain the 
equipment's ability to transport information. All supported basic 
maintenance is defined and listed in the Eligible Services List as 
updated annually in accordance with Sec.  54.503 of the Commission's 
rules.
    (3) Frequency of discounts for internal connections services. Each 
eligible school or library shall be eligible for support for internal 
connections services, except basic maintenance services, no more than 
twice every five funding years. For the purpose of determining 
eligibility, the five-year period begins in any funding year in which 
the school or library receives discounted internal connections services 
other than basic maintenance services. If a school or library receives 
internal connections services other than basic maintenance services 
that are shared with other schools or libraries (for example, as part 
of a consortium), the shared services will be attributed to the school 
or library in determining whether it is eligible for support.
    (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.
    3. Section 54.503 is revised to read as follows:


Sec.  54.503  Eligible services list.

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


Sec.  54.506  [Removed and Reserved]

    4. Remove and reserve Sec.  54.506.


Sec. Sec.  54.517 and 54.518  [Removed and Reserved]

    5. Remove and reserve Sec. Sec.  54.517 and 54.518.


Sec.  54.522  [Removed and Reserved]

    6. Remove and reserve Sec.  54.522.

[FR Doc. 2010-12931 Filed 6-8-10; 8:45 am]
BILLING CODE 6712-01-P


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