98-21588. Federal-State Joint Board on Universal Service  

  • [Federal Register Volume 63, Number 155 (Wednesday, August 12, 1998)]
    [Rules and Regulations]
    [Pages 43088-43098]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 98-21588]
    
    
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    FEDERAL COMMUNICATIONS COMMISSION
    
    47 CFR Parts 54 and 69
    
    [CC Docket No. 96-45; FCC 98-120]
    
    
    Federal-State Joint Board on Universal Service
    
    AGENCY: Federal Communications Commission.
    
    ACTION: Final rule.
    
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    SUMMARY: This Order changes the funding year for the schools and 
    libraries universal service support mechanism from a calendar year 
    cycle to a fiscal year cycle. This Order also adjusts the amount of 
    money available for schools and libraries, and rural health care 
    providers for the period from January 1, 1998 through June 30, 1999. In 
    addition, this Order establishes rules of priority when a filing window 
    is in effect.
    
    EFFECTIVE DATE: August 12, 1998.
    
    FOR FURTHER INFORMATION CONTACT: Irene Flannery, Common Carrier Bureau, 
    (202) 418-7400 or Adrian Wright, Common Carrier Bureau, (202) 418-7400.
    
    SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Fifth 
    Order on Reconsideration and Fourth Report and Order in CC Docket No. 
    96-45, adopted June 12, 1998 and released June 22, 1998. The full text 
    is available for inspection and copying during normal business hours in 
    the FCC Reference Center (Room 239), 1919 M St., N.W., Washington, D.C.
    
    I. Summary of Fifth Order on Reconsideration and Fourth Report and 
    Order in CC Docket No. 96-45
    
    A. Adjustment in Funding Year for Schools and Libraries Support 
    Mechanism
    
        1. Upon reconsideration on our own motion, we find that it is in 
    the public interest to change the funding year for the schools and 
    libraries universal service support mechanism from a calendar year 
    cycle (January 1-December 31) to a fiscal year cycle that will run from 
    July 1-June 30. Moreover, we conclude that the transition to a fiscal 
    year should be implemented immediately. In order to accommodate the 
    transition to a fiscal year funding cycle, the first funding period 
    will be the 18-month period that runs from January 1, 1998 through June 
    30, 1999. The second funding cycle, therefore, will begin on July 1, 
    1999. Applications submitted during the initial 75-day filing window 
    and approved for funding by Schools and Libraries Corporation (SLC), 
    therefore, will be funded through June 30, 1999, to the extent 
    permitted by funding constraints. Parties seeking support for the 
    following fiscal year may begin to file applications on October 1, 
    1998. We direct SLC, in consultation with the Common Carrier Bureau, to 
    establish a filing window for the next fiscal year, to open no later 
    than October 1, 1998. We also conclude that SLC should determine the 
    length of that window and resolve other administrative matters 
    necessary to implement a filing window.
    
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        2. We decide to implement a fiscal year funding cycle for schools 
    and libraries, and to transition to this approach immediately, for 
    several reasons. The immediate transition to a fiscal year approach 
    will ameliorate the concerns of applicants seeking support for internal 
    connections that they will be unable to complete installation before 
    December 31, 1998, which marks the end of the funding year if 
    determined on a calendar year basis. We recognize that, because of the 
    delay in issuing funding commitments to schools and libraries, many 
    applicants may not be able to complete by this date the internal 
    connections for which they have sought universal service support. The 
    delay may be attributed to a variety of factors, including the 
    Commission's decision to implement an initial filing window, and the 
    Chairman's request to SLC to conduct an independent audit before 
    disbursing any funds, in order to protect against waste, fraud, and 
    abuse. In short, the schools and libraries support mechanism is being 
    implemented for the first time, and the Commission was not fully aware 
    of the amount of time necessary to establish administrative systems 
    that ensure program integrity and fair and orderly administration. 
    Applicants could not have anticipated these delays at the time they 
    conducted their technology needs assessments. Moreover, applicants 
    understandably have been reluctant to begin service or initiate the 
    installation of internal connections before receipt of a funding 
    commitment. Nevertheless, schools and libraries that have worked 
    diligently to comply with the Commission's requirements should not be 
    burdened unnecessarily by this delay. To further accommodate schools 
    and libraries affected by the delay in implementation, we note that 
    discounts will be available on eligible services effective January 1, 
    1998 or the date services begin pursuant to the contract, whichever is 
    later. Moreover, the transition to the fiscal year funding cycle 
    adopted herein will afford applicants that will receive support for 
    internal connections the flexibility to complete the installation of 
    internal connections through June of 1999.
        3. Furthermore, adopting a fiscal year funding cycle will 
    synchronize the schools and libraries universal service support 
    mechanism with the budgetary and planning cycles of most schools and 
    libraries. This coordination of the support mechanism with the 
    applicants' internal administrative processes will enable schools and 
    libraries to plan their technology needs in a more efficient and 
    organized manner. In addition, using a fiscal year funding cycle will 
    align universal service contribution levels with the local exchange 
    carrier annual access tariff filing schedule. Under our rules, local 
    exchange carriers file their annual tariffs to be effective July 1 of 
    each year. One piece of information these companies require in order to 
    file their tariffs is the universal service contribution factors.
        4. We recognize that, under the approach adopted herein, some 
    schools and libraries that did not file within the initial window in 
    1998 will not be eligible to receive funding until July 1999, rather 
    than January 1999. We find, however, that on balance, the benefits that 
    will be conferred on the approximately 30,000 applicants that filed 
    within the initial window outweigh the hardship caused by the potential 
    six-month delay in funding for some applicants. We also find that this 
    approach strikes the best balance between fulfilling the statutory 
    mandate to enhance access to advanced telecommunications and 
    information services for schools and libraries, and fulfilling the 
    statutory principle that ``[q]uality services should be available at 
    just, reasonable, and affordable rates.''
        5. To accomplish this change, we conclude that the following 
    revisions in the funding cycle must be implemented. First, for 
    applications filed within the initial 75-day filing window seeking 
    discounts on telecommunications services and Internet access, the 
    Administrator shall make funding commitments effective for services 
    provided no earlier than January 1, 1998. These services will be funded 
    at the approved monthly level, consistent with the information included 
    on the school's or library's application, through June 30, 1999. We 
    conclude that this approach is reasonable because telecommunications 
    services and Internet access are generally provided at regular, monthly 
    intervals and are billed on a monthly, recurring basis.
        6. Second, for applications filed within the initial 75-day filing 
    window seeking discounts on internal connections, the Administrator 
    shall commit the approved amount of support, but these funds may be 
    utilized during the remainder of 1998 as well as during the transition 
    period through June 30, 1999. We conclude that this approach is 
    reasonable because, unlike telecommunications services and Internet 
    access, internal connections generally entail nonrecurring rather than 
    recurring costs. Moreover, installation of internal connections 
    frequently requires that the projects be timed to occur during periods 
    when school is out of session and students are not present in 
    instructional buildings. Thus, the installation of internal wiring 
    might be completed in stages during winter and summer vacation periods. 
    Accordingly, we amend Sec. 54.507(b) of our rules.
        7. The transition to a fiscal year funding cycle adopted herein 
    requires that we reconsider on our own motion the limitation on the 
    exemption from competitive bidding for voluntary extensions of 
    contracts. Our rules currently provide that voluntary extensions of 
    existing contracts are not exempt from the competitive bidding rules. 
    In order to accomplish an orderly transition to the fiscal year funding 
    cycle, however, we conclude that we must allow existing contracts that 
    have a termination date between December 31, 1998 and June 30, 1999 to 
    be voluntarily extended to a date no later than June 30, 1999. Although 
    voluntary extensions of contracts generally are not exempt from the 
    competitive bidding requirement, we adopt this limited exception for 
    voluntary extensions of contracts up to June 30, 1999. To hold 
    otherwise would result in schools and libraries either having to 
    participate in competitive bidding for only a six month service period 
    or not being eligible for support for that six month period. We 
    conclude that either result would be both administratively and 
    financially unworkable for schools and libraries. We find, therefore, 
    that it is in the public interest to amend the exemption (in 
    Sec. 54.511 of our rules) from the competitive bidding requirements, to 
    allow schools and libraries that filed applications within the 75-day 
    initial filing window to extend voluntarily, to a date no later than 
    June 30, 1999, existing contracts that otherwise would terminate 
    between December 31, 1998 and June 30, 1999.
    
    B. Collections During 1998 and the First Six Months of 1999
    
        8. Consistent with section 254 of the Act, and the recommendations 
    of the Federal-State Joint Board on Universal Service, we remain 
    committed to providing support to eligible schools and libraries for 
    telecommunications services, Internet access, and internal connections. 
    We share the concerns of commenters that curtailing collections may 
    have adverse impacts on schools and libraries, particularly the 
    neediest of those entities. We, therefore, remain dedicated to 
    providing support in a manner that targets the most economically 
    disadvantaged schools and libraries. At the same time, we are cognizant 
    of the concerns of many legislators that we must balance the need to 
    provide support for schools and
    
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    libraries against the need to continue to provide support for high cost 
    carriers, and to keep telephone rates affordable throughout the 
    country. We note that, pursuant to the 1996 Act, the Commission has 
    taken significant action to implement the universal service provisions 
    of the Act. At the present time, the rural, insular, and high cost 
    telephone subscribers continue to receive high cost support at the same 
    level that they have received for years. In addition, one of the first 
    steps in universal service reform was to make existing high cost 
    support explicit. Moreover, we have expanded the Commission's low-
    income programs, Lifeline Assistance (Lifeline) and Lifeline Connection 
    Assistance (Link Up). For example, we adopted the Joint Board's 
    recommendation that Lifeline service should be provided to low-income 
    consumers nationwide, even in states that had not previously 
    participated in Lifeline, and that all eligible telecommunications 
    carriers should be required to provide Lifeline service. The Commission 
    remains committed, pursuant to section 254, to implementing all parts 
    of universal service.
        9. We find, therefore, that it is prudent to begin funding 
    collections for a new mechanism at a reduced level, and allow for the 
    possibility of increased collections in the future. We note that this 
    phase-in approach to funding is consistent with the decision in the 
    Universal Service Order, 62 FR 32862 (June 17, 1997), and with the 
    initial funding for high cost support when the National Exchange 
    Carrier Association (NECA) began its high cost collection and 
    distribution efforts in 1986. In providing support for schools, 
    libraries, and rural health care providers, we strive to ensure a 
    smooth transition to the new universal service support mechanisms and 
    to minimize disruption to consumers. We find that our decision to 
    adjust the maximum amounts that may be collected or spent in 1998 is 
    consistent with these goals.
        10. We therefore find that we should not increase the quarterly 
    collection amounts at this time with respect to the schools and 
    libraries and rural health care support mechanisms. We therefore 
    conclude that establishing quarterly collection rates for the schools 
    and libraries support mechanism of $325 million for each of the third 
    and fourth quarters of 1998 and the first and second quarters of 1999 
    will preserve the dual statutory mandates to maintain affordable rates 
    throughout the country and to ``enhance * * * access to advanced 
    telecommunications and information services for all public and non-
    profit elementary and secondary school classrooms * * * and 
    libraries.'' These collection rates maintain current collection rate 
    levels and will not increase interstate telecommunications carriers' 
    costs of providing service. Moreover, these collection rate levels 
    should ensure that long distance rates, overall, will continue to 
    decline. On June 16, 1998, incumbent local exchange carriers will file 
    new access tariffs with rates to become effective on July 1, 1998. 
    Based on preliminary information filed by these carriers on April 2, 
    1998, we estimate their total access charge revenues to decline by 
    approximately $720 million below current levels, measured on an 
    annualized basis at current demand levels. The Third Quarter 
    Contribution Factors Public Notice, released by the Common Carrier 
    Bureau upon adoption of this Order, will produce a reduction in total 
    interexchange carrier payments of approximately $85 million. Based on 
    this, total interexchange carrier payments for access services and 
    universal service contributions should decrease by approximately $800 
    million on July 1, 1998. At the same time, based on the estimated 
    demand for support by schools and libraries that filed applications 
    during the initial 75-day filing window, these collection rates will be 
    sufficient to fully fund requests for support for telecommunications 
    services, and Internet access, and to fully fund requests by the 
    neediest schools and libraries for support for internal connections.
        11. We further conclude that we should establish maximum collection 
    rates for the rural health care support mechanism at $25 million for 
    each of the third and fourth quarters of 1998. These collection rates 
    are consistent with projected demand and there is no evidence that 
    eligible health care providers will require additional funding this 
    year. Consistent with the Universal Service Order, we do not want the 
    Universal Service Administrative Company (USAC) to collect funds that 
    exceed demand. Because the rural health care support mechanism will 
    continue to be funded on a calendar, rather than a fiscal, year basis, 
    and because the mechanism is still in the very early stages, we find 
    that we should not adopt maximum collection rates beyond 1998. Instead, 
    we will evaluate the 1999 collection rates for the rural health care 
    support mechanism in the future.
        12. The universal service support mechanisms will provide 
    substantial support to schools, libraries, and health care providers 
    without imposing unnecessary burdens on consumers, and the most 
    economically disadvantaged schools and libraries will receive the 
    greatest share of support, consistent with the discount matrix 
    contained in the Universal Service Order. We seek to provide support to 
    schools, libraries, and rural health care providers in a manner that 
    does not require consumers' rates to rise and without causing rate 
    churn. Some commenters assert that a certain amount of rate churn is to 
    be expected in a competitive marketplace. That may be true, but we 
    remain committed to ensuring that universal service does not exacerbate 
    any rate churn that may already exist in the marketplace. Excessive and 
    unnecessary rate churn would be disruptive to consumers, a result we 
    wish to avoid.
        13. Numerous commenters take issue with the Commission's proposal 
    to revise collections for the schools and libraries and rural health 
    care universal service support mechanisms consistent with anticipated 
    reductions in access charges. We agree with the Alaska Commission that 
    funding for the new universal service support mechanisms ``must be 
    balanced against potential impact on rates and universal service,'' and 
    that is precisely the approach we are adopting. We conclude, therefore, 
    that a gradual phase-in of the schools, libraries, and rural health 
    care universal service support mechanisms that takes advantage, and 
    reflects the timing, of access charge reductions will provide 
    substantial support for eligible services ordered by eligible schools, 
    libraries and rural health care providers, and at the same time will 
    avoid disruption to consumers.
        14. Many commenters note that schools and libraries have expended 
    substantial resources, in terms of both time and money, in applying for 
    discounted services, all with the expectation that a maximum of $2.25 
    billion in funding would be available. We share the concern of the U.S. 
    Department of Education and other commenters that schools and libraries 
    require predictability of funding to facilitate long-range technology 
    planning, and that our actions here should not discourage schools and 
    libraries from seeking universal service support. We agree that the 
    submission of over 30,000 applications demonstrates substantial demand 
    for universal service support for schools and libraries, and we applaud 
    the entities that have worked diligently to comply with our rules. We 
    are troubled by the disruption imposed on schools and libraries and we 
    hope to avoid this situation in the future. At the same time, we must 
    be mindful of the effects of the
    
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    schools and libraries and rural health care support mechanisms on 
    consumers. If we were to fund these support mechanisms to the full 
    amount of the caps adopted in the Universal Service Order, there would 
    be negative consequences for consumers. Congress mandated that 
    universal service has many components, including support for schools, 
    libraries, and rural health care providers, as well as the directive to 
    maintain rates at an affordable level. We conclude, therefore, that 
    reducing the collection rates for the schools and libraries and rural 
    health care support mechanisms during the initial implementation is 
    consistent with the Act and is the most prudent course to take at this 
    time.
        15. Several commenters maintain that revising collections levels 
    for the schools and libraries and rural health care support mechanisms 
    to match projected reductions in access charges would impose an 
    unreasonable and disproportionate burden on CMRS and other wireless 
    providers that do not pay access charges, and that such an approach 
    would not be competitively neutral. One of the dissenting statements 
    similarly suggests that wireless carriers are being disproportionately 
    burdened because they do not pay access charges. We note first that we 
    are not here adopting our proposal in the Collection Public Notice, 63 
    FR 27542 (May 19, 1998), to increase schools and libraries funding to 
    levels that match projected reductions in access charges paid by long-
    distance carriers. We are instead freezing for the next four quarters 
    the contribution levels in place during the second quarter of 1998. 
    Thus, no carrier will experience increased universal service 
    obligations as a result of an increase in funding for the schools and 
    libraries support mechanism. Second, we find that CMRS and other 
    wireless carriers are not disproportionately burdened because they pay 
    universal service obligations even though they do not benefit from 
    access charge reductions. Before passage of the 1996 Act, only 
    interstate long-distance carriers paid for universal service in the 
    interstate jurisdiction, either directly or through access charges. The 
    1996 Act, however changed that by requiring universal service to be 
    supported by all interstate telecommunications carriers, whether or not 
    they had previously paid access charges. The point of the 1996 Act in 
    this respect was to end the existing discriminatory treatment of long-
    distance carriers, and impose universal service obligations as well on 
    other interstate carriers, including CMRS carriers. The 1996 Act also 
    established that universal service be funded in a competitively neutral 
    manner. To implement that, we have required that all interstate 
    telecommunications carriers contribute to universal service based on 
    end-user revenues. We continue to believe that to be a reasonable 
    approach to implementing the competitive neutrality requirements of the 
    Act. Finally, to the extent that the Collection Public Notice noted the 
    relation between universal service obligations and access charge 
    reductions, it was simply to note that overall the Commission's actions 
    have reduced the cost of providing long distance service--an issue of 
    significant public interest. We note similarly here that, since passage 
    of the 1996 Act, competition and changes in reciprocal compensation 
    arrangements between CMRS providers and local exchange carriers (LECs) 
    have helped provide for the lowest wireless prices for consumers in 
    history, despite wireless carriers' contributions to universal service.
        16. The contention in one of the dissents that universal service 
    contributions, at least to the extent used to provide support for non-
    telecommunications services, constitute an unlawful tax is neither new 
    nor correct. As the Commission has found previously, contributions to 
    the universal service mechanisms do not represent taxes enacted under 
    Congress's taxing authority. Rather, they constitute fees enacted 
    pursuant to Congress's Commerce power. We noted previously that the 
    contribution requirements do not violate the Origination Clause of the 
    Constitution because ``universal service contributions are not 
    commingled with government revenues raised through taxes,'' and 
    universal service support mechanisms therefore are not a ``general 
    welfare scheme'' of the type found by courts to be taxes. In United 
    States v. Munoz-Flores and elsewhere, the Supreme Court has held that 
    Congress does not exercise its taxing powers when funds are raised for 
    a specific government program. Universal service contributions are 
    deposited into a specific fund established as part of the universal 
    service mechanisms to provide money support for those mechanisms and 
    therefore do not constitute taxes.
        17. Our conclusion that universal service contributions are not a 
    tax is not changed by the citation to Thomas v. Network Solutions, Inc. 
    There, the court found that part of the charge made by the National 
    Science Foundation's contractor for the registration of internet domain 
    names was a tax rather than a fee because it provided ``revenue for the 
    government for projects that did not directly benefit the payees or 
    otherwise apply to the purposes furthered by the [agreement between the 
    NSF and its contractor].'' Here, by contrast, universal service 
    contributions are not intended to raise general revenue as they are 
    placed in a segregated fund dedicated for a specific regulatory 
    purpose, and, as we have noted previously, all telecommunications 
    carriers required to contribute benefit from the ubiquitous 
    telecommunications network that universal service makes possible. Even 
    if this were not the case, Munoz-Flores rejects the proposition that a 
    charge is a tax unless the payees benefit from its payment.
        18. Finally, we note that the argument that universal service 
    contributions for the schools and libraries mechanisms constitutes an 
    unlawful tax can be and has been made with respect to the entire 
    universal service program. This argument proves too much. If that 
    interpretation were correct, the entire universal service program, 
    including support for service to rural and high cost areas, would 
    constitute an unlawful tax. This interpretation is incorrect because, 
    as noted above, Congress need not exercise its taxing powers to fund a 
    specific government program through fees. This is precisely what 
    Congress has done with respect to universal service.
        19. We find, therefore, that it serves the public interest to 
    adjust the amounts that the Commission directed the Administrator to 
    collect and spend for the second six months of 1998, as described 
    herein. We amend our previous decision, and direct USAC to collect only 
    as much as required by demand, but in no event more than $25 million 
    per quarter for the third and fourth quarters of 1998 for the rural 
    health care universal service support mechanism. We direct USAC to 
    collect only as much as required by demand, but in no event more than 
    $325 million per quarter for the third and fourth quarters of 1998 and 
    the first and second quarters of 1999 to support the schools and 
    libraries universal service support mechanism. We also direct the Rural 
    Health Care Corporation (RHCC) to commit to applicants no more than 
    $100 million for disbursement during 1998, and direct SLC to commit to 
    applicants no more than $1.925 billion for disbursement during 1998 and 
    the first half of 1999. The adoption of these limits on disbursements 
    supersedes any prior restrictions on expenditures during 1998.
        20. Furthermore, we conclude that the carryover of unused funding 
    authority
    
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    will not apply for the funding period January 1, 1998 through June 30, 
    1999. That is, to the extent that the amounts collected in the funding 
    period January 1, 1998 through June 30, 1999 are less than $2.25 
    billion, the difference will not be carried over to subsequent funding 
    years. Consistent with the phased-in approach to funding for the 
    schools and libraries and rural health care support mechanisms that we 
    have adopted herein, we find it unnecessary to carry over unused 
    funding authority. To the extent that funds are collected but not 
    disbursed in the funding period January 1, 1998 through June 30, 1999, 
    however, those collected funds would be carried over to the next 
    funding period. Accordingly, we amend Secs. 54.507(a) and 54.623(a) of 
    our rules.
    
    C. Rules of Priority for the Schools and Libraries and Rural Health 
    Care Support Mechanisms
    
        21. Schools and Libraries Support Mechanism. Upon further 
    consideration, we find that we must adopt additional new rules of 
    priority to ensure that, when a filing window period is in effect, 
    support is directed toward the most economically disadvantaged schools 
    and libraries, as well as toward those located in rural areas. 
    Consistent with the statute and the recommendations of the Joint Board, 
    we have consistently focused on ensuring that the services eligible for 
    universal service support are affordable for all eligible schools and 
    libraries. Under the discount matrix, the most economically 
    disadvantaged schools and libraries are eligible for the greatest 
    levels of discount. For example, schools with between 75 and 100 
    percent of their students eligible for the national school lunch 
    program are eligible for 90 percent discounts on all eligible services. 
    In the Universal Service Order, we established a priority system under 
    which the most economically disadvantaged schools and libraries, those 
    with over 50 percent of their student populations eligible for the 
    national school lunch program, would have priority when only $250 
    million is available to be committed in a given funding year. The rules 
    of priority adopted in the Universal Service Order, however, were 
    premised on the assumption that support would be distributed on a first 
    come, first served basis. That is, the $250 million trigger was 
    established before the Commission adopted a window filing period. We 
    conclude that we must adopt additional new rules of priority premised 
    on the existence of a filing window period during which all 
    applications received within the window are treated as if filed 
    simultaneously. We also conclude that new rules of priority are 
    necessary to account for the fact that the support requested by schools 
    and libraries during the initial filing window exceeds the total 
    authorized support available for the funding period January 1, 1998 
    through June 30, 1999. Moreover, there is the possibility that support 
    requested by schools and libraries during subsequent filing windows may 
    exceed the total authorized support available in subsequent funding 
    years. Therefore, we adopt new rules of priority that will operate when 
    a filing window is in effect. We do not, however, alter the rules of 
    priority for applicants that request support when a filing window is 
    not in effect. Although, in this initial 18-month funding period, only 
    the applications filed during the initial 75-day filing window will 
    receive support, it is possible that in future funding years support 
    could be provided for applications filed outside of a filing window 
    period.
        22. The additional new rules of priority described below will 
    equitably provide the greatest assurance of support to the schools and 
    libraries with the greatest levels of economic disadvantage while 
    ensuring that all applicants filing during a window receive at least 
    some support in the event that the amounts requested for support 
    submitted during the filing window exceed the total support available 
    in a funding year. Because these rules of priority utilize the discount 
    matrix, which provides higher discounts for schools and libraries in 
    rural areas, they also equitably provide greater support to schools and 
    libraries in rural areas. These rules, therefore, further implement the 
    Commission's prior decisions to allocate support for schools and 
    libraries in a manner that provides higher levels of support for rural 
    areas and areas with greater economic disadvantage, while recognizing 
    that every eligible school and library should receive some assistance. 
    Further, these rules of priority are consistent with the suggestions of 
    several commenters. Upon further consideration, we conclude that these 
    new rules of priority will best promote the universal service goals of 
    the Communications Act. Accordingly, we amend Sec. 54.507(g) of our 
    rules.
        23. The additional new rules of priority for the schools and 
    libraries universal service support mechanism shall operate as 
    described herein for applicants that submit a request for support 
    within an established filing window. When the filing window closes, SLC 
    shall calculate the total demand for support submitted by applicants 
    during the filing window. If total demand exceeds the total support 
    available in that funding year, SLC shall take the following steps. SLC 
    shall first calculate the demand for telecommunications services and 
    Internet access for all discount categories. These services shall 
    receive first priority for the available funding. SLC shall then 
    calculate the amount of available funding remaining after providing 
    support for all requests for telecommunications services and Internet 
    access. SLC shall allocate the remaining funds to the requests for 
    support for internal connections, beginning with the most economically 
    disadvantaged schools and libraries, as determined by the schools and 
    libraries discount matrix. That is, schools and libraries eligible for 
    a 90 percent discount shall receive first priority for the remaining 
    funds, and those funds will be applied to their requests for internal 
    connections. To the extent that funds remain, SLC shall next allocate 
    funds toward the requests for internal connections submitted by schools 
    and libraries eligible for an 80 percent discount, then for a 70 
    percent discount, and shall continue committing funds for internal 
    connections in the same manner to the applicants at each descending 
    discount level until there are no funds remaining.
        24. If the remaining funds are not sufficient to support all of the 
    funding requests that comply with the Commission's rules and 
    eligibility requirements within a particular discount level, SLC shall 
    divide the total amount of remaining support available by the amount of 
    support requested within the particular discount level to produce a 
    pro-rata factor. Thus, for example, if all applicants eligible for 
    discounts of 90 percent may be fully funded, but there are not 
    sufficient funds remaining to fully fund internal connections for 
    applicants eligible for discounts of 80 percent, SLC shall reduce the 
    support level for each applicant that is eligible for an 80 percent 
    discount by multiplying the appropriate requested amount of support by 
    the pro-rata factor. SLC shall then allocate funds to each applicant 
    within the 80 percent discount category based on this reduced discount 
    level. SLC shall commit support to all applicants consistent with the 
    calculations described herein. We expect that, for the initial 18-month 
    funding period, the collection levels established in this Order will 
    enable all of the applicants eligible for discounts of 90 percent to 
    receive full support for
    
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    internal connections, and that at least a substantial portion, if not 
    all, of the support requested for internal connections by applicants 
    eligible for discounts of 80 percent will be provided.
        25. In light of our decision to reduce the collection levels for 
    schools and libraries at this time, we find that our revised method of 
    prioritization is the best way to provide substantial and predictable 
    support for schools and libraries. We conclude that, to the extent that 
    we are unable at this time to fund demand fully, the best approach is 
    to provide full support for recurring services, and to direct support 
    for internal connections to the neediest schools and libraries. We 
    agree with commenters who state that it would be the most economically 
    disadvantaged schools and libraries that would suffer the most if 
    internal connections were not funded. The data received from the 
    applications submitted during the initial filing window also support 
    this revision in our rules of priority.
        26. Rural Health Care Support Mechanism. The Commission concluded 
    in the Universal Service Order that support for health care providers 
    should be allocated on a first-come, first-served basis. Unlike the 
    schools and libraries support mechanism, however, the Commission did 
    not adopt rules that allocate support among health care providers on 
    the basis of their economic circumstances. We determine that we should 
    adopt rules that will take effect in the event that the support 
    requested by health care providers during a filing window exceeds the 
    total authorized support in a funding year. As with the schools and 
    libraries mechanism, our decisions to adjust the maximum collection 
    amounts during 1998 and to adopt a filing window for the rural health 
    care support mechanism lead us to conclude that we should establish 
    rules to allocate funds in the event that all of the available funds 
    will be requested before the window period closes. Several commenters 
    suggested various means by which to prioritize the need of health care 
    providers. We conclude, however, that the complexity of the proposals 
    outweighs their utility. We are not convinced that the administrative 
    burden and the costs associated with any of the proposals outweighs the 
    benefits that would accrue to health care providers.
        27. We conclude, therefore, that we should not adopt, at this time, 
    a method by which to prioritize health care providers in the event that 
    demand requested during a filing window exceeds available support. We 
    conclude instead that we should adopt a pro-rata rule that will reduce 
    each applicant's level of support by an equal amount in the event that 
    demand exceeds the total fund allocated for a given funding year. This 
    approach will ensure fairness and equity to each health care provider 
    applying for universal service support and will not impose an undue 
    administrative burden upon either the applicants or the Administrator. 
    If, however, parties submit specific prioritization methods that can be 
    implemented without substantial expense, administrative burden, or 
    complexity, and that ensure equitable distribution of funds as well or 
    better than the pro-rata rule we adopt herein, we will consider 
    modifying this approach in the future.
        28. When the filing window closes, RHCC shall calculate the total 
    demand for support submitted by all eligible applicants. If the total 
    demand submitted during the filing window exceeds the total funding 
    available for the funding year, RHCC shall take the following steps. 
    RHCC shall divide the total funds available for the funding year by the 
    total amount of support requested to produce a pro-rata factor. RHCC 
    shall multiply the pro-rata factor by the total amount of support 
    requested by each applicant that has filed during the filing window. 
    RHCC shall then commit funds to each applicant consistent with this 
    calculation. For example, if at the close of the filing window $125 
    million has been requested in 1998, RHCC would calculate the pro-rata 
    factor by dividing $100 million by $125 million to produce a factor of 
    four-fifths (.8). RHCC would then multiply the total dollar amount 
    requested by each applicant by .8 and would commit such reduced dollar 
    amount to each applicant. We, therefore, add section 54.623(f) to our 
    rules.
        29. We conclude that the amendments to our rules adopted herein 
    shall be effective upon publication in the Federal Register. Prior to 
    their publication in the Federal Register, the Commission will submit a 
    report on the amended rules adopted herein to Congress and the GAO, as 
    required by the Contract with America Advancement Act (CWAAA). Pursuant 
    to the CWAAA, the amended rules may take effect following that 
    submission. Contrary to the suggestion in Commissioner Furchtgott-
    Roth's dissent, the CWAAA does not require that the Commission wait 60 
    days after this submission is made for the rules to go into effect. 
    Such a delay in the effective date is required only for major rules, 
    and by definition ``major rules'' do ``not include any rule promulgated 
    under the Telecommunications Act of 1996 and the amendments made by 
    that Act.'' We have confirmed with the Office of Management and Budget, 
    which is responsible for determining whether or not a rule is major, 
    that the amended rules adopted herein are promulgated under the 
    Telecommunications Act of 1996 because they are part of the 
    Commission's continuing implementation of section 254 as added by the 
    1996 Act and therefore are non-major rules. Despite the Order's 
    citation in the ordering paragraphs to other provisions of the 
    Communications Act as subsidiary sources of authority, it could not be 
    clearer that the amended rules adopted herein implement the 1996 Act 
    because explicit statutory authorization for the universal service 
    mechanism for schools and libraries did not exist prior to addition of 
    section 254 by the 1996 Act. We find that we have good cause to take 
    such action, pursuant to the Administrative Procedure Act, because 
    compliance with these amendments requires preparation only by USAC, 
    SLC, and RHCC, each of which is able to comply with these amendments in 
    a short amount of time. Compliance with these amendments does not 
    require preparation by other affected entities, such as schools, 
    libraries, or health care providers. To the extent that contributors 
    are affected, their burdens are lessened.
    
    D. Level of Compensation for Officers and Employees of the 
    Administrative Corporations
    
        30. We conclude that Congress's intent regarding the level of 
    compensation for officers and employees of SLC and RHCC was clearly 
    stated in both section 2005(c) of the Senate bill and in the Conference 
    Report. The Senate and the House-Senate conferees expressly stated that 
    there should be limits on the level of compensation afforded to the 
    officers and employees of the two independent corporations. We 
    conclude, therefore, consistent with the will of Congress, that, 
    effective July 1, 1998, the administrator must, as a condition of its 
    continued service, compensate all officers and employees of SLC and 
    RHCC at an annual rate of pay, including any non-regular payments, 
    bonuses, or other compensation, that does not exceed the rate of basic 
    pay in effect for Level I of the Executive Schedule under section 5312 
    of Title 5 of the United States Code. This level of compensation will 
    apply to all officers and employees of SLC and RHCC, as currently 
    organized, as well as to all such officers and employees in the
    
    [[Page 43094]]
    
    consolidated administrative corporation following reorganization on 
    July 1, 1998. Accordingly, we amend section 69.620(a) of our rules.
    
    E. Publications of Quarterly Contribution Factors in the Federal 
    Register
    
        31. The existing rule has caused some confusion because it requires 
    publication of the proposed contribution factors in the Federal 
    Register, but at the same time states that those proposed factors will 
    become effective within 14 days of the date on which the Public Notice 
    is released. Because an item is not published in the Federal Register 
    immediately upon release, and because it is not possible to predict 
    with certainty when an item will be published in the Federal Register, 
    the existing rule creates uncertainty about the date on which the 
    contribution factors are deemed approved.
        32. We, therefore, amend our rule to clarify that the proposed 
    contribution factors will be deemed approved, in the absence of further 
    Commission action, 14 days after release of the Public Notice in which 
    they are announced. We conclude that the public is given adequate 
    notice of release of the proposed contribution factors because they are 
    posted on the Commission's website immediately upon release. Moreover, 
    this change will eliminate any ambiguity in the rules and will create 
    certainty about when the proposed contribution factors are deemed 
    approved. Accordingly, we amend section 54.709(a)(3) of our rules.
    
    F. Conclusion
    
        33. In conclusion, we note that our colleagues' statements 
    dissenting from this Order raise several issues that are well beyond 
    the scope of this Order. Although we believe it would be inappropriate 
    to include here a point-by-point analysis of issues that are not 
    presented in the matters before the Commission in this Order, we do not 
    wish our silence to be construed as acquiescence. We are, therefore, 
    compelled to note that several of the issues raised in dissent have 
    been addressed at length in the context of prior Commission orders, 
    after due consideration and based on complete records. For example, 
    although one of the dissenting statements questions the legal basis for 
    providing support to schools and libraries for internal connections, 
    the legal basis for that decision was thoroughly established in both 
    the Universal Service Order and the April 10, 1998 Report to Congress. 
    It was further addressed in the Joint Board's Recommended Decision in 
    which the Joint Board unanimously recommended that universal service 
    support be provided to schools and libraries for internal connections. 
    Similarly, as noted above, the Commission previously has established 
    that universal service contributions do not constitute an unlawful tax.
        34. One of the dissenting statements also remarks on proposed 
    regulation of carriers' billing practices. We are indeed concerned 
    that, when the Commission takes action to reduce carriers' costs of 
    providing service, carriers' bills are creating the false impression 
    that the opposite is true. We note that these matters are not pending 
    before the Commission, and therefore we do not find it practical or 
    appropriate to comment in this context on specific proposals. We do 
    intend to issue in the near future a notice of proposed rulemaking 
    seeking comment on issues relating to the manner in which carriers 
    include billing statements regarding charges relating to universal 
    service support mechanisms. We intend to use that proceeding to develop 
    a complete record on all the relevant issues, including those raised by 
    our dissenting colleague. Only then, after full consideration, would 
    the Commission be able to determine whether it is necessary and 
    appropriate to take any action on these issues, and if so, what action 
    should be taken. Although we remain committed to ensure that carriers 
    include complete and truthful information regarding the contribution 
    amount, we await further consideration of these matters.
        35. Finally, our dissenting colleagues suggest that the Commission 
    has not acted to fulfill the Act's requirements regarding support for 
    high cost carriers and low-income consumers. Pursuant to the 1996 Act, 
    the Commission has taken significant action to implement the universal 
    service provisions of the Act. As we noted earlier, rural, insular, and 
    high cost telephone subscribers continue to receive high cost support 
    at the same level that they have received for years. In addition, one 
    of the first steps in universal service reform was to make existing 
    high cost support explicit. With respect to low-income consumers, we 
    substantially expanded the reach of the Commission's Lifeline and Link 
    Up programs. We are considering petitions for reconsideration of some 
    aspects of our actions, as well as requests from the Joint Board that 
    we refer some issues to it, including the so-called ``25/75'' issue. We 
    believe that a second referral to the Joint Board, if clearly defined 
    in terms of issues and timing, could be extremely valuable. We are also 
    actively developing an economic model that will assist us in 
    determining the level of high cost support due to carriers in a way 
    that produces neither a windfall for carriers at the expense of 
    consumers nor a spike in local telephone rates. We are confident that 
    in this manner we will fulfill Congress's goals embodied in section 
    254. These actions demonstrate the Commission's firm commitment to 
    implementing all parts of universal service. We look forward to working 
    with Congress, the States, the industry, consumers, and our dissenting 
    colleagues, as we move forward in achieving this goal.
    
    II. Supplemental Final Regulatory Flexibility Analysis
    
        36. In compliance with the Regulatory Flexibility Act (RFA) and the 
    Initial Regulatory Flexibility Analysis (IRFA) that accompanied the 
    Collection Public Notice in the Federal Register, this Supplemental 
    Final Regulatory Flexibility Analysis (SFRFA) supplements the Final 
    Regulatory Flexibility Analysis (FRFA) included in the Universal 
    Service Order, only to the extent that changes to that Order adopted 
    here on reconsideration require changes in the conclusions reached in 
    the FRFA. As required by section 603 RFA, 5 USC 603, the FRFA was 
    preceded by an Initial Regulatory Flexibility Analysis (IRFA) 
    incorporated in the Notice of Proposed Rulemaking and Order 
    Establishing the Joint Board (NPRM), and an IRFA, prepared in 
    connection with the Recommended Decision, which sought written public 
    comment on the proposals in the NPRM and the Recommended Decision.
    
    A. Need for and Objectives of This Report and Order and the Rules 
    Adopted Herein
    
        37. The Commission is required by section 254 of the Act to 
    promulgate rules to implement promptly the universal service provisions 
    of section 254. On May 8, 1997, the Commission adopted rules whose 
    principle goal is to reform our system of universal service support 
    mechanisms so that universal service is preserved and advanced as 
    markets move toward competition. In this Order, we reconsider five 
    aspects of those rules. First, to ameliorate the concerns of applicants 
    seeking support for internal connections that they will be unable to 
    complete installation before December 31, 1998, we reconsider, on our 
    own motion, the funding cycle for schools and libraries. We conclude 
    that it is in the public interest to change the funding year for the 
    schools and libraries universal service support mechanism from a
    
    [[Page 43095]]
    
    calendar year cycle to a fiscal year cycle running from July 1 to June 
    30. Moreover, this change to a fiscal year funding cycle will 
    synchronize the schools and libraries universal service support 
    mechanism with the budgetary and planning cycles of most schools and 
    libraries and will align universal service contribution levels with 
    projected reductions in access charges. Second, in order to reduce 
    financial burdens on all contributors to universal service, we 
    reconsider, on our own motion, the amounts that will be collected 
    during the second six months of 1998 and the first six months of 1999 
    for the schools and libraries support mechanism, and the amounts that 
    will be collected during the second six months of 1998 for the rural 
    health care support mechanism. Third, we modify the rules of priority 
    for the schools and libraries mechanism to provide for the greatest 
    assurance of support to schools and libraries with the greatest levels 
    of economic disadvantage while ensuring that all applicants filing 
    during a filing window period receive at least some support in the 
    event that the amounts requested for support submitted during the 
    filing window exceed the total support available in a funding year. In 
    addition, we adopt a rule to pro-rate the distribution of support to 
    health care providers if demand by health care providers exceeds the 
    total support allocated for a given funding year. Fourth, we conclude, 
    consistent with the will of Congress, that the universal service 
    administrator must, as a condition of continued service, compensate all 
    officers and employees of SLC and RHCC at an annual rate of pay, 
    including any non-regular payments, bonuses, or other compensation, 
    that does not exceed the rate of basic pay in effect for Level I of the 
    Executive Schedule under section 5312 of Title 5 of the United States 
    Code, effective July 1, 1998. Fifth, we amend our rule regarding 
    publication of the proposed universal service contribution factors to 
    state that the proposed contribution factors will be deemed approved, 
    in the absence of further Commission action, 14 days after release of 
    the Public Notice in which they are announced. We conclude that this 
    rule change will eliminate ambiguity regarding publication requirements 
    currently existing in our rules.
    
    B. Summary and Analysis of the Significant Issues Raised by Public 
    Comments in Response to the IRFA
    
        38. No entities commented directly in response to either the 
    September 10 Public Notice or the Collection Public Notice, although 
    some commenters urged the Commission to modify the rules of priority to 
    ensure that applicants in all states, including small applicants, would 
    receive some opportunity to receive funding. In response to the 
    Collection Public Notice, some commenters urged the Commission to 
    ensure that schools and libraries that filed applications within the 
    initial 75-day filing window are fully funded, and to ensure that 
    schools and libraries have a predictable level of funding. Other 
    commenters disagreed with the Commission's proposal to link access 
    charge reductions with universal service funding for schools, 
    libraries, and rural health care providers.
    
    C. Description and Estimates of the Number of Small Entities to Which 
    the Rules Adopted in This Report and Order Will Apply
    
        39. In the FRFA at paragraphs 890-925 of the Universal Service 
    Order, we described and estimated the number of small entities that 
    would be affected by the new universal service rules. The rules adopted 
    herein may apply to the same entities affected by the universal service 
    rules. We therefore incorporate by reference paragraphs 890-925 of the 
    Universal Service Order. 
    
    D. Summary Analysis of the Projected Reporting, Recordkeeping, and 
    Other Compliance Requirements and Significant Alternatives
    
        40. In the FRFA to the Universal Service Order, we described the 
    projected reporting, recordkeeping, and other compliance requirements 
    and significant alternatives associated with the Schools and Libraries 
    section, the Rural Health Care Provider section, and the Administration 
    section of the Universal Service Order. Because the rules adopted 
    herein may only affect those requirements in a marginal way, we 
    incorporate by reference paragraphs 956-60, 968-71, and 980 of the 
    Universal Service Order, which describe those requirements and provide 
    the following analysis of the new requirements adopted herein.
        41. Under the rules adopted herein, we revise the funding year for 
    the schools and libraries support mechanism from a calendar year cycle 
    (January 1--December 31) to a fiscal year cycle (July 1--June 30). This 
    revision will benefit schools and libraries in three ways: (1) it will 
    ameliorate the concerns of applicants seeking support for internal 
    connections that they will be unable to complete installation before 
    December 31, 1998; (2) it will synchronize the schools and libraries 
    support mechanism with the budgetary and planning cycles of most 
    schools and libraries; and (3) it will align universal service 
    contribution levels with projected reductions in access charges. These 
    changes will not have a significant impact on the reporting, 
    recordkeeping, and other compliance requirements for the schools and 
    libraries and rural health care universal service support mechanisms.
        42. In addition, we do not revise the annual caps adopted in the 
    Universal Service Order, but we do adjust the maximum amounts that may 
    be collected and spent during the initial eighteen months of 
    implementation for the schools and libraries support mechanism and 
    during the initial year of implementation for the rural health care 
    provider support mechanism. The Administrator is instructed to collect 
    only as much as required by demand, but in no event more than $25 
    million per quarter for the third and fourth quarters of 1998 to 
    support the rural health care universal service support mechanism and 
    no more than $325 million per quarter for the third and fourth quarters 
    of 1998 and the first and second quarters of 1999 to support the 
    schools and libraries universal service support mechanism. We also 
    direct the Administrator neither to commit nor disburse more than $100 
    million for the rural health care support mechanism for 1998 and no 
    more than $1.925 billion for the schools and libraries support 
    mechanism for the eighteen month period from January 1, 1998 through 
    June 30, 1999. These changes will not have a significant impact on the 
    reporting, recordkeeping, and other compliance requirements for the 
    schools and libraries and rural health care universal service support 
    mechanisms.
        43. In addition, we modify the rules of priority for the schools 
    and libraries support mechanism to equitably provide the greatest 
    assurance of support to the schools and libraries with the greatest 
    level of economic disadvantage while ensuring that all applicants 
    filing during a filing window period receive at least some support in 
    the event that the amounts requested for support submitted during the 
    filing window exceed the total support available in a funding year. We 
    also adopt a rule to pro-rate the distribution of support to health 
    care providers if demand by health care providers exceeds the total 
    fund allocated for a given funding year. These changes will not have a 
    significant impact on the reporting, recordkeeping, and other 
    compliance requirements for the schools and libraries and rural health 
    care universal service support mechanisms.
    
    [[Page 43096]]
    
        44. Moreover, consistent with the will of Congress, we conclude 
    that the universal service Administrator must, as a condition of 
    continued service, compensate all officers and employees of SLC and 
    RHCC at an annual rate of pay, including any non-regular payments, 
    bonuses, or other compensation, that does not exceed the rate of basic 
    pay in effect for Level I of the Executive Schedule under section 5312 
    of Title 5 of the United States Code, effective July 1, 1998. We also 
    amend our rule regarding publication of the proposed universal service 
    contribution factors to state that the proposed contribution factors 
    will be deemed approved, in the absence of further Commission action, 
    14 days after release of the Public Notice in which they are announced. 
    Neither of these changes will have a significant impact on the 
    reporting, recordkeeping, and other compliance requirements for the 
    schools and libraries and rural health care universal service support 
    mechanisms.
    
    E. Steps Taken to Minimize the Significant Economic Impact on a 
    Substantial Number of Small Entities, and Significant Alternatives 
    Considered
    
        45. In the FRFA to the Universal Service Order, we described the 
    steps taken to minimize the significant economic impact on a 
    substantial number of small entities consistent with stated objectives 
    associated with the Schools and Libraries section, the Rural Health 
    Care Provider section, and the Administration section of the Universal 
    Service Order. Because the rules adopted herein may only affect those 
    requirements in a marginal way, we incorporate by reference paragraphs 
    961-67, 972-76, and 981-82 of the Universal Service Order, which 
    describe those requirements and provide the following analysis of the 
    new requirements adopted herein.
        46. As described above, our decision to change to a fiscal year 
    funding cycle will benefit schools and libraries, as well as their 
    chosen service providers, who may be small entities, by equitably 
    providing the greatest assurance of support to the schools and 
    libraries with the greatest levels of economic disadvantage while 
    ensuring that all applicants filing during a window receive at least 
    some support in the event that the amounts requested for support 
    submitted during the filing window exceed the total support available 
    in a funding year. Some schools and libraries that did not file within 
    the initial window in 1998 will not be eligible to receive funding 
    until July 1999, rather than January 1999. We find, however, that on 
    balance, the benefits that will be conferred on the approximately 
    30,000 applicants that filed within the initial window outweigh this 
    potential six-month delay in funding for some applicants. We also find 
    that this approach strikes the best balance between fulfilling the 
    statutory mandate to enhance access to advanced telecommunications and 
    information services for schools and libraries, and fulfilling the 
    statutory principle of providing quality services at ``just, 
    reasonable, and affordable rates,'' without imposing unnecessary 
    burdens on schools and libraries or service providers, including small 
    entities.
        47. As described above, we adopt the decision to adjust the amount 
    of money to be collected in 1998 and the first and second quarters of 
    1999 for the schools and libraries universal service support mechanism 
    and in 1998 for the rural health care support mechanism because we do 
    not want to impose unnecessary financial requirements on service 
    provider contributors to universal service, including contributors that 
    are small entities. We find that our decision to adjust the maximum 
    collectible amounts provides substantial support to schools, libraries, 
    and rural health care providers without imposing unnecessary burdens on 
    carriers or subscribers, including small entities.
        48. Moreover, our conclusion that the universal service 
    Administrator must, as a condition of continued service, compensate all 
    officers and employees of SLC and RHCC at an annual rate of pay that 
    does not exceed the rate of basic pay in effect for Level I of the 
    Executive Schedule under section 5312 of Title 5 of the United States 
    Code, effective July 1, 1998 will not have a significant impact on the 
    reporting, recordkeeping, and other compliance requirements for the 
    schools and libraries and rural health care universal service support 
    mechanisms on any entities other than SLC and RHCC. For those entities, 
    compliance with the amended rule will have a significant impact on the 
    level of compensation afforded some of their employees, but we conclude 
    that this decision is consistent with the intent of Congress. Our 
    decision to amend our rule regarding publication of the proposed 
    universal service contribution factors will not have a significant 
    impact on the reporting, recordkeeping, and other compliance 
    requirements for the schools and libraries and rural health care 
    universal service support mechanisms.
    
    III. Ordering Clauses
    
        49. Accordingly, it is ordered that, pursuant to the authority 
    contained in sections 1-4, 201-205, 218-220, 254, 303(r), 403, and 405 
    of the Communications Act of 1934, as amended, 47 USC 151-154, 201-205, 
    218-220, 254, 303(r), 403, and 405, section 1.108 of the Commission's 
    rules, 47 CFR 1.108, the Fifth Order on Reconsideration in CC Docket 
    No. 96-45 is adopted.
        50. It is further ordered that, pursuant to the authority contained 
    in sections 1-4, 201-205, 218-220, 254, 303(r), 403, and 405 of the 
    Communications Act of 1934, as amended, 47 USC 151-154, 201-205, 218-
    220, 254, 303(r), 403, and 405, section 1.108 of the Commission's 
    rules, 47 CFR 1.108, the Fourth Report and Order in CC Docket No. 96-45 
    is adopted.
        51. It is further ordered that, pursuant to the authority contained 
    in sections 1-4, 201-205, 218-220, 254, 303(r), 403, and 405 of the 
    Communications Act of 1934, as amended, 47 USC 151-154, 201-205, 218-
    220, 254, 303(r), 403, and 405, section 1.108 of the Commission's 
    rules, 47 CFR 1.108, Part 54 of the Commission's rules, 47 CFR Part 54, 
    and Part 69 of the Commission's rules, 47 CFR Part 69, are amended.
        52. It is further ordered that, pursuant to the authority contained 
    in sections 1-4, 201-205, 218-220, 254, 303(r), 403, and 405 of the 
    Communications Act of 1934, as amended, 47 USC 151-154, 201-205, 218-
    220, 254, 303(r), 403, and 405, section 1.108 of the Commission's 
    rules, 47 CFR 1.108, effective July 1, 1998, Universal Service 
    Administrative Company shall compensate all officers and employees of 
    Schools and Libraries Corporation and Rural Health Care Corporation at 
    an annual rate of pay, including any non-regular payments, bonuses, or 
    other compensation, that does not exceed the rate of basic pay in 
    effect for Level I of the Executive Schedule under section 5312 of 
    title 5 of the United States Code.
        53. It is further ordered that, because the Commission has found 
    good cause, the rule changes are effective August 12, 1998.
        54. It is further ordered that the Commission's Office of Public 
    Affairs, Reference Operations Division, shall send a copy of this Fifth 
    Order on Reconsideration and Fourth Report and Order, including the 
    Final Regulatory Flexibility Analysis, to the Chief Counsel for 
    Advocacy of the Small Business Administration.
    
    List of Subjects
    
    47 CFR Part 54
    
        Healthcare providers, Libraries, Reporting and recordkeeping
    
    [[Page 43097]]
    
    requirements, Schools, Telecommunications, Telephone.
    
    47 CFR Part 69
    
        Communications common carriers, Reporting and recordkeeping 
    requirements, Telephone.
    
    Federal Communications Commission
    Magalie Roman Salas,
    Secretary.
    
    Rule Changes
    
        Parts 54 and 69 of Title 47 of the Code of Federal Regulations are 
    amended as follows:
    
    PART 54--UNIVERSAL SERVICE
    
        1. The authority citation for part 54 continues to read as follows:
    
        Authority: 47 U.S.C. Secs. 1, 4(i), 201, 205, 214, and 254 
    unless otherwise noted.
    
        2. Section 54.507 is amended by revising paragraphs (a), (b) and 
    (g) to read as follows:
    
    
    Sec. 54.507  Cap.
    
        (a) Amount of the annual cap. The annual cap on federal universal 
    service support for schools and libraries shall be $2.25 billion per 
    funding year, and all funding authority for a given funding year that 
    is unused in that funding year shall be carried forward into subsequent 
    funding years for use in accordance with demand, with the following 
    exceptions:
        (1) No more than $625 million shall be collected or spent for the 
    funding period from January 1, 1998 through June 30, 1998. No more than 
    $325 million shall be collected for the funding period from July 1, 
    1998 through September 30, 1998. No more than $325 million shall be 
    collected for the funding period from October 1, 1998 through December 
    31, 1998. No more than $325 million shall be collected for the funding 
    period from January 1, 1999 through March 31, 1999. No more than $325 
    million shall be collected for the funding period from April 1, 1999 
    through June 30, 1999. No more than $1.925 billion shall be collected 
    or disbursed during the eighteen month period from January 1, 1998 
    through June 30, 1999.
        (2) The carryover of unused funding authority will not apply for 
    the funding period January 1, 1998 through June 30, 1999. To the extent 
    that the amounts collected in the funding period January 1, 1998 
    through June 30, 1999 are less than $2.25 billion, the difference will 
    not be carried over to subsequent funding years. Carryover of funds 
    will occur only to the extent that funds are collected but not 
    disbursed in the funding period January 1, 1998 through June 30, 1999.
        (b) Funding year. A funding year for purposes of the schools and 
    libraries cap shall be the period July 1 through June 30. For the 
    initiation of the mechanism only, the eighteen month period from 
    January 1, 1998 to June 30, 1999 shall be considered a funding year. 
    Schools and libraries filing applications within the initial 75-day 
    filing window shall receive funding for requested services through June 
    30, 1999.
    * * * * *
        (g) Rules of priority. Schools and Libraries Corporation shall act 
    in accordance with paragraph (g)(1) of this section with respect to 
    applicants that file a Form 471, as described in Sec. 54.504(c) of this 
    part, when a filing period described in paragraph (c) of this section 
    is in effect. Schools and Libraries Corporation shall act in accordance 
    with paragraph (g)(2) of this section with respect to applicants that 
    file a Form 471, as described in Sec. 54.504(c) of this part, at all 
    times other than within a filing period described in paragraph (c) of 
    this section.
        (1) When the filing period described in paragraph (c) of this 
    section closes, Schools and Libraries Corporation shall calculate the 
    total demand for support submitted by applicants during the filing 
    period. If total demand exceeds the total support available for that 
    funding year, Schools and Libraries Corporation shall take the 
    following steps:
        (i) Schools and Libraries Corporation shall first calculate the 
    demand for telecommunications services and Internet access for all 
    discount categories, as determined by the schools and libraries 
    discount matrix in Sec. 54.505(c) of this part. These services shall 
    receive first priority for the available funding.
        (ii) Schools and Libraries Corporation shall then calculate the 
    amount of available funding remaining after providing support for all 
    telecommunications services and Internet access for all discount 
    categories. Schools and Libraries Corporation shall allocate the 
    remaining funds to the requests for support for internal connections, 
    beginning with the most economically disadvantaged schools and 
    libraries, as determined by the schools and libraries discount matrix 
    in Sec. 54.505(c) of this part. Schools and libraries eligible for a 90 
    percent discount shall receive first priority for the remaining funds, 
    and those funds will be applied to their requests for internal 
    connections.
        (iii) To the extent that funds remain after the allocation 
    described in Secs. 54.507(g)(1) (i) and (ii), Schools and Libraries 
    Corporation shall next allocate funds toward the requests for internal 
    connections submitted by schools and libraries eligible for an 80 
    percent discount, then for a 70 percent discount, and shall continue 
    committing funds for internal connections in the same manner to the 
    applicants at each descending discount level until there are no funds 
    remaining.
        (iv) If the remaining funds are not sufficient to support all of 
    the funding requests within a particular discount level, Schools and 
    Libraries Corporation shall divide the total amount of remaining 
    support available by the amount of support requested within the 
    particular discount level to produce a pro-rata factor. Schools and 
    Libraries Corporation shall reduce the support level for each applicant 
    within the particular discount level, by multiplying each applicant's 
    requested amount of support by the pro-rata factor.
        (v) Schools and Libraries Corporation shall commit funds to all 
    applicants consistent with the calculations described herein.
        (2) When a filing period described in paragraph (c) of this section 
    is not in effect, and when expenditures in any funding year reach the 
    level where only $250 million remains before the cap will be reached, 
    funds shall be distributed in accordance with the following rules of 
    priority:
        3. Section 54.511 is amended by revising paragraph (d) to read as 
    follows:
    
    
    Sec. 54.511  Ordering services.
    
    * * * * *
        (d) The exemption from the competitive bid requirements set forth 
    in paragraph (c) of this section shall not apply to voluntary 
    extensions of existing contracts, with the exception that an eligible 
    school or library as defined under Sec. 54.501 or consortium that 
    includes an eligible school or library, that filed an application 
    within the 75-day initial filing window (January 30, 1998-April 15, 
    1998) may voluntarily extend, to a date no later than June 30, 1999, an 
    existing contract that otherwise would terminate between December 31, 
    1998 and June 30, 1999.
        4. Section 54.623 is amended by revising paragraph (a) and adding 
    paragraph (f) to read as follows:
    
    
    Sec. 54.623  Cap.
    
        (a) Amount of the annual cap. The annual cap on federal universal 
    service support for health care providers shall be $400 million per 
    funding year, with the following exceptions. No more than $50 million 
    shall be collected for the
    
    [[Page 43098]]
    
    funding period from January 1, 1998 through June 30, 1998. No more than 
    $25 million shall be collected for the funding period from July 1, 1998 
    through September 30, 1998. No more than $25 million shall be collected 
    for the funding period from October 1, 1998 through December 31, 1998. 
    No more than $100 million shall be committed or disbursed for the 1998 
    funding year.
    * * * * *
        (f) Pro-rata reductions. Rural Health Care Corporation shall act in 
    accordance with this paragraph when a filing period described in 
    paragraph (c) of this section is in effect. When a filing period 
    described in paragraph (c) of this section closes, Rural Health Care 
    Corporation shall calculate the total demand for support submitted by 
    all applicants during the filing window. If the total demand exceeds 
    the total support available for the funding year, Rural Health Care 
    Corporation shall take the following steps:
        (1) Rural Health Care Corporation shall divide the total funds 
    available for the funding year by the total amount of support requested 
    to produce a pro-rata factor.
        (2) Rural Health Care Corporation shall calculate the amount of 
    support requested by each applicant that has filed during the filing 
    window.
        (3) Rural Health Care Corporation shall multiply the pro-rata 
    factor by the total dollar amount requested by each applicant. Rural 
    Health Care Corporation shall then commit funds to each applicant 
    consistent with this calculation.
        5. Section 54.709 is amended by revising paragraph (a)(3) to read 
    as follows:
    
    
    Sec. 54.709  Computations of required contributions to universal 
    service support mechanisms.
    
        (a) * * *
        (3) Total projected expenses for universal service support programs 
    for each quarter must be approved by the Commission before they are 
    used to calculate the quarterly contribution factors and individual 
    contribution. For each quarter, the High Cost and Low Income Committee 
    or the permanent Administrator once the permanent Administrator is 
    chosen and the Schools and Libraries and Rural Health Care Corporations 
    must submit their projections of demand for the high cost and low-
    income programs, the school and libraries program, and rural health 
    care program, respectively, and the basis for those projections, to the 
    Commission and the Common Carrier Bureau at least 60 calendar days 
    prior to the start of that quarter. For each quarter, the Administrator 
    and the Schools and Libraries and Rural Health Care Corporations must 
    submit their projections of administrative expenses for the high cost 
    and low-income programs, the schools and libraries program and the 
    rural health care program, respectively, and the basis for those 
    projections to the Commission and the Common Carrier Bureau at least 60 
    calendar days prior to the start of that quarter. Based on data 
    submitted to the Administrator on the Universal Service Worksheets, the 
    Administrator must submit the total contribution bases to the Common 
    Carrier Bureau at least 60 days before the start of each quarter. The 
    projections of demand and administrative expenses and the contribution 
    factors shall be announced by the Commission in a public notice and 
    shall be made available on the Commission's website. The Commission 
    reserves the right to set projections of demand and administrative 
    expenses at amounts that the Commission determines will serve the 
    public interest at any time within the 14-day period following release 
    of the Commission's public notice. If the Commission takes no action 
    within 14 days of the date of release of the public notice announcing 
    the projections of demand and administrative expenses, the projections 
    of demand and administrative expenses, and contribution factors shall 
    be deemed approved by the Commission. Once the projections and 
    contribution factors are approved, the Administrator shall apply the 
    quarterly contribution factors to determine individual contributions.
    * * * * *
    
    PART 69--ACCESS CHARGES
    
        6. The authority citation for part 69 continues to read as follows:
    
        Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254, and 
    403 unless otherwise noted.
    
        7. Section 69.620 is amended by revising paragraph (a) to read as 
    follows:
    
    
    Sec. 69.620  Administrative expenses of independent subsidiary, Schools 
    and Libraries Corporation, and Rural Health Care Corporation.
    
        (a) The annual administrative expenses of the independent 
    subsidiary, Schools and Libraries Corporation and Rural Health Care 
    Corporation, should be commensurate with the administrative expenses of 
    programs of similar size, with the exception of the salary levels for 
    officers and employees of the corporations. The annual administrative 
    expenses may include, but are not limited to, salaries of officers and 
    operations personnel, the costs of borrowing funds, equipment costs, 
    operating expenses, directors' expenses, and costs associated with 
    auditing contributors of support recipients.
        (1) All officers and employees of the independent subsidiary, 
    Schools and Libraries Corporation and Rural Health Care Corporation, 
    may be compensated at an annual rate of pay, including any non-regular 
    payments, bonuses, or other compensation, in an amount not to exceed 
    the rate of basic pay in effect for Level I of the Executive Schedule 
    under section 5312 of title 5 of the United States Code.
        (2) The level of compensation described in Sec. 69.620(a)(1) shall 
    be effective July 1, 1998.
    * * * * *
    [FR Doc. 98-21588 Filed 8-11-98; 8:45 am]
    BILLING CODE 6712-01-P
    
    
    

Document Information

Effective Date:
8/12/1998
Published:
08/12/1998
Department:
Federal Communications Commission
Entry Type:
Rule
Action:
Final rule.
Document Number:
98-21588
Dates:
August 12, 1998.
Pages:
43088-43098 (11 pages)
Docket Numbers:
CC Docket No. 96-45, FCC 98-120
PDF File:
98-21588.pdf
CFR: (5)
47 CFR 54.507
47 CFR 54.511
47 CFR 54.623
47 CFR 54.709
47 CFR 69.620