[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.

[[Page 43089]]

    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

[[Page 43090]]

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

[[Page 43091]]

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

[[Page 43092]]

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

[[Page 43093]]

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