[Federal Register Volume 63, Number 244 (Monday, December 21, 1998)]
[Rules and Regulations]
[Pages 70564-70578]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-33549]



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Part IV





Federal Communications Commission





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47 CFR Parts 54 and 69



Changes to the Board of Directors of the National Exchange Carrier 
Association, Inc., Federal-State Joint Board on Universal Service; 
Final Rule

  Federal Register / Vol. 63, No. 244 / Monday, December 21, 1998 / 
Rules and Regulations  

[[Page 70564]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 54 and 69

[CC Docket Nos. 97-21 and 96-45; FCC 98-306]


Changes to the Board of Directors of the National Exchange 
Carrier Association, Inc., Federal-State Joint Board on Universal 
Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, we reconsider the current organizational 
structure for administering the universal service support mechanisms 
and adopt a plan for merging the Schools and Libraries Corporation 
(SLC) and the Rural Health Care Corporation (RHCC) into the Universal 
Service Administrative Company (USAC) by January 1, 1999. We 
substantially adopt the Report and Proposed Plan of Reorganization (the 
Plan) filed with the Commission by USAC, SLC, and RHCC on July 1, 1998, 
with certain modifications. We also adopt specific procedures under 
which administrative decisions made by USAC will be reviewable by the 
Commission.

DATES: These rules are effective January 1, 1999, except for 
Sec. 54.701, which is effective December 1, 1998; and Secs. 54.703(c) 
and 54.721, which contain modified information collection requirements 
and will not become effective until approved by the Office of 
Management and Budget. The FCC will publish a document in the Federal 
Register announcing the effective date for Secs. 54.703(c) and 54.721.

FOR FURTHER INFORMATION CONTACT: Sharon Webber, Attorney, Common 
Carrier Bureau, Accounting Policy Division, (202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
document released on November 20, 1998. The full text of this document 
is available for public inspection during regular business hours in the 
FCC Reference Center, Room 239, 1919 M Street, N.W., Washington, D.C., 
20554.

Summary of Third Report and Order in CC Docket No. 97-21, Fourth 
Order on Reconsideration in CC Docket No. 97-21 and Eighth Order on 
Reconsideration in CC Docket No. 96-45

I. Introduction

    1. In this Order, we reconsider the current organizational 
structure for administering the universal service support mechanisms 
and adopt a plan for merging the Schools and Libraries Corporation 
(SLC) and the Rural Health Care Corporation (RHCC) into the Universal 
Service Administrative Company (USAC) by January 1, 1999. We 
substantially adopt the Report and Proposed Plan of Reorganization (the 
Plan ) filed with the Commission by USAC, SLC, and RHCC on July 1, 
1998, with certain modifications. We also adopt specific procedures 
under which administrative decisions made by USAC will be reviewable by 
the Commission.

II. Revised Corporate Structure

A. Consolidation of Administrative Responsibilities

    2. Commenters generally support vesting in USAC the responsibility 
for administering all of the universal service support mechanisms, 
including the creation of three divisions--the Schools and Libraries 
Division, the Rural Health Care Division and the High Cost and Low 
Income Division--to oversee each of the support mechanisms.
    3. We find that consolidating all of the administrative 
responsibilities into USAC is consistent with Congress's directive to 
establish a single entity to administer the universal service support 
mechanisms for schools, libraries, and rural health care providers, and 
will minimize disruption and take advantage of USAC's experience in 
administering the universal service support mechanisms. We conclude 
that USAC is uniquely qualified to assume responsibility for the 
administration of all of the support mechanisms in light of its current 
responsibility for administering the high cost and low income 
mechanisms and for collecting and disbursing funds for the schools and 
libraries and rural health care support mechanisms. We find that the 
appointment of USAC minimizes the potential disruption of the ongoing 
administration of the universal service support mechanisms that could 
occur were we to appoint an entity that has not previously been 
involved in the administration of universal service. In addition, 
establishing USAC as the single administrator establishes clear lines 
of accountability. We further believe, that the consolidation will 
result in administrative efficiencies. The distinct mission of each 
support mechanism will be preserved by establishing divisions within 
USAC. The divisions will perform the duties and functions currently 
performed by SLC, RHCC and the High Cost and Low Income Committee, as 
directed by the committees of the USAC Board.
    4. We disagree with SBC's assertions that the revised 
administrative structure is flawed in light of its ``erroneous'' 
reliance on the lawfulness of USAC. SBC contends that the GAO's finding 
that the Commission's creation of SLC and RHCC violated the Government 
Corporation Control Act (GCCA) similarly applies to the Commission's 
creation of USAC.
    5. The Commission has stated that it reasonably relied upon the 
authority of sections 254 and 4(i) of the Communications Act (Act) when 
it conditioned the approval of NECA as the temporary Administrator of 
the support mechanisms on NECA's formation of SLC, RHCC, and USAC. 
Indeed, in enacting section 254, Congress specifically contemplated 
that the Commission would create federal universal service support 
mechanisms. NECA, an independent, non-profit organization, had been 
administering the high cost support mechanism for more than a decade 
when Congress passed the Telecommunications Act of 1996. Thus, Congress 
was aware of NECA's role when it adopted section 254, which affirmed 
and expanded the Commission's authority to direct the administration of 
universal service and therefore, implicitly affirmed the Commission's 
authority to employ an independent entity to administer universal 
service. We find no indication that Congress sought to dismantle the 
existing administrative system, or to prohibit the Commission from 
using NECA, or another independent entity to administer universal 
service. USAC was created as a subsidiary of NECA. Inasmuch as USAC is 
a subsidiary of NECA, which was lawfully created and has the authority 
to administer the universal service support mechanisms, we see no 
statutory impediment to USAC. Moreover, we find it significant that the 
GAO made findings only with respect to the creation of SLC and RHCC; 
GAO did not make any findings concerning the establishment of USAC. We 
thus find that consolidating the administration of universal service 
into USAC is ``pursuant to the findings of the General Accounting 
Office.''

B. Limitations on USAC's Authority

    6. Several commenters recommend that USAC's functions be confined 
strictly to applying the Commission's rules and that it be prohibited 
from engaging in policy making. Consistent with Congress's directive 
that the combined entity shall not interpret rules or statute, we 
emphasize that USAC's function under the revised structure will be 
exclusively administrative. USAC may not make policy, interpret

[[Page 70565]]

unclear provisions of the statute or rules, or interpret the intent of 
Congress. Where the Act or the Commission's rules are unclear, or do 
not address a particular situation, USAC must seek guidance from the 
Commission on how to proceed. Furthermore, USAC may advocate positions 
before the Commission and Commission staff only on administrative 
matters relating to the universal service support mechanisms.
    7. Commenters also urge the Commission to ensure USAC's 
accountability to the Commission. The Commission retains ultimate 
control over the operation of the federal universal service support 
mechanisms through its authority to establish the rules governing the 
support mechanisms and through its review of administrative decisions 
that are appealed to the Commission. The consolidated USAC will 
continue to be accountable to the Commission through the procedures 
that currently apply to USAC, SLC, and RHCC. In fact, USAC's 
appointment as permanent Administrator and the expansion of its 
responsibilities are conditioned on its compliance with Commission 
rules and orders. Existing procedures to ensure accountability include 
the Commission's universal service rules, which provide detailed 
guidance on administration of the universal service support mechanisms, 
annual audit requirements, regular coordination with Commission staff, 
and quarterly filing of projected administrative expenses and estimates 
of support mechanism demand. In addition, the Commission will continue 
to oversee the structure and content of the annual independent audit 
that USAC is required to undertake.
    8. To foster greater accountability, we direct USAC to prepare and 
submit to the Commission and Congress an annual report by March 31 of 
each year. The Commission proposed such a report in the Report to 
Congress and several commenters supported this proposal. The annual 
report should detail USAC's operations, activities, and accomplishments 
for the prior calendar year. In addition, the annual report should 
provide an assessment of contractor performance. Consistent with the 
comments of the American Library Association (ALA) and Intermedia, we 
direct USAC to include in its annual report information about 
beneficiary and Service Provider participation in each of the universal 
service support mechanisms and administrative actions intended to 
prevent waste, fraud, and abuse by beneficiaries and service providers. 
USAC shall consult with Commission staff to define the scope and 
content of the annual report. This report will serve as the basis for 
an annual review by the Commission of the universal service support 
mechanisms. Because the annual report will detail contractor 
operations, it also will enhance the Commission's oversight of 
contractor performance.

C. USAC Permanence and Divestiture

    9. We conclude that USAC should be made the permanent Administrator 
and hereby dispense with the requirement that the permanent 
Administrator be chosen by a federal advisory committee. Many 
commenters support the Plan's recommendation that the Commission 
designate USAC as the permanent Administrator. The primary reason that 
USAC initially was designated as temporary rather than permanent 
Administrator was because the Joint Board had concerns that NECA and 
USAC, as a subsidiary of NECA, might be biased in favor of local 
exchange carriers and might not fully represent all interested parties. 
We conclude that, subject to the modifications set forth in this Order, 
USAC fairly represents all interested parties, including a broad range 
of industry, consumer, and beneficiary groups. Therefore, we conclude 
that USAC should be the permanent Administrator. We also adopt the 
proposal set forth in the Commission's Report to Congress to review 
USAC's performance after one year to ensure that it is administering 
universal service in an efficient, effective, and competitively neutral 
manner. Providing permanence to the revised structure will ensure 
USAC's ability to continue to attract and maintain qualified personnel 
and to prevent unnecessary disruption to contributors and 
beneficiaries.
    10. We decline to adopt the Plan's proposal to divest USAC from 
NECA at this time. Rather, consistent with the Commission's proposal in 
the Report to Congress to divest USAC from NECA pending Commission 
review of USAC's performance after one year, we will review in one year 
whether USAC should remain affiliated with NECA. Retaining USAC as a 
subsidiary of NECA is most responsive to Congress's directive that the 
revised administrative structure be consistent with the GAO letter. 
Since NECA was established in 1983, neither GAO nor any other party has 
alleged that the creation of NECA was unlawful or that it violated the 
GCCA. Therefore, we find that retaining USAC's affiliation with NECA is 
responsive to concerns raised by the GAO. Moreover, maintaining USAC as 
a subsidiary of NECA should minimize disruption to the support 
mechanisms due to legal challenges. Finally, to eliminate any further 
question concerning the Commission's authority to appoint USAC as the 
permanent Administrator, we renew our request for specific statutory 
authorization.

D. Changes to the USAC Board

    11. We adopt the Plan's proposals to retain the current seventeen 
Board member positions, based on our belief that the current Board has 
achieved an appropriate balance of broad industry, beneficiary, and 
consumer representation. In addition, we are persuaded that we should 
add one additional rural health care provider to the Board. We also 
adopt the Plan's proposal to create a permanent position on the USAC 
Board for the USAC CEO, for a total of 19 members. Because the USAC CEO 
will have overall management responsibility for all of the support 
mechanisms, we conclude that the creation of a voting position on the 
Board for the USAC CEO will offer continuity and consistency to USAC's 
administration, and will create clear lines of accountability. We 
direct that USAC's by-laws be amended to reflect the addition of the 
USAC CEO, as well as an additional rural health care position.
    12. We modify the Plan to add a second rural health care 
representative to the USAC Board. We agree with RHCC and numerous 
commenters that additional rural health care representation will assist 
the Board's ability to address technical issues that are unique to the 
rural health care community and that may fall outside of the general 
competence and expertise of the USAC Board as a whole. We believe that 
adding a second rural health care representative will help ensure that 
the administrative structure ``take[s] into account the distinct 
mission of providing universal service to rural health care 
providers,'' in accordance with Congress's direction. Rather than 
changing the Board's composition by replacing schools and libraries 
representatives with rural health care provider representatives, as GTE 
suggests, we have determined to add a second rural health care provider 
representative to the Board. We find that this best ensures adequate 
representation of all interested groups, without disrupting the 
existing representation of schools and libraries, which was decided 
based on input from all interested parties. Accordingly, the additional 
rural health care representative on the Rural Health Care Board shall 
serve on the USAC Board.
    13. We are not convinced by Intermedia's suggestion that subject 
matter expertise is necessary only at the

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division level, and would not be helpful on the Board as well. We also 
decline to allocate a total of three positions on the USAC Board for 
rural health care interests, as requested by RHCC. Given the relatively 
smaller size of the rural health care mechanism compared to the schools 
and libraries support mechanism, we find that including two rural 
health care representatives ensures adequate and proportionate 
representation of health care interests.
    14. The American Psychological Association recommends that we 
allocate one rural heath care position specifically to a representative 
of rural behavioral health care providers. The Secretary of Health and 
Human Services recommends that we add a representative with experience 
in the use of telemedicine in the delivery of rural health care and 
another one with experience in rural public health. We are reluctant to 
substitute our judgment for that of the rural health care community 
concerning the particular categories of rural health care providers 
that should serve on the USAC Board. Accordingly, we will permit the 
rural health care community to nominate, through the consensus 
nomination process, the particular rural health care provider 
representatives who should serve on the USAC Board. This approach is 
consistent with the Commission's decision not to specify the particular 
categories of educational institutions (e.g., public versus private 
institutions) that are represented on the USAC Board. Rather, the 
Commission has permitted the education community to select, through the 
nomination process, the particular schools representatives who serve on 
the USAC Board.
    15. We decline to adopt the American Library Association's 
recommendation that we increase library representation on the Board 
commensurate with any increase in rural health care representation on 
the Board. Although the American Library Association identifies certain 
universal service implementation issues that are unique to libraries, 
we find that, for the most part, schools and libraries face similar 
issues as beneficiaries of the same universal service support 
mechanism. As a result, in determining whether libraries are adequately 
represented, we find that it is appropriate to consider whether schools 
and libraries, as a whole, have adequate representation on the Board. 
We believe this is consistent with Congress's establishment of a single 
support mechanism for schools and libraries. Accordingly, we conclude 
that a total of four positions on the USAC Board adequately represents 
these beneficiary interests. Furthermore, in light of the relative 
number of potential school and library participants, we find that it is 
appropriate to allocate three representatives to schools and one 
representative to libraries.
    16. We decline to adopt one commenter's suggestion that we 
fundamentally alter the composition of the Board by adding a variety of 
industry representatives. We find that the USAC Board, as currently 
configured, generally has afforded fair representation of the diverse 
participants in, and competitively neutral administration of, the 
universal service support mechanisms. We are reluctant to increase 
further the size of the Board, absent a demonstrated need, because we 
are concerned that to do so might make the decision-making process more 
difficult.

E. USAC Committees

    17. We generally find that the composition of the Committees of the 
Board proposed by the Plan adequately represents the variety of 
beneficiaries' interests and therefore we adopt, subject to the 
modifications, the Plan's recommendation to retain the existing High 
Cost and Low Income Committee and to establish two new committees of 
the Board: the Schools and Libraries Committee and the Rural Health 
Care Committee. Specifically, we adopt the Plan's proposal with respect 
to the make-up of the Schools and Libraries Committee. We also adopt 
the Plan's proposal regarding the Rural Health Care Committee, except 
that we add one rural health care provider to the Committee. We adopt 
the Plan's proposal with respect to the High Cost and Low Income 
Committee, except that we add one incumbent LEC to that Committee. 
Finally, to enhance Commission oversight of the revised administrative 
structure, we adopt the Plan's proposal that the USAC Board may not 
modify substantially the power or authority of the Committees of the 
Board without Commission approval.
    18. We disagree with Intermedia's claims that committees are 
unnecessary in light of the statutory provision that limits USAC to the 
performance of purely administrative functions. According to 
Intermedia, staff in each of the divisions could provide the necessary 
expertise and interface with particular communities as needed. We are 
persuaded by the Plan, however, that the proposed committees are 
uniquely able to provide expertise necessary to administer the support 
mechanisms most effectively. For example, the Plan notes that the 
committee structure will enable USAC to target communications to the 
particular beneficiary or service provider group impacted by a support 
mechanism. We conclude that the creation of specialized committees will 
help preserve the distinct mission of each of the support mechanisms 
and, in particular, is consistent with Congress's directive to ``take 
into account the distinct mission of providing universal service to 
rural health care providers.''
    19. Numerous commenters from the rural health care community oppose 
the Plan's proposed composition of the Rural Health Care Committee, 
which consists of one rural health care representative on a seven-
member committee. The majority of these commenters recommends that 
most, if not all, of the members of the Rural Health Care Committee 
should represent rural health care interests. Some commenters request 
that USAC establish an advisory committee that would provide guidance 
to USAC on rural health care issues. We share commenters' concerns with 
respect to rural health care representation on the Rural Health Care 
Committee as proposed by the Plan. Accordingly, we conclude that the 
Committee should include the additional rural health care 
representative that we allocate to the USAC Board in this Order. We 
find that adding a second rural health care provider will enable the 
committee to represent more fully the variety of beneficiaries' 
interests. We also find that adding an additional representative to the 
committee will not disturb the balance created by the Plan, which 
recommended three committees of approximately the same size.
    20. We are not persuaded, however, that rural health care providers 
should comprise most or all of the committee positions, and in fact, 
RHCC's Separate Statement would not have resulted in a majority of 
rural health care providers serving on the Rural Health Care Committee. 
There are many different groups affected by the rural health care 
support mechanism, including service providers and ratepayers. We find 
that each interest group should have some representation on the 
committee. We note that the other two committees will have a broad 
range of interests represented, and will not be comprised solely of 
beneficiaries. We also reject suggestions that the Commission establish 
a separate advisory committee on rural health care matters. To the 
extent that subject matter expertise is needed, however, USAC is free 
to seek input from various industry and non-industry groups on 
particular rural health care matters.

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    21. The National Telephone Cooperative Association (NTCA) contends 
that the Plan's proposal for restructuring the High Cost and Low Income 
Committee would result in a committee that is not sufficiently 
representative of the beneficiaries of the high cost and low income 
mechanisms. We agree with NTCA that the ``interests and perspectives of 
a rural carrier will vary significantly from those of a urban 
carrier.'' The Plan proposes only one incumbent LEC member of the High 
Cost and Low Income Committee. We find that one incumbent LEC 
representative may find it difficult to represent fairly the interests 
of both small and large carriers. To ensure that both rural and non-
rural telephone companies receive adequate representation, we add one 
more incumbent LEC to the High Cost and Low Income Committee than 
proposed by the Plan. One incumbent LEC on the Board shall represent 
rural telephone companies, as that term is defined in section 3(37) of 
the Act, and one incumbent LEC shall represent non-rural telephone 
companies. We do not adopt NTCA's suggestion that we retain all the 
members of the current High Cost and Low Income Committee. We find that 
retaining the existing ten (10) committee members is unnecessary to 
represent contributors and beneficiaries of the high cost and low 
income support mechanisms. We also are concerned that an 11 member 
committee, comprised of the existing ten (10) members plus the USAC 
CEO, would disturb the balance achieved by the Plan in proposing three 
committees of approximately the same size.

F. Binding Authority of the Committees

    22. We find that, by vesting in the committees the power and 
authority to bind the USAC Board on matters relating to the daily 
administration of the support mechanisms, the Plan gives the committees 
the autonomy and flexibility needed to administer efficiently and 
effectively each of the support mechanisms. We also conclude that the 
power vested in the USAC Board to disapprove the decision of a 
committee under the Board Disapproval procedure ensures that USAC is 
accountable for all administrative decisions. Thus, we do not believe, 
as some commenters suggest, that the committees' ability to bind the 
Board would somehow diminish the Commission's ultimate responsibility 
for administration of the universal service support mechanisms. 
Similarly, because the Board and its committees are subject to 
Commission rules and oversight, we do not believe, as Intermedia 
suggests, that the Board Disapproval process permits the Board, through 
its committees, to make decisions outside the scope of its authority. 
We also find that subjecting committee budgets to the Board Disapproval 
procedure facilitates oversight of committee administrative costs. RHCC 
requests that the Commission grant the Rural Health Care Committee the 
authority to bind the full USAC Board on all ``programmatic aspects.'' 
We find that such an approach would be at odds with Congress's 
directive to establish a single Administrator that is accountable for 
all decisions regarding the schools and libraries and rural health care 
support mechanisms.

G. The USAC CEO

    23. We adopt the Plan's proposal that the USAC CEO will have 
ultimate authority over all personnel matters, but may delegate to 
division heads the authority to hire and fire division staff. We find 
that vesting the hiring and firing authority with the USAC CEO is 
necessary to ensure accountability and effective administration of 
USAC. Although we disagree with RHCC, GTE, and US WEST that the 
division heads rather than the USAC CEO should have authority to hire 
and fire division staff, we find that permitting the USAC CEO to 
delegate some hiring and firing decisions to division chiefs provides 
reasonable flexibility and may be the most efficient course of action 
in some instances.

H. Selection Process for USAC Board and Chief Executive Officer

    24. We adopt the Plan's recommendation that the consolidated USAC 
Board be selected under the procedures set forth in 47 CFR 69.614 of 
the Commission's rules. We do not agree with the view expressed by GTE 
that procedures set forth in 47 CFR 69.614 allow Board appointments to 
be ``influenced by the Commission's individual preferences.'' 
Candidates are nominated through a consensus process of particular 
interest groups and therefore, it is the preference of a particular 
industry or non-industry group represented on the Board that is 
reflected through this process, not the Commission's individual 
preferences. Moreover, our rules provide that Board members will be 
nominated by the Commission Chairman only if an industry or non-
industry group is unable to reach a consensus or fails to submit a 
nomination. The process we adopt will encourage groups to nominate the 
most experienced and knowledgeable individuals who can most effectively 
represent the interests of that constituency, while also ensuring that 
the Commission retains a mechanism for appointing Board members when 
industry or non-industry groups fail to achieve consensus.
    25. With regard to Board member terms, section 69.614(e) of the 
Commission's rules provides that USAC Board members shall serve two-
year terms and may be reappointed for subsequent terms pursuant to the 
nomination and selection process. The Plan, however, proposes that 
Board members serve staggered three-year terms. We adopt the Plan's 
proposal and amend our rules accordingly. These measures help ensure 
continuity on the Board and continuity in the administration of the 
support mechanisms. Because the merger is scheduled to take place by 
January 1, 1999, we conclude that Board member terms should commence on 
January 1 and conclude on December 31, three years after appointment. 
Consistent with the January 1, 1999 merger date, and to ensure 
continuity during the initial implementation of the revised 
administrative structure, we conclude that the terms of six Board 
members should expire on December 31, 2000, another six on December 31, 
2001, and the remaining six on December 31, 2002. Insofar as Board 
member terms will not begin to expire until December 31, 2000, we 
believe this responds to the American Library Association's request 
that we retain the current library representative during the initial 
phases of reorganization. USAC shall determine when particular Board 
member terms shall expire. In making this determination, USAC should 
attempt to maintain continuity on the Board by providing that the first 
set of Board members whose terms will expire will be representatives of 
industry and non-industry groups with multiple representatives on the 
Board.
    26. The Plan is silent with regard to the selection process for the 
USAC CEO. The July 15 Public Notice, 63 FR 39549 (July 23, 1998), 
proposed adopting the procedure that currently applies to the selection 
of a CEO for SLC and RHCC. Under that procedure, the consolidated USAC 
Board would submit to the Chairman of the Commission a candidate to 
serve as the USAC CEO. Bell Atlantic supports this proposal. The 
Pennsylvania Public Utility Commission supports approval of the USAC 
CEO by the Chairman of the Commission, but recommends referral to the 
other commissioners ``to ensure greater visibility and 
accountability.'' By contrast, BellSouth recommends selection by the 
USAC Board, subject to

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removal for good cause by the Chairman of the Commission. We conclude 
that the USAC Board should have the primary responsibility for 
selection of a CEO, and that approval by the Chairman of the Commission 
ensures appropriate oversight.

I. Compensation Limitations

    27. In a recent order regarding funding levels under the schools 
and libraries mechanism, the Commission concluded 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 47 U.S.C. 5312. 
Congress's intent regarding the level of compensation for officers and 
employees of the revised administrative structure was stated clearly in 
both section 2005(c) of the Senate bill and the Conference Report. 
Although few parties commented on the issue of salary limitations, 
those who addressed the issue support the imposition of such 
limitations on all officers and employees of the consolidated USAC. The 
Senate and the House-Senate conferees stated that compensation 
limitations should be imposed on the officers and employees of the 
entity to be proposed under section 2005(b)(2) of the Senate bill. 
Thus, consistent with the will of Congress, we direct the consolidated 
USAC to compensate all officers and employees under the consolidated 
USAC 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 47 U.S.C. 
5312. These compensation limitations shall apply to officers and 
employees who will administer the schools, libraries, rural health 
care, high cost, and low income support mechanisms, as well as those 
responsible for USAC's billing, collection and disbursement functions.
    28. We decline at this time to extend the salary limitations to 
NECA inasmuch as Congress did not direct the imposition of salary 
limitations on NECA. The commenters that address the issue maintain 
that it would be inappropriate to apply such limitations. We agree with 
commenters and do not extend salary limitations to NECA.

III. Administrative Efficiencies Under the Unified Structure

    29. Congress has directed the Commission to have a single entity 
administer the schools and libraries and rural health care support 
mechanisms. We have reviewed the proposals set forth in the Plan to 
assess whether, where possible, corporate operations will be 
consolidated to eliminate duplicative functions. In those instances 
where the Plan proposes to maintain separate operations, we have 
evaluated whether such separate operations will further the goal of 
preserving the distinct missions of the four support mechanisms. We 
find that the functions that the Plan proposes to consolidate will 
improve the efficiency and effectiveness with which the universal 
service support mechanisms are administered. We likewise conclude that 
the retention of separate operations for certain functions that are 
unique to a particular support mechanism ensures that the 
administrative systems and expertise that SLC and RHCC have developed 
will be preserved in the revised administrative structure. Moreover, 
because the Plan proposes to consolidate most functions, we believe 
that this streamlined administrative structure will facilitate the 
Commission's oversight of universal service administration. Subject to 
the modifications and clarifications set forth, we adopt the Plan's 
proposals for consolidating operations. Accordingly, we direct USAC, 
SLC, and RHCC to enter into a merger agreement that reflects the 
proposal set forth in the Plan, as modified and clarified herein.
    30. The Plan suggests that it may be more efficient to have a 
consolidated USAC website, but initially proposes to retain the SLC and 
RHCC websites. The American Library Association questions the prudence 
of merging the websites at all, in light of SLC's and RHCC's different 
organizational approaches. We find that the websites should be 
reorganized and consolidated. Blooston, Mordkofsky, Jackson & Dickens 
(Blooston) notes that currently there is no consistency as to where 
information regarding the universal service support mechanisms now may 
be found. We conclude that a separate USAC website should be created 
and that the information now found on the SLC and RHCC websites should 
be merged into the USAC website. We find that a single consolidated 
USAC website is consistent with our goal of eliminating duplicative 
functions, and that a consolidated website for all four universal 
service support mechanisms will be easier to utilize. Accordingly, we 
direct USAC to report to the Commission by December 31, 1998 the date 
by which it could consolidate the website. In the interim, as proposed 
in the Plan, we direct USAC to provide links among all the relevant 
websites.
    31. We also direct USAC to submit to the Commission for approval, 
as suggested in the Plan and consistent with the Commission's rules, a 
proposed method for allocating costs among the four support mechanisms 
by December 31, 1998. We approve of the Plan's proposal to retain 
common outside counsel for use by all divisions and committees. Outside 
counsel shall perform work only as directed by the USAC CEO. USAC may 
hire additional in-house counsel to perform work on its behalf if USAC 
determines that doing so would be more cost effective than retaining 
outside counsel to perform such work.
    32. We adopt the Plan's proposal regarding merging the 
corporations. In implementing the merger, USAC may assume, where 
appropriate, SLC's and RHCC's contracts with employees and 
subcontractors. To the extent USAC determines that the recision or 
modification of certain contracts will result in efficiencies or other 
benefits, USAC may rescind or modify such contracts, in accordance with 
applicable law.
    33. The American Library Association contends that it is unclear 
whether the Plan will improve efficiency or effectiveness. We will 
review USAC's performance after one year from the merger to assess 
whether USAC has succeeded in eliminating duplicative functions and 
whether it has succeeded in preserving the distinct missions of the 
schools and libraries and rural health care support mechanisms. We also 
require USAC to submit an annual report by March 31 of each year 
detailing its activities and accomplishments for the prior year. We 
will continue to evaluate ways of achieving greater efficiency, 
effectiveness, and accountability in the administration of universal 
service.

IV. Procedures for Review of USAC Decisions

    34. We agree with commenters that affected parties should have the 
right to appeal USAC division, committee, and Board decisions directly 
to the Commission. The majority of commenters opposes requiring 
affected parties to seek review of USAC division decisions from the 
appropriate USAC Committee of the Board or the full USAC Board before 
filing an appeal with the Commission. Commenters generally maintain 
that direct appeal to

[[Page 70569]]

the Commission is necessary to ensure adequate oversight of USAC's 
operations. Commenters further argue that review by USAC in the first 
instance would be burdensome and would cause unnecessary delays in 
obtaining a final decision. We find that Commission oversight will be 
strengthened by an appeals process that ensures that matters are 
brought promptly to the Commission. Requiring affected parties to seek 
review from a Committee of the Board or the full USAC Board in the 
first instance might cause unnecessary delay in the appeals process 
without, as MCI notes, any identifiable benefit.
    35. We also agree with USAC and SLC that affected parties should be 
encouraged to bring issues to the attention of the division head or the 
USAC CEO to determine whether the matter can be handled without a 
formal appeal to the Commission. We anticipate that, under certain 
circumstances, a party may prefer to seek redress initially from the 
appropriate Committee of the Board or the full USAC Board. Accordingly, 
we conclude that affected parties should have the option of seeking 
redress from a Committee of the Board or, if the matter concerns a 
billing, collection, or disbursement matter that falls outside of the 
jurisdiction of a particular committee, from the full USAC Board. We 
encourage parties to seek redress in the first instance from Committees 
of the Board for matters that involve straightforward application of 
the Commission's rules. To the extent that affected parties can obtain 
prompt resolution of such disputes, support mechanism participants will 
be better served and limited Commission resources will be conserved. 
Although Intermedia recommends excluding USAC internal administrative 
decisions from the appeal process, we do not believe that any benefits 
would be realized from limiting the types of decisions that may be 
appealed to the Commission. We believe that the option of seeking 
redress from USAC or the Commission addresses BellSouth's concerns 
regarding the due process guarantees of the APA.
    36. As proposed in the July 15 Public Notice, we delegate to the 
Bureau the authority to rule on petitions for review of USAC division, 
committee, or Board decisions that do not raise novel questions of 
fact, law, or policy. This delegation to the Bureau is consistent with 
the Commission's authority under section 5(c) of the Act to delegate 
particular functions to staff in the first instance, subject to the 
filing of applications for review with the Commission. Petitions that 
raise novel questions of fact, law, or policy shall be brought before 
the full Commission. As with other decisions made by the Bureau acting 
pursuant to its delegated authority, parties may seek Commission review 
of any Bureau decision. The Bureau also would have the authority to 
review the decisions of USAC at any time on its own motion. Contrary to 
GTE's claims that Bureau involvement is unnecessary and will result in 
delay, we believe that granting the Bureau delegated authority to 
review petitions that do not raise novel questions of fact, law, or 
policy will facilitate prompt resolution of routine or settled matters.
    37. Furthermore, consistent with the Commission's ultimate 
responsibility over the universal service support mechanisms, we 
conclude that USAC decisions, whether considered by the Bureau or the 
Commission, should be subject to de novo review. Accordingly, we 
decline to adopt USAC's and SLC's recommendation that the Commission 
uphold USAC decisions without considering the merits of the appeal if 
the Commission finds that USAC has not exceeded its authority and has 
acted consistently with the Commission's rules.
    38. In response to commenters' requests for a streamlined appeals 
process, we conclude that an affected party will have thirty (30) days 
to file an appeal of a USAC decision. This thirty (30) day period will 
begin to run from the date of issuance of a USAC decision. The filing 
of an appeal to a Committee of the Board or the full Board will toll 
the time period for filing an appeal with the Commission. For matters 
that are not new or novel, and may be decided by the Bureau, we further 
find that we should establish a streamlined process for review. If the 
Bureau takes no action within ninety (90) days upon an appeal properly 
before it, USAC's decision will be deemed approved. We are confident 
that a 90-day period will provide an adequate opportunity for review, 
in most cases, and the Bureau, within that 90-day period, may take 
action to extend the period of review. For appeals that are properly 
before the Commission, a written decision will be issued within 90 days 
unless the Commission takes action to extend the period for review; 
under no circumstances will an appeal before the full Commission be 
deemed approved as a result of inaction on the part of the Commission. 
We expect that the Bureau and the Commission will act promptly to 
resolve appeals of USAC decisions. Based on this expectation, we do not 
adopt BellSouth's suggestion that the Commission adopt a mechanism 
similar to the accelerated review process adopted for complaints filed 
under section 208 of the Act.
    39. To facilitate prompt resolution by the Commission of appeals of 
USAC decisions, we also adopt specific filing requirements for such 
petitions. The appellant must state specifically its interest in the 
matter presented for review. The appellant also must provide the 
Commission with a full statement of relevant, material facts with 
supporting affidavits and documentation. In addition, the appellant 
must state concisely the question presented for review, with reference, 
where appropriate, to the relevant Commission rule, Commission order, 
or statutory provision. The appellant also must state the relief sought 
and the relevant statutory or regulatory provision pursuant to which 
such relief is sought. If an appellant alleges prohibited conduct by a 
third party, the appellant shall serve a copy of the appeal on such 
third party, who shall have an opportunity to file an opposition. 
Similarly, appellants shall serve on USAC a copy of the appeal of a 
USAC decision filed with the Commission. We encourage USAC to file 
comments setting forth USAC's position on the issues raised in the 
appeal. We believe that USAC's comments may aid the Commission in 
understanding the nature of the disputed issues and facilitate a timely 
resolution of the matter. We decline to adopt Weisiger's recommendation 
that the applications for discounted services provide information 
regarding beneficiaries' right to seek review of USAC decisions.
    40. We note that BellSouth questions whether the Commission has 
jurisdiction to adjudicate a dispute involving a non-telecommunications 
carrier. We find that the Commission has the authority to review USAC 
decisions, regardless of the identity of the parties, because USAC is 
administering the universal service support mechanisms for the 
Commission, subject to Commission rules and oversight.
    41. We decline to adopt SBC's proposal, supported by GTE, NTCA, and 
Ameritech, that the appeal procedures should apply to decisions 
previously rendered by USAC, SLC, and RHCC. Specifically, SBC proposes 
that affected parties be granted sixty (60) days from the effective 
date of our rules to appeal prior USAC, SLC, or RHCC decisions. Parties 
seeking redress from previously issued decisions of USAC, SLC, and RHCC 
have not been prevented from appealing those decisions to the 
Commission under existing Commission

[[Page 70570]]

procedures. Indeed, several parties have filed appeals with the 
Commission. Thus, we conclude that retroactive application of these 
appeal procedures is not warranted.
    42. The July 15 Public Notice also proposed that, if an application 
for discounted services or support is approved, and that approval is 
appealed to the Commission, the pendency of that appeal would not 
affect the eligibility of the applicant to receive discounted services, 
nor would it prevent reimbursement of service providers for discounted 
services provided to such applicants. We conclude that, until the 
Bureau or the full Commission has resolved an appeal of a USAC 
decision, an applicant will not be permitted to receive discounted 
services and service providers will not be permitted to receive 
reimbursement for discounted services provided to such applicants. We 
believe that withholding support during the pendency of an appeal will 
reduce the likelihood that support is disbursed in error. We further 
find that, because requests for review of USAC decisions that are 
properly before the Bureau will be deemed approved if the Bureau takes 
no action within 90 days, and because the full Commission is committed 
to issuing decisions within 90 days, parties will have limited ability 
to delay support and discounts for a substantial period of time merely 
by filing an appeal.

V. Implementation Issues

A. Submission and Approval of Merger Documents

    43. Consistent with our adoption of the Plan as modified herein, we 
direct USAC, SLC, and RHCC to submit draft merger documents to the 
Commission by December 1, 1998. We also direct USAC to submit to the 
Commission by December 1, 1998, draft revised by-laws and articles of 
incorporation. The Commission delegates to the Bureau the authority to 
review and approve the merger documents, revised by-laws and revised 
articles of incorporation. Such documents should be consistent with the 
requirements of this Order and consistent with principles and 
requirements of Delaware state law. The Bureau will indicate its 
approval of the documents in a public notice. Upon consummation of the 
merger and the filing of the revised by-laws, SLC and RHCC shall take 
all steps necessary to dissolve SLC and RHCC in accordance with 
Delaware state law.

B. Effective Date of Rules

    44. In this Order, the Commission directs that SLC and RHCC merge 
into USAC as the single entity responsible for administering the 
universal service mechanisms by January 1, 1999. To ensure that USAC is 
able to meet the January 1, 1999 deadline, the Commission directs USAC 
to submit to the Commission by December 1, 1998 USAC's draft merger 
documents and draft revised by-laws. Thus, we make this requirement 
effective December 1, 1998, which may occur within fewer than thirty 
(30) days after publication in the Federal Register of the rules 
adopted in this Order. In this Order, we also adopt rules that will 
govern USAC following the required merger. Accordingly, these rules 
must take effect upon the required consummation of the merger on 
January 1, 1999, which may occur fewer than thirty (30) days after 
publication in the Federal Register of the rules adopted in this Order. 
These actions are necessary to ensure completion of the merger by the 
January 1, 1999 deadline that the Commission proposed in the Report to 
Congress in an effort to respond promptly to Congress's directive that 
the Commission establish a single entity to administer universal 
service. In addition, the parties required to take these actions--SLC, 
RHCC, and USAC--will have actual notice of their obligations when the 
Commission adopts this Order. Accordingly, we find good cause to depart 
in the manner described from the general requirement of 5 U.S.C. 553(d) 
that final rules take effect not less than thirty (30) days after their 
publication in the Federal Register.

VI. Final Regulatory Flexibility Analysis

    45. The Regulatory Flexibility Act (RFA) requires that a regulatory 
flexibility analysis be prepared for notice-and-comment rulemaking 
proceedings, unless the agency certifies that ``the rule will not, if 
promulgated, have a significant economic impact on a substantial number 
of small entities.'' The RFA generally defines ``small entity'' as 
having the same meaning as the terms ``small business,'' ``small 
organization,'' and ``small governmental jurisdiction.'' A small 
organization is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
This regulatory flexibility certification supplements our prior 
certifications and analyses in this proceeding. The Commission will 
send a copy of this Order, including a copy of this final 
certification, in a report to Congress pursuant to the Small Business 
Regulatory Enforcement Fairness Act of 1996. In addition, this Order 
and certification will be sent to the Chief Counsel for Advocacy of the 
Small Business Administration, and will be published in the Federal 
Register.
    46. This Order directs the merger of SLC and RHCC into USAC as the 
single entity responsible for administering the universal service 
support mechanisms. In addition, we adopt specific procedures under 
which administrative decisions made by USAC will be reviewable by the 
Commission, including the requirements for filing review petitions with 
the Commission. Pursuant to the RFA, and as described, we certify that 
these actions will not have a significant economic impact on a 
substantial number of small entities.
    47. Regarding the subject merger, in the NECA Order, 62 FR 41294 
(August 1, 1997), the Commission directed NECA, as a condition of its 
service as temporary Administrator of the universal service support 
mechanisms, to create an independent subsidiary, USAC, to administer 
temporarily certain aspects of the universal service support mechanisms 
and to establish SLC and RHCC to administer specific aspects of the 
universal service mechanisms for schools and libraries and rural health 
care providers. In that order, the Commission also concluded that NECA 
is not a small organization within the meaning of the RFA, finding that 
NECA is a non-profit association that was created to administer the 
Commission's interstate access tariff and revenue distribution 
processes. On this basis, the Commission certified pursuant to the RFA 
that the rules adopted in the NECA Order would not have a significant 
economic impact on a substantial number of small entities.
    48. In the July 15 Public Notice, the Bureau sought comment on the 
proposed plan to merge SLC and RHCC into USAC as the single entity 
responsible for the administration of the universal service support 
mechanisms for schools and libraries and rural health care providers. 
For the reasons stated in the NECA Order, the Bureau found that NECA is 
not a small organization within the meaning of the RFA. Similarly, 
USAC, as a wholly-owned, non-profit subsidiary of NECA, is not a small 
organization. SLC and RHCC are non-profit corporations created by NECA 
as a condition of its service as temporary Administrator. The Bureau 
tentatively certified that, even if NECA, USAC, SLC, and RHCC are small 
entities, the reorganization of SLC, RHCC, and USAC would affect 
directly only those four entities and thus would not have a direct, 
significant economic impact on a substantial number of small

[[Page 70571]]

entities. The Bureau requested comment on this matter.
    49. Under the rules adopted in this Order, USAC will serve as the 
single entity responsible for administering all of the universal 
service support mechanisms as of January 1, 1999. The Commission 
received no comments requesting that we modify our previous 
certification that the reorganization of SLC, RHCC, and USAC will not 
have a significant economic impact on a substantial number of small 
entities. We hereby certify pursuant to the RFA, 5 U.S.C. 605(b), that 
the rules adopted in this Order directing the merger of SLC and RHCC 
into USAC as the permanent Administrator of the universal service 
support mechanisms will not have a significant economic impact on a 
substantial number of small entities.
    50. Regarding the adoption of specific procedures under which 
administrative decisions made by USAC will be reviewable by the 
Commission, we note that, in the Final Regulatory Flexibility Analysis 
to the Universal Service Order, 62 FR 32862 (June 17, 1997), we 
described and estimated the number of small entities that might be 
affected significantly by the new universal service rules, including 
the rule requiring telecommunications carriers and other entities to 
contribute to the universal service support mechanisms. These entities 
included telephone companies and similar entities, including wireless 
entities; cable system operators and similar entities, including DBS 
and international entities; municipalities; rural health care 
providers; schools; and libraries. The rules adopted here, which set 
forth the procedures by which affected parties may seek Commission 
review of administrative decisions made by USAC, will apply to those 
same telecommunications carriers and entities. In the July 15 Public 
Notice, the Bureau tentatively certified that the rule amendments under 
consideration would not have a significant economic impact on a 
substantial number of small entities, noting that the rules, which 
would afford entities multiple options in seeking review, would likely 
have a beneficial impact on such entities. The Bureau requested comment 
specifically on this tentative conclusion. No such comments were filed.
    51. In this Order, the Commission adopts, inter alia, procedures 
under which affected parties may appeal USAC division, committee, and 
Board decisions directly to the Commission. This decision affords 
parties options for seeking review of USAC decisions and as a result, 
the economic effect of such change should, if anything, be beneficial. 
In addition, we adopt specific requirements for filing review petitions 
with the Commission under these rules. We find that the filing 
requirements we adopt are merely procedural in nature and are no more 
onerous than other, similar filing requirements in the Commission's 
rules; as such they will not result in a significant economic impact on 
entities that choose to file under the rules. We therefore certify that 
the rules we adopt to afford direct review of USAC decisions by the 
Commission, including the requirements for filing review petitions with 
the Commission, will not have a significant economic impact on a 
substantial number of small entities.

VII. Ordering Clauses

    52. 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 U.S.C. 151-154, 201-
205, 218-220, 254, 303(r), 403 and 405, section 553 of the 
Administrative Procedure Act, 5 U.S.C. 553, and 47 CFR 1.108, the Third 
Report and Order in CC Docket No. 97-21, Fourth Order on 
Reconsideration in CC Docket No. 97-21 and Eighth Order on 
Reconsideration in CC Docket No. 96-45 is adopted.
    53. 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 U.S.C. 151-154, 201-205, 
218-220, 254, 303(r), 403 and 405, section 553 of the Administrative 
Procedure Act, 5 U.S.C. 553, and 47 CFR 1.108, Part 54 of the 
Commission's rules, 47 CFR Parts 54 and 69, are amended.
    54. It is further ordered that, because the Commission has found 
good cause, this Order and 47 CFR 54.701, as amended, are effective on 
December 1, 1998, which may be less than thirty (30) days after 
publication in the Federal Register.
    55. It is further ordered that the merger of SLC and RHCC into USAC 
shall be consummated by January 1, 1999.
    56. It is further ordered that, because the Commission has found 
good cause, except as otherwise provided herein, the rule changes set 
forth are effective on January 1, 1999, which may be less than thirty 
(30) days after publication in the Federal Register.
    57. It is further ordered that, upon consummation of the merger of 
SLC and RHCC into USAC, SLC and RHCC shall be dissolved, in accordance 
with applicable state law.
    58. It is further ordered that the Commission's Office of Public 
Affairs, Reference Operations Division, shall send a copy of this 
Order, including the Final Regulatory Flexibility Certification, to the 
Chief Counsel for Advocacy of the Small Business Administration.
    59. It is further ordered that the information collections 
contained in 47 CFR 54.703(c) and 54.721 of the Commission's rules, 
will become effective following approval from the Office of Management 
and Budget.

List of Subjects

47 CFR Part 54

    Healthcare providers, Libraries, Reporting and recordkeeping 
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 to read as follows:

PART 54--UNIVERSAL SERVICE

    1. The authority citation for part 54 continues to read as follows:

    Authority: 47 U.S.C. 1, 4(i), 201, 205, 214, and 254 unless 
otherwise noted.

    2. In Sec. 54.5 remove the terms High Cost and Low Income 
Committee, Rural Health Care Corporation, and Schools and Libraries 
Corporation and the definitions of those terms; revise the definition 
of the term Administrator; add the definition of the term website in 
alphabetical order as follows:


Sec. 54.5  Terms and definitions.

* * * * *
    Administrator. The term ``Administrator'' shall refer to the 
Universal Service Administrative Company that is an independent 
subsidiary of the National Exchange Carrier Association, Inc., and that 
has been appointed the permanent Administrator of the federal universal 
service support mechanisms.
* * * * *
    Website. The term ``website'' shall refer to any websites operated 
by the Administrator in connection with the schools and libraries 
support mechanism, the rural health care support mechanism, the high 
cost

[[Page 70572]]

mechanism, and the low income mechanism.
    3. In Sec. 54.504 remove the words ``Schools and Libraries 
Corporation'' in paragraphs (b)(1), (b)(2)(vii), (b)(3), and (c) and 
add, in its place, the word ``Administrator'', and revise paragraph 
(b)(4) to read as follows:


Sec. 54.504  Requests for services.

* * * * *
    (b) * * *
    (4) After posting on the Administrator's website an eligible 
school's, library's, or consortium's FCC Form 470, the Administrator 
shall send confirmation of the posting to the entity requesting 
service. That entity shall then wait at least four weeks from the date 
on which its description of services is posted on the Administrator's 
website before making commitments with the selected providers of 
services. The confirmation from the Administrator shall include the 
date after which the requestor may sign a contract with its chosen 
provider(s).
* * * * *


Sec. 54.505  [Amended]

    4. In Sec. 54.505 remove the words ``Schools and Libraries 
Corporation'' in paragraphs (b)(3) and (c) and add, in its place, the 
word ``Administrator.''
    5. In Sec. 54.507 remove the words ``Schools and Libraries 
Corporation'' in paragraphs (e) through (f), the introductory text to 
(g), (g)(1) and add, in its place, the word ``Administrator'', and 
revise paragraphs (c), (g)(2)(i) and (g)(2)(iv) to read as follows:


Sec. 54.507  Cap.

* * * * *
    (c) Requests. Funds shall be available to fund discounts for 
eligible schools and libraries and consortia of such eligible entities 
on a first-come-first-served basis, with requests accepted beginning on 
the first of July prior to each funding year. The Administrator shall 
maintain on the Administrator's website a running tally of the funds 
already committed for the existing funding year. The Administrator 
shall implement an initial filing period that treats all schools and 
libraries filing within that period as if their applications were 
simultaneously received. The initial filing period shall begin on the 
date that the Administrator begins to receive applications for support, 
and shall conclude on a date to be determined by the Administrator. The 
Administrator may implement such additional filing periods as it deems 
necessary.
* * * * *
    (g) * * *
    (2) * * *
    (i) The Administrator or the Administrator's subcontractor shall 
post a message on the Administrator's website, notify the Commission, 
and take reasonable steps to notify the educational and library 
communities that commitments for the remaining $250 million of support 
will only be made to the most economically disadvantaged schools and 
libraries (those in the two most disadvantaged categories) for the next 
30 days or the remainder of the funding year, whichever is shorter.
* * * * *
    (iv) After all requests submitted by schools and libraries 
described in paragraphs (g)(2) and (g)(3) of this section during the 
30-day period have been met, the Administrator shall allocate the 
remaining available funds to all other eligible schools and libraries 
in the order in which their requests have been received by the 
Administrator, until the $250 million is exhausted or the funding year 
ends.
* * * * *
    6. In Sec. 54.509 remove the words ``Schools and Libraries 
Corporation'' in paragraph (b) and add, in its place, the word 
``Administrator'' and revise paragraph (c) to read as follows:


Sec. 54.509  Adjustments to the discount matrix.

* * * * *
    (c) Remaining funds. If funds remain under the cap at the end of 
the funding year in which discounts have been reduced below those set 
in the matrices, the Administrator shall consult with the Commission to 
establish the best way to distribute those funds.


Sec. 54.511  [Amended]

    7. In Sec. 54.511 remove the words ``Schools and Libraries 
Corporation'' in paragraph (c)(3) and add, in its place, the word 
``Administrator.''


Sec. 54.516  [Amended]

    8. In Sec. 54.516 remove the words ``Schools and Libraries 
Corporation'' in paragraph (b) and add, in its place, the word 
``Administrator.''


Sec. 54.603  [Amended]

    9. In Sec. 54.603 remove the words ``Rural Health Care 
Corporation'' in paragraphs (a)(1) through (5) and add, in its place, 
the word ``Administrator.''


Sec. 54.604  [Amended]

    10. In Sec. 54.604 remove the words ``Rural Health Care 
Corporation'' in paragraph (c) and add, in its place, the word 
``Administrator.''


Sec. 54.605  [Amended]

    11. In Sec. 54.605 remove the words ``Rural Health Care 
Corporation'' in paragraph (e) and add, in its place, the word 
``Administrator.''


Sec. 54.609  [Amended]

    12. In Sec. 54.609 remove the words ``Rural Health Care 
Corporation'' in paragraph (b) and add, in its place, the word 
``Administrator.''


Sec. 54.619  [Amended]

    13. In Sec. 54.619 remove the words ``Rural Health Care 
Corporation'' in paragraphs (b) and (d) and add, in its place, the word 
``Administrator.''


Sec. 54.623  [Amended]

    14. In Sec. 54.623 remove the words ``Rural Health Care 
Corporation'' in paragraphs (c), (e) through (f) and add, in its place, 
the word ``Administrator.''


Sec. 54.625  [Amended]

    15. In Sec. 54.625 remove the words ``Rural Health Care 
Corporation'' in paragraph (a) and add, in its place, the word 
``Administrator.''
    16. Revise Sec. 54.701 to read as follows:


Sec. 54.701  Administrator of universal service support mechanisms.

    (a) The Universal Service Administrative Company is appointed the 
permanent Administrator of the federal universal service support 
mechanisms, subject to a review after one year by the Federal 
Communications Commission to determine that the Administrator is 
administering the universal service support mechanisms in an efficient, 
effective, and competitively neutral manner.
    (b) The Schools and Libraries Corporation and the Rural Health Care 
Corporation shall merge into the Universal Service Administrative 
Company by January 1, 1999; provided, however, that the merger shall 
not take place until the Common Carrier Bureau, acting pursuant to 
delegated authority, has approved the merger documents, the amended by-
laws, and the amended articles of incorporation, as set forth in 
paragraphs (c) and (d) of this section.
    (c) By December 1, 1998, the Schools and Libraries Corporation, the 
Rural Health Care Corporation and the Universal Service Administrative 
Company shall file with the Federal Communications Commission draft 
copies of all documents necessary to effectuate the merger.
    (d) By December 1, 1998, the Universal Service Administrative 
Company shall file with the Federal Communications Commission draft

[[Page 70573]]

copies of amended by-laws and amended articles of incorporation.
    (e) Upon consummation of the merger of the Schools and Libraries 
Corporation and the Rural Health Care Corporation into the Universal 
Service Administrative Company, the Schools and Libraries Corporation 
and the Rural Health Care Corporation shall take all steps necessary to 
dissolve such corporations.
    (f) The Administrator shall establish a nineteen (19) member Board 
of Directors, as set forth in Sec. 54.703. The Administrator's Board of 
Directors shall establish three Committees of the Board of Directors, 
as set forth in Sec. 54.705: (1) the Schools and Libraries Committee, 
which shall oversee the schools and libraries support mechanism; (2) 
the Rural Health Care Committee, which shall oversee the rural health 
care support mechanism; and (3) the High Cost and Low Income Committee, 
which shall oversee the high cost and low income support mechanism. The 
Board of Directors shall not modify substantially the power or 
authority of the Committees of the Board without prior approval from 
the Federal Communications Commission.
    (g) The Administrator shall establish three divisions: (1) the 
Schools and Libraries Division, which shall perform duties and 
functions in connection with the schools and libraries support 
mechanism under the direction of the Schools and Libraries Committee of 
the Board, as set forth in Sec. 54.705(a); (2) the Rural Health Care 
Division, which shall perform duties and functions in connection with 
the rural health care support mechanism under the direction of the 
Rural Health Care Committee of the Board, as set forth in 
Sec. 54.705(b); and (3) the High Cost and Low Income Division, which 
shall perform duties and functions in connection with the high cost and 
low income support mechanism under the direction of the High Cost and 
Low Income Committee of the Board, as set forth in Sec. 54.705(c). As 
directed by the Committees of the Board set forth in Sec. 54.705, these 
divisions shall perform the duties and functions unique to their 
respective support mechanisms.
    (h) The Administrator shall be managed by a Chief Executive 
Officer, as set forth in Sec. 54.704. The Chief Executive Officer shall 
serve on the Committees of the Board established in Sec. 54.705.
    17. Add a new Sec. 54.702 to read as follows:


Sec. 54.702  Administrator's functions and responsibilities.

    (a) The Administrator, and the divisions therein, shall be 
responsible for administering the schools and libraries support 
mechanism, the rural health care support mechanism, the high cost 
support mechanism and the low income support mechanism.
    (b ) The Administrator shall be responsible for billing 
contributors, collecting contributions to the universal service support 
mechanisms, and disbursing universal service support funds.
    (c) The Administrator may not make policy, interpret unclear 
provisions of the statute or rules, or interpret the intent of 
Congress. Where the Act or the Commission's rules are unclear, or do 
not address a particular situation, the Administrator shall seek 
guidance from the Commission.
    (d) The Administrator may advocate positions before the Commission 
and its staff only on administrative matters relating to the universal 
service support mechanisms.
    (e) The Administrator shall maintain books of account separate from 
those of the National Exchange Carrier Association, of which the 
Administrator is an independent subsidiary. The Administrator's books 
of account shall be maintained in accordance with generally accepted 
accounting principles. The Administrator may borrow start up funds from 
the National Exchange Carrier Association. Such funds may not be drawn 
from the Telecommunications Relay Services (TRS) fund or TRS 
administrative expense accounts.
    (f) Pursuant to its responsibility for billing and collecting 
contributions, the Administrator shall compare periodically information 
collected by the administrator of the TRS Fund from TRS Fund Worksheets 
with information submitted by contributors on Universal Service 
Worksheets to verify the accuracy of information submitted on Universal 
Service Worksheets. When performing a comparison of contributor 
information as provided by this paragraph, the Administrator must 
undertake company-by-company comparisons for all entities filing 
Universal Service and TRS Fund Worksheets.
    (g) The Administrator shall create and maintain a website, as 
defined in Sec. 54.5, on which applications for services will be posted 
on behalf of schools, libraries and rural health care providers.
    (h) The Administrator shall file with the Commission and Congress 
an annual report by March 31 of each year. The report shall detail the 
Administrator's operations, activities, and accomplishments for the 
prior year, including information about participation in each of the 
universal service support mechanisms and administrative action intended 
to prevent waste, fraud, and abuse. The report also shall include an 
assessment of subcontractors' performance, and an itemization of 
monthly administrative costs that shall include all expenses, receipts, 
and payments associated with the administration of the universal 
service support programs. The Administrator shall consult each year 
with Commission staff to determine the scope and content of the annual 
report.
    (i) The Administrator shall report quarterly to the Commission on 
the disbursement of universal service support program funds. The 
Administrator shall keep separate accounts for the amounts of money 
collected and disbursed for eligible schools and libraries, rural 
health care providers, low-income consumers, and high cost and insular 
areas.
    (j) Information based on the Administrator's reports will be made 
public by the Commission at least once a year as part of a Monitoring 
Report.
    (k) The Administrator shall provide the Commission full access to 
the data collected pursuant to the administration of the universal 
service support programs.
    (l) Pursuant to Sec. 64.903 of this chapter, the Administrator 
shall file with the Commission a cost allocation manual (CAM) that 
describes the accounts and procedures the Administrator will use to 
allocate the shared costs of administering the universal service 
support mechanisms and its other operations.
    (m) The Administrator shall make available to whomever the 
Commission directs, free of charge, any and all intellectual property, 
including, but not limited to, all records and information generated by 
or resulting from its role in administering the support mechanisms, if 
its participation in administering the universal service support 
mechanisms ends.
    (n) If its participation in administering the universal service 
support mechanisms ends, the Administrator shall be subject to close-
out audits at the end of its term.
    18. Revise Sec. 54.703 to read as follows:


Sec. 54.703  The Administrator's Board of Directors.

    (a) The Administrator shall have a Board of Directors separate from 
the Board of Directors of the National Exchange Carrier Association. 
The National Exchange Carrier Association's

[[Page 70574]]

Board of Directors shall be prohibited from participating in the 
functions of the Administrator.
    (b) Board composition. The independent subsidiary's Board of 
Directors shall consist of nineteen (19) directors:
    (1) Three directors shall represent incumbent local exchange 
carriers, with one director representing the Bell Operating Companies 
and GTE, one director representing ILECs (other than the Bell Operating 
Companies) with annual operating revenues in excess of $40 million, and 
one director representing ILECs (other than the Bell Operating 
Companies) with annual operating revenues of $40 million or less;
    (2) Two directors shall represent interexchange carriers, with one 
director representing interexchange carriers with more than $3 billion 
in annual operating revenues and one director representing 
interexchange carriers with annual operating revenues of $3 billion or 
less;
    (3) One director shall represent commercial mobile radio service 
(CMRS) providers;
    (4) One director shall represent competitive local exchange 
carriers;
    (5) One director shall represent cable operators;
    (6) One director shall represent information service providers;
    (7) Three directors shall represent schools that are eligible to 
receive discounts pursuant to Sec. 54.501;
    (8) One director shall represent libraries that are eligible to 
receive discounts pursuant to Sec. 54.501;
    (9) Two directors shall represent rural health care providers that 
are eligible to receive supported services pursuant to Sec. 54.601;
    (10) One director shall represent low-income consumers;
    (11) One director shall represent state telecommunications 
regulators;
    (12) One director shall represent state consumer advocates; and
    (13) The Chief Executive Officer of the Administrator.
    (c) Selection process for board of directors. (1) Sixty (60) days 
prior to the expiration of a director's term, the industry or non-
industry group that is represented by such director on the 
Administrator's Board of Directors, as specified in paragraph (b) of 
this section, shall nominate by consensus a new director. The industry 
or non-industry group shall submit the name of its nominee for a seat 
on the Administrator's Board of Directors, along with relevant 
professional and biographical information about the nominee, to the 
Chairman of the Federal Communications Commission. Only members of the 
industry or non-industry group that a Board member will represent may 
submit a nomination for that position.
    (2) The name of an industry or non-industry group's nominee shall 
be filed with the Office of the Secretary of the Federal Communications 
Commission in accordance with part 1 of this chapter. The document 
nominating a candidate shall be captioned ``In the matter of: 
Nomination for Universal Service Administrator's Board of Directors'' 
and shall reference FCC Docket Nos. 97-21 and 96-45. Each nomination 
shall specify the position on the Board of Directors for which such 
nomination is submitted. Two copies of the document nominating a 
candidate shall be submitted to the Common Carrier Bureau's Accounting 
Policy Division.
    (3) The Chairman of the Federal Communications Commission shall 
review the nominations submitted by industry and non-industry groups 
and select each director of the Administrator's Board of Directors, as 
each director's term expires pursuant to paragraph (d) of this section. 
If an industry or non-industry group does not reach consensus on a 
nominee or fails to submit a nomination for a position on the 
Administrator's Board of Directors, the Chairman of the Federal 
Communications Commission shall select an individual to represent such 
group on the Administrator's Board of Directors.
    (d) Board member terms. The directors on the Administrator's Board 
shall be appointed for three-year terms, except that the Chief 
Executive Officer shall be a permanent member of the Board. Board 
member terms shall run from January 1 of the first year of the term to 
December 31 of the third year of the term, except that, for purposes of 
the term beginning on January 1, 1999, the terms of six directors shall 
expire on December 31, 2000, the terms of another six directors on 
December 31, 2001, and the terms of the remaining six directors on 
December 31, 2002. Directors may be reappointed for subsequent terms 
pursuant to the initial nomination and appointment process described in 
paragraph (c) of this section. If a Board member vacates his or her 
seat prior to the completion of his or her term, the Administrator will 
notify the Common Carrier Bureau of such vacancy, and a successor will 
be chosen pursuant to the nomination and appointment process described 
in paragraph (c) of this section.
    (e) All meetings of the Administrator's Board of Directors shall be 
open to the public and held in Washington, D.C.
    (f) Each member of the Administrator's Board of Directors shall be 
entitled to receive reimbursement for expenses directly incurred as a 
result of his or her participation on the Administrator's Board of 
Directors.
    19. Add a new Sec. 54.704 to read as follows:


Sec. 54.704  The Administrator's Chief Executive Officer.

    (a) Chief Executive Officer's functions. (1) The Chief Executive 
Officer shall have management responsibility for the administration of 
the federal universal service support mechanisms.
    (2) The Chief Executive Officer shall have management 
responsibility for all employees of the Universal Service 
Administrative Company. The Chief Executive Officer may delegate such 
responsibility to heads of the divisions established in Sec. 54.701(g).
    (3) The Chief Executive Officer shall serve on the Administrator's 
Board of Directors as set forth in Sec. 54.703(b) and on the Committees 
of the Board established under Sec. 54.705.
    (b) Selection process for the Chief Executive Officer. (1) The 
members of the Board of Directors of the Administrator shall nominate 
by consensus a Chief Executive Officer. The Board of Directors shall 
submit the name of its nominee for Chief Executive Officer, along with 
relevant professional and biographical information about the nominee, 
to the Chairman of the Federal Communications Commission.
    (2) The Chairman of the Federal Communications Commission shall 
review the nomination submitted by the Administrator's Board of 
Directors. Subject to the Chairman's approval, the nominee shall be 
appointed as the Administrator's Chief Executive Officer.
    (3) If the Board of Directors does not reach consensus on a nominee 
or fails to submit a nomination for the Chief Executive Officer, the 
Chairman of the Federal Communications Commission shall select a Chief 
Executive Officer.
    20. Revise Sec. 54.705 to read as follows:


Sec. 54.705  Committees of the Administrator's Board of Directors.

    (a) Schools and Libraries Committee.--(1) Committee functions. The 
Schools and Libraries Committee shall oversee the administration of the 
schools and libraries support mechanism by the Schools and Libraries 
Division. The Schools and Libraries Committee shall have the authority 
to make decisions concerning:
    (i) How the Administrator projects demand for the schools and 
libraries support mechanism;
    (ii) Development of applications and associated instructions as 
needed for the

[[Page 70575]]

schools and libraries support mechanism;
    (iii) Administration of the application process, including 
activities to ensure compliance with Federal Communications Commission 
rules and regulations;
    (iv) Performance of outreach and education functions;
    (v) Review of bills for services that are submitted by schools and 
libraries;
    (vi) Monitoring demand for the purpose of determining when the $2 
billion trigger has been reached;
    (vii) Implementation of the rules of priority in accordance with 
Sec. 54.507(g) of this chapter;
    (viii) Review and certification of technology plans when a state 
agency has indicated that it will not be able to review such plans 
within a reasonable time;
    (ix) The classification of schools and libraries as urban or rural 
and the use of the discount matrix established in Sec. 54.505(c) of 
this chapter to set the discount rate to be applied to services 
purchased by eligible schools and libraries;
    (x) Performance of audits of beneficiaries under the schools and 
libraries support mechanism; and
    (xi) Development and implementation of other functions unique to 
the schools and libraries support mechanism.
    (2) Committee composition. The Schools and Libraries Committee 
shall consist of the following members of the Administrator's Board of 
Directors:
    (i) Three school representatives;
    (ii) One library representative;
    (iii) One service provider representative;
    (iv) One at-large representative elected by the Administrator's 
Board of Directors; and
    (v) The Administrator's Chief Executive Officer.
    (b) Rural Health Care Committee.--(1) Committee functions. The 
Rural Health Care Committee shall oversee the administration of the 
rural health care support mechanism by the Rural Health Care Division. 
The Rural Health Care Committee shall have authority to make decisions 
concerning:
    (i) How the Administrator projects demand for the rural health care 
support mechanism;
    (ii) Development of applications and associated instructions as 
needed for the rural health care support mechanism;
    (iii) Administration of the application process, including 
activities to ensure compliance with Federal Communications Commission 
rules and regulations;
    (iv) Calculation of support levels under Sec. 54.609;
    (v) Performance of outreach and education functions;
    (vi) Review of bills for services that are submitted by rural 
health care providers;
    (vii) Monitoring demand for the purpose of determining when the 
$400 million cap has been reached;
    (viii) Performance of audits of beneficiaries under the rural 
health care support mechanism; and
    (ix) Development and implementation of other functions unique to 
the rural health care support mechanism.
    (2) Committee composition. The Rural Health Care Committee shall 
consist of the following members of the Administrator's Board of 
Directors:
    (i) Two rural health care representatives;
    (ii) One service provider representative;
    (iii) Two at-large representatives elected by the Administrator's 
Board of Directors;
    (iv) One State telecommunications regulator, one state consumer 
advocate; and
    (v) The Administrator's Chief Executive Officer.
    (c) High Cost and Low Income Committee.--(1) Committee functions. 
The High Cost and Low Income Committee shall oversee the administration 
of the high cost and low income support mechanisms by the High Cost and 
Low Income Division. The High Cost and Low Income Committee shall have 
the authority to make decisions concerning:
    (i) How the Administrator projects demand for the high cost and low 
income support mechanisms;
    (ii) Development of applications and associated instructions as 
needed for the high cost and low income support mechanisms;
    (iii) Administration of the application process, including 
activities to ensure compliance with Federal Communications Commission 
rules and regulations;
    (iv) Performance of audits of beneficiaries under the high cost and 
low income support mechanisms; and
    (v) Development and implementation of other functions unique to the 
high cost and low income support mechanisms.
    (2) Committee composition. The High Cost and Low Income Committee 
shall consist of the following members of the Administrator's Board of 
Directors:
    (i) One low income representative;
    (ii) One state telecommunications regulator;
    (iii) One state consumer advocate;
    (iv) Two incumbent local exchange carrier representatives (one 
shall represent rural telephone companies, as that term is defined in 
47 U.S.C. 153(37) and one shall represent non-rural telephone 
companies);
    (v) One interexchange carrier representative;
    (vi) One competing local exchange carrier representative;
    (vii) One commercial mobile radio service representative; and
    (viii) The Administrator's Chief Executive Officer.
    (d) Binding Authority of Committees of the Board.
    (1) Any action taken by the Committees of the Board established in 
paragraphs (a) through (c) of this section shall be binding on the 
Board of Directors of the Administrator, unless such action is 
presented for review to the Board by the Administrator's Chief 
Executive Officer and the Board disapproves of such action by a two-
thirds vote of a quorum of directors, as defined in the Administrator's 
by-laws.
    (2) The budgets prepared by each Committee shall be subject to 
Board review as part of the Administrator's combined budget. The Board 
shall not modify the budgets prepared by the Committees of the Board 
unless such modification is approved by a two-thirds vote of a quorum 
of the Board, as defined in the Administrator's by-laws.
    21. Add a new Sec. 54.706 to read as follows:


Sec. 54.706  Contributions.

    (a) Entities that provide interstate telecommunications to the 
public, or to such classes of users as to be effectively available to 
the public, for a fee will be considered telecommunications carriers 
providing interstate telecommunications services and must contribute to 
the universal service support programs. Interstate telecommunications 
include, but are not limited to:
    (1) Cellular telephone and paging services;
    (2) Mobile radio services;
    (3) Operator services;
    (4) Personal communications services (PCS);
    (5) Access to interexchange service;
    (6) Special access service;
    (7) WATS;
    (8) Toll-free service;
    (9) 900 service;
    (10) Message telephone service (MTS);
    (11) Private line service;
    (12) Telex;
    (13) Telegraph;
    (14) Video services;
    (15) Satellite service;
    (16) Resale of interstate services; and
    (17) Payphone services.
    (b) Every telecommunications carrier that provides interstate

[[Page 70576]]

telecommunications services, every provider of interstate 
telecommunications that offers telecommunications for a fee on a non-
common carrier basis, and payphone providers that are aggregators shall 
contribute to the programs for eligible schools, libraries, and health 
care providers on the basis of its interstate, intrastate, and 
international end-user telecommunications revenues. Entities providing 
open video systems (OVS), cable leased access, or direct broadcast 
satellite (DBS) services are not required to contribute on the basis of 
revenues derived from those services. The following entities will not 
be required to contribute to universal service: non-profit schools, 
non-profit colleges, non-profit universities, non-profit libraries, and 
non-profit health care providers; broadcasters; systems integrators 
that derive less than five percent of their systems integration 
revenues from the resale of telecommunications.
    (c) Every telecommunications carrier that provides interstate 
telecommunications services, every provider of interstate 
telecommunications that offers telecommunications for a fee on a non-
common carrier basis, and payphone providers that are aggregators shall 
contribute to the programs for high cost, rural and insular areas, and 
low-income consumers on the basis of its interstate and international 
end-user telecommunications revenues. Entities providing OVS, cable 
leased access, or DBS services are not required to contribute on the 
basis of revenues derived from those services. The following entities 
will not be required to contribute to universal service: non-profit 
schools, non-profit colleges, non-profit universities, non-profit 
libraries, and non-profit health care providers; broadcasters; systems 
integrators that derive less than five percent of their systems 
integration revenues from the resale of telecommunications.
    22. Add a new Sec. 54.708 to read as follows:


Sec. 54.708  De minimis exemption.

    If a contributor's contribution to universal service in any given 
year is less than $10,000, that contributor will not be required to 
submit a contribution or Universal Service Worksheet for that year. If 
a contributor improperly claims exemption from the contribution 
requirement, it will be subject to the criminal provisions of sections 
220(d) and (e) of the Act regarding willful false submissions and will 
be required to pay the amounts withheld plus interest.
    23. In Sec. 54.709 remove the words ``Administrator's, the Schools 
and Libraries Corporation's, and the Rural Health Care Corporation's'' 
from paragraph (a)(2) and add, in its place, the word 
``Administrator's''; revise paragraph (a)(3) to read as follows:


Sec. 54.709  Computations of required contributions to universal 
service support mechanisms.

* * * * *
    (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 
contributions. For each quarter, the Administrator must submit its 
projections of demand for the high cost and low-income support 
mechanisms, the schools and libraries support mechanism, and the rural 
health care support mechanism, respectively, and the basis for those 
projections, to the Commission and the Common Carrier Bureau at least 
sixty (60) calendar days prior to the start of that quarter. For each 
quarter, the Administrator must submit its projections of 
administrative expenses for the high cost and low-income programs, the 
schools and libraries program and the rural health care program and the 
basis for those projections to the Commission and the Common Carrier 
Bureau at least sixty (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 sixty (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 fourteen-day period following release of the Commission's public 
notice. If the Commission takes no action within fourteen (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.
* * * * *


Sec. 54.711  [Amended]

    24. In Sec. 54.711 remove the words ``Administrator, Rural Health 
Care Corporation and Schools and Libraries Corporation'' from paragraph 
(b) and add, in its place, the word ``Administrator.''
    25. Revise Sec. 54.715 to read as follows:


Sec. 54.715  Administrative expenses of the Administrator.

    (a) The annual administrative expenses of the Administrator 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 Administrator described in paragraph (b) of this 
section. 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.
    (b) All officers and employees of the Administrator 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 5 U.S.C. 5312.
    (c) The Administrator shall submit to the Commission projected 
quarterly budgets at least sixty (60) days prior to the start of every 
quarter. The Commission must approve the projected quarterly budgets 
before the Administrator disburses funds under the federal universal 
service support mechanisms. The administrative expenses incurred by the 
Administrator in connection with the schools and libraries support 
mechanism, the rural health care support mechanism, the high cost 
support mechanism and the low income support mechanism shall be 
deducted from the annual funding of each respective support mechanism. 
The expenses deducted from the annual funding for each support 
mechanism also shall include the Administrator's joint and common costs 
allocated to each support mechanism pursuant to the cost allocation 
manual filed by the Administrator under Sec. 64.903 of this chapter.
    26. Add a new Sec. 54.717 to read as follows:


Sec. 54.717  Audits of the Administrator.

    The Administrator shall obtain and pay for an annual audit 
conducted by an independent auditor to examine its operations and books 
of account to determine, among other things, whether the Administrator 
is properly

[[Page 70577]]

administering the universal service support mechanisms to prevent 
fraud, waste, and abuse:
    (a) Before selecting an independent auditor, the Administrator 
shall submit preliminary audit requirements, including the proposed 
scope of the audit and the extent of compliance and substantive 
testing, to the Common Carrier Bureau Audit Staff.
    (b) The Common Carrier Bureau Audit Staff shall review the 
preliminary audit requirements to determine whether they are adequate 
to meet the audit objectives. The Common Carrier Bureau Audit Staff 
shall prescribe modifications that shall be incorporated into the final 
audit requirements.
    (c) After the audit requirements have been approved by the Common 
Carrier Bureau Audit Staff, the Administrator shall engage within 
thirty (30) calendar days an independent auditor to conduct the annual 
audit required by this paragraph. In making its selection, the 
Administrator shall not engage any independent auditor who has been 
involved in designing any of the accounting or reporting systems under 
review in the audit.
    (d) The independent auditor selected by the Administrator to 
conduct the annual audit shall be instructed by the Administrator to 
develop a detailed audit program based on the final audit requirements 
and shall be instructed by the Administrator to submit the audit 
program to the Common Carrier Bureau Audit Staff. The Common Carrier 
Bureau Audit Staff shall review the audit program and make 
modifications, as needed, that shall be incorporated into the final 
audit program. During the course of the audit, the Common Carrier 
Bureau Audit Staff may direct the Administrator to direct the 
independent auditor to take any actions necessary to ensure compliance 
with the audit requirements.
    (e) During the course of the audit, the Administrator shall 
instruct the independent auditor to:
    (1) Inform the Common Carrier Bureau Audit Staff of any revisions 
to the final audit program or to the scope of the audit;
    (2) Notify the Common Carrier Bureau Audit Staff of any meetings 
with the Administrator in which audit findings are discussed; and
    (3) Submit to the Chief of the Common Carrier Bureau any accounting 
or rule interpretations necessary to complete the audit.
    (f) Within sixty (60) calendar days after the end of the audit 
period, but prior to discussing the audit findings with the 
Administrator, the independent auditor shall be instructed by the 
Administrator to submit a draft of the audit report to the Common 
Carrier Bureau Audit Staff.
    (g) The Common Carrier Bureau Audit Staff shall review the audit 
findings and audit workpapers and offer its recommendations concerning 
the conduct of the audit or the audit findings to the independent 
auditor. Exceptions of the Common Carrier Bureau Audit Staff to the 
findings and conclusions of the independent auditor that remain 
unresolved shall be included in the final audit report.
    (h) Within fifteen (15) calendar days after receiving the Common 
Carrier Bureau Audit Staff's recommendations and making any revisions 
to the audit report, the Administrator shall instruct the independent 
auditor to submit the audit report to the Administrator for its 
response to the audit findings. At this time the auditor also must send 
copies of its audit findings to the Common Carrier Bureau Audit Staff. 
The Administrator shall provide the independent auditor time to perform 
additional audit work recommended by the Common Carrier Bureau Audit 
Staff.
    (i) Within thirty (30) calendar days after receiving the audit 
report, the Administrator shall respond to the audit findings and send 
copies of its response to the Common Carrier Bureau Audit Staff. The 
Administrator shall instruct the independent auditor that any reply 
that the independent auditor wishes to make to the Administrator's 
responses shall be sent to the Common Carrier Bureau Audit Staff as 
well as the Administrator. The Administrator's response and the 
independent auditor's replies shall be included in the final audit 
report;
    (j) Within ten (10) calendar days after receiving the response of 
the Administrator, the independent auditor shall file with the 
Commission the final audit report.
    (k) Based on the final audit report, the Chief of the Common 
Carrier Bureau may take any action necessary to ensure that the 
universal service support mechanisms operate in a manner consistent 
with the requirements of this Part, as well as such other action as is 
deemed necessary and in the public interest.
    27. Add a subpart I to part 54 of title 47 of the Code of Federal 
Regulations as follows:

Subpart I--Review of Decisions Issued by the Administrator

54.719  Parties permitted to seek review of Administrator decisions.
54.720  Filing deadlines.
54.721  General filing requirements.
54.722  Review by the Common Carrier Bureau or the Commission.
54.723  Standard of review.
54.724  Time periods for Commission approval of Administrator 
decisions.
54.725  Universal service disbursement during pendency of a request 
for review of an Administrator decision.

    28. Add a new Sec. 54.719 to read as follows:


Sec. 54.719  Parties permitted to seek review of Administrator 
decisions.

    (a) Any person aggrieved by an action taken by a division of the 
Administrator, as defined in Sec. 54.701(g), may seek review from the 
appropriate Committee of the Board, as defined in Sec. 54.705.
    (b) Any person aggrieved by an action taken by the Administrator 
pertaining to a billing, collection or disbursement matter that falls 
outside the jurisdiction of the Committees of the Board may seek review 
from the Board of Directors of the Administrator, as defined in 
Sec. 54.703.
    (c) Any person aggrieved by an action taken by a division of the 
Administrator, as defined in Sec. 54.701(g), a Committee of the Board 
of the Administrator, as defined in Sec. 54.705, or the Board of 
Directors of the Administrator, as defined in Sec. 54.703, may seek 
review from the Federal Communications Commission, as set forth in 
Sec. 54.722.
    29. Add a new Sec. 54.720 to read as follows:


Sec. 54.720  Filing deadlines.

    (a) An affected party requesting review of an Administrator 
decision by the Commission pursuant to Sec. 54.719(c), shall file such 
request within thirty (30) days of the issuance of the decision by a 
division or Committee of the Board of the Administrator.
    (b) An affected party requesting review of a division decision by a 
Committee of the Board pursuant to Sec. 54.719(a), shall file such 
request within thirty (30) days of issuance of the decision by the 
division.
    (c) An affected party requesting review by the Board of Directors 
pursuant to Sec. 54.719(b) regarding a billing, collection, or 
disbursement matter that falls outside the jurisdiction of the 
Committees of the Board shall file such request within thirty (30) days 
of issuance of the Administrator's decision.
    (d) The filing of a request for review with a Committee of the 
Board under Sec. 54.719(a) or with the full Board under Sec. 54.703, 
shall toll the time period for seeking review from the Federal 
Communications Commission. Where the time for filing an appeal has been 
tolled, the party that filed the request for review from a Committee of 
the Board

[[Page 70578]]

or the full Board shall have thirty (30) days from the date the 
Committee or the Board issues a decision to file an appeal with the 
Commission.
    (e) Parties shall adhere to the time periods for filing oppositions 
and replies set forth in 47 CFR 1.45.
    30. Add a new Sec. 54.721 to read as follows:


Sec. 54.721  General filing requirements.

    (a) Except as otherwise provided herein, a request for review of an 
Administrator decision by the Federal Communications Commission shall 
be filed with the Federal Communications Commission's Office of the 
Secretary in accordance with the general requirements set forth in part 
1 of this chapter. The request for review shall be captioned ``In the 
matter of: Request for Review by (name of party seeking review) of 
Decision of Universal Service Administrator'' and shall reference FCC 
Docket Nos. 97-21 and 96-45.
    (b) A request for review pursuant to Sec. 54.719(a) through (c) 
shall contain: (1) a statement setting forth the party's interest in 
the matter presented for review; (2) a full statement of relevant, 
material facts with supporting affidavits and documentation; (3) the 
question presented for review, with reference, where appropriate, to 
the relevant Federal Communications Commission rule, Commission order, 
or statutory provision; (4) a statement of the relief sought and the 
relevant statutory or regulatory provision pursuant to which such 
relief is sought.
    (c) A copy of a request for review that is submitted to the Federal 
Communications Commission shall be served on the Administrator 
consistent with the requirement for service of documents set forth in 
Sec. 1.47 of this chapter.
    (d) If a request for review filed pursuant to Sec. 54.720(a) 
through (c) alleges prohibitive conduct on the part of a third party, 
such request for review shall be served on the third party consistent 
with the requirement for service of documents set forth in Sec. 1.47 of 
this chapter. The third party may file a response to the request for 
review. Any response filed by the third party shall adhere to the time 
period for filing replies set forth in Sec. 1.45 of this chapter and 
the requirement for service of documents set forth in Sec. 1.47 of this 
chapter.
    31. Add a new Sec. 54.722 to read as follows:


Sec. 54.722  Review by the Common Carrier Bureau or the Commission.

    (a) Requests for review of Administrator decisions that are 
submitted to the Federal Communications Commission shall be considered 
and acted upon by the Common Carrier; provided, however, that requests 
for review that raise novel questions of fact, law or policy shall be 
considered by the full Commission.
    (b) An affected party may seek review of a decision issued under 
delegated authority by the Common Carrier Bureau pursuant to the rules 
set forth in part 1 of this chapter.
    32. Add a new Sec. 54.723 to read as follows:


Sec. 54.723  Standard of review.

    (a) The Common Carrier Bureau shall conduct de novo review of 
requests for review of decisions issued by the Administrator.
    (b) The Federal Communications Commission shall conduct de novo 
review of requests for review of decisions by the Administrator that 
involve novel questions of fact, law, or policy; provided, however, 
that the Commission shall not conduct de novo review of decisions 
issued by the Common Carrier Bureau under delegated authority.
    33. Add a new Sec. 54.724 to read as follows:


Sec. 54.724  Time periods for Commission approval of Administrator 
decisions.

    (a) If the Common Carrier Bureau does not take action within ninety 
(90) days upon appeals that are properly before it, a decision issued 
by the Administrator shall be deemed approved; provided, however, that 
within the 90-day period, the Common Carrier Bureau may extend the time 
period for taking action on a request for review of an Administrator 
decision.
    (b) The Commission shall issue a written decision in response to a 
request for review of an Administrator decision that involves novel 
questions of fact, law or policy within ninety (90) days; provided, 
however, that the Commission may extend the time period for taking 
action on the request for review.
    34. Add a new Sec. 74.725 to read as follows.


Sec. 54.725  Universal service disbursements during pendency of a 
request for review of an Administrator decision.

    (a) When a party has sought review of an Administrator decision 
under Sec. 54.719(a) through (c) in connection with the schools and 
libraries support mechanism or the rural health care support mechanism, 
the Administrator shall not reimburse a service provider for the 
provision of discounted services until a final decision has been issued 
either by the Administrator or by the Federal Communications 
Commission.
    (b) When a party has sought review of an Administrator decision 
under Sec. 54.719(a) through (c) in connection with the high cost and 
low income support mechanisms, the Administrator shall not disburse 
support to a service provider until a final decision has been issued 
either by the Administrator or by the Federal Communications 
Commission.

PART 69--ACCESS CHARGES

    35. The authority citation for part 69 continues to read as 
follows:

    Authority: 47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254, 
403.


Sec. 69.600  [Removed]

    36. Remove Sec. 69.600.


Sec. 69.603  [Amended]

    37. In Sec. 69.603 remove paragraphs (c), (d), and (e).


Sec. Sec. 69.613 through 69.622  [Removed]

    38. Remove Secs. 69.613 through 69.622.

[FR Doc. 98-33549 Filed 12-18-98; 8:45 am]
BILLING CODE 6712-01-P