[Federal Register Volume 67, Number 119 (Thursday, June 20, 2002)]
[Rules and Regulations]
[Pages 41862-41867]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15498]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 02-6; FCC 02-175]


Schools and Libraries Universal Service Support Mechanism

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission adopts a framework for the 
treatment of funds collected for the schools and libraries support 
mechanism that have, through the normal operation of the program, not 
been disbursed. In taking this action, the Commission balances the 
statutory requirements of providing eligible schools and libraries with 
access to discounted telecommunications services and of ensuring that 
the universal service support mechanisms are specific and predictable.

DATES: Effective June 20, 2002.

FOR FURTHER INFORMATION CONTACT: Diane Law Hsu or Kathy Tofigh, 
Attorney, Wireline Competition Bureau, Telecommunications Access Policy 
Division, (202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's First 
Report and Order in CC Docket No. 02-6 released on June 13, 2002. The 
full text of this document is available for public inspection during 
regular business hours in the FCC Reference Center, Room CY-A257, 445 
Twelfth Street, SW., Washington, DC, 20554.

I. Introduction

    1. In this Order, we adopt a framework for the treatment of funds 
collected for the schools and libraries support mechanism that have, 
through the normal operation of the program, not been disbursed. In 
taking this action today, we balance the statutory requirements in 
section 254 of providing eligible schools and libraries with access to 
discounted telecommunications services and of ensuring that the 
universal service support mechanisms are specific and predictable. 
This, in turn, will allow contributions to universal service to remain 
predictable for carriers and, ultimately, will inure to the benefit of 
their customers. We are committed to ensuring that eligible schools and 
libraries have access to sufficient universal service support 
consistent with the statute and therefore adopt a rule to ensure that 
unused schools and libraries funds are carried forward for disbursement 
in subsequent funding years. At the same time, we find that the public 
interest is best served by our action to stabilize contributions to 
universal service for the immediate future, while we consider 
fundamental reform to the way in which universal service contributions 
are assessed on contributors and recovered from consumers. As we 
explained in the Contribution FNPRM, 67 FR 11268, March 13, 2002, 
numerous changes in the marketplace and the operation of the current 
assessment system have contributed to broad fluctuations in the 
contribution base of the universal service support mechanisms since our 
adoption of the current assessment methodology. These fluctuations 
require us to consider reform to ensure stability of the universal 
service fund, which should help ensure predictability in that fund. We 
conclude that our actions today strike an appropriate balance by 
helping to minimize and stabilize the contribution factor for the 
immediate future, while maintaining an appropriate level of support for 
all universal service support mechanisms, including the schools and 
libraries program.
    2. Consistent with the congressional mandate in section 254 that 
carriers contribute to the ``specific [and] predictable'' universal 
service support mechanisms, the Commission has endeavored to ensure 
that universal service contribution obligations remain predictable so 
that carriers anticipate their payments appropriately. Over the past 
several years, however, we have witnessed increasing upward pressure on 
contributions caused by a variety of events, including declining 
interstate revenues coupled with increased demand for universal service 
support. For example, consistent with section 254(e) of the Act, the 
Commission recently took steps to replace implicit subsidies in 
interstate access charges with explicit universal service support. 
Implementation of these statutory requirements coupled with changes in 
the telecommunications marketplace have led to broad fluctuations in 
the contribution base and rising contribution obligations. For these 
reasons, we recently sought comment on whether and how to change the 
existing contribution methodology.
    3. While we are examining whether more fundamental reform of the 
basis for assessing universal service contributions is warranted, we 
believe it is important at this time to stabilize universal service 
contributions and maintain predictability for the universal service 
support mechanisms for the immediate future. This, in turn, will allow 
contributions to remain predictable for carriers, and, ultimately, 
benefit consumers. We therefore conclude that, in order to maintain 
fund predictability for the immediate future, unused funds from the 
schools and libraries support mechanism shall, in accordance with the 
public interest, be applied to stabilize or reduce the amount of 
contributions to the universal service fund for no more than the next 
three quarters, which should provide us sufficient time to complete our 
review of the contribution methodology and implement any changes 
adopted in that proceeding. Specifically, we shall apply unused funds 
to reduce the contribution factors for the third and fourth quarters of 
2002, and first quarter 2003, if necessary. We intend to complete our 
examination of the issues in the contribution methodology proceeding 
and implement appropriate rules no later than first quarter 2003. We 
will endeavor, however, to complete the proceeding at an earlier date. 
In that event, such unused funds from the schools and libraries support 
mechanism would be carried forward for use by eligible schools and 
libraries in subsequent funding years. Consistent with the requirement 
that carriers contribute to a specific and predictable

[[Page 41863]]

universal service support mechanism, we expect any changes to the 
contribution methodology that are ultimately adopted to address these 
concerns regarding the current contribution assessment system.
    4. We take this action today with careful consideration of the 
effect of our decision on the schools and libraries support mechanism. 
For the last five years, the schools and libraries support mechanism 
has provided discounts that have enabled millions of school children 
and library patrons to obtain access to modern telecommunications and 
information services. In fact, as of May 2002, schools and libraries 
have received over $8.25 billion in funding commitments. Although the 
successes of this program are impressive, we have been unable to 
fulfill the demands from all of the Nation's schools and libraries. For 
example, in order to fully fund current demand for Funding Year 5, we 
would have to more than double the existing $2.25 billion funding cap 
on the schools and libraries mechanism.
    5. In light of this high demand for discounts, we believe that, at 
the close of this period for the Commission to consider the reforms 
that should be implemented to address carriers' contribution 
obligations, it is appropriate to carry forward unused funds to 
increase disbursements to schools and libraries program in subsequent 
funding years. Specifically, we direct that, effective no later than 
second quarter 2003, any unused funds from the schools and libraries 
support mechanism in any given year shall, consistent with the public 
interest, be carried forward for disbursement in subsequent funding 
years of the schools and libraries support mechanism. Such action would 
ensure that the funds that are unused by schools and libraries from 
prior years, through normal operation of the program, are available to 
schools and libraries in future years. We intend to develop specific 
rules implementing this policy not later than second quarter 2003 in 
order to maximize the availability of these funds for schools and 
libraries. We also will continue to explore procedural and programmatic 
changes to the schools and libraries support mechanism that may help 
reduce the amount of funds that are not disbursed. These actions 
together will help us to most effectively implement the goals of 
section 254(h) by providing for discounts as close as possible to the 
level of the annual $2.25 billion cap.

II. Discussion

    6. After consideration of the two proposals relating to the 
treatment of unused funds collected for the schools and libraries 
mechanism, we conclude that unused funds from the schools and libraries 
support mechanism shall, consistent with the public interest, be 
applied to stabilize the universal service contribution factor for a 
period not to exceed the next three quarters, beginning with third 
quarter 2002, while the Commission considers reform of the contribution 
system. We direct the Wireline Competition Bureau and USAC to apply 
such unused funds to stabilize or reduce universal service 
contributions in accordance with the public interest for the third and 
fourth quarters of 2002, and first quarter 2003, in a manner consistent 
with the Commission's prior treatment of unused funds from Funding Year 
1. Thereafter, we find that any unused funds from the schools and 
libraries support mechanism shall be carried forward to increase 
disbursements to schools and libraries in subsequent years. We find 
that such action is consistent with section 254 and the public interest 
by ensuring that contributions to universal service remain predictable, 
without jeopardizing the sufficiency of any of the universal service 
support mechanisms. Accordingly, we amend Sec. 54.507 of our rules.
    7. We find that this framework will benefit contributors, and 
ultimately their customers, by stabilizing the contribution factor in 
the short term, while also maintaining an appropriate level of support 
for all of the universal service support mechanisms, including the 
schools and libraries support mechanism. When considering issues 
relating to funding for the schools and libraries support mechanism, we 
must also consider the funding requirements of the other universal 
service programs and their cumulative impact on contributors and 
consumers. We conclude that the framework adopted today reflects a 
careful balance between providing sufficient support for all the 
universal service support mechanisms and keeping contributions at a 
predictable level for the immediate future, while we consider the need 
for reform of our contribution assessment methodology.
    8. Over the last four years, overall demand on the universal 
service fund has grown considerably, in large part as a result of 
implementation of the statute's requirements to ensure that support is 
explicit and sufficient. In 1997, about $1.9 billion was disbursed from 
the universal service fund. We estimate that approximately $5.5 billion 
will be disbursed from the universal service fund in 2002. At the same 
time, the universal service revenue base has become smaller, and 
interstate revenues have declined for interexchange carriers. Several 
factors may be responsible for the diminishing revenue base, including 
the migration of traditional long distance services to new 
technologies, bundled wireless service packages, and price competition 
due to Bell entry into the long distance marketplace. Accordingly, the 
contribution factor and therefore carrier contribution obligations have 
increased, and carriers have generally passed through much of these 
increases to consumers. In light of these changes in the market and 
their impact on carrier contributions and consumers, we recently sought 
comment on whether and how to modify the current contribution 
assessment methodology. We recognized there that these changes in the 
marketplace, coupled with our current contribution methodology, have 
caused broad fluctuations in the contribution base. This, in turn, 
raises the issue of stability and predictability of the universal 
service fund. Thus, until we complete our assessment of the current 
contribution methodology, we believe that it is appropriate to 
stabilize or lower the contributions to universal service. In this way, 
we will be better able to ensure in the near term that the fund remains 
predictable for contributors and consumers.
    9. Some commenters argue that using unused funds to reduce the 
contribution factor would not necessarily benefit consumers by reducing 
the line-items on consumers' bills. While carriers currently have the 
flexibility to recover from their customers the contributions to 
universal service, contributors may not shift more than an equitable 
share of their contributions to any customer or group of customers, and 
must provide accurate, truthful, and complete information regarding the 
nature of the charge. We would therefore expect that our efforts to 
stabilize the contribution factor would be reflected in any charges 
passed through to consumers. Several large contributors to universal 
service indicate in their comments to the Commission that a reduction 
in the contribution factor would be passed on to consumers. Therefore, 
we find that it is reasonable to conclude that consumers will 
ultimately benefit from actions that stabilize the steady growth in the 
contribution factor.
    10. In addition, we do not agree with commenters that suggest that 
our actions in the short term would contravene the intent of the 
schools and libraries support mechanism. Indeed, as of May 2002, 
schools and libraries have received over $8.25 billion in funding 
commitments. Our action to utilize unused funds for a period not longer

[[Page 41864]]

than the next three quarters does not alter the $2.25 billion cap in 
any way, and such funds will continue to be made available annually to 
schools and libraries in a manner that is consistent with section 254 
of the Act.
    11. Although we believe our actions strike an appropriate balance 
today, Commission action in the contribution methodology proceeding 
will need to address concerns regarding fund predictability. We intend 
to take action in the contribution methodology proceeding and implement 
any changes adopted in that proceeding no later than April 1, 2003. 
Thus, once this window for action closes, we conclude it will serve the 
public interest to carry forward unused funds from the schools and 
libraries support mechanism for use by eligible schools and libraries 
in subsequent funding years.
    12. We recognize that the current demand for discounts in Funding 
Year 5 significantly exceeds the $2.25 billion funding cap. In fact, in 
order to fully fund current demand for Funding Year 5, we would have to 
more than double the existing cap on the schools and libraries 
mechanism. In light of this high demand for discounts and based on the 
record, we believe that, not later than second quarter of 2003, unused 
schools and libraries funds should be carried forward to increase 
disbursements to schools and libraries program in subsequent years.
    13. Furthermore, because unused funds remain, as a result of normal 
program operation and, at least partially, for reasons out of 
applicants' control, we conclude that it will be appropriate in the 
future to carry forward unused funds from the schools and libraries 
mechanism for use in subsequent years. To that end, in conjunction with 
seeking comment as to the treatment of unused funds in the Further 
Notice, 67 FR 7327, February 19, 2002, we also sought comment on why 
applicants and providers may fail to fully use committed funds and 
whether other operational changes could be made to reduce the amount of 
unused funds. We are considering the record and the types of program 
changes that may decrease the amount of unused funds from the schools 
and libraries support program in the future. In addition, we note that 
USAC recently developed, in coordination with the Commission staff, new 
procedures for service provider changes that increase the amount of 
funds disbursed each year and a new Form 500 that allows applicants to 
reduce or cancel funding commitments so that those funds can be made 
available to applicants during the same funding year. This action, in 
combination with our decision to carry forward unused funds in the 
schools and libraries support mechanism in the future, will help us to 
ensure that schools and libraries make maximum use of the funding 
available under $2.25 billion annual cap.

III. Effective Date of the Rules

    14. We revise Sec. 54.507(a) of the Commission's rules to provide 
that unused funds from the schools and libraries support mechanism may 
be applied to stabilize or reduce the amount of such contributions to 
the universal service fund for no more than the next three quarters, 
beginning third quarter 2002. We conclude that the amendments to our 
rules adopted herein shall be effective June 20, 2002. The final rules 
must take effect prior to 30 days after publication in the Federal 
Register in order for the Wireline Competition Bureau to announce the 
contribution factor for third quarter 2002. Such action will serve the 
public interest because the final rules allow for stabilization or 
reductions in the contribution factor. Accordingly, pursuant to the 
Administrative Procedure Act, we find good cause to depart from the 
general requirement that final rules take effect not less than 30 days 
after their publication in the Federal Register.

IV. Procedural Matters

A. Paperwork Reduction Act Analysis

    15. This Report and Order does not contain any new or modified 
information collection(s) subject to the PRA of 1995, Public Law 104-
13.

B. Final Regulatory Flexibility Analysis

    16. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Notice of Proposed Rule Making and Order (Further 
Notice). The Commission sought written public comment on the proposals 
in the Further Notice, including comment on the IRFA. This present 
Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.
1. Need for, and Objectives of, the First Report and Order
    17. The Commission recently initiated a review of our rules 
governing the schools and libraries universal service support 
mechanism. Among other things, the Commission sought comment on whether 
it should amend its rules regarding the treatment of unused funds from 
the schools and libraries mechanism. In this Order, we revise 
Sec. 54.507(a) of the Commission's rules to provide that unused funds 
from the schools and libraries support mechanism may be applied to 
stabilize or reduce the amount of contributions to the universal 
service fund for no more than the next three quarters, beginning with 
the third quarter 2002. Thereafter, unused funds from the schools and 
libraries mechanism shall be carried forward for use in subsequent 
funding years of the schools and libraries program. Our actions today 
strike an appropriate balance by helping to minimize and stabilize the 
contribution factor for the immediate future, while maintaining support 
for the schools and libraries program.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    18. There were no comments filed that specifically addressed the 
rules and policies presented in the IRFA.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    19. The RFA directs agencies to provide a description of, and where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted herein. The RFA generally 
defines the term ``small entity'' as having the same meaning as the 
terms ``small business,'' ``small organization,'' and ``small 
governmental jurisdiction.'' In addition, the term ``small business'' 
has the same meaning as the term ``small business concern'' under the 
Small Business Act. A ``small business concern'' is one which: (1) Is 
independently owned and operated; (2) is not dominant in its field of 
operation; and (3) satisfies any additional criteria established by the 
Small Business Administration (SBA). A small organization is generally 
``any not-for-profit enterprise which is independently owned and 
operated and is not dominant in its field.''
    20. Nationwide, as of 1992, there were approximately 275,801 small 
organizations. The term ``small governmental jurisdiction'' is defined 
as ``governments of cities, counties, towns, townships, villages, 
school districts, or special districts, with a population of less than 
fifty thousand.'' As of 1997, there were approximately 87,453 
government jurisdictions in the United States. This number includes 
39,044 counties, municipal governments, and townships, of which 27,546 
have populations of fewer than 50,000 and 11,498 counties, municipal 
governments, and townships have populations of 50,000 or more. Thus, we 
estimate that the number of small government jurisdictions must be

[[Page 41865]]

75,955 or fewer. Many such small government jurisdictions contain and 
administer programs and funds for schools and libraries. Small entities 
potentially affected by the proposals herein include eligible schools 
and libraries and the eligible service providers offering them 
discounted services, including telecommunications service providers, 
Internet Service Providers (ISPs) and vendors of internal connections.
a. Schools and Libraries
    21. Under the schools and libraries universal service support 
mechanism, which provides support for elementary and secondary schools 
and libraries, an elementary school is generally ``a non-profit 
institutional day or residential school that provides elementary 
education, as determined under state law.'' A secondary school is 
generally defined as ``a non-profit institutional day or residential 
school that provides secondary education, as determined under state 
law,'' and not offering education beyond grade 12. For-profit schools 
and libraries, and schools and libraries with endowments in excess of 
$50,000,000, are not eligible to receive discounts under the program, 
nor are libraries whose budgets are not completely separate from any 
schools. Certain other statutory definitions apply as well. The SBA has 
defined as small entities elementary and secondary schools and 
libraries having $6 million or less in annual receipts. In funding year 
2 (July 1, 1999 to June 20, 2000) approximately 83,700 schools and 
9,000 libraries received funding under the schools and libraries 
universal service mechanism. Although we are unable to estimate with 
precision the number of these entities that would qualify as small 
entities under SBA's definition, we estimate that fewer than 83,700 
schools and 9,000 libraries would be affected annually by the rules 
adopted in this Order, under current operation of the program.
b. Telecommunications Service Providers
    22. We have included small incumbent local exchange carriers in 
this present RFA analysis. As noted above, a ``small business'' under 
the RFA is one that, inter alia, meets the pertinent small business 
size standard (e.g., a telephone communications business having 1,500 
or fewer employees), and ``is not dominant in its field of operation.'' 
The SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent local exchange carriers are not dominant in their field of 
operation because any such dominance is not ``national'' in scope. We 
have therefore included small incumbent local exchange carriers in this 
RFA analysis, although we emphasize that this RFA action has no effect 
on Commission analyses and determinations in other, non-RFA contexts.
    23. Local Exchange Carriers. Neither the Commission nor the SBA has 
developed a definition for small providers of local exchange services. 
The closest applicable definition under the SBA rules is for wired 
telecommunications carriers. This provides that a wired 
telecommunications carrier is a small entity if it employs no more than 
1,500 employees. According to our most recent data report, 1,335 
carriers classified themselves as incumbent local exchange carriers. We 
do not have data specifying the number of these carriers that are 
either dominant in their field of operations, are not independently 
owned and operated, or have more than 1,500 employees, and thus are 
unable at this time to estimate with greater precision the number of 
local exchange carriers that would qualify as small business concerns 
under the SBA's definition. Of the 1,335 incumbent carriers, 13 
entities are price cap carriers that are not subject to these rules. 
Consequently, we estimate that fewer than 1,322 providers of local 
exchange service are small entities or small incumbent local exchange 
carriers that may be affected by the decisions adopted in this Order.
    24. Interexchange Carriers. Neither the Commission nor the SBA has 
developed a definition of small entities specifically applicable to 
providers of interexchange services (IXCs). The closest applicable 
definition under the SBA rules is for wired telecommunications 
carriers. This provides that a wired telecommunications carrier is a 
small entity if it employs no more than 1,500 employees. According to 
the most recent Trends Report, 204 companies reported that they were 
engaged in the provision of interexchange services. As some of these 
carriers have more than 1,500 employees, we are unable at this time to 
estimate with greater precision the number of IXCs that would qualify 
as small business concerns under the SBA's definition. Consequently, we 
estimate that there are fewer than 204 small entity IXCs that may be 
affected by the decisions adopted in this Order.
    25. Competitive Access Providers. Neither the Commission nor the 
SBA has developed a definition of small entities specifically 
applicable to competitive access services providers (CAPs). The closest 
applicable definition under the SBA rules is for wired 
telecommunications carriers. This provides that a wired 
telecommunications carrier is a small entity if it employs no more than 
1,500 employees. According to our most recent data, there are 349 CAPs. 
We do not have data specifying the number of these carriers that are 
not independently owned and operated, or have more than 1,500 
employees, and thus are unable at this time to estimate with greater 
precision the number of CAPs that would qualify as small business 
concerns under the SBA's definition. Consequently, we estimate that 
there are less than 349 small entity CAPs that that may be affected by 
the decisions adopted in this Order.
    26. Cellular and Wireless Telephony. Neither the Commission nor the 
SBA has developed a definition of small entities specifically for 
wireless telephony. The closest definition is the SBA definition for 
cellular and other wireless telecommunications or paging. Under that 
SBA definition, such a business is small if it has 1,500 or fewer 
employees. According to the Commission's most recent Telephone Trends 
Report data, 1,495 companies reported that they were engaged in the 
provision of wireless service. Of these 1,495 companies, 989 reported 
that they have 1,500 or fewer employees and 506 reported that, alone or 
in combination with affiliates, they have more than 1,500 employees. We 
do not have data specifying the number of these carriers that are not 
independently owned and operated, and thus are unable at this time to 
estimate with greater precision the number of wireless service 
providers that would qualify as small business concerns under the SBA's 
definition. Consequently, we estimate that there are 989 or fewer small 
wireless service providers that may be affected by the decisions 
adopted in this Order.
    27. Other Wireless Services. Neither the Commission nor the SBA has 
developed a definition of small entities specifically applicable to 
wireless services other than wireless telephony. The closest applicable 
definition under the SBA rules is again that of cellular and other 
wireless telecommunications, under which a service provider is a small 
entity if it employs no more than 1,500 employees. According to the 
most recent Trends Report, 477 providers classified themselves as 
paging services, wireless data carriers or other mobile service 
providers. We do not have data specifying the number of these carriers 
that are not independently owned and operated or have more than 1,500 
employees, and thus are unable at this

[[Page 41866]]

time to estimate with greater precision the number of wireless service 
providers that would qualify as small business concerns under the SBA's 
definition. Consequently, we estimate that there are fewer than 477 
wireless service providers that that may be affected by the decisions 
adopted in this Order.
c. Internet Service Providers
    28. Under the new NAICS codes, SBA has developed a small business 
size standard for ``On-line Information Services,'' NAICS Code 514191. 
According to SBA regulations, a small business under this category is 
one having annual receipts of $21 million or less. According to SBA's 
most recent data, there are a total of 2,829 firms with annual receipts 
of $9,999,999 or less, and an additional 111 firms with annual receipts 
of $10,000,000 or more. Thus, the number of On-line Information 
Services firms that are small under the SBA's $21 million size standard 
is between 2,829 and 2,940. Further, some of these Internet Service 
Providers (ISPs) might not be independently owned and operated. 
Consequently, we estimate that there are fewer than 2,940 small entity 
ISPs that may be affected by the decisions and rules of the present 
action.
d. Vendors of Internal Connections
    29. The Commission has not developed a definition of small entities 
applicable to the manufacturers of internal network connections. The 
most applicable definitions of these kinds of small entities are the 
definitions under the SBA rules applicable to manufacturers of ``Radio 
and Television Broadcasting and Communications Equipment'' (RTB) and 
``Other Communications Equipment.'' According to the SBA's regulations, 
manufacturers of RTB or other communications equipment must have 750 or 
fewer employees in order to qualify as a small business. The most 
recent available Census Bureau data indicates that there are 1,187 
companies with fewer than 1,000 employees in the United States that 
manufacture radio and television broadcasting and communications 
equipment, and 271 companies with less than 1,000 employees that 
manufacture other communications equipment. Some of these manufacturers 
might not be independently owned and operated. Consequently, we 
estimate that there are fewer than 1,458 small entity internal 
connections manufacturers that may be affected by the decisions in this 
Order.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities
    30. There are no additional reporting or other new compliance 
requirements relating directly to the decisions in this Order. 
Additional reporting or compliance requirements relating to the 
implementation of the carryover of unused funds from the schools and 
libraries mechanism will be addressed at the time such implementation 
procedures are adopted.
5. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    31. The RFA requires an agency to describe any significant 
alternatives that it has considered in developing its approach, which 
may include the following four alternatives (among others: ``(1) 
Establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for such small 
entities; (3) the use of performance rather than design standards; and 
(4) an exemption from coverage of the rule, or any part thereof, for 
such small entities.''
    32. In each funding year of the schools and libraries mechanism, a 
portion of the $2.25 billion available under the program cap has gone 
unused, largely because some applicants do not fully use the funds 
committed to them in the same funding year. In this Order, we revise 
section 54.507(a) of the Commission's rules to provide that unused 
funds from the schools and libraries support mechanism may be applied 
to stabilize or reduce the amount of such contributions by carriers to 
the universal service fund for no more than the next three quarters, 
beginning with third quarter 2002. We believe that applying unused 
funds from the schools and libraries mechanism to stabilize or reduce 
contributions has the same impact on both small and large entities. In 
addition, we believe that the action that we take today will be 
beneficial for both large and small entities that contribute to the 
universal service fund by stabilizing or reducing contribution 
requirements. Furthermore, we believe that the carryover of unused 
funds from the schools and libraries mechanism will be beneficial to 
both small and large entities by providing additional funds that may be 
committed to schools and libraries pursuant to the schools and 
libraries support mechanism. There are no reporting or other compliance 
requirements resulting from our action, and no possible exemptions that 
might assist small entities.
    33. Report to Congress: The Commission will send a copy of the 
First Report and Order, including this FRFA, in a report to be sent to 
Congress pursuant to the Congressional Review Act, see 5 U.S.C. 
801(a)(1)(A). In addition, the Commission will send a copy of the First 
Report and Order, including the FRFA, to the Chief Counsel for Advocacy 
of the Small Business Administration. A copy of the First Report and 
Order and FRFA (or summaries thereof) will also be published in the 
Federal Register.

V. Ordering Clauses

    34. Pursuant to the authority contained in sections 1-4, 254, and 
303(r) of the Communications Act of 1934, as amended, 47 U.S.C. 151-
154, 254, 303(r), this First Report and Order in CC Docket No. 02-6 is 
adopted.
    35. Pursuant to section 553(d) of Administrative Procedure Act, 5 
U.S.C. 553(d), that this order is effective June 20, 2002.
    36. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of this Report and 
Order, including the Final Regulatory Flexibility Analysis, to the 
Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects 47 CFR Part 54

    Reporting and recordkeeping requirements, Telecommunications, 
Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Rule Change

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

Subpart F--Universal Service Support for Schools and Libraries

    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. Section 54.507 is amended by revising paragraph (a) to read as 
follows:


Sec. 54.507  Cap.

    (a) Amount of the annual cap. The annual funding cap on federal 
universal service support for schools and libraries

[[Page 41867]]

shall be $2.25 billion per funding year. All funding authority for a 
given funding year that is unused in that funding year shall be carried 
forward into subsequent funding years for use in accordance with 
demand. All funds collected that are unused shall be applied to 
stabilize universal service contributions in accordance with the public 
interest and consistent with Sec. 54.709(b) for no more than three 
quarters, beginning with third quarter 2002. Beginning no later than 
second quarter 2003, all funds collected that are unused shall be 
carried forward into subsequent funding years for use in the schools 
and libraries support mechanism in accordance with the public interest 
and notwithstanding the annual cap.
* * * * *
[FR Doc. 02-15498 Filed 6-19-02; 8:45 am]
BILLING CODE 6712-01-P