[Federal Register Volume 68, Number 119 (Friday, June 20, 2003)]
[Rules and Regulations]
[Pages 36931-36944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-14928]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 0 and 54

[CC Docket No. 02-6; FCC 03-101]


Schools and Libraries Universal Service Support Mechanism

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission takes major steps to simplify 
and streamline the operation of our universal service mechanism for 
schools and libraries, while improving our oversight over the support 
mechanism. The Commission adopts a number of rules to streamline 
program operation, and promote the Commission's goal of reducing the 
likelihood of fraud, waste, and abuse.

DATES: Effective July 21, 2003, except for Sec. Sec.  54.500(k), 
54.503, 54.507(g)(1)(i) and (g)(1)(ii), 54.514(a), and 54.517(b) which 
will become effective July 1, 2004. In addition, Sec.  54.515(b) 
contains information collection requirements that have not been 
approved by the Office of Management Budget (OMB). The Commission will 
publish a document in the Federal Register announcing the effective 
date of that section.

FOR FURTHER INFORMATION CONTACT: Jonathan Secrest and Katherine Tofigh, 
Attorneys, Telecommunications Access Policy Division, Wireline 
Competition Bureau, (202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second 
Report and Order in CC Docket No. 02-6, FCC 03-101 released on April 
30, 2003. This Second Report and Order was also released with a 
companion Further Notice of Proposed Rulemaking FNPRM. 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 take major steps to simplify and streamline 
the operation of our universal service mechanism for schools and 
libraries, while improving our oversight over the support mechanism. In 
section 254 of the 1996 Act, Congress directed the Commission to 
establish explicit universal service support mechanisms to ensure the 
delivery of affordable telecommunications service to all Americans, 
including low-income consumers, rural health care providers, and 
eligible schools and libraries. Pursuant to section 254, eligible 
schools, libraries, and consortia that include eligible schools and 
libraries, may receive discounts for eligible telecommunications 
services, Internet access, and internal connections. The Commission has 
issued several orders interpreting rules governing the operation of the 
schools and libraries universal service support mechanism.
    2. Since the inception of the schools and libraries support 
mechanism in 1997, schools and libraries have received over $9.6 
billion in funding commitments. This funding has provided millions of 
school children and library patrons access to modern telecommunications 
and information services. The Commission previously sought comment in a 
Notice of Proposed Rulemaking (Schools and Libraries

[[Page 36932]]

NPRM), 67 FR 7327, February 19, 2002, on ways to streamline the 
operation of the schools and libraries support mechanism, in order to 
ensure that the benefits of this universal service support mechanism 
for schools and libraries are distributed in a manner that is fair and 
equitable and improve our oversight over this program to ensure that 
the goals of section 254 are met without waste, fraud, and abuse.
    3. In response to the Schools and Libraries NPRM, the Commission 
received a tremendous outpouring of ideas and suggestions relating to 
the operation of the schools and libraries mechanism. In this Second 
Report and Order (Order), we adopt a number of rules to streamline 
program operation and promote the Commission's goal of reducing the 
likelihood of fraud, waste, and abuse. First, we modify certain rules 
regarding eligible services. In particular, we clarify the statutory 
term ``educational purposes.'' We clarify that our rules prohibit the 
funding of discounts for duplicative services. We also clarify our 
rules to ensure that wireless services are eligible to the same extent 
wireline services are eligible. We modify our rules to make voice mail 
eligible for discounts. Second, we direct the Universal Service 
Administrative Company (USAC or Administrator) to develop a pilot 
program testing an online list of internal connections equipment that 
is automatically eligible for discounts, provided the uses are eligible 
and all other funding requirements are satisfied. Third, we codify the 
``30 percent'' policy, which is a processing benchmark currently used 
by the Administrator when reviewing requests that include both 
ineligible and eligible services.
    4. With regard to post commitment program administration, we adopt 
a rule requiring service providers to give applicants the choice each 
funding year whether to pay the discounted price or pay the full price 
and then receive reimbursement through the Billed Entity Applicant 
Reimbursement (BEAR) process, and adopt a rule expressly requiring 
service providers to remit BEAR payments to the applicant within 20 
days after receipt of such payments from the Administrator.
    5. With regard to appeals, we permanently extend the time limit for 
filing an initial appeal with the Schools and Libraries Division (SLD) 
and the Commission from 30 to 60 days and conclude that all appeals 
should be treated as filed on the date that they are postmarked. We 
also conclude that all successful appeals should be funded to the 
extent that they would have been funded had the discounts been awarded 
through the normal funding process. We also make a minor procedural 
change to our rules relating to filing appeals in this docket.
    6. As part of our ongoing efforts to limit waste, fraud, and abuse, 
we adopt rules to prevent bad actors from receiving benefits associated 
with the schools and libraries mechanism. In particular, we conclude 
that anyone convicted of a criminal violation or found civilly liable 
for actions relating to this program shall be debarred from 
participation for three years, absent extraordinary circumstances. 
Also, we decline at this time to adopt further measures to reduce 
unused funds, in light of our prior actions to streamline the program 
and increase the efficiency of fund use. We make conforming rule 
changes in accord with the No Child Left Behind Act of 2002, and we 
remove certain obsolete sections of our rules.

II. Second Report and Order

A. Eligible Services

    7. Educational Purpose. We find it appropriate to clarify the scope 
of the requirement that services be used for an educational purpose. 
Accordingly, we amend Sec.  54.500 of our rules to clarify the meaning 
of educational purposes. Pursuant to this requirement, the 
Administrator has denied requests for services to be used by support 
staff not involved in instructional activities. We reiterate our 
recognition that the technology needs of participants in the schools 
and libraries program are complex and unique to each participant. We 
find that, in the case of schools, activities that are integral, 
immediate, and proximate to the education of students, or in the case 
of libraries, integral, immediate, and proximate to the provision of 
library services to library patrons, qualify as educational purposes 
under this program. To guide applicants in preparing their applications 
and to streamline the Administrator's review of applications, we 
further establish a presumption that activities that occur in a library 
or classroom or on library or school property are integral, immediate, 
and proximate to the education of students or the provision of library 
services to library patrons.
    8. This clarification, however, is not intended to allow the 
general public to use services and facilities obtained through this 
support mechanism for non-educational purposes. In the Alaska Order, 
the Commission granted the State of Alaska a limited waiver of Sec.  
54.504(b)(2)(ii) of the Commission's rules, allowing members of rural 
remote communities in Alaska that lack local or toll-free dial-up 
access to the Internet to use excess service obtained through the 
support mechanism, when the services are not in use by the schools and 
libraries. The clarification we adopt today does not affect the terms 
of Alaska's waiver or allow schools or libraries outside the scope of 
that waiver to provide services to the general public in that manner.
    9. Under this standard, reasonable requests for any supported 
service--over any technology platform--to be used by any school or 
library staff while in a library, classroom, or on school or library 
property, shall be eligible for discounts. Moreover, we conclude that 
in certain limited instances, the use of telecommunications services 
offsite would also be integral, immediate, and proximate to the 
education of students or the provision of library services to library 
patrons, and thus, would be considered to be an educational purpose. By 
adopting this standard, we provide to schools and libraries and the 
state and local authorities that govern them a more definitive 
interpretation of educational purposes, in order to assist them in 
pursuing their programmatic objectives.
    10. We find that our clarification is consistent with statutory 
mandates that the purpose for which support is provided be for 
educational purposes in a place of instruction. Moreover, this 
clarification benefits applicants because it simplifies the application 
process by making the approval of discounted services more predictable, 
without sacrificing flexibility, thus furthering our streamlining 
goals. Because of the difficulties inherent in implementing changes in 
eligibility in the middle of a funding cycle, services will be 
available under this clarification beginning with the start of the next 
funding year (Funding Year 2004), on July 1, 2004.
    11. We believe that this interpretation of educational purpose 
should not result in an increase in waste, fraud, or abuse. First, as 
the presumption set forth demonstrates, discounts will only be awarded 
to support activities that have a defined nexus to education, or, in 
the case of libraries, to the delivery of library services to library 
patrons. Thus, for instance, using a school's or a library's discounted 
telecommunications services to support a private enterprise or a 
political campaign will continue to be a violation of the Act and our 
rules. In addition, because our rules require schools and libraries to 
pay a percentage of the cost of services, schools and libraries are 
unlikely to request services that are not economical. This is 
particularly true in an environment where many

[[Page 36933]]

institutions face shrinking budgets. We therefore conclude this 
clarification of educational purpose should increase program efficiency 
without leading to waste, fraud, or abuse.
    12. Funding of Duplicative Services. In the Universal Service 
Order, 62 FR 32862, June 17, 1997, the Commission indicated that an 
applicant's request for discounts should be based on the reasonable 
needs and resources of the applicant, and bids for services should be 
evaluated based on cost-effectiveness. Pursuant to this requirement, 
the Administrator has denied discounts for duplicative services. 
Duplicative services are services that deliver the same functionality 
to the same population in the same location during the same period of 
time. We emphasize that requests for discounts for duplicative services 
will be rejected on the basis that such applications cannot 
demonstrate, as required by our rules, that that they are reasonable or 
cost effective.
    13. We find that the use of discounts to fund duplicative services 
contravenes the requirement that discounts be awarded to meet the 
``reasonable needs and resources'' of applicants. We find that requests 
for discounts for duplicative services are unreasonable because they 
impact the fair distribution of discounts to schools and libraries. The 
schools and libraries mechanism of the universal service fund is capped 
at $2.25 billion dollars. Under our rules, when total demand exceeds 
the cap, discounts for Priority Two services (internal connections) are 
awarded after all Priority One requests are satisfied, beginning with 
the most economically disadvantaged schools and libraries as determined 
by the schools and libraries discount matrix. Total demand for 
discounts from the schools and libraries program has exceeded the 
funding cap in the past two funding years and we expect this trend to 
continue. Thus, funding duplicative services would operate to award 
discounts to applicants higher on the matrix twice for the same 
services, while some others, because of their lower rank on the matrix, 
could not receive discounts for the same service because the Priority 
Two funds available under the cap had had been exhausted.
    14. In addition, we find that it is inconsistent with the 
Commission's rules to deliver services that provide the same 
functionality for the same population in the same location during the 
same period of time. We believe that requests for duplicative services 
are not consistent with the Commission's rules regarding competitive 
bidding, which require applicants to evaluate whether bids are cost 
effective. In the Universal Service Order, the Commission stated that 
price is the primary of several factors to be considered. Thus, 
applicants must evaluate these factors to determine whether an offering 
is cost effective. We find that it is not cost effective for applicants 
to seek discounts to fund the delivery of duplicative services. 
Therefore, we conclude that this rule can be violated by the delivery 
of services that provide the same functionality for the same population 
in the same location during the same period of time. We recognize that 
determining whether particular services are functionally equivalent may 
depend on the particular circumstances presented. In addition, we amend 
Sec.  54.511(a) of our rules to make clear that applicants must 
consider whether the service is cost effective.
    15. Eligibility of Wireless Services. Under section 254(h)(1)(B), 
eligible schools, libraries, and consortia that include eligible 
schools and libraries, are eligible for discounts on telecommunications 
services. Accordingly, basic telephone service, which includes mobile 
and fixed wireless service, is eligible for discounts pursuant to the 
schools and libraries universal service support mechanism. The cost of 
telephones or associated maintenance of equipment is not eligible for 
discount. In the Schools and Libraries NPRM, we sought comment on 
whether we needed to modify any rules and policies regarding the 
eligibility of wireless services. We also sought comment on whether 
broadening the eligibility of wireless services under the schools and 
libraries universal service support mechanism, consistent with the 
statute, would improve the application review process.
    16. We reiterate that wireline and wireless telecommunications 
services are equally eligible under our current rules. If wireless 
service is used at the school or library for educational purposes, that 
service is eligible for support to the same extent as requests for 
wireline-based telecommunications services. We emphasize that, under 
existing rules, requests for wireline and wireless services must be 
reviewed under the same standard. It would be inappropriate, for 
instance, to presume that wireline services are used for educational 
purposes while presuming that wireless services are not used for 
similar purposes. What is relevant, for purposes of determining 
compliance with the statutory standard, is whether the service in 
question is integral, immediate, and proximate to the provision of 
education or library services, regardless of the technology platform. 
As we stated, we presume that activities that occur in a library or 
classroom or on library or school property, are integral, immediate, 
and proximate to education of students, or, in the case of libraries, 
to the provision of library services to library providers, and 
therefore qualify as educational purposes.
    17. We believe that this restatement of technology neutrality, in 
tandem with our clarification of educational purposes set forth, will 
serve to reduce confusion and uncertainty regarding the eligibility of 
wireless services and thus further our streamlining efforts by making 
the application process more predictable for applicants.
    18. Eligibility of Voice Mail. In the Universal Service Order, the 
Commission decided that certain information services--namely Internet 
access--would be funded. The Commission also determined, without 
further discussion, that voice mail would not ``at [that] time'' be 
eligible, based, in part, on the recommendation of the Federal-State 
Joint Board on Universal Service that such information services not be 
eligible. Specifically, the Joint Board had recommended that, ``by 
establishing a discount mechanism for telecommunications and Internet 
access, we conclude that the intent of Congress will be met and it is 
not necessary to support the full panoply of information services at 
this time.'' We now think it appropriate to revisit this issue, in 
light of our experience over the last five years.
    19. The prevalence of and need for voice mail as a way of 
communicating with school and library staff for educational purposes 
causes us to reexamine the eligibility of voice mail. Virtually all 
commenters supported making voice mail an eligible service, including 
the state members of the Federal-State Joint Board on Universal 
Service. After reviewing the record on this issue, we conclude that 
voice mail should be eligible for discounts as a Priority One service 
under the universal service support mechanism in the same way that 
Internet access, i.e., e-mail, is currently eligible. Voice mail 
services are used in conjunction with telecommunications services. We 
agree with commenters that voice mail is functionally equivalent to e-
mail. Therefore, we believe that it is administratively and 
operationally appropriate for such requests to be processed within the 
same priority as telecommunications services and Internet access. After 
five years of experience with the schools and libraries universal 
service support

[[Page 36934]]

mechanism, we find that making voice mail now eligible for discount is 
consistent with Congress's intent ``to enhance * * * access to advanced 
telecommunications and information services'' for schools and 
libraries. Indeed, voice mail is an integral part of communications, 
especially in schools. We conclude that voice mail enhances access to 
information services for schools and libraries by allowing meaningful 
communication among parents, teachers, and school and library 
administrators.
    20. Moreover, making voice mail eligible will reduce administrative 
costs, because neither applicants nor USAC will need to go through the 
exercise of breaking out the cost of voice mail from a bundled price 
for telecommunications service. We believe this modification will 
further our goals of improving program operation, without increasing 
opportunities for waste, fraud, and abuse. Accordingly, we deem voice 
mail to be eligible for discounts under the schools and libraries 
universal service support mechanism and amend Sec. Sec.  54.503, 
54.507, and 54.517 of our rules. We instruct USAC to process funding 
requests for voice mail services starting in Funding Year 2004 
consistent with this Order.
    21. Computerized Eligible Service List. We conclude that it would 
be beneficial to develop a process that would simplify applicants' 
selection of eligible services. The Commission currently directs the 
Administrator to determine whether particular services fall within the 
eligibility criteria established under the 1996 Act and the 
Commission's rules and policies. The Administrator evaluates, in 
consultation with the Commission on an ongoing basis, particular 
services and products offered by service providers, and determines 
their eligibility. In order to provide applicants with general 
guidance, the Administrator makes available on its website a list of 
categories of service that are conditionally eligible or ineligible, 
although it does not identify specific eligible brands or items. 
Applicants or service providers may appeal the Administrator's decision 
that a given service is ineligible for discounts only after a requested 
discount for that service is denied.
    22. In the Schools and Libraries NPRM, we specifically sought 
comment on whether to establish an online computerized list of actual 
products and services, whereby applicants could select a specific 
product or service as part of their FCC Form 471 application. We 
suggested that under such a proposal, the number of instances in which 
applicants seek funding for ineligible services might decrease. We also 
suggested that such a process would considerably simplify the 
application review process. We sought comment on the desirability and 
feasibility of this approach. Specifically, we sought comment on how 
often such a list should be updated; how to ensure that such a list 
would not inadvertently limit access to products and services newly 
introduced to the marketplace; and how to obtain input on an ongoing 
basis regarding what specific products and services should be eligible.
    23. After reviewing the record, we conclude that there is merit to 
creating an online computerized list system for internal connections. 
We decline, however, to mandate a similar computerized list system at 
this time for telecommunications services and Internet access.
    24. In general, we agree with commenters that such a list would aid 
applicants to more clearly understand which items have already been 
approved by USAC as eligible. Use of such a list should facilitate 
expedited processing of many funding requests, decrease rejection of 
requests for ineligibility, and decrease the chances that any 
ineligible request would be accidentally awarded discounts. The use of 
this list by applicants, therefore, should reduce the burden on 
applicants in completing their applications. In addition, use of such a 
list would streamline review by the Administrator, allowing it to focus 
on more complex matters arising in the application process. Finally, by 
helping to avoid support of ineligible services, an online computerized 
list would further the Commission's goal of preventing fraud and abuse.
    25. At the same time, we are persuaded by the Administrator's 
concerns and those of certain commenters that such a list should be 
developed with care. For example, the list should be careful not to 
favor certain vendors over others. Thus, we conclude that the 
development of such a list should proceed in stages. The Administrator 
should first test the use of such a list on a limited portion of the 
eligible services and products list. Therefore, we direct USAC, in 
conjunction with the Wireline Competition Bureau (Bureau), to develop 
and test as a pilot program an online list for internal connections 
equipment. We believe that such a pilot program would assist in further 
developing a record regarding how such a list could, in practice, 
provide clearer guidance about the potential eligibility of 
telecommunications and Internet access services than the current 
website posting.
    26. We direct the Administrator to design a pilot program in 
consultation with the Bureau that is in keeping with the following 
principles: (1) the pilot system should continue to allow flexibility 
of choice of products by applicants; (2) this list should operate as a 
safe harbor, rather than a complete list of all eligible items; (3) all 
equipment and services listed will be automatically eligible for 
discounts provided the use is eligible and other funding requirements 
are satisfied; (4) there should be a procedure to have new products 
added to the list; (5) applicants and service providers may use the 
existing appeals procedures to appeal decisions by the Administrator 
rejecting the addition of specific items on the list; (6) applicants 
may also seek support for internal connections equipment that is not on 
this list; (7) such requests will be evaluated consistent with the 
Administrator's existing practice of ensuring that the equipment and 
proposed use are consistent with educational purposes.
    27. We expect that the Administrator will be able to implement the 
pilot program no later than Funding Year 2005. The Administrator will 
timely report to the Commission about the effectiveness of the program 
during and after successful implementation. USAC's report should 
include information that details the effect of the list on the 
administrative review process, including the cost, and the number of 
applicants making use of such a list. We will evaluate this data and 
take it into consideration when evaluating whether and how to proceed 
to make this list accessible from the online FCC Form 471, and whether 
and how to incorporate telecommunications and Internet access services 
into such a list. In addition, in the accompanying FNPRM we seek 
further comment on the feasibility of an online eligible services brand 
name list for telecommunications services and Internet access.

B. Codification of 30 Percent Policy

    28. Discussion We conclude that the 30 percent policy should be 
codified in the Commission's rules. We find that the procedure improves 
program operation and is important in reducing the administrative costs 
of the program because it enables SLD to efficiently process requests 
for support for services that are eligible for discounts but that also 
include some ineligible components. We further find that the 30 percent 
policy provides an appropriate incentive to applicants to seek 
discounts for only eligible products and services.

[[Page 36935]]

We find that the 30 percent policy provides an adequate safe harbor for 
applicants that inadvertently request ineligible products or services, 
and appropriately balances applicant accountability with effective 
administrative review. The 30 percent policy allows the Administrator 
to process efficiently requests for funding that contain only a small 
amount of ineligible services without expending significant fund 
resources working with applicants to determine what part of the 
discounts requested is associated with eligible services. It also 
provides an incentive to applicants to eliminate ineligible services 
from their requests before submitting their applications, further 
reducing the Administrator's administrative costs. Accordingly, we add 
Sec.  54.504(c)(1) to our rules as provided.
    29. We decline to adopt one suggestion that would require SLD to 
inform an applicant that its application is about to be rejected under 
the 30 percent procedure and allow that applicant to provide evidence 
to refute SLD's determination. Applicants bear the burden of ensuring 
that the items requested are eligible for support under the program 
rules. Implementation of such a proposal would result in greater 
administrative costs and burden, thereby defeating the primary purpose 
of this policy. Moreover, the applicant still has an opportunity to 
refute SLD's determination by availing itself of the appeals process.

C. Choice and Timing of Payment Method

    30. Discussion We first conclude that we should adopt a rule 
requiring service providers to give applicants the choice each funding 
year either to pay the discounted price or to pay the full price and 
then receive reimbursement through the BEAR process. In addition, we 
find that the period for remittance of the BEAR payment should be 20 
days. Accordingly, we amend Sec.  54.514 of our rules as set forth.
    31. Some commenters argued that the choice of payment method should 
ultimately be made by the service provider, asserting that a mandate 
requiring all providers to adopt billing systems capable of handling 
both payment methods would impose significant financial and 
administrative burdens, particularly on small providers. However, the 
vast majority of commenters that responded to the Schools and Libraries 
NPRM supported the Commission's proposal. Numerous commenters noted 
instances of services providers requiring applicants to use the BEAR 
method.
    32. We find that providing applicants with the right to choose 
payment method is consistent with section 254. Although section 
254(h)(1)(B) requires that telecommunications carriers providing 
discounted service be permitted to choose the method by which they 
receive reimbursement for the discounts that they provide to schools 
and libraries, i.e., between receiving either a reimbursement for the 
discount or an off-set against their obligations to contribute to the 
universal service fund, the statute does not require that they be 
permitted to choose the method by which they provide those discounts to 
the school or library in the first place.
    33. In addition, we find that providing applicants with the right 
to choose which payment method to use will help to ensure that all 
schools and libraries have affordable access to telecommunications and 
Internet access services. The Commission previously noted in the 
Universal Service Order that ``requiring schools and libraries to pay 
in full could create serious cash flow problems for many schools and 
libraries and would disproportionately affect the most disadvantaged 
schools and libraries.'' The comments in the present record have 
confirmed that many applicants cannot afford to make the upfront 
payments that the BEAR method requires. In light of the record before 
us, we conclude that the potential harm to schools and libraries from 
being required to make full payment upfront, if they are not prepared 
to, justifies giving applicants the choice of payment method.
    34. As with any agreement, one way that applicants could 
memorialize the particular payment method chosen would be to place the 
agreement in the service agreement, or, where there is no written 
service contract, in a separate agreement. Although applicants are not 
required to take such action, it has been suggested that doing so would 
decrease the number of customer complaints and strengthen the 
Administrator's ability to take action for compliance failures.
    35. Once an applicant has made and memorialized its choice for a 
funding year, the applicant may not unilaterally shift from one form of 
payment to the other within that funding year. Commenters argued that, 
in cases where the service begins before the Administrator makes its 
funding decision, applicants should be able to make discounted payments 
and then shift to BEAR payments after the funding decision is issued. 
We find that the administrative costs of such a procedure exceed the 
limited benefits to the applicant. Furthermore, service providers are 
under no obligation to provide discounts or reimbursements until a 
funding decision is approved, and we therefore find that it would be 
inappropriate to require providers to offer discounted service before 
any funding decision is made to authorize such discounts.
    36. In response to service providers that argue that such a change 
will result in significant administrative costs to them, we reiterate 
that it is consistent with section 254 to provide applicants with the 
right to choose their payment method. Nevertheless, we anticipate that 
applicants and service providers will be able to work together in order 
to determine which payment method is most suitable. For example, a 
small carrier may enter into an agreement with a school district to 
provide telecommunications services. Under this contract, the payments 
could change from month to month based on usage. If the costs of 
instituting a new billing system to account for the changing levels of 
discounted service are significant, and the service provider is going 
to pass on the costs of such a system to the school district, the 
parties may find it more appropriate to negotiate a set discounted 
amount to be billed each month, with a true-up bill at the end of the 
contract. In recognition, however, of potential changes to billing 
systems that some providers may need to undertake in order to allow any 
applicant to elect the BEAR process, this rule change concerning 
election of payment type will be effective for the start of Funding 
Year 2004.
    37. We also conclude that we should adopt a rule expressly 
requiring service providers to remit BEAR payments to the applicant 
within 20 days after receipt of such payments from the Administrator. 
BEAR payments are reimbursements for services that have already been 
provided to and paid for by a school or library. The structure of the 
schools and libraries support mechanism necessitates that reimbursement 
must flow to the applicant through the services provider. BEAR payments 
are not the property of the service provider, which has been paid in 
full. The Administrator has received many complaints about service 
providers failing to remit the BEAR payments in a timely fashion or, in 
some cases, at all. According to the Administrator, formalizing the 
remittance requirement in a rule would strengthen its ability to ensure 
compliance. The majority of commenters found that 20 days is an 
appropriate period for remittance. We therefore adopt a rule requiring 
a provider who receives a BEAR check

[[Page 36936]]

from the Administrator to remit payment to the applicant within 20 days 
of receipt. Because providers are already required to remit BEAR 
payments within a limited timeframe, and thus should not need to 
implement major billing system changes, this rule change, like other 
rule changes unless otherwise noted, will be effective upon publication 
in the Federal Register.

D. Appeals Procedure

    38. Deadline Extension In the first four funding years of the 
school and libraries universal service support mechanism, twenty-two 
percent of all appeals to the Commission were dismissed as being 
untimely filed. In addition, the Administrator states that eighteen 
percent of all appeals filed with the Administrator for Funding Year 
2001 were dismissed as being outside of the 30-day period. In light of 
this information, we sought comment on how to modify the current 
appeals procedures.
    39. We agree with commenters that it is appropriate to increase the 
time limit for filing initial appeals with the Administrator and with 
the Commission to 60 days. Unlike many parties that typically practice 
before the Commission, many applicants in this program have no 
experience with regulatory filing processes. Thus the 30-day time 
period is often not adequate to allow potential petitioners to gather 
the documents and synthesize the arguments needed to file pleadings in 
order to challenge funding decisions. Commenters suggest that extending 
the filing period meets the goals of improving program operations and 
ensuring equitable distribution of benefits. Commenters suggest that 
given schools' and libraries' unique resource limitations, the 
extension of time for filing appeals will also provide applicants an 
opportunity to review the relevant decision and determine whether there 
are valid bases for appeal. We conclude that the time limit for filing 
an initial appeal with the Administrator and with the Commission should 
be extended to 60 days. We therefore amend Sec.  54.720(a) through (d) 
of our rules.
    40. Postmark. We also agree with commenters that we should treat 
appeals to the Administrator or the Commission has having been received 
on the date that they are postmarked rather than the date they are 
filed. Commenters note that this change would be consistent with other 
program filing deadlines. For example, such a change would make the 
appeal procedure consistent with the Administrator's practice of 
treating FCC Form 471 applications as having been filed as of the 
postmark date. In cases where a postmark is unclear or illegible, the 
Commission will require the applicant to submit a sworn affidavit 
stating the date that the appeal was mailed. Given this possibility, we 
continue to encourage parties to file appeals electronically, in order 
to ensure timely submission. In addition, we agree with commenters that 
using the postmarked date furthers the goals of improving program 
operation and ensuring a fair and equitable distribution of the 
benefits of the program. Thus, we find that it is consistent with 
public interest that we treat appeals to the Administrator or the 
Commission as having been filed on the date they are postmarked. We 
therefore add a new Sec.  54.720(e) to our rules.
    41. Docket Number Change. We adopt a minor procedural amendment 
conforming our rules to reflect the change in docket numbers for filing 
appeals. Specifically, we change the wording of Sec.  54.721, which 
describes the filing requirements for requests for reviews for the 
entire Universal Service program, to replace the last line of paragraph 
(a) as follows: instead of stating ``and shall reference FCC Docket 
Nos. 97-21 and 96-45,'' the line shall read ``and shall reference the 
applicable docket numbers.'' The docket number for schools and 
libraries appeals is CC Docket No. 02-6, and the docket number for 
Rural Health Care support mechanism appeals is WC Docket No. 02-60. 
Petitioners should reference these docket numbers when filing pleadings 
with the FCC.

E. Funding of Successful Appeals

    42. Discussion Based on the record, we conclude that all successful 
appeals should be awarded discounts to the extent they would have been 
had the discounts been awarded through the normal funding process. We 
further conclude that the Administrator should not wait to grant post-
appeal funding until all appeals have been decided, but should instead 
fund applications if and when they are granted. We further find it 
appropriate to adopt a rule that authorizes using funds budgeted for 
future funding years, if the Administrator-set appeals reserve is 
inadequate to award discounts to all successful appeals. We recognize 
that utilizing such funds will reduce the total amount of funding 
available in subsequent funding years. However, we believe that this 
result is necessary in order to assure that no applicants are 
prejudiced because they were awarded discounts through the appeal 
process rather than through the initial application process.
    43. The few commenters that addressed the use of funding from 
future years were mixed in their assessment. In particular, we disagree 
with commenters such as the Council of Chief State School Officers, who 
state that using funding budgeted for future years would penalize 
applicants in the next funding year. We conclude that the inequity of 
failing to award discounts for a timely appeal far outweighs the impact 
granting such appeals would have in reducing the overall available 
funding in future funding years. Indeed, any modest reduction in the 
total amount of funds budgeted for future funding years is equally 
distributed among all successful applicants. In contrast, the 
alternative imposes any shortfall on an individual applicant, who, 
after successfully appealing, has done nothing to merit the denial of 
funding. In balancing these outcomes, we conclude the more equitable 
solution is to spread the impact by using funds budgeted for future 
funding years, should the appeal reserve be exhausted. Consequently, we 
adopt a rule that authorizes USAC to use funds budgeted from subsequent 
funding years to fund discounts for successful appeals in the unlikely 
case that the appeals reserve is exhausted.

F. Suspension and Debarment

    44. Discussion. We agree with the majority of commenters that we 
should adopt rules to prevent bad actors from receiving the benefits 
associated with the schools and libraries support mechanism. By 
prohibiting bad actors from involvement with the schools and libraries 
support mechanism, we will deter waste, fraud, and abuse, thus helping 
to ensure that support is used for schools' and libraries' access to 
advanced telecommunications and information services consistent with 
section 254. It is not our intention to use this debarment to punish. 
Rather, debarring applicants, service providers, consultants, or others 
that have defrauded the government or engaged in similar acts through 
activities associated with or related to the schools and libraries 
support mechanism is necessary to protect the integrity of the program. 
We conclude that these debarment procedures are prudent and consistent 
with our goal of ensuring that the universal service support mechanisms 
operate without waste, fraud, or abuse.
    45. We conclude that persons convicted of criminal violations or 
held civilly liable for certain acts arising from their participation 
in the schools and

[[Page 36937]]

libraries support mechanism shall be debarred from activities 
associated with or related to the schools and libraries support 
mechanism for a specified period, absent extraordinary circumstances. 
The debarment rules we adopt are informed by the nonprocurement 
debarment regulations for federal agencies, which do not apply to 
independent agencies such as the Commission. Specifically, we find that 
persons convicted of, or held civilly liable for, the attempt or 
commission of criminal fraud, theft, embezzlement, forgery, bribery, 
falsification or destruction of records, making false statements, 
receiving stolen property, making false claims, obstruction of justice, 
or other fraud or criminal offense arising out of activities associated 
with or related to the schools and libraries universal service support 
mechanism shall be debarred from involvement with the schools and 
libraries support mechanism for a period of three years. Where 
circumstances warrant, a longer period of debarment may be imposed if 
the extension is necessary to protect the public interest. In the case 
of multiple convictions or judgments, the Commission shall determine 
based on the facts before it whether debarments shall run concurrently 
or consecutively.
    46. A person subject to debarment, or a person that has contracted 
or intends to contract with a person subject to debarment to provide or 
receive services in connection with the schools and libraries support 
mechanism, may file arguments in writing and supported by documentation 
in opposition to the proposed debarment action or supporting a 
reduction in the period or scope of debarment. The Commission shall 
consider any such request, and may, upon the filing of arguments 
against the proposed suspension or debarment by an interested party or 
on its own motion, grant such a request for extraordinary 
circumstances. For example, reversal of the conviction or civil 
judgment upon which the debarment was based shall constitute 
extraordinary circumstances.
    47. In light of the serious nature of a conviction or civil 
judgment relating to participation in the support mechanism, upon 
becoming aware of a person's criminal conviction or civil judgment 
under the specified circumstances, the Commission shall suspend the 
person from activities associated with or related to the schools and 
libraries support mechanism. Suspension is an immediate but temporary 
measure pending a final determination of debarment. Suspension will 
help to ensure that a person that has been convicted or held civilly 
liable for behavior with respect to the schools and libraries support 
mechanism cannot continue to benefit from the mechanism pending 
resolution of the debarment process. The Commission shall send notice 
to the person's last known address by certified mail, return receipt 
requested, and shall publish notice in the Federal Register. Suspension 
is effective immediately upon the earlier of the person's receipt of 
such notice or publication in the Federal Register.
    48. The notice of suspension shall include notice of debarment 
proceedings. Such notice shall (1) give the reasons for the proposed 
debarment in terms sufficient to put the person on notice of the 
conduct or transaction(s) upon which it is based and the cause relied 
upon, namely, the entry of a criminal conviction or civil judgment; (2) 
explain the applicable debarment procedures; (3) describe the potential 
effect of debarment. A person subject to debarment or a person that has 
contracted or intends to contract with a person subject to debarment to 
provide or receive services in connection with the schools and 
libraries support mechanism, that elects to file arguments in 
opposition to the suspension and proposed debarment, must do so with 
any relevant documentation within 30 days after receiving notice or 
publication in the Federal Register, whichever is earlier. Any 
suspended person or person who has contracted or intends to contract 
with a suspended person also may request, in writing and supported by 
documentation, reversal of the suspension action or a reduction in the 
period or scope of suspension. The Commission shall consider such a 
request, but such action will not ordinarily be granted. Within 90 days 
of receipt of any such request, the Commission, in the absence of 
extraordinary circumstances, shall provide the person prompt notice of 
the decision to debar, and shall publish the decision in the Federal 
Register. Debarment shall be effective upon the earlier of receipt of 
notification or publication in the Federal Register.
    49. Consistent with the federal agency regulations, we define 
``person'' as ``[a]ny individual, corporation, partnership, 
association, unit of government or legal entity, however organized.'' 
Under this definition, persons may include applicants, service 
providers, consultants, or others engaged in activities associated with 
or related to the support mechanism.
    50. Consistent with the federal agency regulations, suspension or 
debarment of a corporation, partnership, association, unit of 
government or legal entity, however organized, defined as a ``person'' 
under these regulations, constitutes suspension or debarment of all its 
divisions and other organizational elements from all activities 
associated with or related to the schools and libraries support 
mechanism for the debarment period, unless the suspension or debarment 
decision is limited by its terms to one or more specifically identified 
individuals, divisions, or other organizational elements or to specific 
types of transactions.
    51. Consistent with the federal agency regulations, we define 
``conviction'' as ``a judgment or conviction of a criminal offense by 
any court of competent jurisdiction, whether entered upon a verdict or 
a plea, including a plea of nolo contendere'' and ``civil liability'' 
or ``civilly liable'' as ``the disposition of a civil action by any 
court of competent jurisdiction, whether entered by verdict, decision, 
settlement with admission of liability, stipulation, or otherwise 
creating a civil liability for the wrongful acts complained of, or a 
final determination of liability under the Program Fraud Civil Remedies 
Act of 1988 (31 U.S.C. 3801-12).'' We further conclude that, for 
purposes of these rules, ``activities associated with or related to the 
schools and libraries support mechanism'' include the receipt of funds 
or discounted services through the schools and libraries support 
mechanism, or consulting with, assisting, or advising applicants or 
service providers regarding the schools and libraries support 
mechanism.
    52. A conviction or civil judgment in the specified circumstances 
therefore automatically results in suspension and the initiation of 
debarment proceedings, providing a clear and stringent response on the 
part of the Commission and serving to deter waste, fraud, and abuse in 
the program. Although the governmentwide rules provide that agencies 
``may'' debar or suspend persons convicted or held civilly liable, we 
conclude that a rule requiring the Commission to suspend and debar such 
persons absent extraordinary circumstances will better serve the 
Commission's goal of limiting waste, fraud, and abuse. In light of our 
statutory obligation to preserve and advance universal service, we 
believe it appropriate to set a very high threshold for parties seeking 
to persuade us that debarment is not warranted in circumstances where a 
court of competent jurisdiction has concluded that person has committed 
some form of fraud related to the schools and libraries program. We 
conclude that under our rules the Commission shall debar

[[Page 36938]]

persons convicted or held civilly liable after immediate suspension, 
absent extraordinary circumstances. These automatic actions in the 
clear circumstances where legal proceedings have concluded with due 
process are an appropriate and prudent means of maintaining the 
integrity of the schools and libraries support mechanism.
    53. We recognize that where a service provider is debarred, an 
applicant relying on that service provider for discounted services may 
need to change service providers for that funding year in order to 
continue to receive the benefits of the support mechanism. Under 
existing USAC procedures, after an application has been approved and 
before the last day for invoicing, an applicant may change its service 
provider. Consistent with these procedures, therefore, applicants whose 
service providers have been debarred after an application has been 
approved may change service providers for that funding year.
    54. The Enforcement Bureau shall undertake suspension and debarment 
proceedings under this section. The Wireline Competition Bureau shall 
make any necessary changes to FCC forms, including a notification that 
a person convicted of or held civilly liable for the conduct specified 
shall be suspended and debarred absent extraordinary circumstances. We 
also direct the Wireline Competition Bureau to oversee the 
implementation and coordination of debarment procedures and policies 
with the Administrator, including, but not limited to, the publication 
and maintenance of a list on the Administrator's web site of persons 
suspended or debarred from the program. We direct the Wireline 
Competition Bureau to ensure that the Administrator implements 
procedures to ensure that any person who has been suspended or debarred 
not benefit from the schools and libraries support mechanism for the 
specified period of time.
    55. These rules constitute an important step in continuing to 
ensure program integrity. We are committed to considering other 
deliberate and appropriate measures in order to provide for compliance 
with statutory requirements and our rules, thereby ensuring that the 
benefits of this universal service support mechanism are available to 
the largest number of schools and libraries on an equitable basis. In 
the companion FNPRM, we seek further comment on whether to debar 
persons in other circumstances and related issues.

G. Utilization of Unused Funds

    56. Discussion. We decline, at this time, to adopt additional 
measures to reduce unused funds. The First Order, 67 FR 41862, June 20, 
2002, adopted a framework for the treatment of unused funds from the 
schools and libraries universal service support mechanism. In that 
Order, we determined that it was in the public interest to take 
immediate action to stabilize the contribution factor, and that 
beginning no later than the second quarter of 2003, any unused funds 
from the schools and libraries support mechanism shall, consistent with 
the public interest, be carried forward for disbursement in subsequent 
funding years of the schools and libraries support mechanism.
    57. As noted, the Administrator has taken certain measures that 
will also address the issue of unused funds from the schools and 
libraries program. We find that these changes will help improve the 
disbursement of program funds. In addition, we 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. We find that such actions will help us to most effectively 
implement the goals of section 254 of the Act.
    58. Commenters noted that during the application process, 
applicants have difficulty predicting needs, usage, and non-contracted 
rates. Therefore, applicants may apply for more funding than is 
actually needed. Commenters also cited certain factors beyond the 
program's control that contribute to unclaimed funds. Indeed, the 
Administrator and the Commission are aware of these issues. In an 
effort to reduce the amount of unused funds, starting with Funding Year 
2001, the Administrator is issuing funding commitments slightly in 
excess of the $2.25 billion funding cap. The Administrator reports that 
as of October 28, 2002, it had committed approximately $2.257 billion 
for Funding Year 2001. Specifically, the Administrator is basing 
overcommitments on past levels of unused funds, allowing a margin for 
error.
    59. Commenters also state that some committed funds go unused 
because of late funding commitment decisions. We agree with commenters 
that receiving funding commitment decisions earlier in the process 
would help reduce the amount of unused funds. The Administrator has 
continued to improve its processing. An increasing percentage of 
applicants now receive funding decisions earlier in the funding cycle. 
In addition, the Administrator has created a new website where the 
public, applicants and providers, can view funding commitment data the 
day after it is released, rather than having to wait for the delivery 
of funding letters. We believe that each of these changes will help 
prevent the likelihood of waste by improving the disbursement of 
program funds.
    60. In addition, several commenters noted that there is no 
incentive for applicants to turn committed funds back to USAC when an 
applicant realizes that it will not use the full committed amount. Some 
commenters also stated that the Form 500, which applicants may use to 
notify the Administrator that committed funds are no longer required, 
is an ineffective tool for commitment cancellation. The form is still a 
relatively new addition to the program. At this time, we do not believe 
that it is appropriate or necessary to change the Form 500. As with all 
aspects of the program, should the Administrator have recommendations 
about how to improve the Form 500 or related processes, the 
Administrator will bring these issues to our attention. We trust that 
as applicants become more familiar with the form and are better able to 
judge their funding supply through data newly provided on the 
Administrator's website, applicants will inform the Administrator when 
they will not fully use committed funds.

H. Conforming Rule Changes

    61. Discussion. We adopt minor changes to our rules to conform our 
definitions of eligible schools to the current definitions of and 
citations for ``elementary school'' and ``secondary school'' following 
the passage of the No Child Left Behind Act. First, we amend the 
definition of elementary school at Sec.  54.500(b) by adding, after 
``residential school,'' the phrase ``including a public elementary 
charter school,'' and the definition of secondary school at Sec.  
54.500(j) by adding, after ``residential school,'' the phrase 
``including a public secondary charter school.''
    62. In so doing, we are not expanding the scope of either 
definition because public elementary and secondary charter schools were 
already eligible under the original definitions. Under these 
definitions, the Commission looked to applicable State law to determine 
which entities qualified as public elementary and secondary schools. 
Thus, where applicable State laws provided for public elementary and 
secondary charter schools, such schools were eligible for discounts 
under the old definition. The regulatory

[[Page 36939]]

change merely makes this eligibility explicit.
    63. Second, we amend Sec.  54.501(b)(1) of our rules, to reflect 
the new citations for the elementary school and secondary school 
definitions following the passage of the No Child Left Behind Act. 
Specifically, we replace the citations to 20 U.S.C. 8801(14) and 
8801(25) with citations to 20 U.S.C. 7801(18) and 7801(38), 
respectively. Because the new provisions are substantively the same as 
the original definitions, we conclude that all of these rule changes 
are minor and technical, and we therefore find good cause to conclude 
that notice and comment procedures of the Administrative Procedure Act 
(APA) are unnecessary.

I. Removal of Obsolete Rules

    64. The Biennial Regulatory Review 2000 Staff Report (Staff Report) 
recommended that Sec. Sec.  54.701(b) through (e) of our rules, which 
mandate the merger of the Schools and Libraries Corporation and the 
Rural Health Care Corporation into the Universal Service Administrative 
Company, be removed. Given that the merger has been completed, the 
Staff Report concluded that these transitional provisions were no 
longer applicable. We now adopt the recommendations of the Staff Report 
and remove Sec. Sec.  54.701(b) through (e), and renumber current 
provisions Sec. Sec.  54.701(f) through (h) as Sec. Sec.  54.701(b) 
through (d). Again, because the rule sections in question are now 
obsolete, we conclude that these rule changes are minor and technical, 
and we therefore find good cause to conclude that notice and comment 
under the APA is not necessary.

III. Procedural Issues

A. Paperwork Reduction Act Analysis

    65. The action contained herein has been analyzed with respect to 
the Paperwork Reduction Act of 1995 (PRA) and found to impose new or 
modified reporting and/or recordkeeping requirements or burdens on the 
public. Implementation of these new or modified reporting and/or 
recordkeeping requirements will be subject to approval by the Office of 
Management and Budget (OMB) as prescribed by the PRA. Section 54.514(b) 
contains information collection requirements that have not been 
approved by the Office of Management Budget (OMB). The Commission will 
publish a document in the Federal Register announcing the effective 
date of that section. Sections 54.500(k), 54.503, 54.507(g)(i-ii), 
54.517(b), and 54.514(a) will go into effect July 1, 2004, following 
OMB approval.

B. Final Regulatory Flexibility Analysis

    66. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the Schools and Libraries NPRM. The Commission sought 
written public comment on the proposals in the Schools and Libraries 
NPRM, including comment on the IRFA. This present Final Regulatory 
Flexibility Analysis (FRFA) conforms to the RFA.
1. Need for, and Objectives of, the Second Report and Order
    67. In this Order, the Commission adopted a number of rules to 
streamline program operation, and promote the Commission's goal of 
reducing the likelihood of fraud, waste, and abuse. We clarify the 
statutory term ``educational purpose,'' the prohibition of funding of 
discounts for duplicative services, and that wireless services are 
eligible to the same extent wireline services are eligible. We conclude 
that voice mail should be eligible for discounts under the schools and 
libraries universal service support mechanism. We direct USAC to 
develop a pilot program testing an online list of internal connections 
equipment that is eligible for discounts. We codify an existing policy 
that a request must include less than ``30 percent'' of ineligible 
services. We adopt a rule requiring service providers to give 
applicants the choice each funding year whether to pay the discounted 
price or pay the full price and then receive reimbursement, and a rule 
requiring service providers to remit any reimbursement payments to the 
applicant within a set time period. We extend the time limit for filing 
an initial appeal to 60 days, and agreed to accept appeals as filed 
when postmarked. We also conclude that all successful appeals should be 
funded to the extent that they would have been funded had the discounts 
been awarded through the normal funding process. We adopt rules 
debarring persons convicted of criminal violations or held civilly 
liable for certain acts arising from their participation in the schools 
and libraries program, absent extraordinary circumstances. We also make 
several minor and technical rule changes to conform rules with the No 
Child Left Behind Act of 2002, clarify the docket for appeals filing, 
and remove certain obsolete sections.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    68. There were no comments filed that specifically addressed the 
rules and policies presented in the IRFA. Nevertheless, the agency has 
considered the potential impact of the rules proposed in the IRFA on 
small entities.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    69. The RFA directs agencies to provide a description of and, where 
feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A small business concern is one 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 SBA.
    70. A small organization is generally ``any not-for-profit 
enterprise which is independently owned and operated and is not 
dominant in its field.'' Nationwide, as of 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 75,955 or fewer. 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
    71. Under the schools and libraries universal service support 
mechanism, which provides support for elementary

[[Page 36940]]

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 size standard, we estimate that fewer 
than 83,700 schools and 9,000 libraries might be affected annually by 
our action, under current operation of the program.
b. Telecommunications Service Providers
    72. We have included small incumbent local exchange carriers in 
this RFA analysis. A ``small business'' under the RFA is one that, 
inter alia, meets the pertinent small business size standard (e.g., a 
telephone communications business having 1,500 or fewer employees), and 
``is not dominant in its field of operation.'' The SBA's Office of 
Advocacy contends that, for RFA purposes, small incumbent local 
exchange carriers are not dominant in their field of operation because 
any such dominance is not ``national'' in scope. We have therefore 
included small incumbent carriers in this RFA analysis, although we 
emphasize that this RFA action has no effect on the Commission's 
analyses and determinations in other, non-RFA contexts.
    73. Local Exchange Carriers and Competitive Access Providers. 
Neither the Commission nor the SBA has developed a size standard 
specifically for small providers of local exchange services. The 
closest applicable size standard 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 Commission data there are 
1,619 local services providers with 1,500 or fewer employees. Because 
it seems certain that some of these carriers are not independently 
owned and operated, we are unable at this time to estimate with greater 
precision the number of these carriers that would qualify as small 
business concerns under SBA's size standard. Of the 1,619 local service 
providers, 1,024 are incumbent local exchange carriers, 411 are 
Competitive Access Providers (CAPs) and Competitive Local Exchange 
Carriers (CLECs), 131 are resellers and 53 are other local exchange 
carriers. Consequently, we estimate that no more than 1,619 providers 
of local exchange service are small entities that may be affected.
    74. Interexchange Carriers. Neither the Commission nor the SBA has 
developed a size standard of small entities specifically applicable to 
providers of interexchange services (IXCs). The closest applicable size 
standard 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 Commission data regarding the number of these carriers 
nationwide of which we are aware, there are 181 IXCs with 1,500 or 
fewer employees. Because it seems certain that some of these carriers 
are not independently owned and operated, we are unable at this time to 
estimate with greater precision the number of these carriers that would 
qualify as small business concerns under SBA's size standard. 
Therefore, we estimate that the majority of those 181 IXCs may be 
affected by our action.
    75. Cellular and Other Wireless Telecommunications. The SBA has 
developed a small business size standard for Cellular and Other 
Wireless Telecommunications, which consists of all such firms having 
1,500 or fewer employees. According to data for 1997, a total of 977 
such firms operated for the entire year. Of those, 965 firms employed 
999 or fewer persons for the year, and 12 firms employed 1,000 or more. 
Therefore, nearly all such firms were small businesses. In addition, we 
note that there are 1807 cellular licenses; however, a cellular 
licensee may own several licenses. According to Commission data, 858 
carriers reported that they were engaged in the provision of either 
cellular service, Personal Communications Service (PCS), or Specialized 
Mobile Radio telephony services, which are placed together in the data. 
We have estimated that 291 of these are small under the SBA small 
business size standard.
    76. Paging. In the Paging Second Report and Order, we adopted a 
small size standard for ``small businesses'' for purposes of 
determining eligibility for special provisions for the auctions held in 
2000. For those purposes, a small business was defined as an entity 
that, together with its affiliates and controlling principals, has 
average gross revenues not exceeding $15 million for the preceding 
three years. The SBA approved this definition. There were 440 licenses 
sold, and 57 companies claiming small business status won licenses. In 
addition, at present there are approximately 24,000 Private Paging 
site-specific licenses and 74,000 Common Carrier Paging licenses. The 
SBA has developed a small business size standard for Paging, which 
consists of all such firms having 1500 or fewer employees. According to 
Commission data, 608 carriers reported that they were engaged in the 
provision of either paging or ``other mobile'' services. Of these, we 
estimate that 589 are small, under the SBA-approved small business size 
standard. We estimate that the majority of private and common carrier 
paging providers would qualify as small entities under the SBA 
definition.
c. Internet Service Providers
    77. SBA has developed a small business size standard for Online 
Information Services. According to SBA regulations, a small business 
under this category is one having annual receipts of $21 million or 
less. According to Census 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 Online 
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 the great majority of ISPs are 
small.
d. Vendors of Internal Connections
    78. The Commission has not developed a definition of small entities 
applicable to the manufacturers of internal network connections. The 
most applicable definitions of a small entity are the size standards 
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

[[Page 36941]]

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 
establishments 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 the majority of the 1,458 internal connections 
manufacturers are small.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities
    79. There are no additional reporting or recordkeeping requirements 
relating directly to the decisions in this Order. The decision to have 
the Universal Service Administrative Company notify applicants of 
suspension and debarment proceedings, and maintain a list of persons 
debarred from the program does not add any reporting, recordkeeping, or 
compliance requirements to small entities.
    80. Regarding other compliance burdens, the Order clarifies a 
compliance requirement that would affect all participating entities, by 
requiring service providers to allow applicants to choose whether they 
should be provided with discounted bills or whether they should pay the 
service provider for the undiscounted price and later be reimbursed. In 
addition, the Order establishes a time limit for service providers to 
reimburse the applicant. This potentially could require small service 
providers to implement accounting systems to allow them to provide such 
discounts and remit such payments within the required time frame. In 
the Schools and Libraries NPRM, we specifically invited commenters to 
discuss the impact of such changes on small businesses and schools and 
libraries that might also be small entities. We find that this would 
have a positive economic impact on the schools and libraries, including 
small ones, that cannot afford upfront payments. We are not persuaded 
that any burden regarding this billing clarification is significant and 
conclude that it will not be a burden upon small providers that wish to 
participate in the program to provide applicants with such a choice. 
Regarding the remittance deadline, we find this will not be a burden to 
small providers and that it will positively impact schools and 
libraries, including small ones, waiting for reimbursement.
5. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    81. 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.''
    82. Although there were no comments specifically regarding the 
IRFA, there were concerns from commenters about how an online eligible 
services list might impact businesses providing services, and might 
help small schools and libraries. Consistent with our desire to assist 
small entities, we have directed USAC to develop a pilot program 
testing an online list of internal connections equipment that is 
eligible for discounts and report back to the Commission about its 
impact.
    83. The Order also allows for the funding of discounts for voice 
mail, a proposal that garnered overwhelming support of commenters. We 
find that adoption of this proposal would reduce the administrative 
burden on schools and libraries participating in the program because 
they would no longer have to segregate out the voice mail portion of 
their phone bills when they apply for funding. The inclusion of voice 
mail would have a positive effect on entities that receive discounts 
for telecommunications in that this commonly used service would now be 
included in discounts.
    84. In addition, we codify an existing policy of less than ``30 
percent'' of a request to include ineligible services. This maintains 
the status quo.
    85. We also extend the time limit for filing an initial appeal with 
the Schools and Libraries Division and the Commission to 60 days and 
accept appeals as filed when postmarked based on comments that this 
would benefit all entities involved in the program. Also, all entities 
will benefit by the steps we have taken to ensure that all successful 
appeals will be funded to the extent that they would have been funded 
had the discounts been awarded through the normal funding process.
    86. Additionally, we direct the Enforcement Bureau to undertake 
suspension and debarment proceedings for persons convicted of criminal 
violations or held civilly liable for certain acts arising from their 
participation in the schools and libraries support mechanism. We have 
given a suspended or debarred person, or a person that has contracted 
or intends to contract with a suspended or debarred person to provide 
or receive services in connection with the schools and libraries 
support mechanism the opportunity to request that the Commission 
reverse or reduce the period or scope of suspension or debarment.
    87. Report to Congress: The Commission will send a copy of the 
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 Order, including the 
FRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration. A copy of the Order and FRFA (or summaries thereof) 
will also be published in the Federal Register.

IV. Ordering Clauses

    88. Pursuant to the authority contained in sections 1, 4(i), 4(j), 
201-205, 214, 254, and 403 of the Communications Act of 1934, as 
amended, this Second Report and Order is adopted.
    89. Part 54 of the Commission's rules, 47 CFR part 54, is amended 
as set forth, effective July 21, 2003, except for Sec. Sec.  54.500(k), 
54.503, 54.507(g)(1)(i) and (g)(1)(ii), 54.514(a), and 54.517(b) will 
become effective July 1, 2004. In addition, Sec.  54.515(b) contains 
information collection requirements that have not been approved by the 
Office of Management Budget (OMB). The Commission will publish a 
document in the Federal Register announcing the effective date of that 
section.
    90. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of this Second Report 
and Order, including the Final Regulatory Flexibility Analysis and 
Initial Regulatory Flexibility Analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration.

List of Subjects

47 CFR Part 0

    Classified information, Organization and functions (government 
agencies),

[[Page 36942]]

Privacy, Reporting and recordkeeping requirements.

47 CFR Part 54

    Reporting and recordkeeping requirements, Telecommunications, 
Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR parts 0 and 54 as follows:

PART 0--COMMISSION ORGANIZATION

0
1. The authority citation for part 0 continues to read as follows:

    Authority: 47 U.S.C. 155, 225, unless otherwise noted.


0
2. In Sec.  0.111 redesignate paragraphs (a)(14) through (a)(22) as 
paragraphs (a)(15) through (a)(23) and add new paragraph (a)(14) to 
read as follows:


Sec.  0.111  Functions of the Bureau.

    (a) * * *
    (14) Resolve universal service suspension and debarment proceedings 
pursuant to Sec.  54.521 of this chapter.
* * * * *

PART 54--UNIVERSAL SERVICE

0
3. 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.


0
4. Amend Sec.  54.500 by redesignating paragraphs (b) through (1) as 
paragraphs (c) through (m), add new paragraph (b) and revise newly 
redesignated paragraphs (c) and (k) to read as follows:


Sec.  54.500  Terms and definitions.

* * * * *
    (b) Educational purposes. For purposes of this subpart, activities 
that are integral, immediate, and proximate to the education of 
students, or in the case of libraries, integral, immediate and 
proximate to the provision of library services to library patrons, 
qualify as ``educational purposes.'' Activities that occur on library 
or school property are presumed to be integral, immediate, and 
proximate to the education of students or the provision of library 
services to library patrons.
    (c) Elementary school. An ``elementary school'' is a non-profit 
institutional day or residential school, including a public elementary 
charter school, that provides elementary education, as determined under 
state law.
* * * * *
    (k) Secondary school. A ``secondary school'' is a non-profit 
institutional day or residential school that provides secondary 
education, including a public secondary charter school, as determined 
under state law. A secondary school does not offer education beyond 
grade 12.
* * * * *

0
5. Amend Sec.  54.501 by revising paragraph (b) to read as follows:


Sec.  54.501  Eligibility for services provided by telecommunications 
carriers.

* * * * *
    (b) Schools. (1) Only schools meeting the statutory definitions of 
``elementary school,'' as defined in 20 U.S.C. 7801(18), or ``secondary 
school,'' as defined in 20 U.S.C. 7801(38), and not excluded under 
paragraphs (b)(2) or (b)(3) of this section shall be eligible for 
discounts on telecommunications and other supported services under this 
subpart.
* * * * *

0
6. Revise Sec.  54.503 to read as follows:


Sec.  54.503  Other supported special services.

    For the purposes of this subpart, other supported special services 
provided by telecommunications carriers include voice mail, Internet 
access, and installation and maintenance of internal connections in 
addition to all reasonable charges that are incurred by taking such 
services, such as state and federal taxes. Charges for termination 
liability, penalty surcharges, and other charges not included in the 
cost of taking such services shall not be covered by the universal 
service support mechanisms.

0
7. Amend Sec.  54.504 by redesignating paragraph (d) as (e) and adding 
a new paragraph (d) to read as follows:


Sec.  54.504  Requests for services.

* * * * *
    (d) Mixed eligibility requests. If 30 percent or more of a request 
for discounts made in an FCC Form 471 is for ineligible services, the 
request shall be denied in its entirety.
* * * * *

0
8. Amend Sec.  54.507 by revising the first sentence of paragraphs 
(g)(1)(i) and (g)(1)(ii) to read as follows:


Sec.  54.507  Cap.

* * * * *
    (g) * * *
    (1) * * *
    (i) Schools and Libraries Corporation shall first calculate the 
demand for telecommunications services, voice mail, and Internet access 
for all discount categories, as determined by the schools and libraries 
discount matrix in Sec.  54.505(c). * * *
    (ii) Schools and Libraries Corporation shall then calculate the 
amount of available funding remaining after providing support for all 
telecommunications services, voice mail, and Internet access for all 
discount categories. * * *
* * * * *

0
9. Amend Sec.  54.511 by revising paragraph (a) to read as follows:


Sec.  54.511  Ordering services.

    (a) Selecting a provider of eligible services. In selecting a 
provider of eligible services, schools, libraries, library consortia, 
and consortia including any of those entities shall carefully consider 
all bids submitted and must select the most cost-effective service 
offering. In determining which service offering is the most cost-
effective, entities may consider relevant factors other than the pre-
discount prices submitted by providers but price should be the primary 
factor considered.
* * * * *

0
10. Add Sec.  54.514 to read as follows:


Sec.  54.514  Payment for discounted service.

    (a) Choice of payment method. Service providers providing 
discounted services under this subpart in any funding year shall, prior 
to the submission the Form 471, permit the billed entity to choose the 
method of payment for the discounted services from those methods 
approved by the Administrator, including by making a full, undiscounted 
payment and receiving subsequent reimbursement of the discount amount 
from the service provider.
    (b) Deadline for remittance of reimbursement checks. Service 
providers that receive discount reimbursement checks from the 
Administrator after having received full payment from the billed entity 
must remit the discount amount to the billed entity no later than 20 
business days after receiving the reimbursement check.

0
11. Amend Sec.  54.517 by revising paragraph (b) to read as follows:


Sec.  54.517  Services provided by non-telecommunications carriers.

* * * * *
    (b) Supported services. Non-telecommunications carriers shall be 
eligible for universal service support under this subpart for providing 
voice mail, Internet access, and installation

[[Page 36943]]

and maintenance of internal connections.
* * * * *

0
12. Add Sec.  54.521 to read as follows:


Sec.  54.521  Prohibition on participation: suspension and debarment.

    (a) Definitions--(1) Activities associated with or related to the 
schools and libraries support mechanism. Such matters include the 
receipt of funds or discounted services through the schools and 
libraries support mechanism, or consulting with, assisting, or advising 
applicants or service providers regarding the schools and libraries 
support mechanism described in this section (Sec.  54.500 et seq.).
    (2) Civil liability. The disposition of a civil action by any court 
of competent jurisdiction, whether entered by verdict, decision, 
settlement with admission of liability, stipulation, or otherwise 
creating a civil liability for the wrongful acts complained of, or a 
final determination of liability under the Program Fraud Civil Remedies 
Act of 1988 (31 U.S.C. 3801-12).
    (3) Consultant. A person that for consideration advises or consults 
a person regarding the schools and libraries support mechanism, but who 
is not employed by the person receiving the advice or consultation.
    (4) Conviction. A judgment or conviction of a criminal offense by 
any court of competent jurisdiction, whether entered by verdict or a 
plea, including a plea of nolo contendere.
    (5) Debarment. Any action taken by the Commission in accordance 
with these regulations to exclude a person from activities associated 
with or relating to the schools and libraries support mechanism. A 
person so excluded is ``debarred.''
    (6) Person. Any individual, group of individuals, corporation, 
partnership, association, unit of government or legal entity, however 
organized.
    (7) Suspension. An action taken by the Commission in accordance 
with these regulations that immediately excludes a person from 
activities associated with or relating to the schools and libraries 
support mechanism for a temporary period, pending completion of the 
debarment proceedings. A person so excluded is ``suspended.''
    (b) Suspension and debarment in general. The Commission shall 
suspend and debar a person for any of the causes in paragraph (c) of 
this section using procedures established in this section, absent 
extraordinary circumstances.
    (c) Causes for suspension and debarment. Causes for suspension and 
debarment are conviction of or civil judgment for attempt or commission 
of criminal fraud, theft, embezzlement, forgery, bribery, falsification 
or destruction of records, making false statements, receiving stolen 
property, making false claims, obstruction of justice and other fraud 
or criminal offense arising out of activities associated with or 
related to the schools and libraries support mechanism.
    (d) Effect of suspension and debarment. Unless otherwise ordered, 
any persons suspended or debarred shall be excluded from activities 
associated with or related to the schools and libraries support 
mechanism. Suspension and debarment of a person other than an 
individual constitutes suspension and debarment of all divisions and/or 
other organizational elements from participation in the program for the 
suspension and debarment period, unless the notice of suspension and 
proposed debarment is limited by its terms to one or more specifically 
identified individuals, divisions, or other organizational elements or 
to specific types of transactions.
    (e) Procedures for suspension and debarment. The suspension and 
debarment process shall proceed as follows:
    (1) Upon evidence that there exists cause for suspension and 
debarment, the Commission shall provide prompt notice of suspension and 
proposed debarment to the person. Suspension shall be effective upon 
the earlier of receipt of notification or publication in the Federal 
Register.
    (2) The notice shall: (i) Give the reasons for the proposed 
debarment in terms sufficient to put the person on notice of the 
conduct or transaction(s) upon which it is based and the cause relied 
upon, namely, the entry of a criminal conviction or civil judgment 
arising out of activities associated with or related to the schools and 
libraries support mechanism;
    (ii) Explain the applicable debarment procedures;
    (iii) Describe the effect of debarment.
    (3) A person subject to proposed debarment, or who has an existing 
contract with the person subject to proposed debarment or intends to 
contract with such a person to provide or receive services in matters 
arising out of activities associated with or related to the schools and 
libraries support mechanism, may contest debarment or the scope of the 
proposed debarment. A person contesting debarment or the scope of 
proposed debarment must file arguments and any relevant documentation 
within thirty (30) calendar days of receipt of notice or publication in 
the Federal Register, whichever is earlier.
    (4) A person subject to proposed debarment, or who has an existing 
contract with the person subject to proposed debarment or intends to 
contract with such a person to provide or receive services in matters 
arising out of activities associated with or related to the schools and 
libraries support mechanism, may also contest suspension or the scope 
of suspension, but such action will not ordinarily be granted. A person 
contesting suspension or the scope of suspension must file arguments 
and any relevant documentation within thirty (30) calendar days of 
receipt of notice or publication in the Federal Register, whichever is 
earlier.
    (5) Within ninety (90) days of receipt of any information submitted 
by the respondent, the Commission, in the absence of extraordinary 
circumstances, shall provide the respondent prompt notice of the 
decision to debar. Debarment shall be effective upon the earlier of 
receipt of notice or publication in the Federal Register.
    (f) Reversal or limitation of suspension or debarment. The 
Commission may reverse a suspension or debarment, or limit the scope or 
period of suspension or debarment, upon a finding of extraordinary 
circumstances, after due consideration following the filing of a 
petition by an interested party or upon motion by the Commission. 
Reversal of the conviction or civil judgment upon which the suspension 
and debarment was based is an example of extraordinary circumstances.
    (g) Time period for debarment. A debarred person shall be 
prohibited from involvement with the schools and libraries support 
mechanism for three (3) years from the date of debarment. The 
Commission may, if necessary to protect the public interest, set a 
longer period of debarment or extend the existing period of debarment. 
If multiple convictions or judgments have been rendered, the Commission 
shall determine based on the facts before it whether debarments shall 
run concurrently or consecutively.


Sec.  54.701  [Amended]

0
13. Amend Sec.  54.701 by removing paragraphs (b) through (e), and 
redesignating paragraphs (f) through (h) as paragraphs (b) through (d).

0
14. Amend Sec.  54.720 by revising paragraphs (a) through (d), 
redesignating paragraph (e) as (f), and adding a new paragraph (e), to 
read as follows:

[[Page 36944]]

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 
a request within sixty (60) 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 sixty (60) 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 sixty (60) 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.  
54.719(b), 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 or the full Board shall have sixty (60) days 
from the date the Committee or the Board issues a decision to file an 
appeal with the Commission.
    (e) In all cases of requests for review filed under Sec.  54.719, 
the request for review shall be deemed filed on the postmark date. If 
the postmark date cannot be determined, the applicant must file a sworn 
affidavit stating the date that the request for review was mailed.
* * * * *

0
15. Amend Sec.  54.721 by revising the last sentence of paragraph (a) 
and by removing the effective date note immediately following this 
section to read as follows:


Sec.  54.721  General filing requirements.

    (a) * * * 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 the applicable 
docket numbers.
* * * * *
[FR Doc. 03-14928 Filed 6-19-03; 8:45 am]
BILLING CODE 6712-01-P