[Federal Register Volume 70, Number 138 (Wednesday, July 20, 2005)]
[Proposed Rules]
[Pages 41658-41678]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-14053]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket No. 05-195, CC Docket No. 96-45, CC Docket No. 02-6, WC 
Docket No. 02-60, WC Docket No. 03-109, CC Docket No. 97-21; FCC 05-
124]


Comprehensive Review of Universal Service Fund Management, 
Administration, and Oversight

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this document, the Commission initiates a broad inquiry 
into the management and administration of the Universal Service Fund 
(USF), as well as the Commission's oversight of the USF and the USF 
Administrator. We seek comment on ways to improve the management, 
administration, and oversight of the USF, including simplifying the 
process for applying for USF support, speeding the disbursement 
process, simplifying the billing and collection process, addressing 
issues relating to the Universal Service Administrative Company (USAC 
or the Administrator), and exploring performance measures suitable for 
assessing and managing the USF programs. We also seek comment on ways 
to further deter waste, fraud, and abuse through audits of USF 
beneficiaries or other measures, and on various methods for recovering 
improperly disbursed funds.

DATES: Comments are due on or before October 18, 2005. Reply comments 
are due on or before December 19, 2005.

[[Page 41659]]


ADDRESSES: You may submit comments, identified by WC Docket No. 05-195, 
CC Docket No. 96-45, CC Docket No. 02-6, WC Docket No. 02-60, WC Docket 
No. 03-109, CC Docket No. 97-21 and/or FCC 05-124, by any of the 
following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Federal Communications Commission's Web Site: http://www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
     Mail: Filings should be sent to the Commission's 
Secretary, Marlene H. Dortch, Office of the Secretary, Federal 
Communications Commission, 445 12th Street, SW., Washington, DC 20554.
     People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by e-mail: [email protected] or phone: 202-418-
0530 or TTY: 202-418-0432.
    For detailed instructions for submitting comments and additional 
information on this rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Warren Firschein, Attorney, Wireline 
Competition Bureau, Telecommunications Access Policy Division, (202) 
418-7400, TTY (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking and Further Notice of Proposed Rulemaking in WC 
Docket No. 05-195, CC Docket No. 96-45, CC Docket No. 02-6, WC Docket 
No. 02-60, WC Docket No. 03-109 and CC Docket No. 97-21 released on 
June 14, 2005. The full text of this document is available for public 
inspection during regular business hours in the FCC Reference Center, 
Room CY-A257, 445 12th Street, SW., Washington, DC 20554.

I. Introduction

    1. In this Notice of Proposed Rulemaking and Further Notice of 
Proposed Rulemaking (NPRM) we initiate a broad inquiry into the 
management and administration of the Universal Service Fund (USF), as 
well as the Commission's oversight of the USF and the USF 
Administrator. In particular, we seek comment on ways to improve the 
management, administration, and oversight of the USF, including 
simplifying the process for applying for USF support, speeding the 
disbursement process, simplifying the billing and collection process, 
addressing issues relating to the Universal Service Administrative 
Company (USAC or the Administrator), and exploring performance measures 
suitable for assessing and managing the USF programs. In addition, we 
seek comment on ways to further deter waste, fraud, and abuse through 
audits of USF beneficiaries or other measures, and on various methods 
for recovering improperly disbursed funds.
    2. Our goal is to find ways to improve the program, both from the 
perspective of USF beneficiaries and from the perspective of 
safeguarding the fund itself. We recognize that some parties have 
raised concerns ranging from mismanagement to intentionally defrauding 
the program, and we take these concerns seriously. In this proceeding, 
we intend to address these concerns by finding constructive ways to 
continue meeting the needs of those who depend on the USF, while at the 
same time ensuring that the public is confident that the funds are used 
for their intended purpose. To accomplish this, we are seeking input 
from all interested parties, including experienced participants in the 
USF programs, on improving the management, administration, and 
oversight of the four universal service programs. We intend to 
determine whether any rule changes are necessary in order to manage and 
administer the USF programs more efficiently and effectively, while 
deterring waste, fraud, and abuse. We are interested in rule changes 
that can be applied, to the greatest extent possible, consistently 
across all programs. Furthermore, to the extent commenters' suggestions 
can be accomplished without rule changes, we may do so after evaluating 
the record in this docket.

II. Discussion

A. Management and Administration of the USF

    3. In this section, we broadly seek comment on measures the 
Commission can take to improve management and administration of the 
program. The effectiveness and efficiency of our management and 
administration of the USF is influenced by the organizational structure 
used to carry out the missions of the USF, the methods used to measure 
and evaluate program performance, and the program operations, including 
the application process, the contributions process, and the 
disbursement process. We encourage parties to comment on the 
Commission's past practices and submit proposals for improving the 
management and administration of the program. We also invite comments 
and suggestions on any aspect of this NPRM from USAC, including its 
views on its performance as Administrator.
1. Universal Service Fund Administrator
a. Background
    4. The Commission's rules provide for the appointment of a 
permanent Administrator of the USF. In 1998, the Commission appointed 
USAC the permanent Administrator of the federal universal service 
support mechanisms. Under the Commission's rules, the Administrator is 
responsible for administering each of the USF mechanisms. As part of 
its duties and subject to Commission rules and oversight, the 
Administrator bills contributors to the USF, collects USF 
contributions, disburses universal service support funds, recovers 
improperly disbursed USF moneys, submits periodic reports to the 
Commission (including quarterly reports on the disbursement of 
universal service support funds), maintains accounting records, 
conducts audits of contributors and beneficiaries, creates and 
maintains an Internet site, collects information, and provides access 
to information it collects to the Commission. Aggrieved parties may 
file appeals of actions taken by the Administrator. Under the 
Commission's rules, USAC is required to maintain its books of account 
in accordance with generally accepted accounting principles (GAAP) and 
to account for the financial transactions of the USF in accordance with 
government generally accepted accounting principles (GovGAAP). The 
Administrator must also maintain the accounts of the USF in accordance 
with the U.S. Government Standard General Ledger (USGSGL). Pursuant to 
Commission rules, the Administrator is prohibited from making policy, 
interpreting unclear provisions of the statute or the Commission's 
rules, or interpreting the intent of Congress, and may only advocate 
positions before the Commission and its staff on administrative 
matters.

B. USF Administrative Structure

    5. We seek comment on whether modifications to our rules are needed 
to ensure efficient, effective, and competitively neutral 
administration of the USF. The Commission appointed USAC the permanent 
Administrator ``subject to a review after one year by [the Commission] 
to determine that the Administrator is administrating the universal 
service support mechanisms

[[Page 41660]]

in an efficient, effective, and competitively neutral manner.'' The 
Commission intended to review USAC's performance after one year; 
however, the one-year review did not take place. We therefore seek 
comment on USAC's performance since the inception of the USF program, 
as well as the Commission's management and oversight of USAC. We seek 
comment on whether USAC has administered the USF in an efficient, 
effective, and competitively neutral manner. In addition, we seek 
comment on whether additional rules or amendment of existing rules are 
needed to provide clarity to the scope and content of the 
Administrator's functions. Commenters should address USAC's successes 
as well as any weaknesses in USAC's performance or areas that need 
improvement.
    6. Administrative Structure. We take this opportunity to evaluate 
the current administrative structure to determine whether any changes 
are needed in order to enhance management of the USF. Commenters should 
discuss whether their experience in other government programs suggests 
a more effective mechanism for administering a subsidy program the size 
of the USF. We seek comment on whether we should replace the permanent, 
designated Administrator with another type of administrative structure 
or entity. For example, we could retain USAC as Administrator pursuant 
to a contract or subject to a Memorandum of Understanding. We could 
seek competitive bids for another entity to administer the USF, subject 
to replacement after a period of time. Alternatively, we could appoint 
a different entity or organization to permanently administer the USF 
instead of USAC, or we could retain the current structure for USF 
administration so that USAC would continue to administer the USF. If we 
retain the current structure for USF administration, how can we improve 
the Commission's oversight of the USF and management of the program? 
Commenters should address the pros and cons of a permanent 
administrative entity as well as the pros and cons of alternative 
administrative structures and arrangements. Commenters should discuss 
the advantages and disadvantages of competitive procurement and of 
having the same entity administer the USF programs over a lengthy 
period of time. We seek comment on whether USAC should apply, to the 
extent practicable, the policies and procedures embodied in the Federal 
Acquisition Regulation (FAR). Commenters should also discuss how 
Commission oversight would be implemented if alternative arrangements 
were adopted.
    7. In addition, we seek comment on whether using a not-for-profit 
corporation as the permanent Administrator of the USF has worked 
successfully. Commenters should address the pros and cons of using a 
not-for-profit entity as the USF Administrator. We note that the 
Commission has experience using contracts to administer certain 
programs. For example, section 251(e) of the Act directs the Commission 
to ``create or designate one or more impartial entities to administer 
telecommunications numbering and to make such numbers available on an 
equitable basis.'' The Commission concluded that it was free to select 
the National Pooling Administrator on a competitive basis, as it did in 
choosing the North American Numbering Plan administrator in 1997. The 
entities that administer telecommunications numbering and thousands 
block number pooling for the Commission do so pursuant to a contract 
and we believe that such contracts have provided certain cost benefits, 
such as the lower costs that can be achieved through the competitive 
bidding process.
    8. Part 54 of the Commission's rules are designed to promote 
universal service in a competitively neutral manner. The Commission's 
rules apply a number of requirements to the USF Administrator to ensure 
effective, efficient, competitively neutral administration. This 
ensures that support is made available on a technologically neutral 
basis to eligible service providers. The Commission concluded, when 
appointing USAC permanent administrator, that ``subject to the 
modifications set forth in this Order, USAC fairly represents all 
interested parties, including a broad range of industry, consumer, and 
beneficiary groups.'' We seek comment on how any proposals to change 
the current administrative structure would affect the independence and 
neutrality of the USF program administration. The Commission's rules 
provide for an experienced Board of Directors representing a balance of 
different interests. The Commission's rules describe the functions of 
USAC, which are limited to ``administering the schools and libraries 
support mechanism, the rural health care support mechanism, the high 
cost support mechanism, the low income support mechanism, the 
interstate access universal service support mechanism * * * and the 
interstate common line support mechanism.'' In addition, USAC is 
responsible for ``billing contributors, collecting contributions to the 
universal service support mechanisms, and disbursing universal service 
support funds.'' The rules also prohibit USAC from making policy or 
interpreting the intent of Congress, and bar USAC from lobbying on 
anything other than administrative issues. We seek comment on whether 
we should modify our rules to more clearly delineate USAC's 
administrative functions.
    9. We seek comment on whether we should modify our rules addressing 
meetings of the Administrator's Board of Directors. We seek comment on 
whether the current board composition results in effective, efficient, 
and competitively neutral management of the USF. Commenters should 
provide specific recommendations for modifying the composition of the 
Administrator's Board of Directors and describe the benefits of 
implementing such proposals. Section 54.705 of the Commission's rules 
requires USAC to have three committees: A Schools and Libraries 
Committee, a Rural Health Care Committee, and a High Cost and Low 
Income Committee. We seek comment on whether additional committees or 
fewer committees would be administratively efficient and useful. USAC 
also has an audit committee, an investment committee, and an executive 
committee, which are not required by our rules. We seek comment on 
whether we should revise the rules to clarify or specify the 
organizational structure of the Administrator's committees.
    10. We also seek comment on whether we should adopt rules to 
require the Administrator to implement ethics standards and procedures 
for addressing conflicts of interest, or if we should adopt specific 
rules governing the ethics standards and conflicts of interest for 
officers and/or employees of the Administrator. We seek comment on 
whether to adopt rules addressing the Administrator's procedure for 
handling confidential information, including confidential information 
related to the federal government. Finally, we seek comment on whether 
the Administrator's Board of Directors should be permitted to enter 
into closed sessions in which the Commission and members of the public 
are excluded. Although the Commission's rules state that all meetings 
of the Administrator's Board of Directors are to be public, there may 
be instances where a private meeting is warranted. Should we adopt 
procedures and rules to identify appropriate instances of when the 
Administrator's Board of Directors may

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hold a closed sessions? If so, what should those instances be?
    11. Filing and Reporting Requirements. Under our rules, the 
Administrator must submit periodic reports to the Commission. Section 
54.702(g) of the Commission's rules requires USAC to submit an annual 
audit report. Section 54.709(a) of the Commission's rules requires USAC 
to submit, 60 days prior to the start of the quarter, financial and 
accounting data, including projected administrative expenses and 
projected program demand (i.e., amount of moneys USAC expects to 
disburse in the upcoming quarter for each USF mechanism). Section 
54.709(a) of the Commission's rules also requires USAC to submit, 30 
days prior to the start of each quarter, its estimate of contributor 
base. USAC prepares and submits additional reports, both to the 
Commission staff on an ad hoc basis and to its Board of Directors on a 
quarterly basis. We seek comment on whether we should revise the 
content or frequency of the Administrator's reports. For example, we 
could require these reports be filed on a monthly, quarterly, or annual 
basis. We seek suggestions from USF stakeholders about the appropriate 
types of publicly available information that we should require from 
USAC. For example, should we require publicly available, periodic 
performance measurement and financial reports?
    12. The Bureau calculates the proposed quarterly contribution 
factor, based on USAC's submissions, and announces it in a Public 
Notice fourteen days before the beginning of each quarter. This 
proposed contribution factor is deemed approved when the fourteen-day 
period ends, if the Commission takes no action to change the 
contribution factor. USAC uses the contribution factor to bill carriers 
on the sixteenth of each month during the quarter. USAC requires 
carriers to pay their invoices by the fifteenth of the following month. 
We seek comment on whether we should revise our rules to change any of 
these time periods or to modify the content of USAC's filings.
    13. Contributor Delinquency. We also seek comment on whether we 
should revise our rules to address the issue of a carrier's delinquent 
contributions. Should we adopt a rule on how a carrier's payments are 
assigned to current and delinquent amounts due the Administrator? The 
Administrator's practice is to apply partial payments to the oldest 
debt first, instead of the current billed amount. Should we direct USAC 
to modify this practice? We also seek comment on whether we should 
adopt rules to allow USAC to charge interest and assess penalties for a 
carrier's failure to file the FCC Form 499-A, Telecommunications 
Reporting Worksheet (Form 499-A).
    14. Borrowing Funds. Our rules currently provide that USAC ``shall 
request borrowing authority from the Commission to borrow funds 
commercially'' if contributions received in a given quarter are 
inadequate to meet the amount of universal service program payments and 
administrative costs for that quarter. We note that USAC has never 
requested such authority nor has the Commission authorized such 
borrowing. Is Sec.  54.709(c) of the Commission's rules, to the extent 
it authorizes borrowing of funds to pay for the USF, inconsistent with 
federal financial accounting rules that apply to the USF? We seek 
comment on whether we should eliminate this rule. We think it is 
unlikely that the Commission would be unable to meet program payment 
requirements and administrative costs in any quarter because we 
evaluate the program demand (including administrative expenses) before 
we establish the contribution factor and we can control to a large 
extent the amount of USF disbursements in a given quarter. 
Nevertheless, we believe that we should consider and account for that 
contingency.
    15. Moreover, we note that to the extent we modify our rules to 
permit other entities to administer the USF, there may be a need to 
permit borrowing under certain circumstances, e.g., for administrative 
expenses or other non-program reasons and without jeopardizing program 
funds. We therefore seek comment on what process to establish, in lieu 
of the existing borrowing authority in Sec.  54.709(c) of the 
Commission's rules, to address situations in which the amount of 
available USF is insufficient to accommodate program demand and 
administrative expenses. For example, we could maintain a cash reserve 
that would be used only in that event. At the same time, given the 
relatively low risk of the occurrence, we question whether it would be 
prudent to tie up funds for that purpose. We seek comment on what an 
appropriate reserve level would be. We have no rules regarding 
interfund borrowing. Should we adopt a rule prohibiting or allowing 
interfund borrowing? We seek comment on whether to establish 
limitations or constraints on the Administrator's ability to borrow 
funds in permissible circumstances and in a manner consistent with 
federal law. We seek comment on other ways to ensure that universal 
service funds are sufficient to cover costs and administrative 
expenses. For example, in the event that funds are insufficient to 
cover costs and administrative expenses, should we seek to collect 
additional funds and postpone payments until sufficient funds have been 
received? We also seek comment on the potential impact that any such 
proposal could have on fund beneficiaries. Finally, we seek comment on 
whether the Commission should adopt rules or requirements governing the 
investment practices and policies of the Administrator. For example, 
should we adopt requirements restricting USAC investments to non-
interest bearing accounts or Treasury bills?
    16. Administrative Procedures. We seek comment on whether we should 
codify certain USAC administrative procedures in the Commission's 
rules. In the Schools and Libraries Fifth Report and Order, 69 FR 
55097, September 13, 2004, we directed USAC to identify all Schools and 
Libraries program procedures and we are currently evaluating USAC's 
list. As we discussed in the Schools and Libraries Fifth Report and 
Order, we are concerned about recovery of funds disbursed after 
applicants failed to follow USAC administrative procedures. Certain 
USAC procedures have since been incorporated into the Commission's 
rules. This issue has not yet been raised in the context of 
administrative procedures related to contributions or in the context of 
the High Cost, Low Income, and Rural Health Care programs. Under the 
Commission's rules, the Administrator may not ``make policy, interpret 
unclear provisions of the statute or rules, or interpret the intent of 
Congress.'' To assist our analysis, we will require USAC to file a list 
of its administrative procedures for the contributions process and the 
High Cost, Low Income, and Rural Health Care programs as an ex parte 
filing in this proceeding, by September 19, 2005. USAC's administrative 
procedures may involve collection or disbursement policies and 
practices that affect beneficiaries and service providers. We believe 
that there is a fundamental difference between ministerial errors and 
intentional fraud, and that greater clarity in USAC's rules and 
procedures will help reduce ministerial errors. We seek comment on how 
a beneficiary's compliance or lack of compliance with USAC non-codified 
administrative procedures should be treated in the auditing context. We 
are seeking proposals from commenters as to whether any of USAC's 
procedures or policies should be codified. We anticipate that it will 
be useful to

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continue to evaluate whether other USAC administrative procedures 
should be codified into our rules. We ask that commenters consider 
whether any proposal for the Commission to codify USAC administrative 
procedures, or other proposals in this NPRM, would facilitate or 
restrict the ability of the administrator to perform its duties in a 
flexible and responsive way.
    17. Continuity of Operations. Federal agencies are required to 
develop continuity of operations (COOP) plans to ensure that essential 
services will be available in emergency situations. Disruptions from a 
variety of sources, including severe weather conditions, can result in 
interruptions in services. We seek comment on whether we should adopt a 
rule to require USAC to develop and maintain a COOP plan for dealing 
with emergency situations. We also seek comment on whether any 
modifications to our rules are needed to ensure that the Administrator 
can continue to perform its mission-critical functions in the event of 
an incident or emergency situation. Commenters should describe the pros 
and cons of any proposals.
2. Performance Measures
    18. We recognize that effective program management requires the 
implementation of meaningful performance measures. Clearly articulated 
goals and reliable performance data allow the Commission and other 
stakeholders to assess the effectiveness of the USF programs and to 
determine whether changes are needed. The Commission is in the process 
of compiling USF performance measures, particularly for the Schools and 
Libraries program and the High Cost program, in order to comply with 
the Office of Management and Budget (OMB) Program Assessment Rating 
Tool (PART) requirements. We seek comment on additional performance 
measures and goals that we can use to track progress and efficiency for 
all the universal service programs. Proposed performance measures 
should be highly relevant in measuring program value, accomplishments, 
and results. We also seek comment on whether we should establish 
specific performance goals or targets for the Administrator or for 
participants in the USF programs. We must be careful to measure only 
the goals of the program and not stray beyond our jurisdiction. Under 
the Act, universal service is defined as an ``evolving level of 
telecommunications services'' that includes advanced services. For the 
various USF programs, we should focus on measuring access to an 
evolving level of telecommunications services in the performance 
measure context.
    19. The OMB's PART guidance sets forth three types of performance 
measures: (1) outcome measures, (2) output measures, and (3) efficiency 
measures. Outcome measures ``describe the intended result from carrying 
out a program or activity.'' Output measures describe the level of 
activity, such as applications processed, number of housing units 
repaired, or number of stakeholders served by a program. Efficiency 
measures capture a program's ability to perform its function and 
achieve its intended results relative to the resources expended. These 
performance measurements should be intrinsically linked to the purpose 
of the program and the strategic goal to which it contributes. The GAO 
has also published a number of reports addressing the use of 
performance measures in the management of government programs. We seek 
comment on establishing the most useful and valid outcome, output, and 
efficiency measures for the USF and each of its mechanisms, as well as 
the administration of the program. Commenters should address the 
objectives of any recommended performance measurements and goals. 
Commenters should also discuss whether we should revise our information 
collection process, including any of the forms applicable to the USF 
mechanisms, in order to collect sufficient information to measure the 
performance of the programs and identify potential areas for program 
improvement.
    20. E-Rate. We seek comment on suitable outcome, output, and 
efficiency measures for the E-rate program. In the past, the Commission 
used the percentage of public schools connected to the Internet as a 
measure of the impact of the E-rate program and its success, and we 
seek comment on continuing to use connectivity as a measurement. As 
prescribed in section 254(h) of the Communications Act, the statutory 
goal of the E-rate program is to provide discounts to eligible schools 
and libraries for educational purposes. The Commission used this goal 
in developing and submitting its prior PART analysis to the OMB. We 
seek comment on the value of continuing to use this goal for the 
purposes of measuring the impact of the E-rate program. We seek comment 
on whether we should also measure the connectivity of libraries or 
private schools. We seek comment on whether alternative or supplemental 
goals may be more appropriate than connectivity. Universal service is 
an ``evolving level of telecommunications services'' that includes 
advanced services. We seek comment on how we can take the evolving 
level of services into account in adopting performance measures. We 
also seek comment on ways to measure the extent to which broadband 
services have been deployed to classrooms, through the E-rate program. 
One possibility for measuring the impact of E-rate moneys on schools 
and libraries would be to collect data on the use of E-rate supported 
services. For example, we could measure the number or percentage of 
students that access the Internet or the number or percentage of 
teachers using supported services in their classrooms. Likewise, we 
could measure the number or percentage of library patrons who use 
supported services during a library visit. We seek comment on relevant 
performance measures for the E-rate program. We note that the 
Department of Education already collects information on the use of the 
Internet in classrooms, but does not collect information on broadband. 
We do not want to expend resources for a repetitious inquiry. We 
therefore seek comment on how we should design performance measurements 
to measure broadband connectivity. Commenters should also propose 
definitions of ``broadband'' for our performance measurements. We also 
seek comment on how we can be sure to measure only schools and 
libraries that get support from the program, rather than measuring all 
schools and libraries. Furthermore, we seek comment on how the 
Commission can determine which schools currently have no connectivity 
at all so that we can improve the program by reaching these unconnected 
schools.
    21. We note that the U.S. Department of Education uses performance 
measures to evaluate the implementation of the Enhancing Education 
Through Technology (EETT) program. The EETT program funds initiatives 
that are designed to integrate technology into classrooms in ways to 
improve the academic achievement of students. These performance 
measures allow the Department of Education to respond to Government 
Performance and Results Act (GPRA) reporting requirements. We seek 
comment on whether these measures are instructive for E-rate purposes.
    22. We also seek comment on meaningful ways to distinguish the 
impact of E-rate funds from other governmental and non-governmental 
programs that support services or facilities similar to the E-rate 
program. Is there an effective way to isolate and

[[Page 41663]]

measure the impact of the E-rate program on schools and libraries?
    23. We also seek comment on ways to measure the efficiency and 
effectiveness of the E-rate program. For example, we could implement a 
measurement to capture the cost in E-rate funds disbursed per student 
or library patron. We note that the timing of the Commission's and 
USAC's processes may be critical to schools and libraries. Lengthy 
intervals for processing or reviewing applications could have a 
disruptive effect on the budget or procurement schedule for schools or 
libraries. Delay can complicate the USAC application process for 
schools and libraries, leading to ministerial errors on subsequent 
applications, complicating auditing, and undermining our ability to 
combat waste, fraud, and abuse. We seek comment on timing issues that 
need improvement. Commenters should discuss particular deadlines that 
should be modified. Should we create new deadlines for Commission or 
USAC action in various phases of the E-rate process? Should we set 
deadlines for progressing from the completion of an application to the 
funding commitment decision letter (FCDL), or for completion of 
appeals? In submitting their responses and proposals, commenters should 
focus on the need, if any, to modify our information collection 
processes, and the burden any such modification would place on 
stakeholders in the program, particularly small entities.
    24. High Cost, Rural Health Care, and Low Income. We also seek 
comment on adopting meaningful outcome, output, and efficiency measures 
for the High Cost, Rural Health Care, and Low Income programs. Because 
these mechanisms have different goals and purposes than the E-rate 
program, we expect to adopt different performance measures and goals 
for each program. We note that participants in each USF mechanism may 
receive support from other sources (e.g., loans from the Department of 
Agriculture's Rural Utility Service or the Department of Education) or 
may seek USF support for only a portion of their telecommunications 
needs. We seek comment on whether and how we should account for these 
factors in crafting performance measurements for each of the mechanisms 
so we can evaluate the impact of each USF dollar disbursed. Commenters 
should suggest measures for each of the statutory goals listed in 
section 254(b)(3) of the Communications Act: ``Consumers in all regions 
of the Nation, including low-income consumers and those in rural, 
insular, and high cost areas, should have access to telecommunications 
and information services, including interexchange services and advanced 
telecommunications and information services, that are reasonably 
comparable to those services provided in urban areas and that are 
available at rates that are reasonably comparable to rates charged for 
similar services in urban areas.'' We also seek comment on ways to 
measure the efficiency of each support mechanism. How do we best 
determine whether the programs are accomplishing the statutory goals in 
a cost-effective manner? Relevant performance measures for the Low 
Income program may include the percentage of eligible households that 
receive low income support and telephone subscribership rates for low 
income consumers. We seek comment on these suggestions and we request 
commenters to submit alternative proposals for performance measures. 
Suitable performance measures for the High Cost program may include 
telephone subscribership in rural areas (and comparing such rates to 
telephone subscribership in urban areas) or the comparability of rural 
and urban rates. We seek comment on these possibilities and request 
parties to submit alternative proposals for performance measures. 
Relevant performance measures for the Rural Health Care program may 
determine the comparability of rural and urban rates, the number or 
percentage of eligible rural health care providers receiving USF 
support, and the number of patients served by rural health care 
providers participating in the program. We seek comment on these 
possibilities and request parties to submit alternative proposals for 
performance measures.
    25. USF Administration. Finally, we seek comment on establishing 
suitable performance measurements for evaluating the administration of 
the USF program. Under the Commission's rules, the Administrator is 
responsible for performing certain functions under the Commission's 
oversight. In particular, the Administrator bills contributors, 
collects USF contributions, disburses USF moneys, and administers the 
USF's accounts and transactions. When the Commission appointed the 
permanent Administrator, we noted our expectation that the 
Administrator would perform its duties in an efficient, effective, 
competitively neutral manner. Although the Commission adopted various 
reporting requirements applicable to the Administrator, it did not 
adopt metrics to measure the Administrator's performance of its duties. 
Relevant performance measures may include the number of applications 
for USF support processed within a particular period of time, the 
percentage of applications rejected by the Administrator for errors or 
other reasons, the average number of days required to process an 
application, the accuracy of bills issued to contributors, or the 
number of errors made in disbursing funds to USF beneficiaries. We seek 
comment on these possibilities and request that commenters submit 
alternative proposals. We also seek comment on ways of measuring how 
cost-effectively the Administrator operates.
3. Program Management
    26. We seek comment from all interested parties on ways we can 
improve the management, administration, and oversight of the USF 
programs, including the billing and collection process and the process 
of disbursing funds. We welcome input from service providers, 
beneficiaries, and others who have had experience with the USF 
programs. We also seek comment from other agencies and governmental 
entities about their experiences with program administration and 
management that may offer guidance in the context of the USF programs. 
We seek comment on the accessibility of our applications and 
disbursement processes for persons with disabilities. We recognize that 
our efforts to improve USF management may entail an administrative 
burden on USF program participants, and we invite comment on ways to 
achieve more efficient administration and management, while continuing 
our efforts in deterring waste, fraud, and abuse.
    27. We seek comment on whether the E-rate and Rural Health Care 
distribution processes should more closely track those of the High Cost 
and Low Income programs. For example, we could change our rules to use 
a formula to distribute funds directly to schools and libraries 
according to their size and allow funds to be used in a more flexible 
way, e.g., for communications-related services and equipment, or 
training on how best to use such service and equipment, rather than 
requiring applications that identify needed services and equipment and 
their cost. Would such a formulaic approach further the goals of the 
program? Would it create substantial additional challenges? We believe 
that any changes should not disadvantage stakeholders, including 
private, parochial, rural, and economically-challenged schools or 
libraries. We seek comment on whether a formulaic approach would

[[Page 41664]]

disadvantage stakeholders of these programs. We also seek comment on 
whether a formulaic approach would make detecting waste, fraud, and 
abuse more difficult.
a. Application Process
(i) E-Rate
    28. Under the Schools and Libraries program, eligible schools, 
libraries, and consortia that include eligible schools and libraries, 
may receive discounts for telecommunications services, Internet access, 
and internal connections. The schools and libraries support mechanism 
is capped at $2.25 billion annually; however, annual requests for funds 
frequently exceed the annual cap. Applicants may receive discounts 
ranging from 20 to 90 percent of the price of eligible services, based 
on indicators of need, i.e., percentages of students eligible for free 
or reduced price lunch through the National School Lunch Program, or a 
federally approved alternative mechanism. In addition, rural applicants 
receive enhanced discounts, ranging from 25 to 90 percent of the pre-
discount price for the eligible services.
    29. The application process generally begins with a technology 
assessment and a technology plan. After developing the technology plan, 
the applicant must file the FCC Form 470 (Form 470) to request 
discounted services such as tariffed telecommunications services, 
month-to-month Internet access, cellular services, or paging services, 
and any services for which the applicant is seeking a new contract. The 
Form 470 must be posted on USAC's schools and libraries division Web 
site for at least 28 days. The applicant must then comply with the 
Commission's competitive bidding requirements set forth in Sec. Sec.  
54.504 and 54.511(a) of the Commission's rules. The applicant then 
files the FCC Form 471 (Form 471), after entering into agreements for 
eligible services.
    30. After receiving the Form 471, USAC assigns a ``funding request 
number'' to each request for discounted services. USAC reviews the Form 
471 and then, if the request is approved, issues funding commitment 
decision letters advising the applicants of the discounts that the 
applicants will receive under the rules. The FCC Form 486, Receipt of 
Service Confirmation Form (Form 486), is filed after the school or 
library begins to receive the service from the vendor. The FCC Form 
472, Billed Entity Applicant Reimbursement (BEAR) Form may be filed if 
the school or library needs reimbursement of discounts due on approved 
services for which it has paid full price. Alternatively, the applicant 
can pay only the non-discounted portion of the bill and the vendor can 
seek reimbursement from USAC by filing the FCC Form 474, Service 
Provider Invoice Form (Form 474).
    31. Application Process. We seek comment on the application process 
for obtaining support from the schools and libraries mechanism. In 
particular, we seek proposals on ways to improve the administration of 
the application process while maintaining an effective review system to 
ensure that USF moneys are disbursed properly. We invite suggestions 
for streamlining the application process, such as shortening, 
combining, or eliminating forms. Commenters should discuss, for 
example, whether we should streamline applications for priority 1 
services, establish a different application cycle for applicants with 
repeat requests, or limit the current application form to applicants 
seeking priority 2 services and develop a simpler application process 
for priority 1 services. We seek comment on whether the burden on 
applicants would be reduced by creating a streamlined form for certain 
circumstances and only requiring full applications when changing 
technology plan criteria or ordering new services. It appears, based on 
the information we have at this time that relatively few instances of 
waste, fraud, and abuse occur in requests for priority 1 services. We 
tentatively conclude that we should adopt a streamlined multi-year 
application for priority one services. Commenters should address 
whether such a streamlined process may create the potential for waste, 
fraud, and abuse, and if so, how we can mitigate such risk. We seek 
comment on whether the complexity of the application process leads some 
small schools and libraries to choose not to participate in the E-rate 
program. In addition, we seek comment on whether the Administrator 
should provide applicants and service providers more, or less, 
information regarding the status of applications and if we should 
establish deadlines or target dates for processing applications. We 
note that there may be practical limitations to establishing firm 
deadlines for processing applications, which are typically submitted in 
batches. We ask commenters to consider these concerns in their 
comments. We also seek comment on suggestions for using technology to 
improve the application process, such as receiving electronic-only 
notifications and status reports. Commenters should discuss the costs 
and benefits of alternative proposals or modifications to the current 
system.
    32. The timing of various parts of the USAC and Commission 
processes is critical to schools and libraries, many of which operate 
according to strict State or municipal budget and procurement 
schedules. When USAC or the Commission cause delay, schools and 
libraries can be thrown off their mandated budget or procurement 
schedules. This can have a significant negative impact on schools' and 
libraries' ability to achieve connectivity goals. Sometimes delay can 
complicate the USAC application process for schools and libraries, 
leading to ministerial errors on subsequent applications, complicating 
auditing, and undermining our ability to combat waste, fraud, and 
abuse. What are the timing and delay issues that the Commission should 
address in this proceeding? How can we improve timing problems and 
delays? While the dedicated staffs of USAC and the Commission work 
hard, do USAC and the Commission have adequate staff resources to 
combat delay? Should we create new deadlines for Commission or USAC 
action in various phases of the E-rate process? Current deadlines for 
resolution of appeals are rarely met. How can we improve? Should we set 
deadlines for particular phases of the USAC and Commission process, 
such as deadlines for progressing from the completion of an application 
to FCDL, or for completion of appeals at the Commission?
    33. We seek comment on what guidance, if any, we should provide to 
define a completed application for E-rate money. We note that, since 
the inception of the program, parties have experienced problems with 
meeting the requirement to submit a complete application during the 
filing window. The Administrator has rejected applications that were 
not complete, including applications that were not signed. We seek 
comments on what rules, if any, we should adopt to provide clarity to 
program applicants. In addition, we seek comment on whether to 
establish minimum processing standards with which the Administrator 
must comply (e.g., requiring the Administrator to verify that the 
applicant's technology plan was signed by an authorized entity). We 
note that failure to sign an application may implicate law enforcement 
activity, as well as the enforcement of the Commission's governing 
rules.
    34. Competitive Bidding. We seek comment on modifying our current 
rules requiring competitive bidding. In particular, we request 
commenters to

[[Page 41665]]

submit alternative proposals or suggestions for improving our 
competitive bidding rules to ensure that program participants obtain 
the best value for USF support provided. We seek comment on whether to 
limit the obligation to issue a competitive bid should apply only to 
applications above a particular dollar value threshold. Would this be 
an appropriate way to balance administrative burdens on applicants with 
the need for competitive bids? We seek comment on the process for 
establishing and administering the eligible services list. We seek 
comment on the pilot on-line eligible products list that USAC 
established pursuant to a Commission order, and whether this project 
has materially streamlined or simplified the application process. 
Commenters should discuss ways to handle the list of eligible services 
in a more administratively efficient way, while at the same time 
ensuring that USF moneys are provided only for eligible services. 
Commenters should also discuss whether we should publish service life, 
or depreciation, guidelines for equipment. In addition, we seek comment 
on how the E-rate technology planning process can be reviewed in 
accordance with other federal technology planning requirements. We also 
seek comment on whether the Good Samaritan E-rate program policy is an 
efficient method of disbursing funds.
    35. Forms. Commenters should discuss the Forms 470, 471, 472, 473, 
474, 486, and 498 and address whether more or less information should 
be required on these forms, if any of these forms could be consolidated 
or eliminated, and if any other forms would be helpful. We seek comment 
on whether the Form 470 facilitates the competitive bidding process, 
and whether our rules should continue to require this form and its 
public disclosure. We seek comment on whether forms can be combined in 
an effort to improve the process, e.g., combining the Form 472 and Form 
474. We note that the Bureau is proposing revisions to the Forms 472, 
473, and 474 in order to combat waste, fraud, and abuse. We seek 
comment on the certification requirements in the E-rate forms. 
Specifically, commenters should discuss whether we should revise the 
Form 473, so that the applicant paying on an installment plan would be 
required to certify that, as of the time of the final invoice payment, 
all of the services covered by the invoice or invoices had been 
provided. In addition, commenters should discuss how we can ensure that 
the certifications by the applicant and the service provider in the 
Form 472 are executed independently. Commenters should also discuss 
whether we should add a signature requirement to the Form 474. We also 
seek comment on whether any of these forms should be optional.
    36. Timing of Application Cycle. Commenters should address whether 
we should better synchronize the application and disbursement process 
with the planning and budget cycles of the schools and libraries 
benefiting from this program. For example, the instructions to the Form 
471 state: ``Provide the number of students eligible for the National 
School Lunch Program (NSLP) as of the October 1st prior to the filing 
of this form, or use the most current figure available.'' Commenters 
should discuss whether this date for data, October 1st or the most 
current, is reasonable, or if a different date should be used. We seek 
comment on whether there are inconsistencies between Commission rules 
(or USAC procedures) and state or municipal rules, including state or 
municipal procurement rules. Commenters should discuss ways to 
reconcile any such inconsistencies. We seek comment on whether an 
annual application cycle is necessary or whether it would be more 
efficient to permit multi-year application cycles. Commenters should 
address the costs and benefits of an annual cycle or multi-year cycle.
    37. Service Providers and Consultants. We seek comment on the 
process as it pertains to service providers and consultants. We 
specifically seek comment on whether we should establish certain 
criteria, such as quality standards or standards of conduct, for 
participating service providers and consultants. Adopting quality 
standards or standards of conduct for service providers and consultants 
could help deter waste, fraud, and abuse by, for example, ensuring 
program participants maintain effective procedures for complying with 
our rules. In addition, we seek comment on whether we should impose 
specific standards or a certification process for consultants for E-
rate and consultants used by other USF beneficiaries. Commenters should 
also discuss any other measures we should adopt to deter fraudulent 
actions by service providers or consultants. Commenters should discuss 
the costs and benefits for any proposal submitted.
(ii) High Cost
    38. The High Cost support mechanism provided approximately $3.4 
billion in support in fiscal year 2004. Under the statute and the 
Commission's rules, only Eligible Telecommunications Carriers (ETCs) 
may receive High Cost support. Under section 214(e) of the Act, a state 
commission can designate a common carrier as an ETC for a service area 
designated by the state commission. An ETC is eligible for universal 
service support and must offer the services supported by universal 
service support mechanisms using its own facilities or a combination of 
its own facilities and resale of another carrier's services. In 
addition, the ETC must advertise the availability of such services.
    39. The High Cost support mechanism is made up of five components: 
high cost loop support, local switching support, interstate access 
support, forward-looking, or model, support for non-rural carriers, and 
interstate common line support (ICLS) for rate-of-return carriers. A 
telecommunications carrier seeking High Cost support for the first time 
must do the following: (1) obtain a service provider identification 
number (SPIN) by using Form 498, (2) obtain ETC status and submit a 
copy of the ETC designation order to USAC, (3) submit line count 
information, (4) have a valid certification on file, and (5) submit the 
Forms 499-A and 499-Q, in which the carrier reports interstate and 
international end user telecommunications revenue.
    40. We seek proposals from stakeholders on ways to improve the High 
Cost program application process and participation by reducing or 
eliminating the administrative burden on carriers. Commenters also 
should discuss whether we should permit High Cost carriers to file 
annual, biannual, or triennial applications for support to provide for 
a more efficient administration of the High Cost program while 
minimizing the burden on carriers. Because support levels may change 
from year to year, a multi-year process, with annual true-ups and 
filing revisions, could cause administrative burdens on the 
Administrator and the carriers. If we adopt a multi-year application 
process, should we make it mandatory? If not, should we require 
carriers that opt for a multi-year process to retain the same level of 
support over the multi-year term, without an opportunity for true-up?
    41. We seek comment on whether any rule changes are needed to 
permit the High Cost support mechanism to operate in a more efficient 
and effective manner while ensuring that USF moneys are used for their 
intended purpose. Should we adopt forms in lieu of the ``Line Count 
Sample Letters'' available on USAC's Web site? Is there additional 
information we should collect from carriers to prevent waste, fraud, 
and abuse? We also seek

[[Page 41666]]

comment on whether the Commission should adopt additional standards or 
deadlines (applicable either to carriers or the Administrator) to 
ensure more efficient management of this program. Commenters should 
discuss the costs and benefits of alternative proposals or suggestions. 
We note that our rules pertaining to the High Cost support mechanism 
are contained in both part 36 and part 54 of the Commission's rules. We 
seek comment on whether we should modify our rules to consolidate all 
High Cost program rules in a single section.
    42. High Cost Loop Support. We seek comment on whether we should 
modify the administrative process for participating in the High Cost 
Loop support mechanism. Specifically, we seek comment on whether we 
should modify the timing and the content of the reporting requirements 
imposed on High Cost companies for the purpose of administering the 
High Cost loop support mechanism. Local exchange carriers (LECs) 
receiving this support are required to submit certain investment and 
expense data, including line count information, to NECA on July 31 of 
each year for participation in the High Cost loop support mechanism. 
Non-rural High Cost carriers must submit updated data quarterly. Rural 
High Cost carriers may voluntarily submit updated data. Currently, NECA 
processes the information and performs the necessary calculations, but 
does not provide the supporting documentation to USAC. Does this lack 
of supporting information impede auditing efforts? We seek comment on 
whether investment and expense information should be submitted to USAC 
in addition to or instead of NECA. We also seek comment on whether we 
should revise or clarify the calculation of line count information; for 
example, should we use an average annual line count instead of an end-
of-year line count? In addition, we seek comment on whether we should 
make the voluntary update filings requirement mandatory, or eliminate 
this requirement altogether. We also seek comment on whether we should 
harmonize the filing dates and requirements so that rural and non-rural 
companies are subject to the same deadlines and billing requirements.
    43. High Cost loop support and local switching support are based on 
an incumbent LEC's costs at the study area level. Rural carriers submit 
line count information at the study area level. We also seek comment on 
whether we should revise Sec.  36.611 of our rules, which describes the 
data collection requirements applicable to High Cost carriers. 
Commenters should discuss whether revisions to NECA's data collection 
form are needed in order to accomplish the goals of the program. 
Finally, we seek comment on whether we should modify the quarterly 
reporting requirement for rural High Cost LECs in whose service area a 
competitive ETC has initiated service and reported line count data. 
These LECs must update their line count data quarterly (but not the 
investment and expense data). We invite comments and proposals on what 
measures we can implement to balance the filing burden on High Cost 
companies with our need for information to run the program.
    44. Local Switching Support. We seek comment on the administrative 
process pertaining to the Local Switching Support mechanism, including 
the timing of and scope of the information submitted by program 
beneficiaries to administer this program. A cost company serving fewer 
than 50,000 lines must submit the Form LSSc, an average schedule 
company serving fewer than 50,000 lines must submit the Form LSSa. We 
seek comment on these forms. We seek comment on whether we should 
shorten, combine, revise, or eliminate these forms. Commenters should 
discuss whether we should revise Sec.  54.301 of the Commission's rules 
to limit projected growth in accounts based on actual past performance. 
In addition, commenters should discuss any other revisions to the LSS 
data collection form and whether the quantity and timing of information 
requested is appropriate. The Commission's rules require incumbent LECs 
receiving Local Switching Support to provide data to the Administrator 
by October 1st of each year. We seek comment on this process and 
specifically on the deadlines for submitting Local Switching Support 
data. We seek comment on whether carriers should receive a pro-rated 
portion of LSS, if the LSS information is filed late. We also seek 
comment on whether we should adopt rules to ensure the accuracy and 
reliability of these data. We seek suggestions for improving the 
process while at the same time promoting measures to ensure that Local 
Switching Support is used for appropriate purposes.
    45. Interstate Access Support. Only price cap carriers or 
competitive LECs serving in the area of a price cap carrier are 
eligible for Interstate Access Support. Price cap carriers must submit 
information on line counts, revenue information, UNE zone rates and UNE 
zone maps, and carrier certification. Line counts are the number of 
lines served within each price cap LEC study area in which it serves. 
We seek comment on the application process, the timing and scope of the 
information carriers must file, and whether we should impose greater or 
lesser reporting requirements on participants. We seek comment on 
whether we can administer Interstate Access Support with less 
information than we currently collect and still ensure that funds are 
used appropriately.
    46. Forms. Applicants for funds from each of the universal service 
support mechanisms must comply with various certification requirements. 
Generally, these consist of statements certifying that information 
provided on the forms themselves are accurate and complete, and that 
funds received will be used for their intended purpose. We invite 
comment on whether the certification language in existing forms that 
must be submitted by applicants are sufficient to ensure that funds are 
used in their intended manner, in the absence of waste, fraud, and 
abuse. Would additional forms or modified language in existing forms 
further protect the high-cost universal service support mechanisms 
against waste, fraud, and abuse? We request that commenters propose 
specific additional certification language they believe would further 
these goals, along with an explanation why the current certification 
language is insufficient. We also seek comment on the administrative 
burden (particularly on rural and small entities) of any proposed new 
forms and certifications.
(iii) Low Income
    47. The Low Income program provided approximately $800 million to 
carriers in fiscal year 2004 in order to promote subscribership among 
people of limited means. Only ETCs are eligible to receive Low Income 
support. In our Lifeline/Link-Up Report and Order, 69 FR 34590, June 
22, 2004, we observed that only one-third of the households currently 
eligible for Lifeline/Link-Up assistance actually subscribe to this 
program. In that proceeding, we expanded the eligibility criteria and 
adopted federal certification and verification procedures to minimize 
potential abuse of these programs. We also adopted outreach guidelines 
to target low income consumers more effectively.
    48. The Lifeline program reimburses carriers for discounting low 
income consumers' monthly telephone bills. This program allows low 
income consumers to save up to $10.00 per month on their telephone 
bills. Low income consumers living on tribal lands may qualify for 
additional monthly discounts ranging from $30.25 to $35.00. The Link-Up 
program

[[Page 41667]]

reimburses carriers for providing discounted connection charges to 
eligible low income consumers. Qualifying consumers are eligible to 
save up to 50 percent on installation fees (not to exceed $30). Low 
income consumers living on tribal lands may qualify for a discount of 
up to an additional $70.
    49. We seek comment on the process for participating in the Low 
Income support mechanism. In particular, we seek comment on whether we 
should revise the information requested and the frequency of carrier 
submissions. Carriers must submit the FCC Form 497, Lifeline and Link-
Up Worksheet (Form 497), for reimbursement. In the Form 497, carriers 
report the number of Lifeline and Link-Up customers served, for each 
tier of support. This form must be submitted quarterly, by April 15th, 
July 15th, October 15th, and January 15th of each year. Commenters 
should discuss whether we should simplify the application process to 
require annual or semi-annual reporting instead of quarterly reporting. 
Low income rules appear in both part 54 and part 36 of our rules. We 
also seek comment on whether we should consolidate the Low Income 
rules. In addition, we invite comments and proposals on what measures 
we can implement to balance the filing and advertising burdens on 
companies with low income end users with our need for information to 
run the program effectively.
    50. Forms. Applicants for funds from each of the universal service 
support mechanisms must comply with various certification requirements. 
Generally, these consist of statements certifying that information 
provided on the forms themselves are accurate and complete, and that 
funds received will be used for their intended purpose. We invite 
comment on whether the certification language in existing forms that 
must be submitted by applicants for funds from the low income support 
mechanism are sufficient to ensure that funds are used in their 
intended manner, in the absence of waste, fraud, and abuse. Would 
additional forms or modified language in existing forms further protect 
the low income universal service support mechanisms against waste, 
fraud, and abuse? We request that commenters propose specific 
additional certification language they believe would further these 
goals, along with an explanation why the current certification language 
is insufficient. We also seek comment on the administrative burden 
(particularly on rural and small entities) of new forms and 
certifications.
(iv) Rural Health Care
    51. In the Rural Health Care program, eligible health care 
providers apply for discounts on telecommunications services, in a 
procedure similar to that for the schools and libraries. The Rural 
Health Care support mechanism provided approximately $18 million thus 
far to carriers in fiscal year 2003. The program reimburses carriers 
that ``provide telecommunications services which are necessary for the 
provision of health care services in a State, including instruction 
relating to such services, to any public or nonprofit health care 
provider that services persons who reside in rural areas in that State 
at rates that are reasonably comparable to rates charged for similar 
services in urban areas in that State.'' This design ensures that 
health care providers in rural areas obtain the benefits of the 
Internet and telecommunications through universal service support. 
Rural health care providers often use rural health care support to 
implement telemedicine programs, i.e., medical treatment supported by 
advanced telecommunications services and information services. 
Telemedicine programs allow rural health care providers to consult with 
specialists in an effective manner. Carriers are not required to be 
ETCs to participate in this program; all Internet service providers and 
common carriers may participate, including interexchange carriers. This 
program is capped at $400 million per year.
    52. We seek comment on ways to improve and streamline the 
application process. Currently, health care providers must file the FCC 
Form 465, Description of Services Requested and Certification Form and 
the FCC Form 466, Funding Request and Certificate Form. We seek comment 
generally on these forms. Commenters should address whether more or 
less information should be required on these forms and whether any of 
the forms could be consolidated or eliminated, and whether any other 
forms would be helpful. We tentatively conclude that we should adopt a 
streamlined multi-year application for rural health care providers. Our 
experience suggests that few problems of waste, fraud, and abuse exist 
in the Rural Health Care program. Commenters should discuss whether 
adopting multi-year applications would raise significant waste, fraud, 
and abuse concerns in this program. We seek comment on whether the 
current application process deters participation, particularly by small 
health care providers. In addition, commenters should discuss the 
feasibility of using additional automation in the administrative 
process; for example, requiring the Administrator to e-mail commitment 
letters instead of using traditional methods such as the U.S. Postal 
Service to notify applicants of funding decisions.
    53. Forms. Applicants for funds from each of the universal service 
support mechanisms must comply with various certification requirements. 
Generally, these consist of statements certifying that information 
provided on the forms themselves is accurate and complete, and that 
funds received will be used for their intended purpose. We invite 
comment on whether the certification language in existing forms that 
must be submitted by applicants for funds from the rural health care 
support mechanism are sufficient to ensure that funds are used in their 
intended manner, in the absence of waste, fraud, and abuse. Would 
additional forms or modified language in existing forms further protect 
the rural health care universal service support mechanisms against 
waste, fraud, and abuse? We request that commenters propose specific 
additional certification language they believe would further these 
goals, along with an explanation why the current certification language 
is insufficient. We also seek comment on the administrative burden 
(particularly on rural and small entities) of new forms and 
certifications.
b. USF Disbursements
    54. We seek comment on whether we should adopt rules to better 
ensure that the disbursement process is administered in an efficient, 
effective, and competitively neutral manner. Commenters should discuss 
whether experience has shown that the Administrator disburses the 
correct amount of funds in a timely manner. We seek any suggestions for 
improving the disbursement process. Specifically, we seek comment on 
whether we should establish deadlines or performance targets to ensure 
that beneficiaries get the support for which they qualify in a timely 
manner. USAC's disbursement process varies slightly depending on the 
mechanism: for High Cost and Low Income, USAC disburses one amount to 
each carrier participating in the program each month; for the Schools 
and Libraries and Rural Health Care programs, USAC disburses amounts 
based on invoices received from the program participants. We seek 
comment on whether we should establish a single uniform system for 
disbursing USF, and whether such a single disbursement method is 
feasible, given the many differences among the USF programs.

[[Page 41668]]

We seek comment on whether we need to modify our rules to address 
program-specific disbursement issues, such as strengthened procedures 
to help effectuate the E-rate carry-over rule. For example, are there 
rules we should adopt to ensure full use of the $2.25 billion annual 
cap for the E-rate program? Commenters should discuss whether the 
current system results in efficient, effective, competitively neutral 
administration of the programs. We seek comment on whether experience 
shows that the amounts disbursed are accurate, and if not, suggestions 
for ways to improve such accuracy. We seek comment on whether we should 
adopt criteria or provide guidance for the Administrator's review of 
invoices for the E-rate and Rural Health Care programs. We understand 
that some beneficiaries have asserted that the Administrator sometimes 
denies payment on submitted invoices even though the original 
application had been approved. Would specific criteria or guidance help 
the invoice review process?
    55. We seek comment on whether the existing disbursement process 
for the High Cost program should be revised. The High Cost support 
mechanism provided approximately $3.4 billion in support in fiscal year 
2004. As currently structured, the High Cost program disburses 
approximately $300 to $325 million per month. USAC issues one payment, 
generally by electronic transfer, for each carrier for all universal 
service payments for which it is eligible. The disbursement amount is 
posted on USAC's website approximately five days before disbursement, 
which is the carrier's notification of the disbursement amount. USAC 
sends a remittance statement to the carriers on the last day of each 
month. Commenters should discuss whether the Administrator should 
provide additional notification to the carriers. We seek comment on 
whether we should adopt rules to provide for true-ups of amounts 
disbursed. Amounts paid to carriers under Local Switching Support and 
Interstate Common Line Support components of High Cost are based on 
forecasts and are subject to true-up. USAC compares the actual costs, 
submitted by carriers twelve months after the end of the year, to the 
projected costs. Currently, we have no rules limiting the level of a 
carrier's projections and carriers can overestimate or underestimate 
their accounts. We seek comment on whether we should require that data 
be submitted earlier in order to facilitate the true-ups. Commenters 
should also address whether, as part of the true-up process, carriers 
should pay interest on the difference between projected and actual 
amounts if the projected amounts exceed actual amounts.
    56. USAC issues one monthly payment, generally by electronic 
transfer, for all Low Income universal service discounts provided two 
months earlier. The disbursement amount is posted on USAC's website 
approximately five days before disbursement, which is the carrier's 
notification of the disbursement amount. USAC bills companies that 
receive Low Income support (Lifeline, Link-Up, and Toll Limitation 
Service) and have a negative disbursement amount for any given month. 
So-called ``negative disbursement'' amounts can occur when USAC 
conducts a true-up between a company's projected support amount and the 
actual support claimed, or when a company revises its previous support 
claims, resulting in adjustments to a carrier's support payments. We 
seek comment on whether our Form 497 should be revised in order to 
reduce the likelihood of negative disbursement amounts, which are, in 
effect, an interest free loan to the carrier. We seek comment on 
whether carriers should be charged interest on the negative 
disbursement amount. USAC estimates Low Income payments on a quarterly 
basis, based on the percentage growth in total support claimed by all 
carriers over the previous quarters, and applies this factor to the 
amount of support the carrier received in the most recent quarter. The 
disbursements are based on a rolling average of the payments made to 
that carrier over the previous twelve months. The carrier data 
submission, filed fifteen days after the end of a quarter, is used to 
true-up payments. We seek comment on whether we should revise this 
disbursement procedure and if so, how.
    57. We seek comment on whether we should simplify or streamline the 
four-level discount process for Lifeline and Link-Up, or if additional 
levels would be appropriate. Tier 1 is equal to the incumbent ETC's 
federal tariffed SLC. Tier 2 is an additional $1.75. Tier 3 is equal to 
one-half the amount of state-mandated Lifeline support or one-half of 
any Lifeline support provided by the carrier, up to $1.75 per month. 
Tier 4 is additional federal Lifeline support of up to $25 per month 
for eligible residents of tribal lands. There are additional discounts 
for low income residents on tribal lands; Enhanced Lifeline, Link-Up, 
and other universal service-related programs that are targeted 
specifically toward tribal lands.
    58. We also seek comment on whether we should revise the current 
Rural Health Care disbursement process. The disbursement process for 
the Rural Health Care program is similar to the process for the E-rate 
program. We seek comment on whether we should adopt rules to better 
ensure that the disbursement process is administered in an efficient 
manner.
c. Contributions Process
    59. We seek comment on whether to adopt any rules clarifying or 
improving the contributions process to ensure the Administrator 
collects sufficient funds. The Form 499-A sets forth the information 
that carriers must submit so that the Administrators of the USF and 
other funds can calculate and assess contributions. Beginning March 14, 
2001, the Commission modified its reporting requirements to require 
carriers to file not only the annual Form 499-A, but also a quarterly 
worksheet, FCC Form 499-Q, with the interstate and international 
revenues from the previous period. Currently, USAC bases a carrier's 
universal service obligation on the carrier's projected collected 
revenue rather than its historical gross-billed revenue. USAC uses the 
revenue information provided on the Quarterly Worksheets to determine 
each carrier's universal service contribution on a quarterly basis, 
with a yearly true-up using the Annual Worksheet. USAC then bills 
carriers each month, based on their quarterly contribution amount. 
Carriers must pay their contribution by the date shown on the invoices. 
A carrier's failure to file the worksheets or submission of inaccurate 
or untruthful information ``may subject the contributor to the 
enforcement provisions of the Act and any other applicable law.'' We 
seek comment on whether we should modify or streamline the current 
contribution process. We seek comment on whether to adopt criteria for 
the Administrator to follow for making projections or forecasts, and if 
so, what criteria would be appropriate. Commenters should address the 
pros and cons of any proposals.
d. Periodic Review of Program Management
    60. We seek comment on whether we should adopt rules requiring 
periodic review of the administration and management of the USF. 
Commenters should discuss whether a triennial review, such as we have 
for the Local Competition rules, would be useful or whether such 
reviews should occur at different time intervals.

[[Page 41669]]

B. Oversight of the USF

    61. In this proceeding, we are not trying to find problems after 
they occur (and thus, seek to recover improperly disbursed funds in 
some cases years after disbursement), but we are trying to prevent 
problems from occurring in the first place. We recognize, however, that 
strong oversight procedures are needed because the application review 
process can never be perfect. In moving forward to strengthen audits 
and oversight over the program, we are informed by the lessons of prior 
review efforts and investigations. We are particularly focused on 
preventing a recurrence of past problems.
    62. In paragraphs 69 to 99 of the NPRM, we consider whether to 
strengthen our oversight of the high cost, low income, schools and 
libraries, and rural health care universal service support mechanisms. 
In particular, we seek comment on adopting a targeted audit requirement 
to ensure program integrity and to detect and deter waste, fraud, and 
abuse. We generally seek comment on ways in which our oversight goals 
may be achieved through specific changes to various stages of the 
application and funding process. We invite parties to address whether 
and how our specific goals can be met by the changes discussed and to 
suggest other ways to further these goals. We note that many of these 
issues were addressed in the context of the schools and libraries 
universal service support mechanism. As a result, we specifically 
invite parties to comment on the ways our goals and methods for 
protecting the high cost, low income, and rural health care fund 
mechanisms from waste, fraud, and abuse should replicate or differ from 
those previously adopted with regard to the schools and libraries 
universal service support mechanism.
1. Independent Audits
    63. Since the inception of the E-rate program, schools and 
libraries have been subject to audits to determine compliance with the 
program rules and requirements. The Commission's rules authorize the 
Administrator to conduct audits of all beneficiaries, as well as 
contributors to the USF. Audits are a tool for the Commission and USAC, 
as directed by the Commission, to ensure program integrity and to 
detect and deter waste, fraud, and abuse. Because audits may provide 
information showing that a beneficiary or service provider failed to 
comply with the statute or Commission rules applicable during a 
particular funding year, audits can reveal instances in which universal 
service funds were improperly disbursed or used in a manner 
inconsistent with the statute or the Commission's rules.
    64. Audits and investigations have uncovered issues ranging from 
poor program design (e.g., problems with technology plans and problems 
with program rules) to improper use of funds, including intentional 
efforts to defraud the program by some unscrupulous actors. In each 
case in which fraud has occurred, the Commission has debarred or 
proposed debarment based on Department of Justice convictions. In these 
cases, the parties pled guilty or were convicted of a variety of 
offenses, such as imposing the entire cost of the goods and services on 
USAC, submitting materially false and fraudulent invoices to USAC, and 
trying to persuade school officials not to reveal evidence to 
Commission auditors. The Commission's OIG has identified instances of 
rule violations and has recommended recovery of universal service 
moneys. Likewise, USAC has, at our direction, maintained an audit 
program that has involved more than 201 audits of participants in the 
E-rate program and USAC audits of more than 100 participants in the 
other USF support mechanisms. In some cases, beneficiaries have self-
identified compliance problems and proactively disclosed these to USAC 
or the Commission. For the E-rate program, approximately $1.14 billion 
in funds provided to beneficiaries have been subjected to an audit. To 
date, USAC has recovered a total of approximately $7.6 million for all 
violations of Commission rules. Recovery of $4.5 million is subject to 
pending appeals and recovery of $19.5 million is still under review. We 
have not yet determined whether program rules were or were not violated 
and whether recovery is warranted for these funds. These efforts have 
also led to recommended recovery of $6,243,223 for the High Cost 
support mechanism, $392,536 for the Low Income support mechanism, and 
$49,348 for the Rural Health Care support mechanism. The recommended 
recovery amounts are small in comparison to the more than $31 billion 
in funds disbursed since 1997, demonstrating that the great majority of 
E-rate, High Cost, Low Income, and Rural Health Care program recipients 
follow our rules and have not engaged in fraud. Nonetheless, even a 
situation that results in 0.67 percent of our funds being recovered as 
improperly disbursed represents a weakness in the operation of the 
programs, which needs to be corrected. We will be aggressive in 
correcting this problem. Conversely, we believe that USAC, OIG, and 
independent auditing processes may waste government money if they are 
unnecessarily repetitious, or inefficiently designed or executed.
    65. E-Rate Beneficiary Audits. With this in mind, we seek comment 
on whether the Commission should institute a targeted independent audit 
requirement to further safeguard the E-rate program against potential 
misconduct, including waste, fraud, and abuse. Specifically, we seek 
comment on whether the Commission should require some recipients of E-
rate funding to obtain an annual independent audit evaluating 
compliance with the statute and the Commission's rules. Many schools 
and libraries already obtain annual independent audits to comply with 
the Single Audit Act. Commenters should address whether, or under what 
conditions, the anticipated costs associated with targeted audits of 
program beneficiaries would outweigh the benefits of enhanced oversight 
of the universal service fund. For example, are post-disbursement 
audits even appropriate where the cost of the audit would approach or 
exceed the amount of universal service support disbursement?
    66. We specifically seek comment on the costs and burdens that an 
independent audit requirement would have on smaller beneficiaries. For 
example, would an independent audit requirement deter the smaller 
schools and libraries from applying for discounts from the fund? 
Moreover, because the cost of such an audit could exceed the total 
discounts received by some applicants, any benefit of the E-rate 
program may be erased quickly by a burdensome audit requirement. We 
seek comment on whether the audit requirement should apply only to 
recipients that receive a relatively large amount of support or 
benefits from the program. What should the threshold be? For example, 
we could impose a requirement that any school or library that receives 
$3 million or more in discounts in any funding year, or a total of $3 
million or more over a consecutive three-year period, must undergo an 
annual audit. We note that, based on data from Funding Year 2002, an 
annual $3 million threshold would ensure independent audit coverage of 
at least 25 percent of E-rate funds disbursed; combining an annual $3 
million threshold with a $3 million triennial threshold would ensure 
independent audit coverage of more than 50 percent of E-rate funds 
disbursed. Should the same threshold apply to both schools and 
libraries, and service providers?

[[Page 41670]]

    67. In addition, we seek comment how such audits should be funded. 
Should schools, libraries, and service providers that are subject to an 
annual independent audit pay the costs for an auditor to evaluate their 
compliance with Commission rules and the Act? Alternatively, we could 
require USAC to procure the services of an independent auditor to 
perform the audits in accordance with generally accepted government 
auditing standards (GAGAS). In such a scenario, the costs of the 
independent audits would be borne by the USF itself, and therefore 
recovered through the collections process. We note that many 
participants in the USF may have internal auditors on staff who could 
perform these audits. The Commission's rules require audits of USF 
beneficiaries to comply with GAGAS. These standards allow for entities 
to hire independent auditors to perform audit work, but they also allow 
(with certain safeguards) employees of the entity to perform 
independent audits. We seek comment on whether allowing internal 
auditors and other staff to perform reviews or audits would satisfy the 
need for strong oversight.
    68. We seek comment on the scope and methodology of an annual 
independent audit. We note that our efforts to combat waste, fraud, and 
abuse must distinguish between intentional fraud and ministerial error. 
Our audits, penalties, and application process must recognize the 
fundamental difference between intentional fraud and ministerial error. 
While minimizing ministerial error is important, such errors are far 
different from fraud. In fact, the complicated nature of our 
applications and the presence of USAC rules that are not published 
contribute to ministerial errors. Should the auditor evaluate 
compliance with Commission rules in order to determine potential 
noncompliance? Should USAC and the Commission recover improperly 
disbursed funds? Should our audits try to distinguish between 
intentional fraud, negligence, and unintentional ministerial errors? 
Parties recommending such an approach should offer a definition of 
``ministerial error'' and provide examples. Commenters recommending 
this approach should also discuss whether compliance with certain 
administrative procedures, such as filing or application deadlines and 
requirements, provide a degree of certainty to all parties, including 
the fund Administrator. We seek comment on whether our audits should be 
limited to compliance with Commission rules or whether and under what 
circumstances the audits should include compliance with USAC 
administrative policies and practices. Commenters should discuss 
whether compliance with unpublished USAC administrative policies and 
practices should be included in the audit. In addition, we seek comment 
on whether government auditing standards, which require, inter alia, 
that independent auditors obtain a sufficient understanding of internal 
controls that the entity uses to ensure compliance with Commission 
rules that are material to the subject matter to plan the engagement, 
should be applied during the audit. Are auditors properly trained or 
have beneficiaries experienced auditors who do not properly understand 
the program rules? Have auditors wasted time or resources because the 
audit is improperly designed, improperly accomplished, or because 
auditors do not adequately understand the program rules? How much does 
it cost a school or library in terms of money and staff hours to comply 
with various types of audits? We seek comment on whether we should 
limit auditing so that one entity is not audited more than once for a 
given program year, so that one entity is not audited by USAC, and 
independent auditor, and/or the OIG for the same application. Should 
the auditor evaluate the sufficiency of the audited entity's internal 
controls that the entity uses to ensure compliance with Commission 
rules as part of its examination into the audited entity's compliance? 
We generally seek comment on other standards that should be imposed for 
carrying out such audits. For example, because the primary purpose of 
the audit is to evaluate compliance with the statute and program rules, 
should auditors be required to perform a ``compliance attestation'' in 
accordance with government auditing standards? Why or why not? We 
invite proposals on the mechanics of administering an independent audit 
program. Commenters should discuss ways to avoid repetitious or 
inefficient audits. In addition, we seek comment on whether USAC should 
provide audit reports to audited entities, and, if so, whether USAC 
should be required to provide the audit report within a particular 
period of time, after the audit is concluded.
    69. We seek comment on whether the current structure of E-rate 
audits is appropriate to the program. Some schools indicate that E-rate 
audits are more intense and require them to expend more resources than 
do audits for the federal Title I educational program, which is a 
substantially larger program involving far more government money. How 
can we improve the process?
    70. Rural Health Care, Low Income, and High Cost Beneficiary 
Audits. We seek comment on whether the current audit structure for the 
Rural Health Care, Low Income, and High Cost programs is appropriate to 
the programs. How can we improve the auditing process for these 
programs? As we note above in the E-rate context, our efforts to combat 
waste, fraud, and abuse must distinguish between intentional fraud and 
ministerial error. Our audits, penalties, and application process must 
recognize the fundamental difference between intentional fraud and 
ministerial error. Should the auditor evaluate compliance with 
Commission rules in order to determine potential noncompliance? Should 
USAC and the Commission recover improperly disbursed funds? Should our 
audits try to distinguish between intentional fraud, negligence, and 
unintentional ministerial errors? Parties recommending such an approach 
should offer a definition of ``ministerial error'' and provide 
examples. Commenters recommending this approach should also discuss 
whether compliance with certain administrative procedures, such as 
filing or application deadlines and requirements, provide a degree of 
certainty to all parties, including the fund Administrator. We seek 
comment on whether our audits should be limited to compliance with 
Commission rules or whether and under what circumstances the audits 
should include compliance with USAC administrative policies and 
practices. Commenters should discuss whether compliance with 
unpublished USAC administrative policies and practices should be 
included in the audit. We seek comment on whether we should limit 
auditing so that one entity is not audited more than once for a given 
program year, so that one entity is not audited by USAC, an independent 
auditor, and/or the OIG for the same application. Should the auditor 
evaluate the sufficiency of the audited entity's internal controls that 
the entity uses to ensure compliance with Commission rules as part of 
its examination into the audited entity's compliance? We generally seek 
comment on other standards that should be imposed for carrying out such 
audits. For example, because the primary purpose of the audit is to 
evaluate compliance with the statute and program rules, should auditors 
be required to perform a ``compliance attestation'' in accordance with 
government auditing standards? Why or why not? We invite proposals

[[Page 41671]]

on the mechanics of administering an independent audit program. 
Commenters should discuss ways to avoid repetitious or inefficient 
audits. In addition, we seek comment on whether USAC should provide 
audit reports to audited entities, and, if so, whether USAC should be 
required to provide the audit report within a particular period of 
time, after the audit is concluded.
    71. We seek comment on whether, in order to improve our oversight 
capacity to guard against waste, fraud, and abuse, and ensure funds are 
used for appropriate purposes, our rules should require independent 
audits of recipients of funds (i.e., service providers) from the High 
Cost, Low Income, and Rural Health Care programs. We specifically seek 
comment on whether recipients of funds from any or all of these support 
mechanisms should be required to undergo an independent audit 
requirement, and, if so, whether only recipients above a particular 
threshold should be subject to this requirement. For example, we could 
require independent audits for any entity obtaining more than $3 
million in USF support in a particular fiscal year. We note that for 
the High Cost program, approximately 15 percent of the study areas, 
i.e., 292 study areas, received $3 million or more in High Cost support 
for fiscal year 2004. Establishing an audit requirement at this 
threshold would ensure coverage for about 69 percent of the High Cost 
fund for 2004. With respect to Rural Health Care, only two service 
providers have received $3 million or more in a given year since the 
inception of the program. We recognize that the cost of independent 
audits could outweigh the benefits in cases where USF recipients only 
receive a small amount of support. We seek comment on the costs and 
benefits of any independent audit program, particularly the potential 
paperwork and other costs imposed on rural carriers and small entities. 
We seek comment on the scope and methodology of these audits. Similar 
to the E-rate context, we seek comment on whether the auditor should 
evaluate compliance with Commission rules in order to determine 
potential noncompliance (and whether USAC and the Commission should 
recover improperly disbursed funds). Do the costs of an audit outweigh 
the benefits of enhanced oversight of the universal service fund? 
Should such audits be performed at the recipients' expense? If not, we 
seek comment on whether recipients should be required to reimburse USAC 
or the Commission for the cost of the audit, or to pay other penalties, 
in the event that waste, fraud, and abuse are discovered.
    72. We seek comment on the estimated costs of audits of these other 
mechanisms. Should we impose identical audit requirements for each USF 
program? If not, what audit requirements, if any, should we impose on 
each program? For example, the Rural Health Care program has 
historically disbursed a fraction of the amount of the Schools and 
Libraries and High Cost mechanisms. Should we require rural health care 
providers to get audits only if the total disbursements to a particular 
provider reach a certain level? What should the audit threshold be for 
beneficiaries of each fund mechanism? Should there be different 
independent audit requirements or thresholds for fund recipients (e.g., 
rural health care participants) and participating service providers? We 
seek comment on the impact of any rule on small entities. We also seek 
comment on alternatives that might provide assurances of program 
integrity consistent with the goals of improving program operation, 
ensuring a fair and equitable distribution of benefits, and preventing 
waste, fraud, and abuse.
    73. We seek comment on whether we should automatically sunset any 
independent audit requirement we may ultimately adopt. For example, we 
could sunset any measures automatically after a three-year period or we 
could review any independent audit requirement after a specific period 
of time.
    74. Contributor Audits. In addition to considering whether we 
should require audits of USF program beneficiaries, we seek comment on 
whether our rules should require independent audits of contributors to 
the universal service fund. Pursuant to Sec.  54.707 of the 
Commission's rules, USAC has the authority to audit contributors and 
carriers reporting data. In addition to such audits, our Enforcement 
Bureau regularly investigates contributor filings to ensure compliance 
with our rules. In addition to these existing procedures, we seek 
comment on whether we should establish an independent audit program for 
contributors modeled on the Single Audit Act or some other independent 
audit program (e.g., independent audits used for the securities 
industry). Would the benefits of ensuring that contributors pay their 
full amount of USF support justify the costs of such a program? Should 
we establish a threshold for triggering a contributor audit (e.g., 
require independent audits only for carriers contributing $100 million 
or more in a particular fiscal year)? A $100 million threshold for 
auditing contributors would ensure audit coverage for about 60 percent 
of the total contributions to the fund. If the Commission were to adopt 
an independent audit requirement for contributors to the Universal 
Service Fund, what additional rules or requirements (if any) should be 
adopted to ensure rigorous but fair audits? Finally, should we require 
contributors to pay for the audits on their own, or would using USF 
moneys be more appropriate?
    75. We seek comment as to whether we should model any independent 
audit requirement we apply to participants in the USF on the 
requirements contained in the Single Audit Act and the OMB's 
implementing guidance. We seek comment on whether we should prohibit 
parties who fail to comply with any independent audit requirement from 
receiving any USF moneys until such audit is satisfactorily completed. 
We seek comment on whether we should adopt rules requiring audited 
entities to prepare and submit a plan for corrective action addressing 
all audit findings.
    76. We seek comment on whether any independent audit requirement we 
adopt for beneficiaries or contributors should include an audit opinion 
concerning the sufficiency of an audited entity's internal controls 
over compliance and other areas of concern to us in our policy making 
role. We seek comment on whether we should adopt additional criteria 
beyond those established in government auditing standards for selecting 
an auditor, e.g., competitive bids.
2. Document Retention Requirements for Recipients of Funds From the 
High Cost, Low Income, and Rural Health Care Mechanisms
    77. In the Schools and Libraries Fifth Report and Order, we 
concluded that specific recordkeeping requirements not only prevent 
waste, fraud and abuse, but also protect applicants and service 
providers in the event of vendor disputes. In that order, we adopted a 
requirement that applicants and service providers retain all records 
related to the application for, receipt and delivery of discounted 
services for a period of five years after the last day of service 
delivered for a particular funding year. We found that a five-year 
record retention requirement would facilitate improved information 
collection during the auditing process and will enhance the ability of 
auditors to determine whether applicants and service providers have 
complied with program rules.
    78. We seek comment on whether we should adopt document retention 
rules

[[Page 41672]]

for all of the USF mechanisms that are consistent with the amended 
schools and libraries rule adopted in the Schools and Libraries Fifth 
Report and Order. We recognize that, because the high cost and low 
income programs do not precisely mirror the application and competitive 
bidding process in the schools and libraries program, different 
document retention requirements might be needed for each support 
mechanism. For the high cost and low income support mechanisms, we 
invite comment on the length of time that records relating to the 
receipt or delivery of services should be maintained by the beneficiary 
and/or service provider. We are not proposing document retention 
requirements for individual participants in the Low Income program. We 
solicit comment on the types of documents that would be sufficient to 
demonstrate compliance with the rules pertaining to the high cost and 
low income programs. For example, we seek comment on the types of 
records (such as billing and engineering) used to develop year end 
counts of total working loops and total working USF loops, as required 
for High Cost Loop support. We seek comment on a reasonable record 
retention period for such documents. We also seek comment on whether we 
should revise the document retention rules for the rural health care 
mechanism. Should we specify minimum document retention requirements?
    79. In the Schools and Libraries Fifth Report and Order, we 
clarified that schools, libraries, and service providers remain subject 
to both random audits and to other audits and or investigations to 
examine an entity's compliance with the statute and the Commission's 
rules. These audits and investigations may be initiated at the 
discretion of the Commission, the Commission's OIG, USAC, or another 
authorized governmental oversight body. Similarly, Sec.  54.619(c) of 
the Commission's rules subjects health care providers to random 
compliance audits. The Schools and Libraries Fifth Report and Order 
also concluded that failing to comply with an authorized audit or other 
investigation, such as failing to retain records or failing to make 
available required documentation, would constitute a rule violation 
that may warrant recovery of universal service moneys that were 
previously disbursed for the time period for which such information is 
being sought. We invite comment on whether recipients of funds from the 
High Cost, Low Income, and Rural Health Care universal service support 
mechanisms (i.e., service providers and carriers) should be subject to 
comparable requirements.
3. Administrative Limitations Period for Audits or Other Investigations 
by the Commission or USAC of Recipients of Funds From the High Cost, 
Low Income, and Rural Health Care Support Mechanism
    80. In this section, we seek comment on the establishment of an 
administrative limitations period in which the Commission or USAC will 
determine that a violation has occurred among recipients of funds from 
the high cost, low income, and rural health care universal service 
support mechanisms. We believe that establishing a general policy in 
this area is in the public interest because it would provide these USF 
support mechanism participants with some certainty of the time within 
which an audit or further review of funding may occur.
    81. In the Schools and Libraries Fifth Report and Order, we 
indicated our preference for a limitation on the timeframe for audits 
or other investigations ``in order to provide beneficiaries with 
certainty and closure in the E-rate applications and funding 
processes.'' We established a policy that, for administrative 
efficiency, the time frame for such inquiry should match the record 
retention requirements, and accordingly, we announced that any 
inquiries to determine whether or not statutory or rule violations 
exist with be initiated and completed within a five-year period after 
final delivery of service for a specific funding year. We stated that 
conducting inquiries within five years struck an ``appropriate balance 
between preserving the Commission's fiduciary duty to protect the fund 
against waste, fraud and abuse and the beneficiaries' need for 
certainty and closure in their E-rate application processes.''
    82. We seek comment on whether a similar five-year standard for 
initiating and concluding audits and investigations is appropriate for 
recipients of funds from the high cost, low income, and rural health 
care universal service support mechanisms. Similarly, we seek comment 
on whether a five-year period is appropriate for seeking adjustment of 
a contribution obligation to make the correct contribution amount to 
the USF. Many E-rate beneficiaries are public institutions. In these 
cases, the money needed to comply with audits and to maintain services 
when funds are unexpectedly delayed or denied comes from taxpayers and 
is part of a lengthy and complex budgeting process. If schools and 
libraries must account for the fact that an unintentional clerical 
error many years in the past may require them to disgorge E-rate funds, 
the system will work very inefficiently. For this reason, we believe 
that we must balance our duty to investigate fraud with E-rate 
beneficiaries' legitimate need for finality, which they have with other 
government programs. In the Schools and Libraries Fifth Report and 
Order, we found that the public interest ordinarily is not served by 
seeking to recover funds associated with statutory or rule violations 
when the administrative costs of seeking recovery outweigh the dollars 
subject to recovery. We seek comment on this conclusion, and whether 
and in what circumstances pursuit of recovery of funds might be in the 
public interest even where the potential recovery amounts are small in 
relation to the audit or investigation costs. We also seek comment on 
whether to adopt a rule for the high cost, low income, and rural health 
care support mechanisms that requires recovery of the full amount 
disbursed in situations in which there is a pattern of rule or 
statutory violations, but the specific individual violations 
collectively do not require recovery of all disbursed amounts.
3. Recovery of Funds
    83. We seek comment on whether to establish specific rules or 
criteria to address instances in which a USF beneficiary may not have 
used moneys in accordance with program rules. We seek comment on 
whether, consistent with the conclusions in the Schools and Libraries 
Fifth Report and Order, amounts disbursed from the High Cost, Low 
Income, and Rural Health Care support mechanisms in violation of the 
statute or Commission rule must be recovered in full. In addition, we 
seek comment on whether additional rules or criteria are necessary to 
ensure a fair, transparent fund recovery process for all USF 
mechanisms. Are there instances in which violations of Commission rules 
undermine statutory requirements or substantive policy goals of the USF 
programs, but may not rise to the level of waste, fraud, or abuse? 
Should funds be recovered for ministerial or clerical errors? In 
addition, we seek comment on whether and under what circumstances a 
beneficiary may retain an overpayment if, for some reason, USAC has 
either mistakenly disbursed an amount in excess of that which the 
entity is allowed under our rules, or has disbursed an erroneous amount 
as a result of violations of administrative procedures. Where 
disbursement of funds is warranted under the statute and rules, but an 
erroneous amount has been

[[Page 41673]]

disbursed, should the amount of funds that may be recovered be limited 
to the difference between what the beneficiary is legitimately allowed 
under the statute and our rules and the total amount of funds disbursed 
to the beneficiary or service provider? Finally, we seek comment on 
whether we should adopt a rule providing for an administrative hearing 
before the issuance of a letter seeking recovery of funds from the High 
Cost, Low Income and Rural Health Care support mechanisms.
4. Measures To Deter Waste, Fraud, and Abuse
    84. The Schools and Libraries program is capped at $2.25 billion; 
however, requests for funds have historically far exceeded the annual 
cap. Thus, waste, fraud, or abuse of this program harms those schools 
and libraries who cannot receive their discount requests due to 
insufficient resources. In 2003, the Task Force on the Prevention of 
Waste, Fraud, and Abuse suggested a ceiling on the total amount of 
funding that an applicant can request. We seek comment on whether such 
a cap would be an effective measure of deterring waste, fraud, and 
abuse. If so, parties should explain how and describe the costs and 
benefits of any such approach. We seek comment on whether the concern 
raised by the USAC Task Force could be addressed through some measure 
other than an additional cap. We also seek comment on whether USAC 
should publicize ``best practices'' for E-rate program applicants. In 
addition, we seek comment on whether modifying the competitive bidding 
rules (e.g., by requiring a minimum of three bids) would be an 
effective measure for deterring waste, fraud, and abuse. For example, 
where an applicant received only one bid, would additional review be 
warranted to ensure that the bid is not inflated, and if so, what level 
of review would be appropriate? We are concerned that obtaining three 
or more bids may be particularly difficult in rural areas. We are also 
concerned that obtaining three bids for small projects or for Priority 
One telecommunications services may be impractical in many cases, even 
for urban and suburban schools and libraries. If we require a minimum 
of three bids we may therefore exclude many rural schools and 
libraries, and many small projects and telecommunications services from 
the program. In order to avoid such an outcome, we ask commenters to 
address how a multiple bid requirement would be an effective deterrent 
against waste, fraud, and abuse and whether the costs of imposing 
additional rules in this regard would outweigh the benefits. We also 
seek comment on what rules should be adopted, if any, to ensure that 
USF moneys are used efficiently and are not wanted by, for example, 
applicants seeking to ``gold plate'' their supported services or 
seeking services or equipment beyond what they reasonably need or can 
use. Should we establish more detailed guidance about what is or is not 
supported under the E-rate program? Should we establish maximum prices 
for particular services or equipment?
    85. Recently, the Commission adopted measures to protect against 
waste, fraud, and abuse in the administration of the E-rate program. In 
the Schools and Libraries Fifth Report and Order, the Commission stated 
that subsequent applications from beneficiaries that have violated the 
statute or rules in the past will be subject to greater review, such as 
enhanced obligations to provide additional documentary evidence 
demonstrating current compliance with all applicable requirements. We 
seek comment on whether we should adopt specific rules governing higher 
scrutiny for previous rule violators; for example, should we require 
specific reports or set performance goals for these beneficiaries? We 
seek comment on requirements, if any, that we should apply to the 
Administrator's conduct of heightened review of E-rate program 
participants. Commenters should discuss whether we should adopt 
criteria for service providers or require additional information from 
applicants. Commenters should discuss whether we should adopt rules or 
guidelines for when USAC should stop payments or processing 
applications as a result of suspected program violations. What 
threshold would be appropriate to trigger such an action? What would be 
the appropriate point for USAC to resume payments or processing 
applications?
    86. Measures to Prevent Waste, Fraud, and Abuse in the High Cost, 
Low Income, and Rural Health Care Programs. We seek comment on whether 
we should adopt specific rules governing higher scrutiny for previous 
rule violators in these three programs. Should we require specific 
reports or set performance goals for these beneficiaries? We also seek 
comment on whether USAC should publicize ``best practices'' for these 
program participants. We specifically seek comment on ways to improve 
our oversight of the High Cost program. Commenters should discuss ways 
we can improve carriers' incentives for efficiency. Commenters should 
also address the state certification process and our oversight of costs 
not directly related to providing telecommunications services. 
Commenters should discuss whether we should require additional 
information from High Cost program participants in order to prevent 
waste, fraud, and abuse.
    87. Additionally, we seek comment on ways we can deter waste, 
fraud, and abuse in the Low Income program. Commenters should discuss 
whether we should revise our rules to require carriers to provide 
additional documentation, showing the number of Lifeline subscribers 
for which they claim reimbursement. We also seek comment on whether we 
should revise our rules to require carriers seeking Low Income or High 
Cost support for serving tribal members residing on a reservation to 
provide additional information to demonstrate that each customer is a 
tribal member and resides on tribal lands.
    88. Finally, we seek comment on ways to deter waste, fraud, and 
abuse in the Rural Health Care program. We also seek to ensure USF 
moneys are used efficiently and not in a wasteful manner in the Rural 
Health Care program by, for example, requesting goods or services that 
are not reasonably needed. Commenters should discuss whether we should 
establish a cap on Rural Health Care support. Commenters should address 
how we can verify whether the program beneficiary is providing rural 
health care that is eligible for reimbursement under program rules. 
Commenters are encouraged to propose specific language or rules 
(including possible enforcement mechanisms) that would further our goal 
of ensuring that funds received from the high cost, low income, schools 
and libraries, and rural health care programs are used in an 
appropriate manner.
5. Other Actions To Reduce Waste, Fraud, and Abuse
    89. We seek comment on whether we should further protect the 
schools and libraries, high cost, low income, and rural health care 
universal service support mechanisms by adopting a rule specifically 
prohibiting recipients from using funds in a wasteful, fraudulent, or 
abusive manner. It is important that these proposed rules have 
sufficient specificity for beneficiaries and contributors to understand 
their obligations. If we adopt a general rule, applicants may not have 
adequate notice of what behavior is prohibited by our rules. Would such 
a rule enhance the effectiveness of any future enforcement efforts 
relating to the discovery of waste, fraud, and abuse?

[[Page 41674]]

Commenters should discuss the necessity and appropriate scope of such 
of rule. Should it apply only to intentional acts of fraud, waste, and 
abuse, or should it incorporate instances when applicants or recipients 
recklessly or negligently use funds in an inappropriate manner? In 
addition, we seek comment on whether we should define waste, fraud, and 
abuse in our rules.
    90. USAC has implemented controls for the Schools and Libraries 
support mechanism to ensure application validity and prevent inaccurate 
data entry. USAC also has data validation procedures for the High Cost, 
Low Income, and Rural Health Care programs. We seek comment on whether 
we should adopt specific rules to require USAC to implement application 
validity controls for all USF programs. Under our rules, USAC has the 
authority to conduct compliance audits of beneficiaries of the schools 
and libraries fund. USAC conducts audits of schools and libraries with 
its own staff and also retains independent auditors to conduct these 
audits. Under USAC's procedures, if the audit indicates a rule 
violation, USAC attempts to recover the funds from E-rate beneficiaries 
or service providers, as required in the Schools and Libraries Fifth 
Report and Order. We seek comment on ways that USAC can better 
facilitate this process and transfer the matter to the Commission for 
enforcement action in a timely manner. USAC also conducts audits of 
High Cost, Low Income, and Rural Health Care beneficiaries and 
contributors.
    91. We seek comment on whether we should revise the debarment rule 
to make it more effective against individuals and other entities, such 
as corporations. The current debarment rules apply only to the E-rate 
program. The Commission's rules provide for automatic suspension and 
initiation of debarment proceedings against persons convicted of, or 
held civilly liable for, the commission or attempted commission of 
fraud and other similar offenses ``arising out of activities associated 
with or related to the schools and libraries support mechanism.'' To 
date, the Commission has debarred four parties for defrauding the 
schools and libraries program. We seek comment on ways to inform 
schools and libraries of the list of debarred parties. Commenters 
should discuss ways schools and libraries can reduce their 
vulnerability to predatory contractors. We also believe that the 
Commission should establish a more aggressive way to inform schools and 
libraries when contractors are debarred. Many schools and libraries 
find it very difficult to find the debarment list today. How should we 
improve the situation? Should we also inform schools and libraries when 
a contractor is under investigation? How do we allow schools and 
libraries to take steps to reduce their vulnerability to predatory 
contractors without violating the rights or prejudging parties under 
investigation? We seek comment on whether as part of our registration 
process we should require contractors to waive any right to 
confidentiality they may have during an investigation. Should the 
Commission or USAC draft a list of best and worst practices to assist 
beneficiaries in reducing fraud? We seek comment on whether we should 
adopt debarment rules applicable to the High Cost, Low Income, and 
Rural Health Care mechanisms. If so, should the debarment rules be 
modeled on the debarment rule applicable to the E-rate program, should 
we adopt mechanism-specific debarment rules, or should we model our 
debarment rules for any or all of the programs, including the E-rate 
program, on the government-wide non-procurement debarment regulations? 
We note that we have initiated a proceeding to consider, among other 
things, changes to our E-rate program debarment rules. We incorporate 
that record into this proceeding and ask parties to refresh the record 
to account for their experience since that time. In the Second Report 
and Order, 68 FR 36931, June 20, 2003, we asked whether we should adopt 
the proposed government-wide debarment rules then pending. Final 
government-wide rules were subsequently adopted in 2003. Commenters 
discussing the government-wide debarment rules should ensure their 
comments address these final rules. We also seek comment on whether we 
should broaden the scope of our debarment rules to encompass entities 
that have been found guilty of civil and criminal violations beyond 
those associated with our universal service programs or entities that 
have shown to have engaged in a clear pattern of abuse of our rules. We 
also seek comment on whether we should adopt sanctions other than 
debarment for violations in all USF programs. Commenters should discuss 
what type of sanctions would be appropriate, and identify any 
appropriate distinctions among the universal service programs. For 
example, should we reduce an E-rate beneficiary's discount level for a 
limited number of years for repeated violations?
    92. We tentatively conclude that we should establish more 
aggressive sanctions and debarment procedures and disclosures in all 
USAC programs. There should be a range of sanctions available to us for 
violations in all USAC programs. What types of sanctions should we 
employ? We also believe that sanctions should be appropriate to the 
violation. Sanctions should reflect the fundamental difference between 
isolated incidents of unintentional ministerial error and committing 
criminal fraud. What sanctions should we apply to clerical mistakes 
versus intentional fraud? One specific idea we seek comment on is 
whether we should be able to reduce an E-rate beneficiary's discount 
level for a limited number of years as a sanction for repeated 
violations rather than imposing a fine, especially for public 
institutions. We seek comment on whether the Commission or USAC should 
create a list of best and worst practices to assist beneficiaries to 
reduce fraud. This list would give examples to schools and libraries 
that would help them identify a good contractor and a good application, 
and to avoid predatory contractors and risky application practices.
    93. We continue to remain committed to rapidly detecting and 
addressing potential misconduct, and ensuring that universal service 
funds are used in the absence of waste, fraud, and abuse. We seek 
comment generally on other measures that would further these goals by 
deterring the inappropriate use of funds received from the various 
universal service support mechanisms. We invite commenters to propose 
mechanism-specific measures as well as measures that would apply to 
applicants or recipients of any of the various support mechanisms. 
Commenters should specify the manner in which their proposals would 
further protect the universal service support mechanisms from waste, 
fraud, and abuse.

III. Procedural Matters

A. Initial Regulatory Flexibility Analysis

    94. As required by the Regulatory Flexibility Act of 1980, as 
amended, 5 U.S.C. 604, the Commission has prepared an Initial 
Regulatory Flexibility Analysis (IRFA) for this NPRM, of the possible 
significant economic impact on a substantial number of small entities 
by the policies and rules proposed in this NPRM. The IRFA is in 
Appendix A. Written public comments are requested on this IRFA. 
Comments must be identified as responses to the IRFA and must be filed 
by the deadlines for comments on the NPRM. The Commission will send a 
copy of the NPRM, including this IRFA,

[[Page 41675]]

to the Chief Counsel for Advocacy of the Small Business Administration. 
In addition, the NPRM and IRFA (or summaries thereof) will be published 
in the Federal Register.

B. Paperwork Reduction Act Analysis

    95. This Notice of Proposed Rulemaking and Further Notice of 
Proposed Rulemaking does not contain information collection 
requirements subject to the Paperwork Reduction Act of 1995 (PRA), 
Public Law 104-13. In addition, therefore, it does not contain any new 
or modified ``information collection burden for small business concerns 
with fewer than 25 employees,'' pursuant to the Small Business 
Paperwork Relief Act of 2002, Public Law 107-198, see 44 U.S.C. 
3506(c)(4).

C. Ex Parte Presentations

    96. These matters shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. Persons 
making oral ex parte presentations are reminded that memoranda 
summarizing the presentations must contain summaries of the substance 
of the presentations and not merely a listing of the subjects 
discussed. More than a one or two sentence description of the views and 
arguments presented in generally required. Other requirements 
pertaining to oral and written presentations are set forth in Sec.  
1.1206(b) of the Commission's rules.

D. Comment Filing Procedures

    97. Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's 
rules, interested parties may file comments on or before October 18, 
2005, and reply comments on or before December 19, 2005. All filings 
must be addressed to the Commission's Secretary, Marlene H. Dortch, 
Office of the Secretary, Federal Communications Commission, 445 12th 
Street, SW., Washington, DC 20554. One (1) courtesy copy must be 
delivered to Warren Firschein at Federal Communications Commission, 
Telecommunications Access Policy Division, Wireline Competition Bureau, 
445 12th Street, SW., Room 5-B442, Washington, DC 20554; e-mail: 
[email protected]; one (1) courtesy copy must be delivered to 
Mika Savir at Federal Communications Commission, Telecommunications 
Access Policy Division, Wireline Competition Bureau, 445 12th Street, 
SW., Room 5-B448, Washington, DC 20554; e-mail: [email protected]; and 
one (1) copy to Best Copy and Printing, Inc. (BCPI), 445 12th Street, 
SW., Room CY-B402, Washington, DC 20554. Customers may contact BCPI 
through its Web site: http://www.bcpiweb.com, by e-mail at 
[email protected], by telephone at (202) 488-5300 or (800) 378-3160, or 
by facsimile at (202) 488-5563.
    98. Comments may be filed using the Commission's Electronic Comment 
Filing System (ECFS) or by filing paper copies. Comments filed through 
the ECFS can be sent as an electronic file via the Internet to http://www.fcc.gov/e-file/ecfs.html. If multiple docket or rulemaking numbers 
appear in the caption of this proceeding, commenters must transmit one 
electronic copy of the comments to each docket or rulemaking number 
referenced in the caption. In completing the transmittal screen, 
commenters should include their full name, U.S. Postal Service mailing 
address, and the applicable docket or rulemaking number. Parties may 
also submit an electronic comment by Internet e-mail. To get filing 
instructions for e-mail comments, commenters should send an e-mail to 
[email protected], and should include the following words in the body of the 
message, ``get form .'' A sample form and 
directions will be sent in reply.
    99. Parties who choose to file by paper must file an original and 
four copies of each filing. If more than one docket or rulemaking 
number appears in the caption of this proceeding, commenters must 
submit two additional copies for each additional docket or rulemaking 
number. All filings must contain the docket or rulemaking number that 
appears in the caption of this proceeding.
    100. Filings can be sent by hand or messenger delivery, by 
commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail (although we continue to experience delays in 
receiving U.S. Postal Service mail). The Commission's contractor, 
Natek, Inc., will receive hand-delivered or messenger-delivered paper 
filings for the Commission's Secretary at 236 Massachusetts Avenue, 
NE., Suite 110, Washington, DC 20002. The filing hours at this location 
are 8 a.m. to 7 p.m. All hand deliveries must be held together with 
rubber bands or fasteners. Any envelopes must be disposed of before 
entering the building.
    101. Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743. U.S. Postal Service first-class mail, 
Express Mail, and Priority Mail should be addressed to 445 12th Street, 
SW., Washington, DC 20554.
    102. Filings and comments are also available for public inspection 
and copying during regular business hours at the FCC Reference 
Information Center, Portals II, 445 12th Street, SW., Room CY-A257, 
Washington, DC 20554. Copies may also be purchased from the 
Commission's duplicating contractor, BCPI, 445 12th Street, SW., Room 
CY-B402, Washington, DC 20554. Customers may contact BCPI through its 
Web site: www.bcpiweb.com, by e-mail at [email protected], by telephone 
at (202) 488-5300 or (800) 378-3160, or by facsimile at (202) 488-5563.
    103. For further information regarding this proceeding, contact 
Warren Firschein, Attorney Advisor, Telecommunications Access Policy 
Division, Wireline Competition Bureau at (202) 418-0844, or 
[email protected] or Mika Savir, Attorney Advisor, 
Telecommunications Access Policy Division, Wireline Competition Bureau, 
(202) 418-0384, e-mail: [email protected].
    104. In addition to filing comments with the Secretary, a copy of 
any Paperwork Reduction Act (PRA) comments on the information 
collection(s) contained herein should be submitted to Judith B. Herman, 
Federal Communications Commission, Room 1-C804, 445 12th Street, SW., 
Washington, DC 20554, or via the Internet to [email protected], 
and to Kristy L. LaLonde, OMB Desk Officer, Room 10234 NEOB, 725 17th 
Street, NW., Washington, DC 20503 via the Internet to [email protected] or by fax to (202) 395-5167.

Initial Regulatory Flexibility Analysis (Notice of Proposed Rulemaking)

    105. As required by the Regulatory Flexibility Act (RFA), the 
Commission has prepared this Initial Regulatory Flexibility Analysis 
(IRFA) of the possible significant economic impact on small entities by 
the policies and rules proposed in the Notice of Proposed Rulemaking 
and Further Notice of Proposed Rulemaking (NPRM). Written public 
comments are requested on this IRFA. Comments must be identified as 
responses to the IRFA and must be filed by the deadlines for comments 
on the NPRM. The Commission will send a copy of this NPRM, including 
this IRFA, to the Chief Counsel for Advocacy of the Small Business 
Administration (SBA). In addition, the NPRM and IRFA (or summaries 
thereof) will be published in the Federal Register.

1. Need for, and Objectives of, the Proposed Rules

    106. In the NPRM, we seek comment on ways to further protect the 
high cost,

[[Page 41676]]

low income, schools and libraries, and rural health care universal 
service support mechanisms from waste, fraud, and abuse. Specifically, 
we seek comment on whether, so as to improve our oversight capacity to 
guard against waste, fraud, and abuse, our rules should require audits 
of recipients of funds from the high cost, low income, schools and 
libraries, and rural health care programs, and audits of contributors 
to the universal service fund. We also seek comment on whether to adopt 
document retention rules for all of the universal service fund 
mechanisms that are consistent with the rules pertaining to 
participants in the schools and libraries support mechanism. In 
addition, the NPRM seeks comment on whether to establish an 
administrative limitations period in which the Commission or USAC will 
determine that a violation has occurred among recipients of funds from 
the high cost, low income, and rural health care universal service 
support mechanisms that is consistent with the rules pertaining to 
participants in the schools and libraries support mechanism.
    107. Additionally, we seek comment on ways to improve the 
management, administration, and oversight of the universal service 
fund, including the process for applying of universal service support, 
the disbursement process, the billing and collection process, issues 
relating to the Universal Service Administrative Company (USAC), and 
performance measures and goals for assessing and managing the universal 
service programs.

2. Legal Basis

    108. The legal basis for the NPRM is contained in sections 1, 4, 
201 through 205, 214, 254, 303(r), and 403 of the Communications Act of 
1934, as amended, 47 U.S.C. 151, 154, 201-205, 214, 254, 303(r), and 
403, and Sec.  1.411 of the Commission's rules, 47 CFR 1.411.

3. Description and Estimate of the Number of Small Entities to Which 
Rules May Apply

    109. 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. A small 
organization is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, there are approximately 1.6 small organizations. The term 
``small governmental jurisdiction'' is defined as ``governments of 
cities, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' As of 1997, 
there were about 87,453 governmental jurisdictions in the United 
States. This number includes 39,044 county governments, municipalities, 
and townships, of which 37,546 (approximately 96.2 percent) have 
populations of fewer than 50,000, and of which 1,498 have populations 
of 50,000 or more. Thus we estimate the number of small governmental 
jurisdictions overall to be 84,098 or fewer.
    110. The Commission has determined that the group of small entities 
possibly directly affected by the proposed rules herein, if adopted, 
includes 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. Further descriptions of these 
entities are provided below. In addition, the Universal Service 
Administrative Company is a small organization (non-profit) under the 
RFA. It does not constitute a substantial number of such entities, and 
we believe that circumstances triggering the new reporting requirement 
will be limited and that the requirement does not constitute a 
significant economic impact on that entity.
a. Schools and Libraries
    111. As noted, ``small entity'' includes non-profit and small 
governmental entities. Under the schools and libraries universal 
service support mechanism, which provides support for elementary and 
secondary schools and libraries, an elementary school is generally ``a 
non-profit institutional day or residential school that provides 
elementary education, as determined under state law.'' A secondary 
school is generally defined as ``a non-profit institutional day or 
residential school that provides secondary education, as determined 
under state law,'' and not offering education beyond grade 12. For-
profit schools and libraries, and schools and libraries with endowments 
in excess of $50,000,000, are not eligible to receive discounts under 
the program, nor are libraries whose budgets are not completely 
separate from any schools. Certain other statutory definitions apply as 
well. The SBA has defined for-profit, elementary and secondary schools 
and libraries having $6 million or less in annual receipts as small 
entities. 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
    112. 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.
    113. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a size standard for small 
incumbent local exchange services. The closest size standard under SBA 
rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 1,310 incumbent carriers reported that 
they were engaged in the provision of local exchange services. Of these 
1,310 carriers, an estimated 1,025 have 1,500 or fewer employees and 
285 have more than 1,500 employees. Consequently, the Commission 
estimates that most providers of incumbent local exchange service are 
small businesses that may be affected by the rules and policies adopted 
herein.
    114. Competitive Local Exchange Carriers (CLECs), Competitive 
Access Providers (CAPs) and ``Other Local Exchange Carriers.'' Neither 
the

[[Page 41677]]

Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to providers of competitive exchange 
services or to competitive access providers or to ``Other Local 
Exchange Carriers.'' The closest applicable size standard under SBA 
rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 563 companies reported that they were 
engaged in the provision of either competitive access provider services 
or competitive local exchange carrier services. Of these 563 companies, 
an estimated 472 have 1,500 or fewer employees and 91 have more than 
1,500 employees. In addition, 35 carriers reported that they were 
``Other Local Exchange Carriers.'' Of the 37 ``Other Local Exchange 
Carriers,'' an estimated 36 have 1,500 or fewer employees and one has 
more than 1,500 employees. Consequently, the Commission estimates that 
most providers of competitive local exchange service, competitive 
access providers, and ``Other Local Exchange Carriers'' are small 
entities that may be affected by the rules and policies adopted herein.
    115. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to interexchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to the Commission data, 281 companies 
reported that their primary telecommunications service activity was the 
provision of payphone services. Of these 281 companies, an estimated 
254 have 1,500 or fewer employees and 27 have more than 1,500 
employees. Consequently, the Commission estimates that the majority of 
IXCs are small entities that may be affected by the rules and policies 
adopted herein.
    116. Wireless Service Providers. The SBA has developed a small 
business size standard for wireless small businesses within the two 
separate categories of Paging and Cellular and Other Wireless 
Telecommunications. Under both SBA categories, a wireless business is 
small if it has 1,500 or fewer employees. According to the Commission 
data, 1,761 companies reported that they were engaged in the provision 
of wireless service. Of these 1,761 companies, an estimated 1,175 have 
1,500 or fewer employees and 586 have more than 1,500 employees. 
Consequently, the Commission estimates that most wireless service 
providers are small entities that may be affected by the rules and 
policies adopted herein.
    117. Private and Common Carrier Paging. In the Paging Third Report 
and Order, 62 FR 16004, April 3, 1997, we developed a small business 
size standard for ``small businesses'' and ``very small businesses'' 
for purposes of determining their eligibility for special provisions 
such as bidding credits and installment payments. A ``small business'' 
is an entity that, together with its affiliates and controlling 
principals, has average gross revenues not exceeding $15 million for 
the preceding three years. Additionally, a ``very small business'' is 
an entity that, together with its affiliates and controlling 
principals, has average gross revenues that are not more than $3 
million for the preceding three years. An auction of Metropolitan 
Economic Area licenses commenced on February 24, 2000, and closed on 
March 2, 2000. Of the 985 licenses auctioned, 440 were sold. Fifty-
seven companies claiming small business status won. At present, there 
are approximately 24,000 Private-Paging site-specific licenses and 
74,000 Common Carrier Paging licenses. Also, according to Commission 
data, 379 carriers reported that they were engaged in the provision of 
either paging or messaging services or other mobile services. Of those, 
the Commission estimates that 373 are small, under the SBA-approved 
small business size standard.
c. Internet Service Providers
    118. Internet Service Providers. The SBA has developed a small 
business size standard for Internet Service Providers (ISPs). ISPs 
``provide clients access to the Internet and generally provide related 
services such as web hosting, web page designing, and hardware or 
software consulting related to Internet connectivity.'' Under the SBA 
size standard, such a business is small if it has average annual 
receipts of $21 million or less. According to Census Bureau data for 
1997, there were 2,751 firms in this category that operated for the 
entire year. Of these, 2,659 firms had annual receipts of under $10 
million, and an additional 67 firms had receipts of between $10 million 
and $24,999,999. Consequently, we estimate that the majority of these 
firms are small entities that may be affected by our action. In 
addition, limited preliminary census data for 2002 indicate that the 
total number of internet service providers increased approximately five 
percent from 1997 to 2002.
d. Vendors of Internal Connections
    119. The Commission has not developed a small business size 
standard specifically directed toward manufacturers of internal network 
connections. The closest 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 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.
e. Miscellaneous Entities
    120. Wireless Communications Equipment Manufacturers. The equipment 
manufacturers described in this section are merely indirectly affected 
by our current action, and therefore are not formally a part of this 
RFA analysis. We have included them, however, to broaden the record in 
this proceeding and to alert them to our decisions. The SBA has 
established a small business size standard for radio and television 
broadcasting and wireless communications equipment manufacturing. Under 
this standard, firms are considered small if they have 750 or fewer 
employees. Census Bureau data for 1997 indicate that, for that year, 
there were a total of 1,215 establishments in this category. Of those, 
there were 1,150 that had employment under 500, and an additional 37 
that had employment of 500 to 999. The percentage of wireless equipment 
manufacturers in this category is approximately 61.35 percent, so the 
Commission estimates that the number of wireless equipment 
manufacturers with employment under 500 was actually closer to 706, 
with an additional 23 establishments having employment of between 500 
and 999. Given the above, the Commission estimates that the majority of 
wireless

[[Page 41678]]

communications equipment manufacturers are small businesses.

4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements

    121. The NPRM seeks comment on whether, so as to improve our 
oversight capacity to guard against waste, fraud, and abuse, our rules 
should require audits of recipients of funds from the high cost, low 
income, schools and libraries, and rural health care programs, and 
audits of contributors to the universal service fund. We have no audit 
cost estimate at this time. In addition, the NPRM seeks comment on 
whether to adopt document retention rules for all of the universal 
service fund mechanisms that are consistent with the rules pertaining 
to participants in the schools and libraries support mechanism.
    122. The NPRM also seeks comment on ways to improve the management, 
oversight, and administration of the universal service fund and the 
universal service mechanisms. The NPRM also seeks comment on 
improvements to the application and disbursement process, which may 
include changes in the universal service forms, adoption of a multi-
year application, or changes in other reporting requirements.

5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    123. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
the establishment of differing compliance and reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or part thereof, for small 
entities.
    124. In the NPRM, we seek comments asking for identification of any 
recordkeeping measures that would improve the Commission's ability to 
enforce its rules governing waste, fraud, and abuse in the high cost, 
low income, schools and libraries, and rural health care programs. 
Decreasing the likelihood of waste, fraud, and abuse preserves program 
funding for all eligible entities. The NPRM seeks comment on whether 
the audit requirement should apply only to recipients that receive a 
relatively large amount of support or benefit from the program. 
Similarly, with regard to potential audits of contributors to the fund, 
the NPRM seeks comment on whether we should establish a threshold for 
triggering an audit (e.g., require independent audits only for carriers 
contributing $100 million or more in a particular fiscal year). In 
addition, the NPRM seeks comment on adopting a multi-year application 
form for Universal Service Fund beneficiaries, which could, if adopted, 
reduce the filing burden on small entities.

6. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    125. None.

IV. Ordering Clauses

    126. Pursuant to the authority contained in sections 1, 4(i), 201-
205, 214, 254, and 403 of the Communications Act of 1934, as amended, 
47 U.S.C. 151, 154(i), 201-205, 214, 254, and 403, this Notice of 
Proposed Rulemaking and Further Notice of Proposed Rulemaking is 
adopted.
    127. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of this Notice of 
Proposed Rulemaking and Further Notice of Proposed Rulemaking, 
including the Initial Regulatory Flexibility Analysis, to the Chief 
Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 54

    Communications common carriers, Health facilities, Libraries, 
Reporting and recordkeeping requirements, Schools, Telecommunications, 
Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 05-14053 Filed 7-19-05; 8:45 am]
BILLING CODE 6712-01-P