[Federal Register Volume 80, Number 23 (Wednesday, February 4, 2015)]
[Rules and Regulations]
[Pages 5961-5991]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-01414]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 10-90 and 13-184; FCC 14-189]


Modernization of the Schools and Libraries ``E-rate'' Program and 
Connect America Fund

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) takes the next critical steps to modernize the Universal 
Service Fund's Schools and Libraries program, known as E-rate. Building 
on the E-rate Modernization Order, the Commission adopted in July, the 
improvements to the program that the Commission adopts in this Order 
seek to close the high-speed connectivity gap between rural schools and 
libraries and their urban and suburban counterparts, and provide 
sufficient and certain funding for high-speed connectivity to and 
within all eligible schools and libraries. The Commission takes these 
actions to ensure the continued success of the E-rate program as it 
transitions from supporting legacy services to focusing on meeting the 
high-speed broadband connectivity needs of schools and libraries 
consistent with the recently adopted program goals and long-term 
connectivity targets. In the Order on Reconsideration, the Commission 
grants in part the petitions for reconsideration of the areas 
designated as urban for purposes of the E-rate program. The Commission 
also denies petitions for reconsideration of the document retention 
period, the phase out of support for telephone components and other 
services, and funding commitments that cover multiple years. At the 
same time, the Commission clarifies our cost effectiveness test for 
individual data plans and the cost allocation rules for circuits 
carrying voice services.

DATES: Effective March 6, 2015, except for amendments to Sec. Sec.  
54.313(e)(2) and (f)(1), 54.503(c)(1), and 54.504(a)(1)(iii), which are 
subject to the PRA and OMB approval of the information collection 
requirements. FCC will publish a document in the Federal Register 
announcing the effective date. The amendments to Sec. Sec.  54.308(b), 
54.309(b), 54.505(b)(3) introductory text and (b)(3)(i), and 54.507(a) 
introductory text, (a)(1), and (c) are effective on July 1, 2015; and 
amendments to Sec. Sec.  54.505(b) introductory text, (c), and (f) and 
54.518 are effective on July 1, 2016.

FOR FURTHER INFORMATION CONTACT: Kate Dumouchel, Wireline Competition 
Bureau, Telecommunications Access Policy Division, at (202) 418-7400 or 
TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Second 
Report and Order and Order on Reconsideration, in WC Docket Nos. 10-90 
and 13-184; FCC 14-189, adopted on December 11, 2014 and released on 
December 19, 2014. 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. Or at 
the following Internet address: https://apps.fcc.gov/edocs_public/attachmatch/FCC-14-189A1.pdf.

I. Introduction

    1. In the Second E-rate Modernization Report and Order (Order) and 
Order on Reconsideration, we take the next critical steps to modernize 
the Universal Service Fund's Schools and Libraries program, known as E-
rate. Building on the E-rate Modernization Order we adopted in July, 
the improvements to the program that we adopt in this Order seek to 
close the high-speed connectivity gap between rural schools and 
libraries and their urban and suburban counterparts, and provide 
sufficient and certain funding for high-speed connectivity to and 
within all eligible schools and libraries. We take these actions to 
ensure the continued success of the E-rate program as it transitions 
from supporting legacy services to focusing on meeting the high-speed 
broadband connectivity needs of schools and libraries consistent with 
the recently adopted program goals and long-term connectivity targets.
    2. Through the changes we make to the E-rate program, we take 
further steps forward in our effort to modernize the program and place 
it on firm footing to meet the program goals. As the changes made in 
this Order and the E-rate Modernization Order are implemented, we will 
continue to identify additional steps that can to be taken to further 
modernize the E-rate program and achieve our goals of: (1) ensuring 
affordable access to high-speed broadband; (2) maximizing the cost-
effectiveness of spending for E-rate supported purchases; and (3) 
making the E-rate application process and other E-rate processes fast, 
simple, and efficient. We recognize that these changes will require 
adjustments by applicants, service providers, and other stakeholders, 
and in conjunction with USAC we commit to ensure that sufficient 
training and educational resources are provided to assist these groups 
during this transition. Finally, as always, we welcome feedback from 
applicants, service providers, teachers, librarians, state and local 
governments, and all other stakeholders on additional measures to reach 
our goals faster and improve the E-rate program.

II. Maximizing Schools' and Libraries' Options for Purchasing 
Affordable High-Speed Broadband Connectivity

    3. We focus in this section on providing schools and libraries, 
particularly those in rural areas, more options for purchasing 
affordable high-speed broadband connections. We agree with the many 
commenters who make clear that in order to meet the Commission's 
connectivity targets, in addition to increased funding, we must make 
changes to the program to meet the need for affordable high-speed 
connectivity to schools and libraries. The CoSN Survey identifies the 
monthly cost of recurring Internet access services and an inability to 
pay for the capital or non-recurring costs to get high-speed 
connections as the two biggest barriers to increasing connectivity to 
schools. Likewise, the American Library Association (ALA), the Public 
Library Association, and others indicate that lack of access to 
broadband infrastructure and the high costs of recurring services 
hamper libraries' ability to meet our E-rate goals. As ALA has 
explained, our nation's libraries depend on affordable, scalable, high-
capacity broadband in order to complete education, jumpstart employment 
and entrepreneurship, and foster individual empowerment and engagement. 
To meet the connectivity targets we adopted in the E-rate Modernization 
Order, substantial numbers of schools and libraries will need to find 
vendors willing and able to provide affordable high-speed connections 
to their buildings and be able to afford the recurring costs of those 
high-speed connections.
    4. Over the course of the last 18 years, the Commission has 
recognized the importance of giving local school districts and 
libraries the flexibility to purchase E-rate supported services that 
meet their needs. With rare exceptions, however, the program has not 
adopted new tools for applicants to use in

[[Page 5962]]

purchasing connectivity. The actions we take today give applicants more 
options for purchasing connectivity and represent a crucial step in 
meeting our first goal for the E-rate program: ensuring affordable 
access to high-speed broadband sufficient to support digital learning 
in schools and robust connectivity for all libraries.
    5. The E-rate program historically has fully funded all priority 
one (now category one) funding requests, which include funding requests 
for high-speed broadband connections to schools and libraries. Despite 
the program's history of funding all priority one requests, the record 
demonstrates that a substantial percentage of U.S. schools do not meet 
the short term Internet Access connectivity target of 100 Mbps per 
1,000 users that we adopted in the E-rate Modernization Order. 
Similarly, the record demonstrates that most libraries do not meet our 
short-term connectivity targets. In addition, by not effectively 
enabling E-rate applicants to undertake large construction projects, 
purchase dark fiber and consider self-construction of high-speed 
networks, our current rules and procedures prevent some applicants from 
choosing the most cost-effective options for increasing the high-speed 
broadband connections to their school and library buildings.
    6. We therefore take actions targeted at closing the rural 
connectivity gap and increasing affordable high-speed broadband 
connections to schools and libraries. First, we direct USAC to suspend 
its policy requiring applicants to amortize over multiple years upfront 
charges for category one special construction exceeding $500,000 while 
allowing applicants to pay the non-discounted portion of category one 
special construction charges over four years. Next, in limited 
circumstances and with appropriate safeguards, we adopt changes to the 
E-rate program's rules to equalize the treatment of lit and dark fiber, 
to allow applicants to self-construct and operate connections to their 
school and library buildings, and to incentivize federal-state 
cooperation in deploying broadband infrastructure to schools and 
libraries in hard to connect areas. Finally, we establish an obligation 
for recipients of high-cost support to offer broadband service to 
requesting eligible schools and libraries at rates reasonably 
comparable to rates charged in urban areas.
    7. We direct USAC, working with the Wireline Competition Bureau 
(Bureau) and the Office of the Managing Director (OMD), to implement 
the changes we make to the program in this Order. In so doing, we 
reaffirm our delegation of authority to the Bureau to issue orders 
interpreting our E-rate rules and otherwise provide clarification and 
guidance in the case of any ambiguity that may arise as necessary to 
ensure that support for services provided to schools and libraries 
operate to further the goals we have adopted for the E-rate program. We 
also direct the Bureau, working with OMD and other Commission staff, to 
make changes to the E-rate information collections, as needed, and to 
provide direction to USAC to implement the changes.
    8. These actions will result in increased high-speed broadband 
connections to schools and libraries in all areas in furtherance of the 
E-rate program's Internet access and WAN/last-mile goals and are 
consistent with section 254 of the Act, which, inter alia, directs the 
Commission to ``enhance, to the extent technically feasible and 
economically reasonable, access to advanced telecommunications and 
information services'' for schools and libraries. Moreover, these 
changes will allow applicants more flexibility to pursue the most cost-
effective option for connecting schools and library buildings. Although 
these incentives will likely have the greatest effect on broadband 
availability and affordability in rural and high-cost areas, they will 
also give E-rate applicants in urban areas more purchasing options.
    9. We are cognizant of the fact that some commenters have expressed 
concerns that the cumulative effect of the actions we take in this 
order to facilitate greater use of E-rate dollars for special 
construction charges could result in insufficient funds being available 
for other category one expenses and category two costs. In order to 
address these concerns, we require USAC to report to the Bureau if E-
rate commitments for special construction charges resulting from the 
rules we adopt today exceed ten percent of the total E-rate cap for any 
given funding year. In determining whether a report is required, USAC 
shall consider the commitments for special construction charges for 
dark fiber, self-construction, and for special construction that takes 
advantage of state matching funds for a given funding year. Any such 
report shall also provide information to the Bureau concerning the 
cost-effectiveness of the special construction projects to which USAC 
has committed funding. That report shall be informed by the work done 
on cost-effective analysis as provided for in this Order. The Bureau 
shall present the findings to the full Commission for its consideration 
of the impact of special construction charges on the long-term 
financial viability of the program and the ability of the Commission to 
meet the E-rate program goals adopted in the July E-rate Modernization 
Order.

A. Making the Payment Options for Special Construction Charges More 
Flexible (WC Docket 13-184)

    10. To help applicants overcome the cost barrier to high-speed 
broadband deployment projects, we make a set of administrative and rule 
changes that will help schools and libraries more easily undertake 
projects requiring special construction charges. First, we direct USAC 
to temporarily suspend its policy of requiring applicants to amortize 
large non-recurring category one charges to encourage vendors to bid on 
E-rate projects requiring special construction. Second, we allow 
applicants to pay the non-discounted share of category one special 
construction charges over four years rather than requiring schools or 
libraries working with limited budgets to pay the entirety of their 
share in a single year. We anticipate these changes will provide the 
right incentives to schools and libraries to consider necessary 
broadband infrastructure deployments and will attract a diverse slate 
of vendors to such projects from which the applicants can choose.
1. Suspending USAC's Multi-Year Amortization Policy for Non-Recurring 
Construction Costs
    11. To encourage efficient investment in high-speed broadband 
infrastructure, including the deployment of fiber, we direct USAC to 
suspend for four years its policy of requiring applicants to amortize 
large category one non-recurring charges. Encouraging construction of 
high-speed connections to schools and libraries is a crucial part of 
our effort to ensure that all schools and libraries achieve our 
connectivity targets. Suspending the amortization requirement will give 
applicants the flexibility to plan large construction projects knowing 
they can recover the E-rate supported portion of any non-recurring 
costs upfront, thus providing greater certainty regarding funding and 
removing this potential barrier to infrastructure investment.
    12. We are comfortable taking this step not only because it will 
encourage deployment but also because the concerns described by the 
Commission in 2000 that caused USAC to institute this restriction have 
proven to be not well-founded. In the Brooklyn Order, the Commission 
expressed concern that large upfront payments for non-recurring 
services could create a critical drain on the Fund, thereby limiting 
the number of schools and libraries that

[[Page 5963]]

would receive funding. To prevent such an occurrence, the Commission 
held that applicants must amortize upfront non-recurring charges when 
such charges vastly exceed the monthly recurring charges of the 
relevant service. In response to this general direction, USAC 
implemented a policy requiring applicants to amortize upfront or non-
recurring charges of $500,000 or more over a period of at least three 
years.
    13. Large upfront payments have not proven to be a drain on the 
Fund, and would not have been even if they had not been amortized. 
Moreover, we agree with commenters that argue that suspension of this 
amortization policy is likely to incentivize efficient investments in 
infrastructure, including the deployment of fiber. As commenters point 
out, USAC's current amortization policy requires many service providers 
to obtain financing for special construction projects, who then pass 
along the costs of this financing to applicants in the form of larger 
monthly recurring costs. Consequently, USAC's current amortization 
policy may actually increase the total costs borne both by applicants 
and the program. In addition, ALA and other commenters indicate that 
lack of certainty about the ability to recover costs in future funding 
years may deter some applicants from investing in large infrastructure 
projects that will be amortized over future funding years.
    14. Some commenters express the same concern articulated by the 
Commission in the Brooklyn Order, that if large numbers of applicants 
seek support for substantial upfront construction charges, the 
Commission could receive a drastic increase in category one requests. 
For that reason, we choose to test the impact of abolishing the 
amortization requirement by temporarily suspending the requirement for 
the next four funding years. We are confident that temporarily 
suspending the amortization requirement will not create risk of 
insufficient category one support available for other schools and 
libraries, particularly in light of the increase in the E-rate funding 
cap that we adopt today. In the E-rate Modernization Order, we began 
the process of focusing E-rate support on high-speed broadband for our 
nation's schools and libraries. In this Order, as discussed in more 
detail below, we are raising the annual E-rate cap, in part to ensure 
there are sufficient category one funds available to meet the build-out 
costs of connecting currently underserved schools and libraries. 
Moreover, while some providers will offer an upfront payment option, we 
recognize that in other instances providers will continue to 
incorporate the cost of building out to schools and libraries into 
their recurring charges. In addition, because applicants are 
responsible for paying the non-discounted portion of the services they 
purchase, we expect that this requirement will deter some applicants 
from undertaking expensive construction projects. Applicants also 
remain subject to the requirement to select the most cost-effective 
service offering, which will further dampen the likelihood of a drastic 
increase in category one requests.
    15. We therefore direct USAC to suspend application of its multi-
year amortization policy for funding years 2015 through 2018 and to 
allow applicants to seek support for upfront or non-recurring charges 
without imposing any amortization requirements. In evaluating this USAC 
requirement, we considered a permanent end to the requirement instead 
of merely suspending its application. However, we are cognizant of the 
interest reflected in the Brooklyn Order of balancing the immediate 
needs of some E-rate applicants against the needs of all of the 
applicants. We therefore adopt the additional safeguard of suspending 
rather than eliminating USAC's amortization policy for the limited 
duration of the next four funding years. We expect that USAC will keep 
the Bureau apprised of how many and to what extent applicants utilize 
this suspension for the deployment of infrastructure. We also direct 
the Bureau to revise our data collection to collect such information 
beginning in funding year 2016. We believe this balanced approach will 
provide us with sufficient data to determine the best course forward 
for subsequent funding years.
2. Allowing Applicants To Pay the Non-Discounted Portion of Non-
Recurring Construction Costs Over Multiple Years
    16. To address the challenge some applicants face in having 
sufficient funds to pay the non-discounted portion of special 
construction charges, we allow applicants to enter into an installment 
payment plan with their service providers for the non-discounted 
portion of category one special construction charges beginning in 
funding year 2016. Currently, applicants must pay the entire non-
discounted portion of a special construction project to the service 
provider within 90 days of delivery of service. However, the record 
demonstrates that obtaining funding to pay the entire non-discounted 
share of special construction charges is a major barrier to high speed 
connectivity for some schools and libraries. To help schools and 
libraries overcome this barrier, we will allow them to pay the non-
discounted portion of special construction charges in installment 
payments of up to four years from the first day of the relevant funding 
year. Pursuant to our direction above to USAC to suspend its 
amortization policy, applicants will be able to seek the discounted 
portion of those same category one special construction charges during 
a single funding year.
    17. Applicants who are interested in this flexible payment 
arrangement must specifically include this request in their bids on 
their FCC Forms 470. By notifying all potential bidders of their 
interest, applicants will ensure that vendors know and understand all 
expected terms and conditions of the school or library's bid and that 
all potential service providers who are willing to offer an installment 
payment option will be on notice of the applicant's interest and will 
bid accordingly.
    18. Service providers are under no obligation to allow this payment 
arrangement and should not do so in the absence of such a request on an 
applicant's FCC Form 470. However, those that do offer installment 
payments in response to an FCC Form 470 seeking bids that include this 
option must specify in their bid submission whether they are willing to 
allow this payment arrangement and must also disclose all material 
terms of that arrangement, including any interest rate they would 
charge the applicant and the term of the installment payment plan they 
are offering.
    19. We recognize that allowing applicants greater flexibility to 
pay the non-discounted cost of special construction charges combined 
with the other changes we make in this Order could increase demand for 
category one support. However, a temporary increase in the demand to 
the Fund for special construction charges will ultimately be beneficial 
to E-rate applicants and the stability of the Fund. It will result in 
more students and library patrons enjoying access to scalable, high-
speed broadband connections and we expect increasing flexibility for 
applicant's non-recurring payments for special construction will allow 
applicants to structure the agreements with service providers so as to 
lower future costs for recurring services. Moreover, the increase in 
the E-rate funding cap we adopt today should alleviate concerns 
resulting from any temporary increase in demand for special 
construction charges.

[[Page 5964]]

    20. As with our suspension of the amortization requirement, we 
expect that USAC will keep the Bureau apprised of how many and to what 
extent applicants utilize this installment payment option for the 
deployment of infrastructure. We also direct the Bureau to consider how 
best to modify our data collections to capture information about the 
extent to which applicants take advantage of this option and to require 
reporting and certifications by applicants and service providers 
regarding the payment of the applicant's non-discounted share of 
special construction charges.
    21. We also amend Sec.  54.504(a)(1)(iii) to require applicants 
that take advantage of this flexible payment option to certify on their 
FCC Forms 471 that they are able to pay all required installment 
payments. Our rule currently requires applicants to certify that they 
are able to pay the discounted charges for eligible services from funds 
to which access has been secured in the current funding year. This 
change is necessary because applicants on an installment plan may not 
have secured all of their non-discounted payments in the applicable 
funding year.
    22. We also take this opportunity to remind applicants and vendors 
that it is a violation of our competitive bidding rules for service 
providers to offer to pay the non-discounted portion of E-rate 
supported services, and a violation of our gift rules and the 
prohibition on the receipt of rebates for services or products 
purchased with E-rate discounts to forgive payment of such charges or 
to accept such payment forgiveness. By extension, service providers 
that accept installment payments of the non-discounted share of E-rate 
supported services cannot forgive any or all such payments. Because 
interest and finance charges are not eligible for E-rate support, 
applicants may not seek support for these charges. Additionally, we 
remind applicants and service providers that our document retention 
rules require them to maintain records of payments made so that USAC 
can verify that an applicant has paid its full non-discounted share. 
Applicants should also be prepared to provide documentation verifying 
their agreements with service providers for an installment payment 
plan.

B. Modifying the Commission's Eligible Services List and Rules To 
Expand Access To Low Cost Fiber (WC Docket 13-184)

    23. To further expand the competitive options for schools and 
libraries seeking high-speed broadband connectivity and to drive down 
broadband costs for applicants and the Fund, we amend our eligible 
services list, effective in funding year 2016, to equalize the E-rate 
program's treatment of lit and dark fiber; amend our rules to allow 
applicants to construct their own fiber networks under limited 
circumstances; and incent states to identify and provide financial 
assistance for last-mile connections to underserved schools and 
libraries.
1. Equalizing the Treatment of Lit and Dark Fiber
    24. First, we adopt the Commission's proposal in the E-rate 
Modernization NPRM, 78 FR 51597, August 20, 2013, to equalize the E-
rate program's treatment of lit and dark fiber. Citing the cost savings 
and bandwidth upgrades that dark fiber can provide, school, library, 
and local government commenters from urban and rural areas across the 
country overwhelmingly support equalizing the treatment of lit and dark 
fiber. The availability of a full dark fiber option will help some E-
rate applicants attract multiple competitive bids for construction and 
deployment and will drive down broadband costs for schools and 
libraries, as well as the E-rate program. We will equalize the 
treatment of dark and lit fiber beginning in funding year 2016.
    25. Dark-fiber leases and other dark-fiber service agreements are 
commercial arrangements in which a broadband customer purchases use of 
a portion of a provider-owned and maintained fiber network separately 
from the service of lighting (i.e. transmitting information over) that 
fiber. Many competitive providers now offer such arrangements. In the 
Schools and Libraries Sixth Report and Order, 75 FR 75393, December 3, 
2010, the Commission concluded that expanding access to such 
arrangements would ``increase competition among providers of fiber and 
ensure[ ] that schools and libraries . . . pay less for the same or 
greater bandwidth,'' and therefore added dark fiber to the E-rate 
eligible services list. The Commission limited dark-fiber support in 
several ways, however, ``pending further inquiry into the potential 
impact on the E-rate fund'' of fully equalizing the treatment of lit 
and dark fiber services. The E-rate program currently supports the 
recurring costs of leasing lit and dark fiber as category one services. 
When a school or library leases lit fiber, the modulating electronics 
necessary to light that fiber are funded as a category one service. By 
contrast, a school or library that leases dark fiber currently cannot 
receive category one support for the modulating electronics necessary 
to light the fiber. In addition, the E-rate program currently provides 
category one support for all ``special construction charges'' for 
leased lit fiber, but does not support special construction charges for 
leased dark fiber beyond a school or library's property line. Having 
now developed a further record on this issue, we conclude that leveling 
the playing field between lit and dark fiber will expand options for 
applicants and will likely reduce costs for the Fund.
    26. We received widespread support from a broad cross-section of E-
rate stakeholders--from schools and state E-rate experts to 
municipalities and carriers--who believe the equalization of the 
treatment of lit and dark fiber in the E-rate program carries 
substantial benefits. Commenters contend, for example, that funding 
dark fiber on an equal footing with lit fiber will provide more choices 
and lower costs to schools and libraries seeking enhanced connections. 
The city of Boston points out that ``distinguishing between lit and 
dark fiber serves no useful purpose'' in the E-rate program and that 
dark fiber should be placed on an equal footing with lit fiber if it is 
the proper solution to the needs of the school or library. State-level 
E-rate coordinators take a similar view, as do competitive providers.
    27. While most schools and libraries seeking high-speed broadband 
purchase lit fiber services, the record makes clear that dark fiber can 
be a powerful option for a significant minority to drive down broadband 
costs while increasing capacity. For example, Maine, which purchases 
school and library connectivity through a statewide consortium, has 
leased 1 Gbps dark fiber circuits to 75 schools across the state. Maine 
reports that because its dark-fiber service provider charges on a per-
mile basis rather than based on bandwidth used, the state consortium's 
all-inclusive cost for 1 Gbps connectivity to these 75 schools is 
approximately $500 to $750 per-school per-month--roughly the same per-
circuit price the state consortium pays for one percent of that 
bandwidth (10 Mbps) for lit circuits from other providers. Similarly, 
the University System of Georgia's statewide research and education 
network, PeachNet, is employing a dark fiber solution to significantly 
increase the high-speed broadband connectivity to local school 
districts. Beginning July 2015, PeachNet will increase the broadband 
connectivity to each local school district from 3 Mbps per school to 
100 Mbps per schools while reducing the Georgia Department of 
Education's per Mbps costs by 96 percent.

[[Page 5965]]

    28. Dark-fiber services can also be a cost-effective option for 
smaller, rural districts that otherwise face challenges affording high-
speed circuits. For example, the Newton Public School District, an 11-
school district centered in Newton, Kansas, recently upgraded to a 
district-wide 1 Gbps WAN while decreasing costs by moving to a dark-
fiber solution. Likewise, the Morgan County and Bleckley County school 
systems in Georgia, which each serve rural populations, connect their 
schools through cable-provided dark fiber at speeds of 1 to 10 Gbps. 
Weslaco ISD, located in the south Texas Rio Grande Valley, serves a 
largely poor and minority population, including many migrant families 
and relies on dark-fiber leases to connect several of its 17 school 
sites to its central network operations center.
    29. Equalizing the treatment of lit and dark fiber is also 
consistent with the Commission's approach in the Healthcare Connect 
Order, 78 FR 38606, June 27, 2013. There, guided by the principle that 
``providing flexibility for HCPs [health care providers] to select a 
range of services . . . will maximize the impact of Fund dollars (and 
scarce HCP resources),'' the Commission concluded that ``supporting 
dark fiber provides an additional competitive option to help HCPs 
obtain broadband in the most cost-effective manner available in the 
marketplace.'' In particular, and in contrast to the current E-rate 
rules, the Healthcare Connect Order authorized support for special 
construction charges for both lit and dark fiber, as well as for the 
installation of equipment and services ``necessary to make [dark fiber] 
service functional,'' including modulating electronics.
    30. Following this recent precedent and given the broad support in 
the record, we will equalize the treatment of dark- and lit-fiber 
services within E-rate, beginning in funding year 2016. Specifically, 
adopting the Commission's proposal in the E-rate Modernization NPRM, we 
will provide category one support for special construction charges for 
leased dark fiber, as we do for leased lit fiber, and we will provide 
category one support for the modulating electronics necessary to light 
leased dark fiber.
    31. To prevent applicants from using E-rate discounts to acquire 
unneeded capacity or warehouse dark fiber for future use, we maintain 
the safeguards that the Commission adopted in the Schools and Libraries 
Sixth Report and Order, and extend those it adopted in the Healthcare 
Connect Order to E-rate. First, to prevent warehousing of excess fiber 
capacity, applicants cannot receive E-rate funding for recurring costs 
associated with dark fiber until it is lit, and applicants may only 
receive funding for special construction charges for dark fiber if it 
is lit within the same funding year.
    32. To provide applicants sufficient time to complete special 
construction projects before a funding year begins, we codify the bulk 
of USAC's current policy regarding special construction charges. 
Specifically, we allow category one infrastructure costs incurred six 
months prior to that funding year, provided the following conditions 
are met: (1) The construction takes place only after selection of the 
service provider pursuant to a posted FCC Form 470 (or any successor 
form); (2) a category one recurring service must depend on the 
installation of the infrastructure; and (3) the actual service start 
date of that recurring service is on or after the start of the funding 
year (July 1). We also direct USAC to accept invoices for special 
construction charges meeting these conditions dated during this period 
of time before the start of the funding year. However, applicants that 
choose to start construction before they receive a funding commitment 
bear the risk that their funding request will not be granted. Because 
special construction charges for leased dark fiber are now eligible for 
category one support, applicants seeking support for special 
construction for dark fiber may avail themselves of this limited 
exception for early construction. In addition, as in the Healthcare 
Connect Order, we will also allow applicants to receive up to a one-
year extension to light fiber if they demonstrate that construction was 
unavoidably delayed due to weather or other reasons.
    33. Second, to ensure that applicants treat the price of eligible 
products and services as the primary factor in selecting winning bids, 
we adopt measures to ensure that applicants fairly compare dark fiber 
with other options. If a school or library intends to seek support for 
special construction charges associated with dark fiber, it must also 
solicit proposals to provide the needed services over lit fiber. 
Similarly, if a school or library intends to seek support to lease and 
light dark fiber, the schools or library must also solicit proposals to 
provide the needed services over lit fiber over a time period 
comparable to the duration of the dark-fiber lease or IRU. In addition, 
if an applicant intends to request support for equipment and 
maintenance costs associated with lighting dark fiber, it must include 
these elements in the same application as the dark fiber so that USAC 
can easily review all costs together. These safeguards amply address 
concerns that schools and libraries could choose dark-fiber solutions 
when not the most cost-effective solution, that they will exclude 
certain costs when comparing dark- and lit-fiber solutions, or that 
they will warehouse spare capacity. Indeed, the safeguards reflect the 
suggestions of many of the commenters who raised these concerns in the 
record.
    34. USTelecom argues that the protections adopted in the Healthcare 
Connect Order will prove insufficient in the E-rate context because 
``USAC-conducted cost-effectiveness reviews [are] not viable for the E-
rate program'' and ``the E-rate program--at least as it is currently 
structured--provides fewer incentives for applicants to make cost-
effective choices than the Healthcare Connect Fund'' because the top 
discount rate is higher. We find both arguments unpersuasive. While it 
is true that the top discount rate in the E-rate program is higher than 
the discount rate for recipients of Healthcare Connect funds, E-rate 
discounts vary, resulting in a substantial number of E-rate applicants 
receiving discount rates below those discount rates received by rural 
health care providers. In addition, all E-rate applicants are required 
to engage in cost-effective purchasing. Further, USAC routinely 
conducts cost-effectiveness reviews of E-rate applications every year 
and we are confident it can do so for applicants choice of dark-fiber 
solutions, just as it does for all the other purchasing decisions 
applicants make.
    35. Incumbent providers also assert that equalizing the treatment 
of lit and dark fiber ``undermines national broadband policy'' because 
it ``takes traffic away from actual or potential last mile facilities 
of broadband service providers, which frustrates their ability to 
utilize schools as anchor tenants for broadband investment in 
surrounding communities, especially in low density areas.'' It is our 
view that vibrant competition on an even playing field generally brings 
the lowest prices and best promotes ``national broadband policy.'' 
Accordingly, within a framework that treats lit- and dark-services 
equally, incumbents are free to offer dark-fiber service themselves, or 
to price their lit-fiber service at competitive rates to keep or win 
business--but if they choose not to do so, it is market forces and 
their own decisions, not the E-rate rules, that ``frustrate[] their 
ability to utilize schools as anchor tenants.'' Nor does it ``take[] 
traffic away from actual or potential last mile facilities of broadband 
service providers,'' if a competitor wins school and library

[[Page 5966]]

business, for competitive providers of dark-fiber service are also 
``broadband service providers,'' and our role in the E-rate context is 
to encourage participation in the E-rate program and foster access to 
broadband by schools and libraries, and not favor one provider over 
another.
    36. Finally, USTelecom reiterates its statutory argument from past 
proceedings that the Act prohibits support for dark fiber because it is 
not a ``service'' under section 254. The Commission has rejected this 
interpretation on multiple prior occasions, and commenters neither 
offer new arguments nor identify new facts that would warrant 
revisiting this conclusion. USTelecom contends that even if dark fiber 
itself qualifies for support, modulating electronics necessary to light 
dark fiber and special construction charges for leased dark fiber do 
not, because whereas ``dark fiber is part of the transmission path that 
enables the requisite functionality (delivery of voice, video and/or 
data) to be delivered to the classroom,'' modulating electronics and 
special construction charges are ``unrelated to the transmission of 
information to individual classrooms.'' USTelecom provides no 
explanation for this assertion, however, nor can we imagine any. 
Lighting dark fiber ``enables the requisite functionality (delivery of 
voice, video and/or data)'' to just the same extent as the dark fiber 
itself. Indeed, modulating electronics are a critical component of the 
E-rate supported bundle when broadband is sold as a lit-fiber service. 
Likewise, just as special construction charges for lit fiber are 
eligible because they are part of the cost of bringing broadband 
connections to school and library buildings, so too are special 
construction charges for dark fiber. Further, we continue to believe 
that dark fiber does enhance access to advanced telecommunications and 
information services consistent with section 254(h)(2)(A). Therefore, 
consistent with our policy conclusion that lit- and dark-fiber services 
should be treated equally, we see nothing in the statute that would 
require us to draw a distinction.
2. Permitting Self-Construction of High-Speed Broadband Networks
    37. We also promote high-speed broadband connectivity by permitting 
applicants to construct their own or portions of their own networks 
when self-construction is the most cost-effective solution. We agree 
with commenters that argue that allowing E-rate applicants to own all 
or portions of their own networks can help deliver the most cost-
effective broadband services and provide financial stability for 
certain E-rate recipients. We also agree with commenters that argue for 
safeguards to make sure that self-construction is only available in 
limited circumstances when it is demonstrated to be the most cost-
effective solution. As with our equalization of lit and dark fiber, we 
allow the self-construction option beginning in funding year 2016.
    38. Providing support for the self-construction of high-speed 
broadband networks is also consistent with the Communications Act, as 
the Commission recently found in the Healthcare Connect Order:

    [S]ection 254(h)(2) provides ample authority for the Commission 
to provide universal service support for HCP access to advanced 
telecommunications and information services, including by providing 
support to HCP-owned network facilities. Nothing in the statute 
requires that such support be provided only for carrier-provided 
services. Indeed, prohibiting support for HCP-owned infrastructure 
when self-construction is the most cost-effective option, would be 
contrary to the command in section 254(h)(2)(A) that support be 
``economically reasonable.''

We find this reasoning equally applicable to self-construction 
undertaken by schools and libraries that participate in the E-rate 
program, and we further find that the record now before us demonstrates 
that support for the self-construction of high-speed broadband networks 
will fulfill the mandate of section 254(h)(2)(A). As explained above, 
for example, we are adopting safeguards to ensure that self-
construction is available only in limited circumstances when it is 
demonstrated to be the most cost-effective solution to obtain high-
speed broadband. The record shows that under these circumstances, 
support for self-construction will be ``economically reasonable,'' 
while also fulfilling the statutory mandate that we enhance, ``to the 
extent technically feasible . . ., access to advanced 
telecommunications and information services for all public and 
nonprofit elementary and secondary classrooms . . . and libraries.''
    39. Self-construction can be a useful tool for some schools and 
libraries when they receive insufficient responses to their FCC Form 
470 and associated requests for proposals (RFPs). Testing the benefits 
of allowing self-construction, the Commission permitted applicants to 
construct their own networks in the Rural Health Care Pilot Program 
that preceded the Healthcare Connect Order. Eight of the 50 pilot 
program participants elected to use support for self-construction for 
parts of their networks, with two of those participants opting to 
construct their whole networks. The participants found self-
construction to be a useful tool for cost-effective network deployment. 
Because of the success of the Rural Health Care Pilot Program, the 
Commission adopted rules permitting self-construction, subject to 
certain safeguards, for the Rural Health Care Program participants in 
the Healthcare Connect Order. We follow the model the Commission 
adopted in the Healthcare Connect Order here, to ensure that the Fund 
supports self-construction only when it is the most cost-effective 
option.
    40. Some commenters express concern about the cost-effectiveness of 
self-construction and the quality of service it would provide and 
either oppose a self-construction option or request safeguards to 
ensure that schools and libraries only have the option of self-
construction when it is the most cost-effective approach. Other 
commenters argue that we should impose a cap on self-construction, as 
the Commission did in the Rural Health Care Program. Additionally, NCTA 
recommends that we only authorize funding for self-construction by 
schools and libraries where they can demonstrate that (1) there are no 
commercial alternatives; (2) there are no more cost-effective methods 
to receive high-speed broadband; and (3) they have the expertise to 
handle the burden of operating and maintaining a fiber network. For its 
part, expressing concern about overbuilding, NTCA has argued that self-
construction should only be allowed where an applicant has sought 
broadband services from existing providers and networks, and 
connectivity is not available from those providers and their networks; 
the existing provider is given the opportunity to demonstrate that it 
can provide the broadband service at target speeds within 180 days; 
there is a meaningful matching funds requirement; applicants are 
prohibited from using revenue from excess capacity as a source of 
matching funds; and applicants demonstrate that they have selected the 
option that will be most cost-effective over the life of the asset.
    41. We agree with many of the concerns expressed by commenters, 
particularly those aimed at ensuring that self-construction is only 
undertaken when it is the most cost-effective option, but we do not 
agree with all of the limitations on self-construction suggested by 
commenters. Therefore, we adopt safeguards ensuring that applicants 
seek E-rate support for self-construction only when it is the most

[[Page 5967]]

cost-effective option, and requiring that they actually use the self-
constructed facilities, but do not adopt many of the other limitations 
on self-construction suggested by commenters.
    42. In allowing self-construction under certain circumstances, we 
adopt several safeguards to ensure that the self-construction option 
will be available only when it is necessary to enable applicants to 
access fiber at cost-effective rates. First, as the Commission did for 
the Rural Health Care Program, we allow self-construction only where 
self-construction is demonstrated to be the most cost-effective option 
after competitive bidding. USAC already has experience in evaluating 
cost-effectiveness for large-scale projects from the Rural Health Care 
Program. Applicants interested in pursuing self-construction must 
solicit bids for both service and construction in the same FCC Form 470 
and must provide sufficient detail so that cost-effectiveness can be 
evaluated based on the total cost of ownership over the useful life of 
the facility for applicants who pursue the self-construction option. As 
the Commission did in the Healthcare Connect Order, we permit 
applicants who have received no bids on a services-only posting to 
pursue a self-construction option through a second posting for the same 
funding year.
    43. Second, as with applicants that seek E-rate support for dark 
fiber, to ensure that we are paying for necessary services, applicants 
may only receive funding for self-construction if the facilities are 
built and used within the same funding year. Pursuant to the 
prohibition against reselling service purchased with E-rate discounts, 
applicants may only receive E-rate support for services that they use. 
In Section II.B.1, we codified a limited exception to allow funding for 
special construction charges for projects started up to six months in 
advance of the funding year, provided the following conditions are met: 
(1) The construction begins only after selection of the service 
provider pursuant to a posted FCC Form 470 (or any successor form); (2) 
a category one recurring service must depend on the installation of the 
infrastructure; and (3) the actual service start date is after the 
start of the funding year (July 1). This exception applies to self-
construction. As we do with dark fiber, we will also allow applicants 
to receive up to a one-year extension of the service start date if they 
demonstrate that construction was unavoidably delayed due to weather or 
other reasons.
    44. Third, the E-rate program rules require applicants to secure 
all of the resources necessary to make effective use of the services 
they purchase. We are confident that allowing schools and libraries to 
select a self-construction option with these meaningful safeguards will 
give applicants that have been unable to find providers willing to 
build affordable high-speed connections another option for purchasing 
such connections.
    45. We do not adopt NTCA's proposals that we give existing 
providers a separate opportunity to demonstrate that they are able to 
provide service at the targeted speeds, because to do so would 
interfere with the competitive bidding process, which is the E-rate 
program's primary tool for ensuring schools and libraries select the 
most cost-effective option. Moreover, because E-rate applicants' 
requests for bids are publicly available, providers all have an equal 
opportunity to bid to provide E-rate services, and we expect that where 
there are existing providers and networks capable of providing service 
at the targeted speeds, they will be well situated to offer very 
competitive pricing through the competitive bidding process.
    46. At this time, we also decline the suggestion that we set a cap 
on the amount of funding available for self-construction projects. The 
first goal we adopted for the E-rate program in the E-rate 
Modernization Order is ensuring that schools and libraries have 
affordable access to high-speed broadband. The record is clear that 
self-construction can provide one method for some schools and libraries 
to achieve that goal. Setting a cap on self-construction would create 
funding uncertainty for those schools and libraries that want to 
explore whether self-construction would be the most cost-effective 
option for them. In recognition of commenters' concerns about the 
amount of funding spent on self-construction above, we have directed 
USAC and the Bureau to report on the impact on the Fund of special 
construction charges, including those for self-construction.
    47. We also decline to adopt USTelecom's suggestion that, if we 
make a self-construction option available, we target it to schools and 
libraries that do not have broadband and are located in rural areas. We 
do expect that the self-construction option will be most appealing to 
schools and libraries in rural areas that have not been able to 
purchase affordable high-speed broadband. We also expect that providers 
that already provide fiber-based services to a school or library should 
almost always be able to offer the most competitive pricing to that 
school or library. However, we decline to limit the self-construction 
option to applicants without broadband and in rural areas because there 
are schools and libraries that currently have broadband access, 
including in non-rural areas, that may be able to purchase more 
affordable broadband services if they take advantage of the self-
construction option. Moreover, having self-construction as an option 
for all schools and libraries will help drive competition, thereby 
maximizing the cost-effective use of E-rate funding, which is one of 
the goals that we have adopted for the program.
    48. A commenter raised concerns that permitting self-construction 
of networks could violate the Antideficiency Act because it would 
require long-term commitments. Consistent with the rules of the E-rate 
program, applicants will receive funding for self-construction for one 
funding year at a time only, so there is no danger of long-term, 
unfunded commitments that could violate the Antideficiency Act.
3. Additional Discounts When States Match Funds for High-Speed 
Broadband Construction
    49. To break down barriers to high-speed broadband access in rural, 
Tribal, and other unserved areas, we will provide additional category 
one funding to match state funding for special construction charges to 
connect schools and libraries to high-speed broadband services that 
meet the long term capacity targets we adopted in the E-rate 
Modernization Order. The record demonstrates that additional funds are 
needed for fiber builds and that states can play a powerful role 
catalyzing construction of high-speed broadband connections to schools 
and libraries. For example, the state of North Carolina has invested 
approximately $150 million in broadband deployment and, as a result of 
this investment, 98 percent of North Carolina schools have a fiber 
connection. Maine has been able to connect a significant portion of its 
schools by constructing its own fiber loop. Additionally, California 
recently budgeted $26.7 million for grants for last-mile build-out 
projects for public school districts, county offices of education, and 
direct-funded charter schools.
    50. In light of the role states can and do play in spurring 
broadband connectivity, some commenters suggested that we increase the 
discount rate for one-time capital investments to build out statewide 
fiber networks, while others suggested a separate fund or priority for 
capital investments. We agree that states are well-situated to

[[Page 5968]]

bolster high-speed broadband construction to schools and libraries. To 
encourage state participation, beginning in funding year 2016, we will 
increase an applicant's discount rate for special construction charges 
up to an additional 10 percent in order to match state funding the 
applicant receives on a one-dollar-to-one-dollar basis. Working in 
tandem, this additional state and E-rate program funding will reduce 
the money owed by applicants for what would otherwise be the 
applicant's non-discount share to connect schools and libraries to 
high-speed broadband services. By way of example, an applicant with a 
90 percent discount rate would receive its 90 percent discount on the 
E-rate eligible construction and, if the state provided an additional 
contribution to the project (such as 5 percent of the total project 
cost), the Fund will match the state's contribution (here, an 
additional 5 percent of the total project cost). A network with a 60 
percent discount rate, would receive its 60 percent discount plus an 
additional 10 percent if the state were to contribute 10 percent of the 
cost of the build-out. States may contribute more than 10 percent 
funding to the project but the E-rate program will limit its match to 
10 percent of the project cost (in addition to the existing program 
discount rate). Because this match will only be available for special 
construction charges, applicants should create separate funding 
requests on their FCC Forms 471 for special construction and for 
recurring charges. As we monitor the impact of this category one match 
on the E-rate program, we may consider increasing the maximum match.
    51. We expect this additional funding will encourage states to 
identify high-speed connectivity gaps--those schools and libraries that 
do not have access to affordable high-speed connectivity--and address 
them. We recently aggregated the data submitted in the E-rate 
modernization proceeding into two maps that allow users to view the 
percentage of public schools with fiber connectivity at the district-
wide level and the number of annual visits to the library system. In 
order to assist states in identifying the gaps in their high-speed 
connectivity and compare their success at closing those gaps with other 
states, we will maintain and continue to update those maps through at 
least the next three funding years. Furthermore, consistent with the 
reporting and transparency provisions we adopted in the E-rate 
Modernization Order, we will work to populate the maps with more 
detailed information based on the E-rate applications received 
beginning in funding year 2015.
    52. In recognition of the unique government-to-government 
relationship of Tribal nations to our federal government, and the 
challenges that Tribal nations face in obtaining broadband for their 
schools and libraries, we will match funding for construction of high-
speed connections for Tribal schools and libraries from states, Tribal 
governments, or other federal agencies. Schools operated by or 
receiving funding from the Bureau of Indian Education and schools 
operated by Tribal Nations will also be eligible to receive matched 
funds from these additional sources. Eligible libraries that are funded 
by or operated by Tribal governments will also be eligible for these 
additional sources of matched funds. As with non-Tribal schools and 
libraries, we will provide an additional match of up to 10 percent for 
high-speed connection construction that meets our E-rate connectivity 
targets.
    53. A few commenters have expressed concern that by allowing this 
limited matching program, some applicants will not be required to pay 
for any portion of the special construction charges eligible for such a 
match, and that requiring applicants to pay their non-discounted share 
is an important safeguard in the E-rate program. We decline to require 
that some portion of the non-discount share be paid by the E-rate 
applicant when the state government, or where applicable another 
federal agency or tribal government is willing to pay some or all of 
the applicant's non-discount share of special construction charges. Our 
current rules already allow for state agencies to pay the full amount 
of an applicant's non-discounted share of E-rate supported services, 
and therefore the matching program does not create additional concerns 
in this regard. To the extent that another governmental entity pays a 
portion of the cost of the E-rate supported service, that entity will 
have an incentive to ensure that the applicant engages in cost 
effective purchasing. However, as with the other options we adopt to 
increase broadband connectivity to schools and libraries, we also 
establish some limitations to safeguard the E-rate program. First, to 
ensure that this funding promotes adequate connectivity, only projects 
that provide broadband that meets the capacity goals and measures that 
we adopted in the E-rate Modernization Order will be eligible for the 
matching funding. In addition, to prevent excessive or duplicative 
funding during a high-speed broadband connection's useful life, any 
school or library connection that is built with matching funds will be 
ineligible to receive additional matching funds for special 
construction to the same buildings from the E-rate program for 15 
years.

C. Ensuring Affordable Broadband Service to Schools and Libraries in 
High-Cost Areas (WC Docket No. 10-90)

    54. To ensure that schools and libraries have access to affordable 
broadband service in high-cost areas, we establish an obligation for 
recipients of high-cost support to offer broadband service in response 
to a posted FCC Form 470 to eligible schools and libraries at rates 
reasonably comparable to rates charged to schools and libraries in 
urban areas for similar services. We agree with commenters that such an 
obligation will assist us in narrowing the connectivity gap between 
rural and urban schools and libraries and help rural schools and 
libraries achieve the connectivity targets we adopted in the E-rate 
Modernization Order.
    55. In the USF/ICC Transformation Order, 76 FR 73829, Nov. 29, 
2011, the Commission unanimously stated its expectation that eligible 
telecommunications carriers would offer broadband to community anchor 
institutions in rural and high-cost areas at speeds greater than the 
minimum broadband performance standards. The Commission further stated 
its expectation that eligible telecommunications carriers would provide 
such offerings ``at rates that are reasonably comparable to comparable 
offerings to community anchor institutions in urban areas.'' In the 
April 2014 Connect America Order and FNPRM, 79 FR 39163, July 9, 2014, 
we sought comment on how best to ensure that this expectation is 
fulfilled. Having developed a more fulsome record on this issue, we 
conclude that establishing a defined obligation for recipients of high-
cost support to offer broadband service at affordable rates to 
requesting schools and libraries is the most effective way to ensure 
that this expectation is fulfilled for schools and libraries, and 
thereby ensure that the high-cost program is working in harmony with 
the E-rate program.
    56. There is record support from stakeholders representing schools 
and carriers for obligating high-cost recipients to offer broadband 
services to schools and libraries. For example, the Schools, Health & 
Libraries Broadband (SHLB) Coalition and the State E-rate Coordinators 
Alliance (SECA) recommend ``that recipients of Connect America Fund 
funding should be required to serve anchor institutions with high-speed 
bandwidth as a

[[Page 5969]]

condition of receiving funding.'' Similarly, a group comprised of rural 
carrier associations, including NTCA--The Rural Broadband Association 
and WTA--Advocates for Rural Broadband, supports a ``requirement that 
any USF/CAF recipient offer [broadband] services . . . to most, if not 
all, anchor institutions in the supported areas.'' Other commenters 
urge the Commission to ensure that the high-cost program brings 
affordable broadband services to schools and libraries in rural areas.
    57. Imposing an obligation on recipients of high-cost support to 
offer affordable high-speed services in response to a posted FCC Form 
470 to schools and libraries also makes the most efficient use of 
limited universal service support while ensuring affordable access to 
broadband service to eligible schools and libraries. In high-cost, hard 
to serve areas, we expect that recipients of high-cost support will be 
best situated to offer affordable broadband service to eligible school 
and libraries. Obligating these recipients to offer affordable services 
to schools and libraries in high-cost areas increases the likelihood 
that schools and libraries will receive affordable broadband service at 
the lowest cost to the E-rate program. At the same time, this 
obligation decreases the likelihood that limited E-rate support will be 
spent to overbuild the networks of high-cost recipients in some rural 
and high-cost areas while schools and libraries in other high-cost 
areas remain unconnected.
    58. We are not persuaded by those commenters that argue against any 
obligation to offer broadband services to anchor institutions. For 
example, USTelecom argues that the obligation to provide service should 
not apply when additional construction is required to connect an anchor 
institution. We conclude, however, that eligible telecommunications 
carriers (ETCs) subject to this obligation remain free to charge 
reasonable special construction charges to schools and libraries, and 
those schools and libraries, in turn, will be able to receive support 
for those charges through the E-rate program. Consequently, there is no 
reason that this obligation should not apply in those instances when 
additional construction is required to connect a school or library. 
While we allow special construction charges to be funded by the E-rate 
program, those charges would be limited to what is necessary to provide 
the additional capacity to the requesting school and library from 
existing fiber backhaul in the vicinity of the school or library: 
essentially, the incremental cost of a spur to serve the school or 
library. Price cap carriers that elect to make a state-level commitment 
for Connect America Phase II model-based support will be required to 
report annually the geocoded locations where service is newly 
available, so we will be able to identify where service meeting our 
targets should be available for schools and libraries.
    59. We also are not persuaded by the Utilities Telecom Council 
argument that the Commission should refrain from adopting set standards 
for anchor institutions until more data is available and the need for 
support for anchor institutions is better understood. The Commission 
expressly established a performance goal of ensuring universal 
availability of broadband for anchor institutions in the USF/ICC 
Transformation Order. With respect to schools and libraries, the 
Commission already has adopted defined connectivity targets for schools 
and libraries based on comments in the record. Our action to impose 
this obligation on high-cost recipients is designed to ensure that the 
high-cost and E-rate programs work effectively together. We therefore 
are not persuaded by ADTRAN's argument that we should rely only on the 
E-rate program to ensure increased bandwidth and relative affordability 
for anchor institutions. Our record indicates that more needs to be 
done to close the connectivity gap so that schools and libraries in 
rural, high-cost areas can meet our connectivity goals. We conclude 
that obligating recipients of high-cost support to offer broadband 
services in response to a posted FCC Form 470 to eligible schools and 
libraries at affordable rates is an economically efficient method for 
us to fulfill the universal service mandate and meet our connectivity 
goals.
    60. Under the obligation we establish here, high-cost recipients 
will be obligated to bid on category one telecommunications and 
Internet access services in response to the posting of an FCC Form 470 
requesting such services for eligible schools and libraries located in 
the areas where the carrier is receiving high-cost support. Further, to 
ensure that schools and libraries in rural and high-cost areas receive 
reasonably comparable services at rates reasonably comparable to those 
services paid by libraries and schools in urban areas, we also take 
steps to establish reasonably comparable benchmarks for broadband 
services offered to schools and libraries by high-cost recipients.
    61. Applicability. This obligation to offer broadband service in 
response to a posted FCC Form 470 to schools and libraries will apply 
to all recipients of high-cost support that are subject to broadband 
performance obligations to serve fixed locations--specifically, rate-
of-return carriers that receive support from the high-cost program, 
price cap carriers that elect to make a state-level commitment for 
Connect America Phase II model-based support, price cap carriers 
serving the non-contiguous United States that elect to receive frozen 
support in lieu of model-based support for Phase II, and competitive 
bidders that are awarded support in the Connect America Fund Phase II 
competitive bidding process. As a condition of receiving high-cost 
support, carriers receiving high-cost support must submit bids in 
response to the posting of an FCC Form 470 requesting broadband service 
to an eligible school, library or consortia located in the geographic 
area where the carrier receives high-cost support. The obligation to 
bid on broadband service in response to a posted FCC Form 470 extends 
only to those schools, libraries and consortia that are eligible for 
participation in the E-rate program and that seek bids on category one 
broadband services in a given funding year by posting an FCC Form 470. 
The Bureau may refer any carrier that refuses to bid in response to a 
request from an eligible school or library to provide category one 
services at rates reasonably comparable to those paid by libraries and 
schools in urban areas to the Enforcement Bureau for further action as 
appropriate.
    62. Minimum Levels of Service. We require high-cost support 
recipients to offer high-speed broadband connections sufficient to meet 
the targets set forth in the E-rate Modernization Order, when requested 
by schools and libraries in a posted FCC Form 470. Consistent with the 
approach established for the Connect America Fund, we emphasize that 
providers remain free to offer a range of service offerings to meet the 
needs of their customer base, in addition to the service offering 
meeting the minimums we established in the E-rate Modernization Order. 
Eligible schools and libraries remain free to request and purchase the 
services that meet their specific needs. Our intention here is to 
create a framework that will enable schools and libraries to have 
access to services meeting the E-rate program's connectivity targets at 
affordable rates.
    63. Timing. This obligation to offer broadband services in response 
to a posted FCC Form 470 to eligible schools and libraries for price 
cap carriers that elect to make a state-level commitment for Connect 
America Phase II model support, price cap carriers serving the non-
contiguous United States that elect to receive frozen support in lieu 
of

[[Page 5970]]

model-based support for Phase II, and existing rate-of-return carrier 
ETCs will become effective no sooner than E-rate funding year 2016, 
which commences July 1, 2016. For ETCs that are awarded Phase II 
support through a competitive bidding process, this obligation will 
become effective in the first E-rate funding year after their support 
is authorized. We recognize, however, that it may not be possible to 
offer service meeting the E-rate modernization connectivity targets as 
soon as this obligation becomes effective in geographic areas that do 
not yet have the necessary fiber backhaul facilities. In the Connect 
America Order we adopt today, we establish graduated interim milestones 
for price cap carriers accepting the offer of Phase II model-based 
support, with the first enforceable interim deadline at the end of 
calendar year 2017 and completion of deployment not required until 
December 31, 2020. We recognize that construction to extend fiber 
deeper into networks to meet Phase II obligations will be an ongoing 
project over the course of the Phase II term for price cap carriers 
accepting the state-level commitment. It is likely, therefore, that 
Phase II construction to extend fiber facilities to the general 
vicinity of a particular school or library seeking more robust capacity 
through the E-rate program will not occur until 2017 or later. We do 
not intend to disrupt the orderly implementation of the construction 
cycle for Connect America Phase II. To the extent additional network 
construction is necessary to reach a requesting school or library, we 
encourage high-cost recipients expeditiously to complete deployment of 
facilities and ensure the necessary fiber backhaul is installed where 
needed.
    64. We will continue to provide a more flexible approach to rate-
of-return carriers, which are obligated to extend broadband service 
upon reasonable request for service and within a reasonable amount of 
time. Consistent with the framework established in the April 2014 
Connect America Fund Order, a request to serve would be deemed 
reasonable to the extent anticipated revenues (both end user revenues 
and other federal and state universal service support under existing 
rules) are sufficient to cover the incremental cost of extending 
service to the requesting school or library. If the available revenues 
are insufficient, then a request would not be deemed reasonable. To the 
extent any high-cost recipient has the facilities in place to provide 
service at the requisite speeds to an eligible school or library in 
geographic areas where it receives funding, we expect such carrier to 
offer such service in response to a request from such school or library 
in the funding year that the request is made.
    65. Reasonable Comparability Benchmarks. To ensure that schools and 
libraries are able to purchase broadband offerings at rates that are 
reasonably comparable to similar offerings to schools and libraries in 
urban areas, we direct the Bureau to develop national benchmarks for 
broadband services offered to schools and libraries. Offering services 
in response to a posted FCC Form 470 at the reasonable comparability 
benchmarks will be a condition of receiving high-cost support for those 
ETCs subject to this obligation, and will not constitute a rebate to 
the price of service. The benchmark price offered will constitute the 
full retail price before taking into account any universal service 
support.
    66. The April 2014 Connect America Order and FNPRM sought comment 
on how best to ensure that we fulfill the expectation that schools and 
libraries are able to purchase broadband offerings at rates that are 
reasonably comparable to similar offerings to schools and libraries in 
urban areas. The Bureau should build upon this record by seeking more 
focused comment on proposed benchmarks. Specifically, the Bureau should 
rely upon data obtained from FCC Forms 471 submitted by urban schools, 
libraries, and consortia to develop these reasonable comparability 
benchmarks, as well as any other publicly available data sources, and 
should provide an opportunity for public comment on its proposed 
methodology and benchmarks before adopting the benchmarks. Upon 
adoption of such benchmarks, recipients of high-cost support subject to 
an obligation to provide fixed broadband will be obligated to offer 
services at or below these benchmarks in response to the posting of an 
FCC Form 470 requesting broadband service to an eligible school or 
library in the geographic areas where the carrier receives high-cost 
support for the next funding year. The Bureau should use a similar 
methodology to prepare benchmarks in subsequent funding years.
    67. We also believe that this approach will ensure that support to 
those ETCs required to offer the benchmarked rates will continue to be 
sufficient for purposes of section 254. While we recognize that capital 
costs are higher in high-cost areas, no commenters suggest that 
recurring operating costs are significantly higher in high-cost areas 
than compared to urban areas. Because E-rate applicants can seek 
support for special construction charges, as that term is used in the 
E-rate context, ETCs subject to the benchmark requirements will be able 
to assess reasonable special construction charges to schools and 
libraries that solicit bids for broadband services. Moreover, the 
national benchmarks developed by the Bureau will be reasonably 
comparable, but not identical, to rates charged for similar offerings 
to schools and libraries in urban areas. The combination of the 
availability of special construction charges and reasonable 
comparability benchmarks will ensure that universal service support 
received by ETCs remains sufficient for purposes of section 254.
    68. Tariffed Services. Those carriers that offer broadband services 
pursuant to tariffs must comply with our tariffing rules implemented 
pursuant to sections 201 through 203 of the Act. The benchmark rates 
established pursuant to this Order for broadband services provided to 
schools and libraries will likely vary from rates charged for similar 
services to other customers. To the extent this is the case, we 
evaluate whether it potentially raises concerns under section 202(a), 
which forbids ``unreasonable discrimination'' in rates charged to 
customers, and section 201(b), which requires rates to be ``just and 
reasonable,'' as well as our tariffing rules. For the reasons described 
below, we conclude that the action we take today does not raise such 
concerns.
    69. To ensure that incumbent local exchange carriers can offer 
services to schools and libraries consistent with the requirements of 
this Order and the Act, we rely on the flexibility provided under 
section 201(b) to decide that it is just and reasonable for carriers to 
provide broadband services at rates specific to the class of 
educational customers to which carriers must offer benchmarked rates. 
Section 201(b) provides that ``communications by wire or radio subject 
to this chapter may be classified into day, night, repeated, 
unrepeated, letter, commercial, press, Government, and such other 
classes as the Commission may decide to be just and reasonable, and 
different charges may be made for the different classes of 
communications.'' Accordingly, in conjunction with the process for 
establishing the benchmark rates, we delineate here, pursuant to 
section 201(b) of the Act, a class of educational customers to whom the 
benchmarked rates may be offered. We delegate authority to the Bureau 
to provide other guidelines as necessary to implement the objectives 
described above as part of

[[Page 5971]]

the process of seeking public comment on the analysis underlying the 
rate benchmarks. For example, the Bureau may consider establishing 
streamlined procedures to enable those carriers that offer broadband 
services pursuant to tariffs to easily revise or re-file new interstate 
tariffs. Additionally, the Bureau should determine whether there may be 
certain carriers for whom application of the rate benchmarks would be 
impracticable or unduly burdensome and, if so, if there are alternate 
methods to ensure that such carriers are providing eligible E-rate 
applicants with rates that are reasonably comparable to similar 
offerings to schools and libraries in urban areas.
    70. We find that it is just and reasonable under section 201(b) for 
carriers to provide service at rates specific to the class of 
educational customers to which carriers must offer benchmarked rates. 
This action furthers significant universal service principles that 
schools and libraries obtain access to advanced telecommunications 
services and access to telecommunications services and information 
services at rates that are reasonably comparable to those charged for 
similar services in urban areas. By making a benchmarked rate available 
to eligible schools and libraries, in high-cost areas we will ensure 
that the universal service program complies with these statutory goals, 
as well as the Commission's stated expectation that eligible 
telecommunications carriers provide broadband to community anchor 
institutions at reasonably comparable rates. Based on the record, we 
proceed incrementally, focusing for now specifically on schools and 
libraries rather than on broader categories of entities within the 
scope of section 254's objectives. By requiring carriers to offer 
services at rates specific to schools and libraries, we will advance 
the objectives of section 254; that fact, coupled with the flexibility 
afforded the Commission under the ``just and reasonable'' standard of 
section 201(b), persuades us that carriers' provision of service at 
rates specific to schools and libraries is not at odds with section 
201(b). We conclude for the same reasons that carriers' compliance with 
the requirements adopted here do not violate section 202(a).

III. Adjusting The E-Rate Cap To Meet The Program's Connectivity Goals 
(WC Docket 13-184)

    71. Ensuring that schools and libraries will be able to meet the 
high-speed connectivity targets we have set for the E-rate program will 
require a combination of continued efforts to lower the prices paid for 
school and library broadband connectivity and an increase in E-rate 
support necessary to meet growing bandwidth demands of schools and 
libraries. In this Order and in the E-rate Modernization Order, we have 
taken several steps to maximize the cost-effectiveness of E-rate 
supported purchases, including a pricing transparency requirement and 
several program changes in this Order that will have the effect of 
increasing competitive options, and thus lowering prices, for schools 
and libraries to meet their connectivity needs. However, the record 
demonstrates that as more schools and libraries upgrade their broadband 
infrastructure and expand robust Wi-Fi access into every classroom and 
library space, bandwidth demands of schools and libraries will outpace 
any expected savings that can be accomplished through program 
efficiencies and declining per megabit pricing. Even with a more 
efficient E-rate program that achieves substantial cost-savings, 
funding above the current E-rate cap will be necessary if we seek to 
connect more schools and libraries at the targeted bandwidth levels. 
Based on an extensive record that includes more than 2,800 comments, 
600 ex parte presentations, and two cost estimates, we raise the annual 
E-rate program cap to $3.9 billion in funding year 2015. Commenters 
stress the importance of providing certainty to schools and libraries 
that sufficient funding will be available for both connectivity to and 
within schools and libraries. For the reasons explained below, we agree 
that raising the cap, in conjunction with the other work we have done 
to improve E-rate purchasing, is the best way to provide such certainty 
as well as to meet the goals we have set for the program.
    72. The E-rate funding cap has gone virtually unchanged for 17 
years. In 1997, the Commission adopted a $2.25 billion annual funding 
cap for the E-rate program, based on demand estimates provided by 
McKinsey, Rothstein Thesis, and the National Commission on Library and 
Information Science (NCLIS) Report. Since then, however, actual demand 
for E-rate support has exceeded that cap in all but one funding year. 
In recent funding years, there has been little or no funding available 
for the internal connections necessary to deliver broadband into 
classrooms and libraries.
    73. Throughout the program's history, the Commission has made 
various efforts to spread E-rate dollars to more applicants, such as, 
for example, by limiting applicants to applying for discounts on 
internal connections to twice every five years. In 2010, it also began 
adjusting the E-rate cap to account for annual inflation to try to 
gradually align the program's needs with available funding. Even with 
these changes, the program, while successful, was falling short of its 
potential. Based on the record created in response to the E-rate 
Modernization NPRM, earlier this year we took steps to restructure the 
E-rate program. In the E-rate Modernization Order, we phased out 
support for outdated, non-broadband services, shifting the focus to 
high-speed broadband, with a particular focus on how the E-rate program 
distributes funding for internal connections. We also made needed 
reforms to encourage cost-effective purchasing, including setting 
sufficient budgets for internal connections, known as category two 
services, and establishing pricing transparency. These major policy 
changes were a necessary first step on the path to ensuring that the 
program has the necessary resources to meet the goals we have adopted 
for the E-rate program.
    74. At the same time, we sought comment on the future funding 
levels needed for the E-rate program in order to meet the established 
goals. We invited stakeholders to submit data on the gap between 
schools' and libraries' current connectivity and the specific targets 
set out in the Order, as well as information on how much funding would 
be needed to bridge that gap within the E-rate program. In August, the 
Bureau released a Staff Report summarizing a portion of the large 
amount of data gathered in the record in order to assist parties 
considering responses to the E-rate Modernization FNPRM, 79 FR 49036, 
August 19, 2014. In conjunction with the Staff Report, Commission staff 
released two maps providing a visualization of the fiber connectivity 
to schools and libraries based on data in the record, and have 
continued to update those maps to reflect additional data stakeholders 
have submitted.
    75. Based on the substantial record developed in this proceeding, 
in this section we set out the anticipated costs to meet the goal of 
ensuring affordable access to high-speed broadband sufficient to 
support digital learning in schools and robust connectivity for all 
libraries. First, in order to provide certainty and administrative 
simplicity to applicants and to the Fund, we extend for three 
additional years, with a small modification, the category two budget 
approach we adopted in the E-rate Modernization Order for funding costs 
for internal connections for

[[Page 5972]]

schools and libraries. Taking this change into account, we set out the 
projected costs of category two services to the E-rate program over the 
next five funding years. Next, we discuss the factors that will impact 
the cost of category one services in order to ensure schools and 
libraries can meet the connectivity targets we adopted in the E-rate 
Modernization Order. Based on these projections, and to help provide 
more certainty regarding the availability of E-rate support, we raise 
the annual E-rate cap to $3.9 billion beginning in funding year 2015. 
Setting the cap at this level is based on a substantial amount of data 
and analysis and reflects our judgment of the amount of funding that 
will be necessary to meet the long-term broadband connectivity targets 
for all schools and libraries, including internal connections, non-
recurring infrastructure upgrades, and significant increases in monthly 
recurring Internet access charges.

A. Ensuring Certainty for Applicants Seeking Support for Category Two 
Services

    76. Schools. First, we agree with those commenters that stress the 
importance of predictability and certainty by extending the applicant 
budgets for schools established in the E-rate Modernization Order for 
category two services. In July, we adopted a two-year test period for 
the pre-discount applicant budgets for category two services for 
funding years 2015 and 2016. Applicants that receive commitments for 
category two support in either of those funding years will be subject 
to the five-year budget. To make the test period for the budget-based 
approach to awarding category two support consistent with the full 
five-year cycle that such budgets are based on, we expand the test-
period for three additional years through funding year 2019.
    77. In the E-rate Modernization Order, we explained that we were 
confident that we could meet the $1 billion target for two years. 
However, we noted that the longer-term funding available for category 
two budgets is linked to the broader question of the long-term funding 
needs of the E-rate program, and we sought comment on these funding 
needs of the program. As the record demonstrates, without the changes 
that we make today, applicants who do not seek or receive category two 
support in funding years 2015 or 2016 would face uncertainty about 
whether they will be able to receive E-rate support to meet the Wi-Fi 
needs of their students and patrons in later years. By addressing the 
longer-term funding needs of the program and extending these category 
two budgets for three additional funding years in this Order, we help 
ensure sufficient funding for category two services, increase certainty 
for applicants about the availability of funding beyond funding years 
2015 and 2016, and simplify the administration for USAC.
    78. A sufficiently funded, multi-year budgeted approach for 
category two funding provides both certainty and flexibility for 
applicants. This combination allows applicants to request support only 
for what they need when they need it, rather than seek funding for 
unnecessary components out of fear that there will not be support in 
the next funding year. It also helps us achieve our goal of ensuring 
affordable access to high-speed connectivity within schools and 
libraries, by providing broader and more equitable support for the 
internal connections necessary to support digital learning.
    79. Some commenters argue the per-student budgets should be 
discontinued and replaced with a funding cap increase alone. We 
disagree and restate our firm belief that raising the funding cap alone 
will not ensure that schools and libraries can purchase affordable 
internal connections. Raising the cap without any additional policies 
or limits on how the program funds internal connections does not 
address the challenges faced by applicants created by widely variable 
costs for similar services, inefficient network planning, or incentives 
at the top discount levels of the E-rate program to engage in wasteful 
purchasing. We also firmly disagree with the assertion that per-student 
budgets provide ``[t]oo little discount funding'' to all applicants and 
are inequitable. These budgets maintain the program's historic focus on 
the highest poverty schools and libraries by continuing to use 
concentrations of poverty to determine the discount level available and 
the priority of applicants. At the same time, the five-year budgets 
promote cost-effective spending by focusing E-rate dollars on the 
internal connections that are essential for wireless networks, and 
therefore, allow us to provide a sufficient and predictable amount to 
deploy Wi-Fi to students and library patrons throughout the nation, and 
not just to the applicants at the highest discount levels.
    80. We reaffirm the $150 per student pre-discount budget, with a 
$9,200 pre-discount funding floor, as a reasonable limit on the amount 
of E-rate discounts available to schools, consistent with data in the 
record showing local area networks (LAN) and wireless LAN (WLAN) 
deployments in classrooms across a number of school districts across 
varied geographies. In conjunction with other measures taken in the E-
rate Modernization Order, such as pricing transparency to help arm 
applicants with information to make smart purchasing decisions and 
lowering the maximum discount rate from 90 to 85 percent to encourage 
applicants to pursue the most cost-effective options, this $150 per 
student budget provides a sufficient amount of support for the 
necessary internal connections. Some applicants urge us to recognize 
that the internal connections needs of schools are not uniform. While 
the E-rate Modernization Order recognized that there are different 
construction materials or variations in labor costs, the majority of 
costs for LANs are for commodity equipment, which sees nationwide 
pricing and competitive markets. We again decline to set out separate 
budgets for schools in different situations, apart from the adjustments 
for poverty and rurality that our system of discounts already provides. 
We expect the Bureau to closely monitor these budget levels as 
described below.
    81. We take this opportunity to revisit the issue of how schools 
should count students that attend multiple schools. Consistent with our 
desire to ensure sufficient funding for the number of students using 
the internal connections at a school, in the E-rate Modernization Order 
we explained that ``[s]tudents who attend multiple schools . . . may be 
counted be both schools in order to ensure appropriate LAN/WLAN 
deployment for both schools.'' We now clarify that schools should 
include in their student count, for purposes of calculating category 
two budgets, students that attend part-time only when doing so 
regularly increases the maximum number of students on the school 
premises at the same time, during the school day. This means that 
students who attend a virtual class that originates at a school, but 
who are not on the school premises cannot be counted in that school's 
student count. We also note that students attending after-school 
activities or after-school events cannot be included in the student 
counts. Schools should also be prepared to demonstrate their student 
count calculations during PIA review and if they count part-time 
students to demonstrate how those students regularly increase the 
maximum number of students on the school premises at the same time 
during the school day.
    82. Libraries. We also extend for three additional funding years, 
with a small upwards adjustment for libraries in more urbanized areas, 
the pre-discount

[[Page 5973]]

budget for libraries that we adopted for funding years 2015 and 2016 in 
the E-rate Modernization Order. We adopted a $2.30 per square foot pre-
discount budget for libraries in that Order, with a funding floor of 
$9,200, representing a reasonable pre-discount budget level, consistent 
with data submitted into the record prior to its adoption. Having 
sought further comment specifically on the issue of user density in 
urban libraries because ``the record of library funding needs for 
internal connections [was] not as robust as we would like,'' we now 
adopt a separate budget of $5.00 per square foot for libraries located 
in cities and urbanized areas with a population of 250,000 or more, as 
identified by the Institute of Museum and Library Services (IMLS) 
locale codes of 11, 12, and 21.
    83. Calculating the library budget based on square footage 
continues to provide the E-rate program a simple, fast, and efficient 
mechanism for libraries and USAC, consistent with the Commission's 
third goal for the program. There is broad support in the record for 
the position that the library budget should be greater for urban 
libraries, because these libraries serve more people per square foot 
than other communities and Wi-Fi performance may be impacted by a high 
density of users at one time. There is also support in the record for 
considering the number of users or connected devices when setting the 
category two library budget, particularly for large urban libraries. We 
agree that usage density may increase the cost of internal connections. 
However, as the record indicates, there is not a standardly reported 
metric on the number of Wi-Fi users in libraries that would provide a 
simple and predictable formula for all libraries. We therefore decline 
to adopt the proposals that seek a different budget calculation based 
on daily visitors or public computer users, because using those metrics 
would impose new administrative burdens on libraries, would be 
difficult to administer, could improperly incent purchasing unnecessary 
public computers, and would delay application review by being difficult 
to verify. Square footage continues to present the best option for 
providing a sufficient budget for libraries that is simple for 
applicants to calculate and simple for USAC to administer.
    84. Because we agree that usage density increases the cost of 
internal connections and the record supports a decision that usage 
density is greater in large urban libraries, we elect to increase the 
pre-discount per-square foot library budget for libraries in the most 
densely populated areas to $5.00 per square foot over five years. The 
Urban Libraries Council (ULC) suggests a category two pre-discount 
budget of between $5.00 and $7.00 per square foot for urban libraries, 
a number of other commenters support an increase to at least $4.00 per 
square foot. We take into account this range of estimates that have 
been submitted into the record, along with the lack of precise evidence 
that would militate in favor of picking a specific estimate. As such, 
in order to be fiscally cautious, we adopt a value toward the bottom 
end of the range of $5.00 per square foot as the pre-discount budget 
for the most urban libraries.
    85. To determine which libraries get the benefit of the increased 
per-square-foot budget, we look to the IMLS classification of 
libraries. IMLS assigns locale codes in order to identify the type of 
geographic areas in which a library outlet is located, using the same 
methodology as the National Center for Education Statistics' Common 
Core of Data datasets. It divides geographic areas into four 
categories--city, suburban, town, and rural, each with three 
subcategories. We agree with ULC's recommendation that we provide 
higher funding per square foot for those libraries located in the most 
densely populated areas using the IMLS locale codes of ``11--City, 
Large,'' ``12--City, Midsize,'' and ``21--Suburb, Large.'' These three 
locale codes capture urbanized areas within principal cities with a 
population over 100,000 and those areas outside of a principal city, 
but within an urbanized area with a population of over 250,000, which 
are the most densely populated areas. These locale codes therefore 
provide a reasonable proxy for identifying libraries that may see a 
higher density of users per square foot. As described below, the Bureau 
will continue to evaluate these library budgets for category two 
services. We also take this opportunity to remind library applicants, 
regardless of their category two budget levels or square footage, of 
the obligation to select the most cost-effective service offered and to 
consider price as the primary factor.
    86. Our decision to extend both of these five-year pre-discount 
budgets for schools and libraries by three additional funding years 
reflects our concern that using applicant budgets for only two funding 
years will be inadequate to provide certainty for applicants making 
purchasing decisions. Additionally, it reflects our finding that these 
budgets are sufficient and that extending them will simplify the 
administration of the program and provide clarity and certainty to 
schools and libraries. We agree with commenters that extending the 
applicant five-year budgets will increase certainty about how 
applicants and certain services will be treated beyond funding year 
2016 and whether funding will be available. We are particularly 
concerned that applicants could decide to delay seeking funding for 
needed internal connections in funding years 2015 or 2016 because they 
would like to see if there is additional funding in funding year 2017. 
Further, this extension simplifies administration of the program for 
both applicants and USAC by treating all applicants the same, 
regardless of when they receive E-rate support for category two 
services.
    87. To ensure that the applicant budget remains effective at 
accomplishing our goal of ensuring affordable access to high-speed 
broadband sufficient to support digital learning, we expect the Bureau 
to monitor these applicant budgets and provide a report on their 
sufficiency to the Commission before the opening of the filing window 
for funding year 2019. This analysis is important for two reasons. 
First, information demonstrating the success, or lack thereof, of this 
approach to providing support for internal connections will provide the 
Commission with data to determine if the category two budget approach 
should be made permanent. Second, if the Commission does not extend the 
budget approach beyond funding year 2019, the information learned 
during the test-period will provide significant information to assist 
USAC in making sure that category two requests continue to be cost-
effective.
    88. Therefore, working with OMD and USAC, the Bureau shall analyze 
the data from applicants for trends across different types of 
applicants or regions of the nation, particularly those schools that 
serve students with special education services. This may include 
evaluation of FCC Form 471 pricing data received from applicants to 
ensure that cost-effective offers are reaching applicants in all parts 
of the country. In particular, our record on the costs for urban 
libraries that see higher density bandwidth demands is not as robust as 
our other data. Therefore, as part of our existing direction to seek 
feedback on sufficiency of LAN/WLAN capacity, we also direct the Bureau 
to analyze the applicant requests from funding years 2015 through 2018 
for libraries serving different population sizes, so that we have 
information needed to assess whether the category two library budget is 
reasonable. The Bureau may consider including in its analysis passive 
data measurements in order to measure the

[[Page 5974]]

impact of the number of users on the Wi-Fi deployments.
    89. Basic Maintenance, Managed Wi-Fi, and Caching. Because we 
extend these category two applicant budgets, we also extend the 
eligibility for basic maintenance, managed internal broadband services, 
and caching through funding year 2019. These services provide benefits 
to applicants seeking flexibility in how to set up their networks, but 
we had concerns about how to prevent unnecessary or wasteful spending 
especially given that many managed Wi-Fi agreements run over multiple 
years. The applicant budgets continue to ``mitigate some of our 
concerns about waste or abuse'' as long as they are in effect. We 
direct the Bureau to include these eligible services on the Eligible 
Services List accordingly in funding years 2016 through 2019.
    90. We also note commenters' concern that caching services and 
managed Wi-Fi are additional costs for category two services not 
accounted for in the budgets. We extend the eligibility of these 
services in order to provide additional choices for applicants seeking 
the most cost-effective technology options for their unique situations. 
For instance, a small school district or library system without a 
technology director may find managed Wi-Fi allows it to more quickly 
deploy advanced LANs by spreading its costs over a multi-year contract 
and relying on the technical expertise of the managed Wi-Fi provider. 
Similarly, a school may decide that it is makes sense to incorporate 
caching into its connectivity plans and wants to seek E-rate support 
for those services. These services, however, are not essential 
components for all applicants seeking to deploy Wi-Fi, and we therefore 
do not further increase the applicant budgets to account for them.
    91. Category Two Costs. We find that the $1 billion annual target 
budget set for category two services in the E-rate Modernization Order 
is sufficient to provide the E-rate support needed for a five-year 
deployment of LANs and WLANs. In July, we stated that the question of 
available funds for these five-year budgets was closely linked with the 
long-term funding for the E-rate program. We therefore applied the 
five-year budgets to applicants that received E-rate support for 
category two services in funding years 2015 and/or 2016, pending 
resolution of the program's overall funding needs. Having now extended 
these category two applicant budgets for all applicants for three 
additional funding years, we reaffirm the funding level for the E-rate 
support for category two budgets, based on the analysis set out in the 
E-rate Modernization Order. We also index the category two budget 
target and the applicant budgets to inflation.
    92. This $1 billion annual target for category two services 
provides greater access to E-rate support for both schools and 
libraries. From funding years 2008 through 2012, the program provided 
E-rate discounts for internal connections of between $700 million and 
$1.2 billion. However, this funding provided support for less than 11 
percent of the more than 100,000 schools participating in the program 
each year and less than four percent of public libraries. With the 
adoption of pre-discount budgets sufficient to deploy LANs and WLANs 
and a $1 billion target, the program will be able to support an average 
of 10 million students each funding year at different discount levels, 
providing broader and more equitable support across the nation. 
Additionally, targeting a consistent amount of support each year allows 
us to reduce fluctuations in the contribution factor and uncertainty 
over availability of funding that had previously existed in the E-rate 
program.
    93. Although some commenters express concern that $5 billion in 
category two support over five years is insufficient to reach the 
schools and libraries at the lowest discount levels, we restate our 
finding that the funding target will provide sufficient funding to 
applicants seeking category two support. First, we disagree with 
assertions from commenters that the EducationSuperHighway/CoSN Ongoing 
Cost Model's $1.6 billion in annual costs for category two services is 
the appropriate measure. That model was one of several data points used 
in determining the category two budgets for schools. In particular, 
commenters point to analysis done by Funds for Learning that assumes 
all applicants will apply and all applicants will request the entirety 
of their budgets each year. We disagree with these assumptions. In the 
E-rate Modernization Order, we noted that some schools and libraries 
will not seek funding and others will seek less than the full budgeted 
amount. Additionally, the average size of the requests per student in 
the lower discount levels is well below $150 per student, and we do not 
expect a dramatic increase in the size of requests per student from 
such applicants. We note, as one example, that data in the record 
showed managed Wi-Fi contracts for as low as $19 per student annually, 
which is less than 65 percent of the available budget over five years.
    94. We recognize that there is pent up demand and that applicants 
may seek a larger portion of the budget early on in the five-year 
cycle, leaving applicants at the lower discount levels with some 
uncertainty about future funding. However, by extending applicant 
budgets for three more funding years and increasing the size of the E-
rate cap to help meet both category one and category two demand below, 
we provide much-needed certainty to applicants, allowing them to take 
advantage of the flexibility the five year budgets offer. Indeed, 
providing needed flexibility is one of the benefits of these multi-year 
budgets. School districts with a large number of schools may simply be 
unable to deploy networks in every school for a number of reasons, 
including their own budget match and the ability of a vendor to install 
to every school. Similarly, applicants that request support for a 
managed Wi-Fi solution may end up requesting just a portion of their 
budget each of the five funding years, leaving additional funding for 
applicants at a lower discount level. For these reasons, we expect 
category two applicant requests to be reasonable and that the Bureau 
will monitor these budgets closely.

B. Meeting Applicants' Needs for Category One Support

    95. Having set an annual category two budget target of $1 billion, 
we now turn our focus to determining how meeting the long-term 
broadband connectivity targets that we set in the E-rate Modernization 
Order will drive future funding needs for category one services. The 
record demonstrates that growth in demand for category one funding will 
be driven by a combination of: (i) Requests for support for non-
recurring infrastructure upgrades; and (ii) the growing demand for high 
speed bandwidth connectivity to schools and libraries, both of which 
will lead to increasing monthly recurring charges for WAN and Internet 
connections. The increase in monthly recurring charges for WAN and 
Internet connectivity will come from schools and libraries that already 
have connections capable of meeting E-rate connectivity targets and 
from those that are newly able to purchase high-speed connections as a 
result of the changes to the E-rate program that we adopt today. 
Moreover, by targeting funding to Wi-Fi in the E-rate Modernization 
Order and extending the budgets for internal broadband connections in 
this Order, we will ensure that more schools and libraries have robust 
internal connections, which will fuel their demand for high-speed WAN 
and Internet connectivity. Taking

[[Page 5975]]

into account data in the record and the anticipated savings from steps 
we have taken to refocus E-rate funding on broadband and encourage 
program efficiencies, we discuss these increasing costs for category 
one services below.
1. Projecting Schools' and Libraries' Future Connectivity Demands
    96. We first evaluate the future connectivity demands of schools 
and libraries, both in terms of their needs for new infrastructure and 
their needs for services provided over that infrastructure. On the one 
hand, stakeholders report that prices per megabit for high-speed 
broadband have consistently declined each year. At the same time, as 
demonstrated below, increases in bandwidth demand greatly offset this 
decline in per megabit pricing; thus, the total amounts paid by schools 
and libraries for their recurring monthly broadband services will 
continue to increase. Indeed, in a recent survey of school district 
administrators and school technology leaders conducted by CoSN, many 
schools signaled that they would need more bandwidth in the very near 
future. For example, 83 percent of respondents expect to need 
additional bandwidth over the next three years and almost two-thirds 
report that they do not have sufficient bandwidth for the next 18 
months. Moreover, the schools' anticipated demand is for significantly 
greater bandwidth. Over the next 18 months, 25 percent of respondents 
expect 100 to 500 percent bandwidth growth and another 24 percent 
expect 20 to 100 percent bandwidth growth.
    97. By working to ensure that schools and libraries have access to 
affordable high-speed broadband connectivity, we also contribute to 
their increase in demand for those high-speed connections. For example, 
our commitment to consistently provide at least $1 billion in funding 
for school and library Wi-Fi networks will fuel additional usage and 
demand. As schools and libraries deploy increasingly robust Wi-Fi 
networks, the ability of more students, teachers and library patrons to 
use their schools' and libraries' internal networks will require the 
delivery of greater bandwidth to those schools and libraries. For 
instance, data from North Carolina demonstrate that some school 
districts are seeing Internet bandwidth usage growth of nearly 50 
percent on an annual basis, regardless of whether the school is 
implementing a one-to-one device deployment initiative, is several 
years into such a program, or lacks a specific program. Similar data 
from Washington indicate that average annual usage growth was over 40 
percent from 2009 and 2014.
    98. In addition, earlier in this Order we adopt several policy and 
administrative changes that will provide a range of options to support 
more applicants' efforts to obtain sufficiently robust broadband 
connectivity to their buildings. Encouraging schools and libraries to 
undertake those types of projects and as a result closing the gap 
between those schools and libraries with high-speed connections and 
those without will further increase the demand for E-rate support. The 
extent to which we are able to achieve the first goal that we set out 
for the E-rate program--ensuring affordable access to high-speed 
broadband sufficient to support digital learning in schools and robust 
connectivity for all libraries--is highly dependent on how much 
category one funding is available for schools and libraries to pay for 
the upfront deployment costs of scalable connections to currently 
unserved and underserved schools and libraries. While we take steps 
above to encourage such deployment, the record clearly demonstrates 
that the amount of money needed for such deployment is closely linked 
to the number of additional schools and libraries that get connected to 
high-speed broadband.
    99. Based on the data in the record, we find that over a third of 
schools do not have access to fiber to the building, and an even 
greater percentage of libraries lack high-speed connectivity. While the 
dataset underlying our calculations on fiber access does not contain 
connectivity data from every school and every library across the 
nation, it is an unprecedented and rich source of information about 
school and library connectivity. Stakeholders have submitted data on 
existing connectivity since the beginning of this proceeding in the 
middle of 2013, and in August, Commission staff published the Fiber 
Connectivity Maps, which continue to be updated with new data. We 
therefore disagree with commenters that argue that we should wait for 
additional data on the fiber connectivity gap or that the gap is so 
small that it does not require additional funding to bridge it. Based 
on the many sources in the record agreeing that there is a significant 
connectivity gap to close, this dataset provides a reasonable baseline 
on which to rely in order to ensure the E-rate cap is set sufficiently 
high to provide certainty on future availability of funding necessary 
to achieve long-term connectivity targets.
    100. Based on the findings set out above, the record shows the 
costs for category one services will increase over the next five years 
as more schools and libraries get access to high-speed connections and 
bandwidth demand continues to increase. We have an obligation to 
balance having a specific, predictable, and sufficient support 
mechanism with our ``responsibility to be a prudent guardian of the 
public's resources.'' Using estimates in the record on the costs for 
category one recurring and non-recurring costs consistent with our 
findings above, we balance these two concerns by setting a cap on the 
E-rate program that provides sufficient certainty of availability of 
funds over the next five funding years, while limiting the impact on 
end users in the near-term.
    101. Commenters submitted two cost estimates on connectivity to 
schools and libraries into the record: The ESH/CoSN Connectivity Model 
and the SHLB Coalition Model. The ESH/CoSN Connectivity Model provides 
a projection of both recurring and non-recurring costs for public 
schools to meet the connectivity targets over five years. The model 
takes into account data on current connectivity, predicted bandwidth 
demand growth, declining recurring prices per megabit, and estimated 
non-recurring prices to close the gap of schools without access to 
high-speed connectivity. It also accounts for variation in connectivity 
needs of differently-sized schools. Using these data, it estimates the 
cost for five different scenarios, projecting differing costs depending 
on the number of schools that become connected. ESH also filed a 
supplementary analysis of the recurring costs for private schools and 
libraries. The SHLB Coalition Model, prepared by CTC Technology & 
Energy, sets out an estimate of capital expenditures needed to connect 
fiber to unserved, eligible public schools, private schools, and 
libraries. Using an engineering-based approach, the model divides the 
nation into eight different standardized geographies, ranging from 
dense urban areas to isolated schools in desert areas. Their model then 
projects a low and a high estimate for non-recurring costs to connect 
public and private schools in each of these different geographies, and 
a separate estimate for the costs to connect libraries.
a. Recurring Costs
    102. We first consider the modeled recurring costs for high-speed 
connectivity. The ESH/CoSN Connectivity Model addresses recurring costs 
for public schools, and its analysis is consistent with other evidence 
in the record. For each of its five funding scenarios, the model 
accounts for differing bandwidth needs by school

[[Page 5976]]

district size, service mixes, and pricing. Consistent with the data in 
the record, it takes into account an annual decline in per megabit 
pricing of approximately 10 percent and an annual increase in bandwidth 
demand of up to 50 percent. As a result, it projects an increase in 
pre-discount recurring costs from approximately $2.1 billion in funding 
year 2015 to $2.8 billion in funding year 2018 for public schools.
    103. We next turn to the recurring costs for private schools and 
for libraries. In a supplemental analysis, ESH estimates that it will 
cost $446 million annually in pre-discount recurring costs for private 
schools by funding year 2018. For libraries, ESH projects $298 million 
annually in pre-discount recurring costs based on its pricing 
assumptions for public schools. Adding these estimates to the public 
school recurring projection, the sum of the projections for funding 
year 2018 of total recurring costs rises to $3.60 billion. We increase 
this funding year 2018 estimate by nine percent in order to project 
costs over the five-year period for which we have set connectivity 
targets (funding years 2015 to 2019). The resulting projection for 
recurring pre-discount costs for public schools, private schools, and 
libraries in funding year 2019 is $3.92 billion. However, as discussed 
below, ESH also assumes that policy decisions can drive cost-efficient 
purchasing which will reduce these pre-discount costs.
    104. In addition to recurring costs for high-speed connectivity, 
there will also be savings of over $3 billion in the next five years to 
the E-rate program due to the phase down of voice services. Commenters 
point out that additional savings are possible. The post-discount costs 
to the E-rate fund are estimated to decrease from approximately $450 
million in funding year 2015 to approximately $25 million in funding 
year 2018. We acknowledge these costs to the program over the next four 
funding years.
b. Non-Recurring Costs
    105. We next review the estimates in the record of the non-
recurring costs, or capital expenditures, that are needed to connect 
schools and libraries to high-speed broadband meeting the program's 
connectivity targets over the next five years. The ESH/CoSN 
Connectivity Model includes an estimate for new builds that are paid 
for through recurring charges. By doing this, it recognizes that many 
schools and libraries pay a monthly price that includes both the 
capital deployment costs and the ongoing operational costs. At the same 
time, the models provide projections of one-time costs that would be 
sufficient to close the gap. While there may be applicants or service 
providers that prefer to include the capital costs as a portion of the 
annual price for the life of the contract, the ESH/CoSN Connectivity 
Model provides a way to separate out these capital costs for the 
schools located in the most expensive areas, where the higher cost of 
buildout is more likely to require additional special construction 
charges. The changes we adopt in Section II will provide greater 
opportunities for applicants and service providers to take advantage of 
special construction. The ESH/CoSN Connectivity Model demonstrates that 
the cost to the program increases as a greater percentage of schools 
get high-speed connections. To connect between 99.7 and 100 percent of 
public schools with more than 100 students, the ESH/CoSN Connectivity 
Model provides a range of non-recurring pre-discount costs of between 
$600 and $810 million annually if divided evenly over the next five 
funding years.
    106. These projections for public schools costs are generally 
consistent with the cost estimates provided by the SHLB Coalition for 
both public and private schools. The SHLB Coalition Model provides a 
low and a high estimate for non-recurring costs for fiber deployment to 
both public and private schools that would range from $800 million to 
$1.15 billion in pre-discount costs if divided evenly over the next 
five funding years. It also projects approximately $135 million 
annually over five funding years to connect unserved libraries across 
the country to fiber. The record indicates that a reasonable estimate 
of non-recurring pre-discount costs for both schools and libraries is 
between $935 million and $1.29 billion annually over five years.
2. Driving Down Category One Prices Through Efficiencies
    107. We also conclude that recent program changes will result in an 
additional reduction in the cost to the Fund as applicants have more 
opportunities to find cost-effective options. We strongly agree with 
commenters that argue that programmatic change, further streamlining, 
and continuing efforts to reduce waste, fraud, and abuse, such as 
greater enforcement of the lowest corresponding price, is needed to 
produce savings to the E-rate program. While the precise level of 
savings from cost efficiencies is difficult to predict, there is record 
support for a finding that they could achieve savings of as much as 10 
to 25 percent on the cost of broadband. ESH provides an analysis of the 
potential impact of several different policy scenarios that each could 
result in significant pricing efficiencies, such as equalizing the 
treatment of lit and dark fiber and increasing pricing transparency. 
Similarly, increased planning and purchasing at the state level has 
also been shown to result in greater bandwidth at lower per-megabit 
prices, which is an added benefit of increasing state involvement in 
the E-rate program by providing a bump in support for infrastructure 
upgrades where states provide additional support. Because the record 
demonstrates that our various changes will result in efficiencies 
lowering program costs, we find it reasonable to assume savings of up 
to 15 percent of projected demand for category one costs due to our 
reforms.

C. Adjusting the E-Rate Cap To Provide Certainty of Sufficient 
Available Funding To Achieve Program Goals

    108. To ensure sufficient funding is available over the next five 
years to meet our program goals and connectivity targets, we adjust the 
E-rate cap to $3.9 billion plus annual inflationary changes. Raising 
the annual E-rate funding cap to $3.9 billion will allow us to meet our 
target of providing at least $1 billion in category two support 
annually while fully funding category one demand, consistent with the 
cost estimates modeled by commenters and partially offset by potential 
efficiencies. There is wide support in the record for an increase in E-
rate funding to help schools and libraries meet the program's 
connectivity targets, and we find that raising the cap to $3.9 billion 
will ensure a specific, sufficient, and predictable level of funding 
available as schools and libraries seek support for robust Wi-Fi 
networks within their buildings and seek high-speed connections to 
their buildings for years to come.
    109. In addition to making it possible to close the high-speed 
connectivity gap, raising the annual cap to $3.9 billion will provide 
certainty about the availability of funding for those applicants 
planning now to purchase high-speed broadband connectivity to schools 
and libraries. It will also provide certainty about the availability of 
funds for applicants seeking to take advantage of the changes to 
category two funding by adjusting the cap in funding year 2015. 
Commenters are in agreement that there is pent up demand for category 
two services, and providing more than the $1 billion target level in 
support for internal connections will

[[Page 5977]]

allow more applicants to close their Wi-Fi gaps sooner and more 
efficiently. The availability of additional funds should allay concerns 
that applicants below the highest discount bands will not have access 
to category two funds in the near future. For these two reasons, we 
also disagree with commenters that urge us to delay adjusting the cap 
until all program changes have been implemented or more data is 
available.
    110. Raising the annual E-rate cap to $3.9 billion allows us to 
provide certainty to the applicant community, allowing local decision-
makers to proceed at the pace that best serves their students and 
patrons. In doing so, we do not expect that program demand will 
immediately reach that funding level. Indeed, there is no way to 
perfectly predict what precisely individual schools and libraries will 
seek support for or when unserved schools will gather the resources to 
pay the non-discounted portion of special construction charges. For 
instance, we have already identified sufficient unspent funds to be 
confident in funding for category two services in funding years 2015 
and 2016, and it will take significant planning and time to take 
advantage of the measures set out in Section II. However, the record is 
clear that demand for and costs associated with high-speed broadband 
services will continue to grow, and we find that raising the cap now to 
$3.9 billion will provide needed room for future E-rate funding needs. 
We balance this cap increase with our efforts to ensure fiscal prudence 
and we direct USAC to collect program funds based only on actual 
projected demand rather than collecting the full $3.9 billion without 
regard to applicant needs. Providing USAC with this flexibility will 
allow the Fund to accommodate fluctuations or changes in actual demand 
in the coming years without over-collection of funds. In order to 
facilitate this process and consistent with program practice, we amend 
the rules to only allow applications to be filed within the filing 
window. We disagree with commenters that argue that we should wait to 
address long-term funding needs until the Federal State Joint Board 
makes recommendations on contributions reform. Because demand for 
category one support will not increase dramatically in the short-term, 
we do not see a benefit in delaying this change when we have the 
ability to provide certainty about future availability of funding to 
schools and libraries making plans about connectivity for the next five 
years.
    111. Additionally, we recognize that end users ultimately bear the 
cost of supporting universal service, through carrier charges. However, 
we must balance our need for fiscal prudence with the demonstrated 
needs of the E-rate program, for which we have a statutory mandate to 
``establish rules . . . to enhance, to the extent technically feasible 
and economically reasonable, access to advanced telecommunications and 
information services.'' We adopted the program goal of ensuring 
affordable access to high-speed broadband sufficient to support digital 
learning in schools and robust connectivity to all libraries 
recognizing the critical role the E-rate program plays in the lives of 
students and communities. Having already taken steps to focus support 
on high-speed broadband and set out measures to increase cost 
efficiencies, this cap adjustment provides E-rate applicants with the 
certainty needed to plan how to increase connectivity to schools and 
libraries in the most cost-effective manner. Finally, setting a funding 
level that has sufficient flexibility for these plans should also drive 
long-term efficiencies in the program.
    112. Finally, some commenters recommend that the Commission double 
the cap, which is currently $2.4 billion, to meet recent demand. We 
decline to raise the cap to $4.8 billion based on recent demand. Since 
the funding year 2014 application window closed, we have modernized the 
program to focus support on high-capacity broadband services by 
eliminating support for legacy services, beginning with the phase out 
of support for voice services and imposing budget discipline on 
category two services. Raising the cap based on demand for a 
differently structured program would not make sense. We find instead 
that a program cap set using projected costs for the services the 
program now supports and taking into account efficiencies through 
recent policy changes is a more appropriate means to measure necessary 
program size and ensure we exercise fiscal prudence.

IV. Establishing a Performance Management System at USAC To Advance the 
Goals of the E-Rate Program (WC Docket 13-184)

    113. In this section, we direct USAC to develop a robust 
performance management system to advance the goals we adopted for the 
E-rate program in the E-rate Modernization Order and to analyze, on an 
ongoing-basis, the effectiveness of USAC's administration of the E-rate 
program. Performance management is a process by which entities focus 
their resources on the achievement of strategic goals and objectives, 
including by the development of long-term strategic plans and by the 
rigorous tracking of performance data. As the administrator of the E-
rate program, USAC's performance is integral to the success of the 
program. Moreover, as a result of the transparency requirements we 
adopted in the E-rate Modernization Order, the improved data collection 
that will result from that order, and our direction to USAC to 
modernize its information technology (IT) system, USAC will have access 
to information that will be crucial in measuring our success toward 
reaching the E-rate program goals and it is essential that they make 
information available to schools, libraries, the Commission, and all 
other stakeholders interested in updates about our progress towards 
meeting those goals. Therefore, in developing and implementing its 
performance management system, we direct USAC to work with staff from 
OMD and the Bureau to formulate a detailed plan that includes both 
immediate and long-term metrics directed at finding new ways to further 
the E-rate program goals.

A. Components of the Performance Management System

    114. We delegate to the Bureau and OMD oversight of the development 
and implementation of USAC's performance management system. In addition 
to directing USAC to develop a performance management system for its 
administration of the E-rate program, we provide direction on a range 
of components that USAC must include in the system. At the same time we 
recognize that USAC's performance management system must be flexible 
and adaptive, and we expect USAC, in consultation with staff of the 
Bureau and of OMD, to continue to update its performance management 
system, as appropriate.
    115. Impact of E-rate modernization. In this Order, as we did in 
the E-rate Modernization Order, we adopt a number of programmatic 
changes aimed at reaching the goals we adopted for the E-rate program. 
We have directed USAC, working with Commission staff, to implement 
those changes. Recognizing that some of those changes will be more 
successful than others, and that future Commissions will want to be 
able to evaluate the success of those initiatives, we direct USAC to 
incorporate in its performance management system an ongoing analysis of 
the impact of those changes on reaching the goals that we adopted for 
the E-rate program in the E-rate

[[Page 5978]]

Modernization Order, as well as USAC's success at implementing those 
changes.
    116. Impact of and further improvements to USAC's updated IT 
system. USAC's performance management system should also include 
ongoing evaluation of USAC's success in upgrading its IT system, and 
moving towards all-electronic filings by E-rate stakeholders and all-
electronic notifications by USAC. As we directed in the July E-rate 
Modernization Order, all applicants must file electronically their 
applications for E-rate support for this coming funding year. As USAC 
considers what more it can do to ease the administrative burden on 
applicants through its upgraded IT system, it must develop a plan to 
migrate the filing of all E-rate appeals and invoices to electronic 
formats, and should make that possible by or before the start of 
funding year 2017.
    117. Simplifying calculation of discount rates. To further 
streamline the application process, particularly for school districts 
and library systems, we instruct USAC, as part of its performance 
management system, to enable applicants to more easily manage the 
discount calculation process in advance of the application filing 
window. USAC should establish the appropriate timeframe for billed 
entities to update their discount information in USAC's online system, 
as well as a process for billed entities to certify to the accuracy of 
such information prior to the opening of the application window. USAC's 
system should then be able to assist applicants in determining their 
discount rate based on such information, and pre-populate that 
information based on the information provided by the billed entities. 
At the same time, we remind applicants that they remain responsible for 
ensuring that they are seeking the appropriate discount rate and they 
are responsible for repayment in the event of any error in the 
calculation of the discount rate whether caused by the applicant or by 
USAC.
    118. Online competitive bidding. In order to assist applicants in 
maximizing the cost-effectiveness of spending for E-rate supported 
services, as part of its performance management system, USAC should 
explore the possibility of providing online tools to improve the 
competitive bidding process. We agree with commenters who contend that 
the competitive bidding process should encourage and facilitate 
participation in the E-rate program by service providers. We therefore 
direct USAC to work with OMD and the Bureau to determine the 
feasibility and effectiveness of online tools to assist applicants with 
the competitive bidding process, including online bid and review tools 
to assist applicants in obtaining multiple bids and selecting the most 
cost-effective services, and to reduce administrative costs and burdens 
associated with competitive bidding. To expose applicants to more 
purchasing options, USAC should also explore the provision of tools to 
promote and facilitate increased involvement by service providers, and 
to provide more visibility into options for purchasing the specific 
products and services for which applicants are requesting proposals in 
ways that are consistent with fair and open competitive bidding 
requirements that are fundamental to the E-rate program.
    119. Improving the administrative experience of program 
participants. As part of its ongoing work to make the E-rate 
application process and other E-rate processes faster, simpler, and 
more efficient USAC should assess organizational options for placing 
greater emphasis on improving the end-to-end administrative experience 
of program participants, including applications, appeals, invoices, and 
audits. For example, USAC should assess the value of designating senior 
management directly responsible to the CEO to be responsible for 
championing outreach and simplification strategies to benefit program 
participants and to ensure that as much time, energy, and financial 
resources as possible go to achieving program goals rather than to 
cumbersome administrative processes. USAC should also solicit input 
from program beneficiaries and other stakeholders and use that input in 
evaluating, on an ongoing basis, its provision of customer support to 
E-rate applicants. USAC should incorporate performance metrics related 
to customer service into its overall performance management plan, and 
work with Commission staff to identify improvement recommendations. 
These recommendations should be considered at the highest levels of 
management and given the appropriate consideration for implementation, 
consistent with appropriate processes for coordination and approval by 
the Commission of review procedures, and the success of improving the 
customer service experience should be a key component of USAC's 
performance management system.
    120. Maximizing the cost-effectiveness of E-rate supported 
purchases. As part of its performance management system, USAC should 
analyze how its administration of the program can further the goal of 
maximizing the cost-effectiveness of E-rate supported purchases. For 
example, USAC should analyze its approach to cost-effectiveness 
reviews, and find ways to share information with applicants and vendors 
about its approach to such reviews, in order to encourage cost-
effective purchasing by applicants. We direct the Bureau and OMD to 
oversee USAC's interpretation and application of cost effectiveness to 
ensure alignment with the program goals we have set, with particular 
emphasis on ensuring the cost effectiveness of the new methods of 
supporting category one and category two services provided in the E-
rate Modernization Order as well as this Order.
    121. USAC should also explore ways to assist schools and libraries 
in receiving access to neutral, expert technical assistance. We agree 
with those commenters who argue that technical assistance is critical 
to building an efficient internal network. We have heard, however, from 
many parties that such technical experience is often not available 
within a school district or library system, especially those located in 
rural areas. In situations where affordable technical assistance is not 
available, USAC, as the expert administrator of the program, has an 
important role to play given its focus on efficiently serving 
applicants while verifying compliance with program rules. In keeping 
with the recommendations of many commenters, we encourage USAC to work 
with existing entities at the state and municipal level to develop best 
practices and supporting technical information, and to consider 
developing its own in-house advisors to provide this support. We direct 
USAC to work with OMD and the Bureau to set the financial and 
operational parameters for providing such assistance and to provide 
guidance to applicants on the role and responsibilities of USAC when 
offering such assistance. As part of that oversight, we also direct the 
Bureau, working with OMD and USAC, to develop reference prices or other 
guidelines for E-rate supported purchases that could provide guidance 
both to applicants about prices that are likely to be considered cost-
effective and to USAC in prioritizing applications for additional 
scrutiny for cost-effectiveness.
    122. Data tracking and analysis. As part of its performance 
management system, USAC should review its data tracking and reporting 
capabilities to confirm that it tracks and reports the data necessary 
to measure progress toward E-rate program goals. We direct USAC, 
working with OMD and the Bureau, to create a comprehensive and

[[Page 5979]]

efficient data reporting structure, to develop IT tools that facilitate 
analysis of all program data, and to increase public availability of 
such data to increase transparency and enable beneficiaries and other 
stakeholders both to assess progress by schools and libraries in 
obtaining access to high-speed broadband connectivity and to obtain 
detailed information from which to determine the cost effectiveness of 
spending for E-rate products and services by beneficiaries.
    123. Increased program efficiencies. USAC also should review its 
pre- and post-commitment procedures and identify additional 
opportunities for data analysis, improved compliance oversight, and 
realization of increased efficiency and streamlining of processes for 
the review of applications and the commitment and disbursement of 
funds. This review should encompass both USAC's direct staff as well as 
contract services such as those used in application in-take and 
processing. We direct USAC to work with Commission staff to identify 
areas in which a more common-sense and flexible administrative approach 
would best advance program goals while still remaining consistent with 
program rules set by the Commission.
    124. Financial management. Finally, it is crucial that USAC include 
financial management as a component of its performance management 
system. The Commission has directed USAC to prepare financial 
statements for the USF, including the E-rate program, consistent with 
generally accepted accounting principles for federal agencies (Federal 
GAAP) and to keep the USF in accordance with the United States Standard 
General Ledger (USSGL). Working with OMD and other Commission staff, 
USAC should review and update its processes for evaluating and 
recommending the amounts that should be reserved to fund pending 
appeals, pending applications, and undisbursed funding commitments. We 
note that, for those appeals that may require additional commitments 
and disbursements in the unlikely event that the amounts held in 
reserve are not sufficient, the Commission has authorized USAC to use 
funds budgeted for subsequent funding years to fund discounts for 
successful appeals from prior funding years. For the pending 
applications and undisbursed funding commitments, we similarly 
authorize USAC to use funds budgeted for subsequent funding years to 
fund discounts for those applications and undisbursed funding 
commitments from prior funding years, in the unlikely event the amounts 
held in reserve are not sufficient.

B. Expanding Commission Oversight of USAC's Administrative Performance

    125. We also delegate authority to the Bureau and OMD to ensure 
that beginning in funding year 2015 USAC conducts an annual performance 
review of progress against program goals and creates a forward-looking 
strategic plan for how USAC will expand and sustain performance 
improvements. The Bureau and OMD should work together to assist USAC in 
developing the measures that should be included in USAC's annual 
performance review. USAC must report at a minimum on the following 
components of the program's administration: Pending applications; 
pending invoices, with specific information about those that were 
delayed or rejected; USAC's strategy to reduce any backlog of 
applications, invoices or other necessary USAC approvals for applicant 
and service provider changes to requested funding; and an annual 
analysis of the program integrity assurance (PIA) program and invoicing 
procedures to determine if they are properly designed and calibrated to 
efficiently process applications and invoices while protecting against 
waste, fraud and abuse in the program.
    126. Additionally, in the E-rate Modernization Order, we directed 
USAC to collect additional connectivity data from applicants, noting 
that this collection will provide useful and useable information to 
USAC and to the Commission about what is working and what needs to be 
improved. USAC should work with Commission staff to analyze and report 
the results of this data collection in this performance analysis.

V. Filing Deadlines for Appeals

    127. In the E-rate Modernization Order, we revised Sec.  54.719 of 
our rules to require parties aggrieved by an action taken by a division 
of USAC, including the Schools and Libraries Division, to first seek 
review of that decision by USAC before filing an appeal with the 
Commission. We also explained that because USAC cannot waive our rules, 
parties seeking a waiver of our rules must seek relief directly from 
the Commission or the Bureau. We now clarify that affected parties have 
60 days from the issuance of the decision to file an appeal, either 
with USAC in the case of requests for review, or the Commission or 
Bureau in the case of requests for waiver. Additionally, parties that 
file a request for review with USAC and receive an adverse outcome have 
60 days from the issuance of that decision to file a request for review 
with the Commission.

VI. Order on Reconsideration

A. Introduction

    128. In this section, we address various petitions for 
reconsideration of the E-rate Modernization Order and provide 
clarification on several issues raised by the Verizon Petition. Our 
rules allow any interested party to file a petition for 
reconsideration, and provide that a petition for reconsideration which 
relies on facts or arguments not previously presented to the Commission 
shall be granted only where the facts or arguments relate to new events 
or changed circumstances, were unknown and not readily ascertainable by 
petitioners, or the Commission determines that the public interest 
requires them to be reconsidered.
    129. Having considered the petitions for reconsideration, and all 
oppositions and replies filed in response to those petitions, we:
     Grant in part the petitions for reconsideration filed by 
SECA, the Utah Education Network, NTCA/Utah Rural Telecom Association, 
and the West Virginia Department of Education (WVDE) seeking 
reconsideration of the areas that we have designated as urban for 
purposes of the E-rate program;
     deny USTelecom's request that we reconsider our decision 
to change the E-rate program's document retention period from five 
years to 10 years;
     deny requests by SECA, Verizon, and WVDE that we phase out 
E-rate support for components of telephone service and voicemail on the 
same schedule as voice service, and Verizon's request that we 
reconsider our decision to eliminate funding for email offered as part 
of an Internet access service;
     deny requests by Verizon, SECA, and WVDE that we direct 
USAC to make category two funding commitments that cover multiple-
years;
     clarify our cost-effectiveness test for data plans and air 
cards for mobile devices and our cost allocation rules for circuits 
that carry both voice and data traffic as requested by Verizon; and
     clarify for Verizon the E-rate Modernization Order's 
category two funding availability and policy on applicant 
prioritization. We also clarify for Verizon that the $150 budget over 
five years applies to both managed and non-managed Wi-Fi.

B. Urban and Rural Designations

    130. On reconsideration, we modify Sec.  54.505(b)(3) of our rules 
so that

[[Page 5980]]

starting in funding year 2015 an individual school or library will be 
designated as ``urban'' if located in an ``Urbanized Area'' or an 
``Urban Cluster'' with a population equal to or greater than 25,000, as 
determined by the most recent rural-urban classification by the U.S. 
Census Bureau (Census Bureau). Any individual school or library not 
designated as ``urban'' will be designated as ``rural.'' We make this 
change to our rules on reconsideration because petitioners have 
convincingly demonstrated that numerous schools and libraries located 
in small towns and remote areas where it is more expensive to receive 
E-rate funded services would be classified as urban and ineligible for 
additional E-rate support provided to rural applicants under the urban 
designation we adopted in the E-rate Modernization Order. In making 
this change on reconsideration, we grant in part the petitions for 
reconsideration filed by SECA, NTCA/Utah Rural Telecom Association, 
WVDE, and the Utah Education Network. While we change how individual 
sites are classified as urban or rural, we retain the current rule that 
any school district or library system must have a majority of schools 
or libraries in a rural area that meets our new urban/rural definition 
to qualify for the additional rural discount.
    131. In the E-rate Modernization Order, we made two changes to the 
way applicants determine whether they are eligible for the rural 
discount. We first adopted the Census Bureau definition of rural and 
urban which classifies only communities with fewer than 2,500 people as 
rural. Under the Census Bureau definition, the term ``urban'' includes 
``urbanized areas,'' which are defined as the densely settled core of 
census tracts or blocks with at least 50,000 people, and ``urban 
clusters,'' with 2,500 to 50,000 people, along with adjacent 
territories containing non-residential urban land uses as well as 
territory with low population density included to link outlying densely 
settled territory with the densely settled core. ``Rural'' encompasses 
all population, housing, and territory not included within an urban 
area. We found that the adoption of the Census Bureau definitions of 
urban and rural was simpler for applicants than other alternatives and 
the data more current than the previous outdated definition. Also in 
the E-rate Modernization Order, we changed the criteria a school 
district or library system must use to determine whether it qualifies 
as rural for the E-rate program, concluding that school districts and 
library systems would only be eligible for the rural discount if more 
than 50 percent of individual schools or libraries within that district 
or system are classified as rural.
    132. As petitioners have explained, the population cutoff of 50,000 
people combined with the requirement that a majority of all schools or 
libraries that are part of a school district or library system be 
classified as rural in order to qualify the school district or library 
system for the additional rural discount rate leaves a substantial 
number of school districts and library systems with schools or 
libraries in sparsely populated areas ineligible for the additional 
rural funding. For example, petitioners point out that as a result of 
the definition adopted in the E-rate Modernization Order:
     Schools in St. Mary's, West Virginia, a community with 
1,860 people that is 20 miles from the nearest urbanized area, are part 
of the Pleasants County School District that, under the new rural 
definition, would be reclassified as urban.
     School districts in Iowa would be newly designated as 
urban, including the Bellevue Community School District, with an 
enrollment of only 700 students and located in Bellevue, a town of 
2,543 people.
     Some of the most remote areas of the country situated in 
Alaska, including the communities of Barrow, Bethel, Ketchikan, 
Kotzebue, Nome and Sitka, have school districts that would be 
reclassified as urban.
    133. Three of the four petitions for reconsideration on this issue 
initially requested that the definition of rural include all schools 
and libraries in ``urban clusters.'' However, those petitioners 
modified their requests and joined with the fourth petitioner, the Utah 
Education Network, and a constituency of organizations representing 
schools, libraries, E-rate coordinators, rural telecommunications 
carriers, and other E-rate stakeholders, to recommend that the 
Commission consider a population threshold of 25,000 or greater as 
urban, and all other areas as rural for purposes of the E-rate program. 
No parties in the record have opposed this recommendation.
    134. We agree with petitioners and other stakeholders that this new 
definition of rural is appropriate for ensuring support is targeted to 
areas where E-rate supported services are more costly. Other federal 
programs have used a similar population cutoff to designate whether an 
area is rural or urban. For example, the Commission adopted 25,000 as 
the population threshold when it revised its rural area definition for 
the rural health care universal service support mechanism (Rural Health 
Care Program) in 2004, essentially including as rural all census tracts 
that do not contain any population concentrations greater than 25,000. 
In adopting the Rural Health Care Program's rural definition, the 
Commission noted that ``[w]hile choosing the threshold is not an exact 
science, we believe urban areas above this size possess a critical mass 
of population and facilities.'' In looking to other agencies, the U.S. 
Department of Education's National Center for Education Statistics 
(NCES) classifies ``small towns'' as any incorporated or Census-defined 
place with fewer than 25,000 people. Some other federal programs have 
established even broader definitions of rural than the one we adopt 
today. For example, the 2014 Farm Bill included a provision related to 
the U.S. Department of Agriculture Rural Housing Program that increased 
the minimum rural population threshold for that program from 25,000 to 
35,000.
    135. Modifying our definition to treat areas with populations of 
less than 25,000 as rural achieves the policy objectives established in 
the E-rate Modernization Order by creating a rural definition based on 
regularly adjusted U.S. Census data while remaining simple and easy to 
administer. The Census Bureau already provides a spreadsheet of all 
urbanized areas and urban clusters with the populations of the towns 
and cities listed. To further eliminate any confusion regarding 
implementation of this new definition, the Commission will direct USAC 
to identify the areas that are rural for the purposes of the E-rate 
program and post a tool on its Web site as soon as it is practically 
possible. Going forward, we direct USAC to update the tool as necessary 
to reflect the most recent decennial census data and nationwide 
population estimates and update its system within 90 days of any 
change. However, we once again remind applicants that they have an 
obligation to ensure that they are seeking the correct discount rate.
    136. In taking this action, we find that any additional burden on 
the Fund is justified by the overwhelming evidence in the record 
demonstrating that the rural definition adopted in the E-rate 
Modernization Order excluded many applicants located in areas that are 
more expensive to serve because of their remote geography. Further, we 
believe that this change, by ensuring that many more schools and 
libraries have the benefit of additional funding to compensate for 
their rural geography, fully satisfies section 254(h)(1)(B) of the Act, 
which requires that the E-rate

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discount must be an amount that is ``appropriate and necessary to 
ensure affordable access to and use of such services.''
    137. Finally, we take this opportunity to eliminate an obsolete 
reference to the definition of what constitutes a rural area for the 
purposes of the E-rate program in Sec.  54.5 of our rules. The E-rate 
definitions are properly found at 54.505(b) of our rules. However, the 
``Terms and definitions'' section, found in Sec.  54.5 of our rules, 
also defines ``rural area'' for the E-rate program. While we could also 
amend the definition in 54.5 of our rules and make it parallel to the 
definition in Sec.  54.505(b), we think that the better course is to 
have the definition only in that section of our rules that is E-rate 
specific. We therefore amend Sec.  54.5 to eliminate the reference to 
the E-rate definition of rural.

C. Document Retention Period

    138. We deny the USTelecom Petition seeking reconsideration of our 
extension of the E-rate document retention period from five to 10 
years. The arguments offered by USTelecom were either sufficiently 
considered in this proceeding or do not raise new issues sufficient to 
warrant reconsideration. In the E-rate Modernization Order we concluded 
that the current five-year document retention requirement is not 
adequate for purposes of litigation under the False Claims Act (FCA). 
We also explained that a 10-year retention period will benefit program 
integrity and that electronic storage capabilities will minimize the 
administrative burden and cost for applicants and vendors. This 
decision is consistent with our adoption of 10-year document retention 
requirements for other universal service programs in the USF/ICC 
Transformation Order and the Lifeline Reform Order, 77 FR 25609, May 1, 
2012.
    139. In its petition, USTelecom argues that document retention 
requirements are not necessary for compliance with the FCA and that 
existing case law ``provides no basis for the Commission to claim a 
need for extended document retention periods in order to comply with 
the FCA.'' We find it unnecessary to reach these arguments because our 
decision to adopt a 10-year document retention period is justified on 
several other independent grounds unrelated to the FCA. These non-FCA 
grounds are sufficient in and of themselves to justify a 10-year 
document retention period. In particular, we continue to find that:
     Even outside the FCA context, a longer document retention 
period will help the Commission guard against waste, fraud, and abuse 
in the universal service program by ensuring that evidence will be 
preserved.
     Congress has imposed no statutory barrier to recovery 
beyond five years. Indeed, the Debt Collection Improvement Act (DCIA), 
31 U.S.C. 3701 et seq., generally directs agencies to ``try to collect 
a claim of the [U.S.] Government for money or property arising out of 
the activities of, or referred to, the agency.''
    140. Other rationales (also unrelated to the FCA) reinforce our 
belief that a 10-year document retention period will help ensure the 
integrity of the E-rate program and will assist Commission 
investigations into waste, fraud, and abuse, which may extend beyond a 
five-year period. For instance, Government-wide regulations known as 
the Federal Claims Collection Standards require agencies to 
``aggressively collect all debts.'' Extending the retention period to 
ten years will assist the agency in carrying out this objective. 
Because the new document retention period is amply supported by these 
reasons, we need not reach USTelecom's arguments regarding the FCA.
    141. We also reject USTelecom's remaining arguments regarding the 
new retention period. For instance, the fact that some other federal 
programs may have shorter retention periods does not require a contrary 
outcome, particularly since, as noted above, a 10-year document 
retention rule aligns the E-rate program with the document retention 
requirements of other universal service programs. Also unavailing is 
USTelecom's argument that a 10-year document retention requirement is 
unnecessary, will impose significant costs on applicants and vendors, 
and is not supported by the record. We previously considered and 
rejected these arguments in this proceeding. USTelecom cites several 
commenters opposed to a longer document retention period. However, 
those commenters either failed to provide any substantive support for 
their opposition to a 10-year requirement or offered general arguments 
about school staff turnover or shorter state and federal retention 
requirements without providing persuasive support as to why a 10-year 
requirement for the E-rate program would be overly burdensome. In the 
E-rate Modernization Order, we acknowledged stakeholder concerns about 
the potential costs and administrative burden of a 10-year retention 
requirement, but concluded that those costs and burdens can be 
mitigated with electronic storage capabilities and concluded that any 
such costs would be outweighed by the benefits to the integrity of the 
program. We reaffirm that conclusion here.

D. Telephone Service Components, Voicemail, and Email

    142. We deny those portions of the Verizon and WVDE petitions 
requesting us to (i) reconsider our treatment of telephone service 
components, including directory assistance charges, text messaging, 
custom calling services, direct inward dialing (DID), 900/976 call 
blocking, and inside wire maintenance, as part of voice services; and 
(ii) phase out support for those services on the same five-year 
schedule as voice services rather than eliminating support beginning in 
funding year 2015. We therefore also deny SECA's request that we remove 
DID numbers from the list of eliminated telephone components and 
instead phase out support for DID numbers on the same schedule as voice 
services. We also deny Verizon's requests that voicemail be phased out 
on the same schedule as voice service and that the E-rate program 
support email offered as part of an Internet access service.
    143. In the E-rate Modernization Order we initiated a five-year 
phase down of E-rate support for voice services and eliminated support 
for other legacy and non-broadband services effective for funding year 
2015. We explained that reductions in funding for voice services and 
eliminating funding for telephone components and non-broadband services 
was necessary in order to focus E-rate program spending on the high-
speed broadband needed by schools to enable digital learning and by 
libraries to meet patrons' broadband needs.
    144. Verizon and WVDE argue that cost allocating telephone service 
components and voicemail from a typical applicant phone bill will place 
a substantial burden on applicants, service providers, and USAC 
reviewers that is not justified by the corresponding savings to the E-
rate program. SECA argues that DID numbers, unlike the other telephone 
service components no longer eligible for E-rate support, are an 
essential feature of voice service and should therefore be placed on 
the same phase down schedule as voice services.
    145. The arguments and facts presented in the Verizon, WVDE, and 
SECA petitions were previously considered in this rulemaking and do not 
merit reconsideration of our conclusions. In the E-rate Modernization 
NPRM, we indicated our intention to refocus E-rate funding on high-
speed broadband services and, as part of that effort, proposed to 
eliminate E-rate support for telephone service

[[Page 5982]]

components, voicemail, and email. With respect to the components of 
telephone service, in the E-rate Modernization Order, we acknowledged 
that eliminating support for these services would require cost 
allocation but concluded that it would not be overly burdensome for 
applicants to seek funding for only the voice service component of 
their telephone service. We concluded that the benefits of streamlining 
voice service support by removing these services outweighed the 
additional burden on applicants of cost allocation for the next few 
funding years. We also noted that commenters that recommended a longer 
phase down period for voice services did not recommend a commensurate 
phase down for telephone service components or argue that those 
services required a phase down. Similarly, eliminating support for 
email services will require cost allocation for email offered as part 
of an Internet access service but we believe that the benefits of 
focusing funding on high-speed broadband justify the minimal cost 
allocation burden on applicants. Consistent with the third goal that we 
adopted in the E-rate Modernization Order, making E-rate processes 
fast, simple, and efficient, and in order to reduce the administrative 
burden on applicants, we expect that USAC will, working with the 
Bureau, establish guidelines for how applicants can proportion the cost 
of services on telephone bills in order to cost-allocate ineligible 
telephone service components and voicemail.

E. Conditional or Multi-Year Commitments

    146. We deny the petitions filed by SECA, Verizon, and WVDE to the 
extent they request that the Commission reconsider the approach to 
category two funding adopted in the E-rate Modernization Order. SECA, 
Verizon, and WVDE do not raise new facts or arguments that warrant 
Commission review of the E-rate program's prohibition on multi-year 
funding commitments.
    147. In the E-rate Modernization Order, we created a mechanism for 
focusing funding on internal connections, including Wi-Fi, to allow 
schools and libraries to have affordable access to high-speed broadband 
connections needed for digital learning. To provide broader and more 
equitable support for category two services, the E-rate Modernization 
Order created five-year budgets for applicants that seek and receive 
category two funding in funding years 2015 and 2016. In the Second E-
rate Modernization Order, we extend the five-year applicant budgets for 
category two services for three additional years. While we allow 
category two applicants to enter into multi-year agreements, we 
declined to make multi-year commitments available.
    148. We deny the Verizon Petition with respect to its proposal to 
allow multi-year commitments for managed Wi-Fi services as a way to 
remove uncertainty about whether funding will be available in the later 
years of a five-year category two budget cycle. In the E-rate 
Modernization Order we considered and rejected arguments in favor of 
multi-year commitments in the E-rate program. As we explained in that 
order, obligating funds in advance of their availability would be 
detrimental to the administration of the program. We also explained 
that the multi-year application process we created in that order should 
allow applicants to achieve many of the efficiencies of a multi-year 
funding commitment. Furthermore, petitioners' concerns about the 
uncertainty of funding for category two services should be alleviated 
by the actions we have taken in the Second E-rate Modernization Order 
to raise the cap, and to extend the category two budget approach to 
cover five funding years. Therefore, we find it is in the best interest 
of the Fund to continue to have the Administrator obligate funds one 
funding year at a time.
    149. We also deny SECA and WVDE's proposal that we provide 
conditional funding commitments to all valid applications for category 
two funding. Under this proposal, if funding is unavailable in the year 
in which it is sought, rather than being denied support, an applicant 
would receive a commitment of future support for those services. We 
find that this approach is not necessary because uncertainty about 
funding for category two services should be alleviated by the actions 
we have taken to raise the annual E-rate cap and extend the category 
two budget framework for the next three years. Further, if there comes 
a time that we are unable to meet the demand for category two support, 
instead of providing predictability for applicants, SECA's and WVDE's 
proposals would lead to greater uncertainty, and administrative 
complexity because applicants would not know when they would receive 
reimbursement or how much reimbursement they would entitled to receive. 
Under WVDE's proposal, applicants would use the discount rate in effect 
at the time the funds become available, meaning applicants would have 
to account for changes in student demographics and the urban/rural 
classification that affect the discount level. Thus, it would be very 
difficult for applicants to predict the level of expected reimbursement 
and could lead to budget shortfalls for applicants expecting a larger 
disbursement from the Fund.

F. Clarifications

    150. Cost-Effectiveness for Wireless Data Plans and Air Cards. In 
response to Verizon's request for clarification, we offer additional 
guidance on the proper cost-effectiveness test for data plans and air 
cards for mobile devices. When purchasing any E-rate eligible service, 
applicants are required to carefully consider all bids and select the 
most cost-effective service offering, and must consider price to be the 
primary factor. In the E-rate Modernization Order, we took the 
opportunity to discuss the limited circumstances under which we would 
find data plans or air cards for mobile devices to be cost-effective. 
We explained that it is generally more cost-effective for schools and 
libraries to purchase a fixed broadband connection to the building and 
a WLAN capable of providing connectivity to multiple devices throughout 
the building. However, we recognized that there are circumstances, such 
as library bookmobiles or very small schools and libraries with high 
connectivity costs, where individual data plans or air cards for mobile 
devices may be the most cost-effective solution. We then provided an 
example of how applicants could demonstrate the cost-effectiveness of 
data plans or air cards for mobile devices through comparison of the 
costs for a WLAN deployment.
    151. Verizon requests clarification that applicants should compare 
the cost of data plans or air cards for mobile devices to the cost of 
all components necessary to deliver connectivity to the end user 
device. Verizon also requests clarification as to whether applicants 
may take into account the potential limited availability of category 
two funding when evaluating the cost effectiveness of individual data 
plans and air cards for mobile devices.
    152. We agree with the points raised by Verizon's first request and 
clarify that applicants that seek funding for data plans or air cards 
for mobile devices should compare the cost of all components necessary 
to deliver connectivity to the end user device, including the costs of 
Internet access and connectivity to the school or library, to the total 
cost of data plans or air cards when selecting the most cost-effective 
service option. Schools with existing fixed broadband connections 
should limit this comparison to the

[[Page 5983]]

recurring cost of their current broadband connection plus the added 
cost of any upgrades to their broadband connections and any additional 
or updated internal connections needed to deploy a sufficiently robust 
WLAN with all capital investments amortized over their expected 
lifespan. We also caution applicants that seeking support for data 
plans or air cards for mobile devices for use in a school or library 
with an existing fixed broadband connection and WLAN implicates our 
prohibition on requests for duplicative services. In circumstances 
where an applicant successfully demonstrates that mobile data plans or 
air cards are the most cost-effective offering, such as a bookmobile or 
very small school or library facility, the impracticality or unusually 
high cost of purchasing a fixed broadband connection to the location 
should be a factor in the applicant's cost-effectiveness analysis.
    153. We also clarify that an applicant may not consider whether it 
is likely to receive category two E-rate support when analyzing the 
cost-effectiveness of data plans or air cards for mobile devices. While 
our rules allow applicants to consider relevant factors other than cost 
as part of the cost-effectiveness determination, price must be the 
primary factor in an applicant's cost-effectiveness determination 
regardless of whether the applicant anticipates receiving category two 
E-rate support. Indeed our rules require that entities use the actual, 
i.e. pre-discount, cost of the service offered as a baseline for 
comparison, not the cost after the E-rate discount is applied.
    154. Circuit Capacity Dedicated to Voice Services. Verizon also 
requests that we clarify how the reduced discount rates for voice 
services apply to costs incurred for circuit capacity dedicated to 
providing voice services. We clarify that applicants must cost allocate 
charges attributable to voice services from the cost of all circuits 
used for dedicated voice and data services and that those voice service 
charges will be subject to the five-year voice service phase down. In 
the E-rate Modernization Order, we specified that the five-year phase 
down of support for voice services will apply to all applicants and all 
costs incurred for the provision of telephone services and circuit 
capacity dedicated to providing voice services. Verizon seeks general 
clarification of the term ``circuit capacity dedicated to providing 
voice services.'' Verizon also requests specific clarification of the 
proper cost allocation method for voice services on three types of 
circuits: (1) A circuit leased for a district-operated private voice 
network, (2) a leased WAN circuit that carries both voice and broadband 
traffic, and (3) a circuit that carries both voice and broadband 
services. As discussed below, Commission rules require applicants to 
cost allocate charges attributable to voice services from the circuit 
cost in all circumstances described by Verizon.
    155. Under the Commission's rules, if a product or service contains 
both eligible and ineligible components, costs should be allocated to 
the extent that a clear delineation can be made between the eligible 
and ineligible components. The clear delineation must have a tangible 
basis and the price for the eligible portion must be the most cost-
effective means of receiving the eligible service. We understand that 
application of our cost allocation rules to circuits used for both 
voice and data services may require some additional effort from 
applicants and service providers; however, the requirement does not 
impose a substantial burden and provides an important benefit to the 
program.
    156. We provide the following clarifications regarding application 
of our cost allocation rules to circuits carrying both voice and data 
services.
     For a bundled voice and data service provided over a 
single circuit, (e.g., a cable voice/data bundle) the voice service 
portion must be cost allocated and subject to the voice services phase 
down. As with telephone service components, one proper method for cost 
allocating the voice service portion of a bundled voice/data circuit 
may be for the applicant to seek an appropriate cost allocation from 
its service provider.
     For circuits dedicated solely to voice service, including 
PRIs, SIP trunks, and VoIP provider circuits, the full cost of the 
dedicated circuit is subject to the voice services phase down. 
Verizon's description of a circuit leased for a district-operated 
private voice network would be considered a circuit dedicated to voice 
service.
     For services that dedicate a portion of a data circuit to 
voice service, (e.g., voice channels on a T-1 circuit or dedicated 
bandwidth for VoIP traffic using a virtual local area network) the cost 
of the dedicated portion of the circuit must be cost allocated and 
subject to the voice services phase down.
     For voice applications that run over a data circuit but do 
not require any dedicated circuit capacity, the applicant is not 
required to cost allocate any portion of the data circuit cost for 
voice services.
    157. Funding for Budgets. Verizon asks the Commission to clarify 
that it expects full funding to be available up to the budgeted amount 
in each of the five years of an applicant's category two budget and 
that priority be given in later years of a budget cycle to applicants 
that receive category two support in the first funding years 2015 and 
2016. Based on historic demand and the changes we made to the E-rate 
program in both E-rate Modernization Orders, we expect funding will be 
sufficient to meet demand but we cannot guarantee that category two 
funding will be available to any particular applicant in any particular 
year.

VII. Delegation To Revise Rules

    158. Given the complexities associated with modernizing the E-rate 
program, modifying our rules, and the other programmatic changes we 
adopt in this Report and Order, we delegate authority to the Bureau to 
make any further rule revisions as necessary to ensure the changes to 
the program adopted in this Report and Order are reflected in our 
rules. This includes correcting any conflicts between new and/or 
revised rules and existing rules as well as addressing any omissions or 
oversights. If any such rule changes are warranted the Bureau shall be 
responsible for such change. We note that any entity that disagrees 
with a rule change made on delegated authority will have the 
opportunity to file an Application for Review by the full Commission. 
We expect the Bureau and USAC to monitor the program for waste, fraud 
and abuse and we delegate authority to the Bureau and OMD to specify 
additional administrative requirements in connection with the program 
changes we adopt today and authority to provide guidance to USAC in its 
implementation of these changes. The purpose of this delegation is to 
protect against potential waste, fraud, and abuse in the E-rate 
program.

VIII. Procedural Matters

A. Final Regulatory Flexibility Analysis

    159. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Federal Communications Commission (Commission) 
included Initial Regulatory Flexibility Analyses (IRFAs) of the 
possible significant economic impact on a substantial number of small 
entities by the policies and rules proposed in the E-rate Modernization 
NPRM and E-rate Modernization FNPRM in WC Docket No. 13-184. The 
Commission sought written public comment on the proposals in the E-rate 
Modernization

[[Page 5984]]

NPRM and E-rate Modernization FNPRM, including comment on the IRFAs. 
This Final Regulatory Flexibility Analysis (FRFA) conforms to the RFA.

B. Need for, and Objectives of, the Proposed Rule

    160. The Commission is required by section 254 of the 
Communications Act of 1934, as amended, to promulgate rules to 
implement the universal service provisions of section 254. On May 8, 
1997, the Commission adopted rules to reform its system of universal 
service support mechanisms so that universal service is preserved and 
advanced as markets move toward competition. Specifically, under the 
schools and libraries universal service support mechanism, also known 
as the E-rate program, eligible schools, libraries, and consortia that 
include eligible schools and libraries may receive discounts for 
eligible telecommunications services, Internet access, and internal 
connections.
    161. In July 2013, the Commission issued a Notice of Proposed 
Rulemaking seeking public comment on proposals to update the E-rate 
program to focus on 21st Century broadband needs of schools and 
libraries. Later, in February 2014, the Wireline Competition Bureau 
(Bureau) issued a Public Notice seeking focused comment on issues 
raised in the E-rate Modernization NPRM. Then, in July 2014, we adopted 
a number of proposals in the E-rate Modernization NPRM and issued a 
Further Notice of Proposed Rulemaking seeking public comment on 
additional proposals to update the E-rate program. In this Report and 
Order, we adopt a number of the proposals put forward in the E-rate 
Modernization NPRM and E-rate Modernization FNPRM.
    162. This Report and Order continues the Commission's efforts to 
promote broadband access for schools and libraries and support the 
goals that we adopted in the E-rate Modernization Order. In it, we 
lower the barrier to obtaining high-speed connections and increase the 
E-rate funding cap to meet the needs of the program. To lower barriers 
to obtaining high-speed connections, we (1) provide greater flexibility 
for applicants with respect to payment options for large non-recurring 
capital costs for high-speed broadband; (2) equalize the treatment of 
lit and dark fiber to offer applicants an additional cost-effective 
option for deploying high-speed broadband; (3) allow self-construction 
of high-speed broadband facilities by schools and libraries when self-
construction is the most cost-effective option; (4) provide up to an 
additional 10 percent in category one funding to match state funding 
for special construction charges for last-mile facilities to support 
high-speed broadband; and (5) obligating recipients of high-cost 
Universal Service Fund support to offer high-speed broadband to schools 
and libraries located in the geographic area where the carrier receives 
high-cost support at rates reasonably comparable to similar services in 
urban areas. To meet the needs of the program, we raise the E-rate 
funding cap to $3.9 billion.

C. Summary of Significant Issues Raised by Public Comments to the IRFA

    163. No comments specifically addressed the IRFA.

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

    164. 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 that: (1) Is independently owned 
and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the Small Business 
Administration (SBA). Nationwide, there are a total of approximately 
28.2 million small businesses, according to 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.''
    165. Nationwide, as of 2002, there were approximately 1.6 million 
small organizations. The term ``small governmental jurisdiction'' is 
defined generally as ``governments of cities, towns, townships, 
villages, school districts, or special districts, with a population of 
less than fifty thousand.'' Census Bureau data for 2002 indicate that 
there were 87,525 local governmental jurisdictions in the United 
States. We estimate that, of this total, 84,377 entities were ``small 
governmental jurisdictions.'' Thus, we estimate that most governmental 
jurisdictions are small.
    166. Small entities potentially affected by the proposals herein 
include eligible schools and libraries and the eligible service 
providers offering them discounted services.
    167. Schools and Libraries. As noted, ``small entity'' includes 
non-profit and small government 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 elementary and secondary 
schools and libraries having $6 million or less in annual receipts as 
small entities. In funding year 2007, approximately 105,500 schools and 
10,950 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 105,500 
schools and 10,950 libraries might be affected annually by our action, 
under current operation of the program.
    168. Telecommunications Service Providers. First, 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, 1,307 incumbent carriers reported that 
they were engaged in the provision of local exchange services. Of these 
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 
301 have more than 1,500 employees. Thus, under this category and 
associated small business size standard, we estimate that the majority 
of entities are small. 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

[[Page 5985]]

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.
    169. Second, neither the Commission nor the SBA has developed a 
definition of small entities specifically applicable to providers of 
interexchange services (IXCs). The closest applicable definition under 
the SBA rules is for wired telecommunications carriers. This provides 
that a wired telecommunications carrier is a small entity if it employs 
no more than 1,500 employees. According to the Commission's 2010 Trends 
Report, 359 companies reported that they were engaged in the provision 
of interexchange services. Of these 300 IXCs, an estimated 317 have 
1,500 or few employees and 42 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of 
interexchange services are small businesses.
    170. Third, neither the Commission nor the SBA has developed a 
definition of small entities specifically applicable to competitive 
access services providers (CAPs). The closest applicable definition 
under the SBA rules is for wired telecommunications carriers. This 
provides that a wired telecommunications carrier is a small entity if 
it employs no more than 1,500 employees. According to the 2010 Trends 
Report, 1,442 CAPs and competitive local exchange carriers (competitive 
LECs) reported that they were engaged in the provision of competitive 
local exchange services. Of these 1,442 CAPs and competitive LECs, an 
estimated 1,256 have 1,500 or fewer employees and 186 have more than 
1,500 employees. Consequently, the Commission estimates that most 
providers of competitive exchange services are small businesses.
    171. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the Census Bureau has placed wireless firms within this new, 
broad, economic census category. Prior to that time, such firms were 
within the now-superseded categories of ``Paging'' and ``Cellular and 
Other Wireless Telecommunications.'' Under the present and prior 
categories, the SBA has deemed a wireless business to be small if it 
has 1,500 or fewer employees. Because Census Bureau data are not yet 
available for the new category, we will estimate small business 
prevalence using the prior categories and associated data. For the 
category of Paging, data for 2002 show that there were 807 firms that 
operated for the entire year. Of this total, 804 firms had employment 
of 999 or fewer employees, and three firms had employment of 1,000 
employees or more. For the category of Cellular and Other Wireless 
Telecommunications, data for 2002 show that there were 1,397 firms that 
operated for the entire year. Of this total, 1,378 firms had employment 
of 999 or fewer employees, and 19 firms had employment of 1,000 
employees or more. Thus, we estimate that the majority of wireless 
firms are small.
    172. Wireless telephony includes cellular, personal communications 
services, and specialized mobile radio telephony carriers. As noted, 
the SBA has developed a small business size standard for Wireless 
Telecommunications Carriers (except Satellite). Under the SBA small 
business size standard, a business is small if it has 1,500 or fewer 
employees. According to the 2010 Trends Report, 413 carriers reported 
that they were engaged in wireless telephony. Of these, an estimated 
261 have 1,500 or fewer employees and 152 have more than 1,500 
employees. We have estimated that 261 of these are small under the SBA 
small business size standard.
    173. Common Carrier Paging. As noted, since 2007 the Census Bureau 
has placed paging providers within the broad economic census category 
of Wireless Telecommunications Carriers (except Satellite). Prior to 
that time, such firms were within the now-superseded category of 
``Paging.'' Under the present and prior categories, the SBA has deemed 
a wireless business to be small if it has 1,500 or fewer employees. 
Because Census Bureau data are not yet available for the new category, 
we will estimate small business prevalence using the prior category and 
associated data. The data for 2002 show that there were 807 firms that 
operated for the entire year. Of this total, 804 firms had employment 
of 999 or fewer employees, and three firms had employment of 1,000 
employees or more. Thus, we estimate that the majority of paging firms 
are small.
    174. In addition, in the Paging Second Report and Order, 64 FR 
33762, June 24, 1999, the Commission adopted a size standard for 
``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. The SBA has approved this 
definition. An initial auction of Metropolitan Economic Area (``MEA'') 
licenses was conducted in the year 2000. Of the 2,499 licenses 
auctioned, 985 were sold. Fifty-seven companies claiming small business 
status won 440 licenses. A subsequent auction of MEA and Economic Area 
(``EA'') licenses was held in the year 2001. Of the 15,514 licenses 
auctioned, 5,323 were sold. One hundred thirty-two companies claiming 
small business status purchased 3,724 licenses. A third auction, 
consisting of 8,874 licenses in each of 175 EAs and 1,328 licenses in 
all but three of the 51 MEAs, was held in 2003. Seventy-seven bidders 
claiming small or very small business status won 2,093 licenses.
    175. Currently, there are approximately 74,000 Common Carrier 
Paging licenses. According to the most recent Trends in Telephone 
Service, 291 carriers reported that they were engaged in the provision 
of ``paging and messaging'' services. Of these, an estimated 289 have 
1,500 or fewer employees and two have more than 1,500 employees. We 
estimate that the majority of common carrier paging providers would 
qualify as small entities under the SBA definition.
    176. Internet Service Providers. The 2007 Economic Census places 
these firms, whose services might include voice over Internet protocol 
(VoIP), in either of two categories, depending on whether the service 
is provided over the provider's own telecommunications facilities 
(e.g., cable and DSL ISPs), or over client-supplied telecommunications 
connections (e.g., dial-up ISPs). The former are within the category of 
Wired Telecommunications Carriers, which has an SBA small business size 
standard of 1,500 or fewer employees. The latter are within the 
category of All Other Telecommunications, which has a size standard of 
annual receipts of $25 million or less. The most current Census Bureau 
data for all such firms, however, are the 2002 data for the previous 
census category called Internet Service Providers. That category had a 
small business size standard of $21 million or less in annual receipts, 
which was revised in late 2005 to $23 million. The 2002 data show that 
there were 2,529 such firms that operated for the entire year. Of 
those, 2,437 firms had annual receipts of under $10 million, and an 
additional 47 firms had receipts of between $10 million and 
$24,999,999. Consequently, we estimate that the majority of ISP firms 
are small entities.

[[Page 5986]]

    177. Vendors of Internal Connections: Telephone Apparatus 
Manufacturing. The Census Bureau defines this category as follows: 
``This industry comprises establishments primarily engaged in 
manufacturing wire telephone and data communications equipment. These 
products may be standalone or board-level components of a larger 
system. Examples of products made by these establishments are central 
office switching equipment, cordless telephones (except cellular), PBX 
equipment, telephones, telephone answering machines, LAN modems, multi-
user modems, and other data communications equipment, such as bridges, 
routers, and gateways.'' The SBA has developed a small business size 
standard for Telephone Apparatus Manufacturing, which is: all such 
firms having 1,000 or fewer employees. According to Census Bureau data 
for 2002, there were a total of 518 establishments in this category 
that operated for the entire year. Of this total, 511 had employment of 
under 1,000, and an additional seven had employment of 1,000 to 2,499. 
Thus, under this size standard, the majority of firms can be considered 
small.
    178. Vendors of Internal Connections: Radio and Television 
Broadcasting and Wireless Communications Equipment Manufacturing. The 
Census Bureau defines this category as follows: ``This industry 
comprises establishments primarily engaged in manufacturing radio and 
television broadcast and wireless communications equipment. Examples of 
products made by these establishments are: transmitting and receiving 
antennas, cable television equipment, GPS equipment, pagers, cellular 
phones, mobile communications equipment, and radio and television 
studio and broadcasting equipment.'' The SBA has developed a small 
business size standard for firms in this category, which is: all such 
firms having 750 or fewer employees. According to Census Bureau data 
for 2002, there were a total of 1,041 establishments in this category 
that operated for the entire year. Of this total, 1,010 had employment 
of under 500, and an additional 13 had employment of 500 to 999. Thus, 
under this size standard, the majority of firms can be considered 
small.
    179. Vendors of Internal Connections: Other Communications 
Equipment Manufacturing. The Census Bureau defines this category as 
follows: ``This industry comprises establishments primarily engaged in 
manufacturing communications equipment (except telephone apparatus, and 
radio and television broadcast, and wireless communications 
equipment).'' The SBA has developed a small business size standard for 
Other Communications Equipment Manufacturing, which is having 750 or 
fewer employees. According to Census Bureau data for 2002, there were a 
total of 503 establishments in this category that operated for the 
entire year. Of this total, 493 had employment of under 500, and an 
additional 7 had employment of 500 to 999. Thus, under this size 
standard, the majority of firms can be considered small.

E. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities

    180. Some of our rule changes will result in additional 
recordkeeping requirements for small entities. For all of those rule 
changes, we have determined that the benefit the rule change will bring 
for the program outweighs the burden of the increased recordkeeping 
requirement.
1. Increase in Projected Reporting, Recordkeeping and Other Compliance 
Requirements
    181. Compliance burdens. All of the rules we implement impose some 
burden on small entities by requiring them to become familiar with the 
new rule to comply with it. For many new rules, the burden of becoming 
familiar with the new rule in order to comply with it is the only 
burden the rule imposes.
    182. Extending pre-discount budgets for category two services for 
three additional years. This rule change will increase recordkeeping 
burdens by requiring applicants to calculate their budgets and keep 
track of the amount that they have spent in a five-year period. The 
benefit of making category two funding available to applicants 
outweighs this burden.
    183. Permitting self-construction option. Our permitting applicants 
to receive E-rate funding for self-construction networks creates the 
minor additional burden of requiring applicants to seek bids for both 
self-construction and services-only. The cost savings applicants and 
the Fund will realize from this rule change justifies these burdens.
    184. Additional discounts when states match funds for fiber 
construction. Providing additional discounts when states match funds 
for fiber construction will impose the additional minimal burden of 
requiring applicants to produce documentation verifying states' matched 
funds. The additional USF funding for fiber construction that this rule 
change makes available to applicants outweighs this burden.
    185. High-cost providers. The requirement that recipients of high-
cost support offer broadband service to eligible schools and libraries 
at rates reasonably comparable to rates charged in urban areas will 
increase recordkeeping burdens for some service providers and some E-
rate applicants. Specifically, E-rate service providers who receive 
high-cost support will have the additional burden of bidding for, and 
possibly providing, services to schools and libraries in areas they 
receive high-cost support. Schools and libraries in those areas will 
have the additional burden of evaluating bids from these service 
providers.
2. Decrease in Projected Reporting, Recordkeeping and Other Compliance 
Requirements
    186. Suspending USAC's multi-year amortization policy for non-
recurring construction costs. Our suspension of USAC's multi-year 
amortization policy for non-recurring construction costs will decrease 
recordkeeping requirements by eliminating the burdens associated with 
amortization for the duration of the suspension.
3. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    187. The RFA requires an agency to describe any significant, 
specifically small business, 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 or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rule for such small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for such small 
entities.''
    188. This rulemaking could impose minimal additional burdens on 
small entities. We considered alternatives to the rulemaking changes 
that increase projected reporting, recordkeeping and other compliance 
requirements for small entities.
    189. Report to Congress.
    190. The Commission will send a copy of this Report and Order, 
including this FRFA, in a report to be sent to Congress pursuant to the 
SBREFA. In addition, the Commission will send a copy of the Report and 
Order, including

[[Page 5987]]

the FRFA, to the Chief Counsel for Advocacy of the SBA. A copy of the 
Report and Order and the FRFA (or summaries thereof) will also be 
published in the Federal Register.

F. Paperwork Reduction Act Analysis

    191. This Report and Order and Order or Reconsideration contains 
new information collection requirements subject to the Paperwork 
Reduction Act of 1995 (PRA), Public Law 104-13. It will be submitted to 
the Office of Management and Budget (OMB) for review under section 
3507(d) of the PRA. OMB, the general public, and other Federal agencies 
are invited to comment on the revised information collection 
requirements contained in this proceeding. In addition, we note that 
pursuant to the Small Business Paperwork Relief Act of 2002, Public Law 
107-198, the Commission previously sought specific comment on how it 
might further reduce the information collection burden on small 
business concerns with fewer than 25 employees.

G. Congressional Review Act

    192. The Commission will include a copy of this Report and Order 
and Order on Reconsideration in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act.

IX. Ordering Clauses

    193. Accordingly, it is Ordered, that pursuant to the authority 
contained in sections 1 through 4, 201 through 205, 254, 303(r), 403, 
and 405 of the Communications Act of 1934, as amended, 47 U.S.C. 151-
154, 201-205, 254, 303(r), 403, and 405, and section 706 of the 
Telecommunications Act of 1996, 47 U.S.C. 1302, this Report and Order 
and Order on Reconsideration is Adopted effective March 6, 2015, except 
to the extent expressly addressed below.
    194. It is further ordered, that pursuant to the authority 
contained in sections 1 through 4, 201 through 205, 254, 303(r), 403, 
and 405 of the Communications Act of 1934, as amended, 47 U.S.C. 151-
154, 201-205, 254, 303(r), 403, and 405 and section 706 of the 
Telecommunications Act of 1996, 47 U.S.C. 1302, part 54 of the 
Commission's rules, 47 CFR part 54, is Amended as set forth below, and 
such rule amendments shall be effective March 6, 2015, except for 
amendments in Sec. Sec.  54.313(e)(2) and (f)(1), 54.503(c)(1) and 
54.504(a)(1)(iii), which are subject to the PRA and will become 
effective upon announcement in the Federal Register of OMB approval of 
the subject information collection requirements and of the effective 
date; and except for amendments in Sec. Sec.  54.308(b), 54.309(b), 
54.505(b)(3) and (b)(3)(i), and 54.507(a) and (c), which shall become 
effective on July 1, 2015; and amendments in Sec.  54.518 and 
paragraphs (b), (c) and (f) of Sec.  54.505, which shall become 
effective on July 1, 2016.
    195. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and Sec.  1.429 of the Commission's rules, 47 CFR 1.429, 
the Petition for Clarification and/or Reconsideration filed by NTCA-The 
Rural Broadband Association and the Utah Rural Telecom Association on 
September 18, 2014, is Granted in Part and Denied in Part to the extent 
described herein.
    196. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and Sec.  1.429 of the Commission's rules, 47 CFR 1.429, 
the Petition for Reconsideration or Clarification filed by the State E-
rate Coordinators' Alliance on September 18, 2014, is Granted in Part 
and Denied in Part to the extent described herein.
    197. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and Sec.  1.429 of the Commission's rules, 47 CFR 1.429, 
the Petition for Reconsideration filed by the Utah Education Network on 
September 18, 2014, is Granted in Part and Denied in Part to the extent 
described herein.
    198. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and Sec.  1.429 of the Commission's rules, 47 CFR 1.429, 
the Petition for Reconsideration or Clarification filed by the West 
Virginia Department of Education on September 18, 2014, is Granted in 
Part and Denied in Part to the extent described herein.
    199. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and Sec.  1.429 of the Commission's rules, 47 CFR 1.429, 
the Petition for Reconsideration filed by the United States Telecom 
Association on September 18, 2014, is Denied.
    200. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and Sec.  1.429 of the Commission's rules, 47 CFR 1.429, 
the Petition for Reconsideration and/or Clarification filed by Verizon 
on September 18, 2014, is Granted in Part and Denied in Part to the 
extent described herein.
    201. It is further ordered that the Commission shall send a copy of 
this Report and Order and Order on Reconsideration to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act, see 5 U.S.C. 801(a)(1)(A).
    202. It is furthered ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of the Report and Order, including the Final Regulatory 
Flexibility Analysis and Initial Regulatory Flexibility Act Analysis, 
to the Chief Counsel for Advocacy of the Small Business Administration.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

0
1. The authority citation for part 54 continues to read as follows:

    Authority: Sections 1, 4(i), 5, 201, 205, 214, 219, 220, 254, 
303(r), and 403 of the Communications Act of 1934, as amended, and 
section 706 of the Telecommunications Act of 1996, as amended; 47 
U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 254, 303(r), 403, 
and 1302 unless otherwise noted.

Subpart A--General Information


Sec.  54.5  [Amended].

0
2. Section 54.5 is amended by removing the definition of ``Rural 
area.''
0
3. Section 54.308 is amended by adding paragraph (b) to read as 
follows:


Sec.  54.308  Broadband Public Interest Obligations for Recipients of 
High-Cost Support.

* * * * *
    (b) Rate-of-return carrier recipients of high-cost support are 
required upon reasonable request to bid on category one 
telecommunications and Internet access services in response to a posted 
FCC Form 470 seeking broadband service that meets the connectivity 
targets for the schools and libraries universal service support program 
for eligible schools and libraries (as described in Sec.  54.501) 
within that carrier's service area. Such bids must be at rates 
reasonably comparable to rates charged to eligible schools and 
libraries in urban areas for comparable offerings.
0
4. Section 54.309 is amended by revising paragraph (b) to read as 
follows:

[[Page 5988]]

Sec.  54.309  Connect America Fund Phase II Public Interest 
Obligations.

* * * * *
    (b) Recipients of Connect America Phase II model-based support, 
recipients of Phase II Connect America support awarded through a 
competitive bidding process, and non-contiguous price cap carriers 
receiving Phase II frozen support in lieu of model-based support are 
required to bid on category one telecommunications and Internet access 
services in response to a posted FCC Form 470 seeking broadband service 
that meets the connectivity targets for the schools and libraries 
universal service support program for eligible schools and libraries 
(as described in Sec.  54.501) located within any area in a census 
block where the carrier is receiving Phase II model-based support. Such 
bids must be at rates reasonably comparable to rates charged to 
eligible schools and libraries in urban areas for comparable offerings.
0
5. Section 54.313 is amended by revising paragraphs (e)(2)(iii) and 
(iv), adding paragraph (e)(2)(v), revising paragraphs (f)(1)(i) and 
(ii), and revising paragraph (f)(1)(iii) to read as follows:


Sec.  54.313  Annual reporting requirements for high-cost recipients.

* * * * *
    (e) * * *
    (2) * * *
    (iii) A list of the geocoded locations to which the eligible 
telecommunications carrier newly deployed facilities capable of 
delivering broadband meeting the Sec.  54.309 public interest 
obligations with Connect America support in the prior year. The final 
progress report filed on July 1, 2021 must include the total number and 
geocodes of all the supported locations that a price cap carrier has 
built out to with service meeting the Sec.  54.309 public interest 
obligations;
    (iv) The total amount of Phase II support, if any, the price cap 
carrier used for capital expenditures in the previous calendar year; 
and
    (v) A certification that it bid on category one telecommunications 
and Internet access services in response to all FCC Form 470 postings 
seeking broadband service that meets the connectivity targets for the 
schools and libraries universal service support program for eligible 
schools and libraries (as described in Sec.  54.501) located within any 
area in a census block where the carrier is receiving Phase II model-
based support, and that such bids were at rates reasonably comparable 
to rates charged to eligible schools and libraries in urban areas for 
comparable offerings.
* * * * *
    (f) * * *
    (1) * * *
    (i) A letter certifying that it is taking reasonable steps to 
provide upon reasonable request broadband service at actual speeds of 
at least 4 Mbps downstream/1 Mbps upstream, with latency suitable for 
real-time applications, including Voice over Internet Protocol, and 
usage capacity that is reasonably comparable to comparable offerings in 
urban areas as determined in an annual survey, and that requests for 
such service are met within a reasonable amount of time;
    (ii) The number, names, and addresses of community anchor 
institutions to which the ETC newly began providing access to broadband 
service in the preceding calendar year; and
    (iii) For rate-of-return carrier recipients of high-cost support, a 
certification that it bid on category one telecommunications and 
Internet access services in response to all reasonable requests in 
posted FCC Form 470s seeking broadband service that meets the 
connectivity targets for the schools and libraries universal service 
support program for eligible schools and libraries (as described in 
Sec.  54.501) within its service area, and that such bids were at rates 
reasonably comparable to rates charged to eligible schools and 
libraries in urban areas for comparable offerings.

Subpart F--Universal Service Support for Schools and Libraries

0
6. Section 54.502 is amended by revising paragraph (a) introductory 
text, paragraph (b) introductory text, paragraphs (b)(1) through (3), 
paragraph (b)(5), and paragraph (c) to read as follows:


Sec.  54.502  Eligible Services.

    (a) Supported services. All supported services are listed in the 
Eligible Services List as updated annually in accordance with paragraph 
(d) of this section. The services in this subpart will be supported in 
addition to all reasonable charges that are incurred by taking such 
services, such as state and federal taxes. Charges for termination 
liability, penalty surcharges, and other charges not included in the 
cost of taking such service shall not be covered by the universal 
service support mechanisms. The supported services fall within the 
following general categories:
* * * * *
    (b) Funding years 2015-2019. Libraries, schools, or school 
districts with schools that receive funding for category two services 
in any of the funding years between 2015 and 2019 shall be eligible for 
support for category two services pursuant to paragraphs (b)(1) through 
(6) of this section.
    (1) Five-year budget. Each eligible school or library shall be 
eligible for a budgeted amount of support for category two services 
over a five-year funding cycle beginning the first funding year support 
is received. Excluding support for internal connections received prior 
to funding year 2015, each school or library shall be eligible for the 
total available budget less any support received for category two 
services in the prior funding years of that school's or library's five-
year funding cycle. The budgeted amounts and the funding floor shall be 
adjusted for inflation annually in accordance with Sec.  54.507(a)(2).
    (2) School budget. Each eligible school shall be eligible for 
support for category two services up to a pre-discount price of $150 
per student over a five-year funding cycle. Applicants shall calculate 
the student count per school at the time the discount is calculated 
each funding year. New schools may estimate the number of students, but 
must repay any support provided in excess of the maximum budget based 
on student enrollment the following funding year.
    (3) Library budget. Each eligible library located within the 
Institute of Museum and Library Services locale codes of ``11--City, 
Large,'' defined as a territory inside an urbanized area and inside a 
principal city with a population of 250,000 or more, ``12--City, 
Midsize,'' defined as a territory inside an urbanized area and inside a 
principal city with a population less than 250,000 and greater than or 
equal to 100,000, or ``21--Suburb, Large,'' defined as a territory 
outside a principal city and inside an urbanized area with population 
of 250,000 or more, shall be eligible for support for category two 
services, up to a pre-discount price of $5.00 per square foot over a 
five-year funding cycle. All other eligible libraries shall be eligible 
for support for category two services, up to a pre-discount price of 
$2.30 per square foot over a five-year funding cycle. Applicants shall 
provide the total area for all floors, in square feet, of each library 
outlet separately, including all areas enclosed by the outer walls of 
the library outlet and occupied by the library, including those areas 
off-limits to the public.
* * * * *

[[Page 5989]]

    (5) Requests. Applicants shall request support for category two 
services for each school or library based on the number of students per 
school building or square footage per library building. Category two 
funding for a school or library may not be used for another school or 
library. If an applicant requests less than the maximum budgeted 
category two support available for a school or library, the applicant 
may request the remaining balance in a school's or library's category 
two budget in subsequent funding years of the five-year funding cycle. 
The costs for category two services shared by multiple eligible 
entities shall be divided reasonably between each of the entities for 
which support is sought in that funding year.
* * * * *
    (c) Funding year 2020 and beyond. Absent further action from the 
Commission, each eligible library or school in a school district that 
either did not receive funding for category two services in funding 
years 2015 through 2019 or has completed its five-year funding cycle, 
shall be eligible for support for category two services, except basic 
maintenance services, no more than twice every five funding years. For 
the purpose of determining eligibility, the five-year period begins in 
any funding year in which the school or library receives discounted 
category two services other than basic maintenance services. If a 
school or library receives category two services other than basic 
maintenance services that are shared with other schools or libraries 
(for example, as part of a consortium), the shared services will be 
attributed to the school or library in determining whether it is 
eligible for support. Support is not available for category two 
services provided to or within non-instructional school buildings or 
separate library administrative buildings unless those category two 
services are essential for the effective transport of information to or 
within one or more instructional buildings of a school or non-
administrative library buildings, or the Commission has found that the 
use of those services meets the definition of educational purpose, as 
defined in Sec.  54.500.
* * * * *

0
7. Section 54.503 is amended by revising paragraph (c)(1) to read as 
follows:


Sec.  54.503  Competitive bidding requirements.

* * * * *
    (c) Posting of FCC Form 470. (1) An eligible school, library, or 
consortium that includes an eligible school or library seeking bids for 
eligible services under this subpart shall submit a completed FCC Form 
470 to the Administrator to initiate the competitive bidding process. 
The FCC Form 470 and any request for proposal cited in the FCC Form 470 
shall include, at a minimum, the following information:
    (i) A list of specified services for which the school, library, or 
consortium requests bids;
    (ii) Sufficient information to enable bidders to reasonably 
determine the needs of the applicant;
    (iii) To the extent an applicant seeks the following services or 
arrangements, an indication of the applicant's intent to seek:
    (A) Construction of network facilities that the applicant will own;
    (B) A dark-fiber lease, indefeasible right of use, or other dark-
fiber service agreement or the modulating electronics necessary to 
light dark fiber; or
    (C) A multi-year installment payment agreement with the service 
provider for the non-discounted share of special construction costs;
    (iv) To the extent an applicant seeks construction of a network 
that the applicant will own, the applicant must also solicit bids for 
both the services provided over third-party networks and construction 
of applicant-owned network facilities, in the same request for 
proposals;
    (v) To the extent an applicant seeks bids for special construction 
associated with dark fiber or bids to lease and light dark fiber, the 
applicant must also solicit bids to provide the needed services over 
lit fiber; and
    (vi) To the extent an applicant seeks bids for equipment and 
maintenance costs associated with lighting dark fiber, the applicant 
must include these elements in the same FCC Form 470 as the dark fiber.
* * * * *

0
8. Section 54.504 is amended by revising paragraph (a)(1)(iii) to read 
as follows:


Sec.  54.504  Requests for services.

    (a) * * *
    (1) * * *
    (iii) The entities listed on the FCC Form 471 application have 
secured access to all of the resources, including computers, training, 
software, maintenance, internal connections, and electrical 
connections, necessary to make effective use of the services purchased. 
The entities listed on the FCC Form 471 will pay the discounted charges 
for eligible services from funds to which access has been secured in 
the current funding year or, for entities that will make installment 
payments, they will ensure that they are able to make all required 
installment payments. The billed entity will pay the non-discount 
portion of the cost of the goods and services to the service 
provider(s).
* * * * *

0
9. Section 54.505 is amended by revising paragraph (b) introductory 
text, paragraph (b)(3) introductory text, paragraph (b)(3)(i), and 
paragraphs (c) and (f) to read as follows:


Sec.  54.505  Discounts.

* * * * *
    (b) Discount percentages. Except as provided in paragraph (f), the 
discounts available to eligible schools and libraries shall range from 
20 percent to 90 percent of the pre-discount price for all eligible 
services provided by eligible providers, as defined in this subpart. 
The discounts available to a particular school, library, or consortium 
of only such entities shall be determined by indicators of poverty and 
high cost.
* * * * *
    (3) The Administrator shall classify schools and libraries as 
``urban'' or ``rural'' according to the following designations.
    (i) The Administrator shall designate a school or library as 
``urban'' if the school or library is located in an urbanized area or 
urban cluster area with a population equal to or greater than 25,000, 
as determined by the most recent rural[hyphen]urban classification by 
the Bureau of the Census. The Administrator shall designate all other 
schools and libraries as ``rural.''
* * * * *
    (c) Matrices. Except as provided in paragraphs (d) and (f) of this 
section, the Administrator shall use the following matrices to set 
discount rates to be applied to eligible category one and category two 
services purchased by eligible schools, school districts, libraries, or 
consortia based on the institution's level of poverty and location in 
an ``urban'' or ``rural'' area.

[[Page 5990]]



----------------------------------------------------------------------------------------------------------------
                                                              Category one schools and  Category two schools and
-------------------------------------------------------------    libraries discount        libraries discount
                                                                       matrix                    matrix
----------------------------------------------------------------------------------------------------------------
                                                                   Discount level            Discount level
                                                             ---------------------------------------------------
  % of students eligible for national school lunch program       Urban        Rural        Urban        Rural
                                                                discount     discount     discount     discount
----------------------------------------------------------------------------------------------------------------
< 1.........................................................           20           25           20           25
1-19........................................................           40           50           40           50
20-34.......................................................           50           60           50           60
35-49.......................................................           60           70           60           70
50-74.......................................................           80           80           80           80
75-100......................................................           90           90           85           85
----------------------------------------------------------------------------------------------------------------

* * * * *
    (f) Additional discounts for State matching funds for special 
construction. Federal universal service discounts shall be based on the 
price of a service prior to the application of any state-provided 
support for schools or libraries. When a governmental entity described 
below provides funding for special construction charges for networks 
that meet the long-term connectivity targets for the schools and 
libraries universal service support program, the Administrator shall 
match the governmental entity's contribution as provided for below:
    (1) All E-rate applicants. When a State government provides funding 
for special construction charges for a broadband connection to a school 
or library the Administrator shall match the State's contribution on a 
one-dollar-to-one-dollar basis up to an additional 10 percent discount, 
provided however that the total support from federal universal service 
and the State may not exceed 100 percent.
    (2) Tribal schools. When a State government, Tribal government, or 
federal agency provides funding for special construction charges for a 
broadband connection to a school operated by the Bureau of Indian 
Education or by a Tribal government, the Administrator shall match the 
governmental entity's contribution on a one-dollar-to-one-dollar basis 
up to an additional 10 percent discount, provided however that the 
total support from federal universal service and the governmental 
entity may not exceed 100 percent.
    (3) Tribal libraries. When a State government, Tribal government, 
or federal agency provides funding for special construction charges for 
a broadband connection to a library operated by Tribal governments, the 
Administrator shall match the governmental entity's contribution on a 
one-dollar-to-one-dollar basis up to an additional 10 percent discount, 
provided however that the total support from federal universal service 
and the governmental entity may not exceed 100 percent.

0
10. Section 54.507 is amended by revising paragraphs (a) introductory 
text, (a)(1) and (3), (c), and (d) to read as follows:


Sec.  54.507  Cap.

    (a) Amount of the annual cap. The aggregate annual cap on federal 
universal service support for schools and libraries shall be $3.9 
billion per funding year, of which $1 billion per funding year will be 
available for category two services, as described in Sec.  
54.502(a)(2), unless demand for category one services is higher than 
available funding.
    (1) Inflation increase. In funding year 2016 and subsequent funding 
years, the $3.9 billion funding cap on federal universal service 
support for schools and libraries shall be automatically increased 
annually to take into account increases in the rate of inflation as 
calculated in paragraph (a)(2) of this section.
* * * * *
    (3) Public notice. When the calculation of the yearly average GDP-
CPI is determined, the Wireline Competition Bureau shall publish a 
public notice in the Federal Register within 60 days announcing any 
increase of the annual funding cap including any increase to the $1 
billion funding level available for category two services based on the 
rate of inflation.
* * * * *
    (c) Requests. The Administrator shall implement an initial filing 
period that treats all schools and libraries filing an application 
within that period as if their applications were simultaneously 
received. The initial filing period shall begin and conclude on dates 
to be determined by the Administrator with the approval of the Chief of 
the Wireline Competition Bureau. The Administrator shall maintain on 
the Administrator's Web site a running tally of the funds already 
committed for the existing funding year. The Administrator may 
implement such additional filing periods as it deems necessary.
    (d) Annual filing requirement. (1) Schools and libraries, and 
consortia of such eligible entities shall file new funding requests for 
each funding year no sooner than the July 1 prior to the start of that 
funding year. Schools, libraries, and eligible consortia must use 
recurring services for which discounts have been committed by the 
Administrator within the funding year for which the discounts were 
sought.
    (2) Installation of category one non-recurring services may begin 
on January 1 prior to the July 1 start of the funding year, provided 
the following conditions are met:
    (i) Construction begins after selection of the service provider 
pursuant to a posted FCC Form 470,
    (ii) A category one recurring service must depend on the 
installation of the infrastructure, and
    (iii) The actual service start date for that recurring service is 
on or after the start of the funding year (July 1).
    (3) Installation of category two non-recurring services may begin 
on April 1 prior to the July 1 start of the funding year.
    (4) The deadline for implementation of all non-recurring services 
will be September 30 following the close of the funding year. An 
applicant may request and receive from the Administrator an extension 
of the implementation deadline for non-recurring services if it 
satisfies one of the following criteria:
    (i) The applicant's funding commitment decision letter is issued by 
the Administrator on or after March 1 of the funding year for which 
discounts are authorized;
    (ii) The applicant receives a service provider change authorization 
or service substitution authorization from the Administrator on or 
after March 1 of the funding year for which discounts are authorized;
    (iii) The applicant's service provider is unable to complete 
implementation for reasons beyond the service provider's control; or

[[Page 5991]]

    (iv) The applicant's service provider is unwilling to complete 
installation because funding disbursements are delayed while the 
Administrator investigates the application for program compliance.
* * * * *


Sec.  54.509  [Removed and Reserved]

0
11. Remove and reserve Sec.  54.509.


Sec.  54.518  [Removed and Reserved]

0
12. Remove and reserve Sec.  54.518.

Subpart I--Administration

0
13. Revise Sec.  54.720 to read as follows:


Sec.  54.720  Filing deadlines.

    (a) An affected party requesting review or waiver of an 
Administrator decision by the Commission pursuant to Sec.  54.719, 
shall file such a request within sixty (60) days from the date the 
Administrator issues a decision.
    (b) An affected party requesting review of an Administrator 
decision by the Administrator pursuant to Sec.  54.719(a), shall file 
such a request within sixty (60) days from the date the Administrator 
issues a decision.
    (c) In all cases of requests for review filed under Sec.  54.719(a) 
through (c), the request for review shall be deemed filed on the 
postmark date. If the postmark date cannot be determined, the applicant 
must file a sworn affidavit stating the date that the request for 
review was mailed.
    (d) Parties shall adhere to the time periods for filing oppositions 
and replies set forth in 47 CFR 1.45.

[FR Doc. 2015-01414 Filed 2-3-15; 8:45 am]
BILLING CODE 6712-01-P