[Federal Register Volume 84, Number 137 (Wednesday, July 17, 2019)]
[Proposed Rules]
[Pages 34107-34115]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-15164]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket No. 13-184; FCC 19-58]


Modernizing the E-Rate Program for Schools and Libraries

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) proposes to make permanent the category two budget 
approach adopted in 2014 (the ``category two'' budget approach consists 
of five-year budgets for schools and libraries that provide a maximum 
amount of funding to support internal connections needed for Wi-Fi 
within school and library buildings). The Commission also seeks comment 
on potential modifications that could simplify the category two budget 
approach and decrease the administrative burden on schools and 
libraries, as well as how to transition to a permanent extension of the 
budget approach.

DATES: Comments are due on or before August 16, 2019 and reply comments 
are due on or before September 3, 2019. If you anticipate that you will 
be submitting comments but find it difficult to do so within the period 
of time allowed by this document, you should advise the contact listed 
below as soon as possible.

ADDRESSES: You may submit comments, identified by WC Docket No. 13-184, 
by any of the following methods:
     Federal Communications Commission's Website: http://apps.fcc.gov/ecfs/. Follow the instructions for submitting comments.
     People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by email: [email protected] or phone: 202-418-
0530 or TTY: 202-418-0432.
    For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Kate Dumouchel, Wireline Competition 
Bureau, (202) 418-1839 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking (NPRM) in WC Docket No. 13-184; FCC 19-58, 
adopted on June 28, 2019 and released on July 9, 2019. 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://www.fcc.gov/document/fcc-aims-speed-deployment-wi-fi-schools-and-libraries.

I. Introduction

    1. The Commission's E-Rate program is a vital source of support for 
connectivity to--and within--schools and libraries. In particular, the 
E-Rate program provides funding for internal connections, which are 
primarily used for Wi-Fi, a technology that has enabled schools and 
libraries to transition from computer labs to one-to-one digital 
learning. Today, we propose to make permanent the approach adopted by 
the Commission in 2014 to fund these internal connections. In so doing, 
we seek to ensure that our nation's students and library patrons have 
access to high-speed broadband and further the Commission's goal of 
bridging the digital divide.
    2. The 2014 approach, known as the ``category two'' budget 
approach, consists of five-year budgets for schools and libraries that 
provide a set amount of funding to support internal connections. The 
Commission also established a five-year test period (from funding year 
2015 to funding year 2019) to consider whether the category two budget 
approach is effective in ensuring greater access to E-Rate discounts 
for internal connections.
    3. Our experience over the past few years suggests that these 
budgets have resulted in a broader distribution of funding that is more 
equitable and more predictable for schools and libraries. We also see 
clear improvements in the way in which funding for internal connections 
has been administered in the five-year period since adoption of the 
category two budget approach. Therefore, we now propose to make the

[[Page 34108]]

category two budget approach permanent and seek comment on potential 
modifications that could simplify the budgets, decrease the 
administrative burden of applying for category two services, and 
thereby speed the deployment of Wi-Fi in schools and libraries across 
the country.

II. Discussion

    4. With the category two budget rules set to begin to expire for 
some applicants at the end of funding year 2019 and for all applicants 
at the end of funding year 2023, we are faced with a choice between 
continuing with the category two budget approach or returning to the 
two-in-five rules. Given our experience during the five-year test 
period and the Bureau's findings in the Category Two Budget Report, we 
(1) propose amending our rules to make permanent the category two 
budget approach for all applicants; (2) propose and seek comment on 
ways to improve the category two budget approach; and (3) seek comment 
on how best to transition from the five-year test period to a permanent 
extension of this approach.
    5. First and foremost, we propose to permanently extend the 
category two budget approach and avoid reverting back to the two-in-
five rules for all applicants. Doing so is consistent with the Category 
Two Budget Report, which generally found that the category two budget 
approach has provided schools and libraries with more certain and 
equitable funding for internal connections than under the two-in-five 
rules. In addition, making permanent the category two budget approach 
is also supported by the record received in response to the September 
2017 Public Notice. We, therefore, seek comment on our proposal to make 
permanent the category two budget approach and on the Bureau's overall 
findings in the Category Two Budget Report.
    6. In particular, the Category Two Budget Report found that, under 
the category two budget approach, applicants have had access to 
category two funding every year, and no requests have been denied due 
to insufficient funding. By contrast, under the two-in-five rules 
approach, a small number of applicants exhausted available funding, 
with most applicants receiving no funding. Additionally, 43% of schools 
and 23% of libraries each year now receive category two funding as 
compared to 10% of applicants under the two-in-five rules. Moreover, 
the category two budget approach has generally resulted in a more 
equitable distribution of funding that better approximates the makeup 
of E-Rate applicants, in comparison to the distribution under the two-
in-five rules approach where funding disproportionately went to urban 
schools. Category two support has been disbursed in all fifty states 
and five territories and to applicants at all discount levels. We seek 
comment on these and other findings in the Category Two Budget Report 
and on the proposal to permanently extend the category two budget 
approach.
    7. We also seek comment on the costs and benefits associated with 
making permanent the category two budget rules. Do the benefits of the 
category two budget approach outweigh the burdens associated with 
administering them? We also seek comment more generally on the costs 
associated with the budgets overall and the appropriate path forward.
    8. We propose extending several aspects of the current category two 
budget approach, including maintaining the eligibility of existing 
category two services and keeping the existing budget multipliers for 
schools and libraries. We also seek comment on other potential ways to 
improve the budget approach, including moving to district-wide budgets 
and simplifying the budget calculations. Finally, we seek general 
comment on ways to decrease the burden of applying for category two 
services and improve administration of category two budgets for both 
applicants and USAC.
    9. Eligible Services. In 2014, the Commission made managed internal 
broadband services, caching, and basic maintenance of internal 
connections eligible for category two support under the category two 
budget approach through funding year 2019. For each service, the 
Commission found that the budgets allayed concerns about wasteful 
spending and provided applicants with greater flexibility to determine 
their own needs. Consistent with the Commission's determination in 2014 
to make certain services eligible for category two support given the 
budgets' ability to prevent excessive spending, we propose extending 
the eligibility of managed internal broadband services, caching, and 
basic maintenance of internal connections under the permanent category 
two budget approach we propose today. We seek comment on this proposal. 
Further, are there additional services that we should make eligible for 
category two funding or any other issues regarding category two 
eligible services we should consider?
    10. Budget Levels. In the Category Two Budget Report, the Bureau 
found that the category two budget approach appears to be sufficient 
for most schools and libraries with approximately half of schools and 
most libraries having used less than half of their allocated five-year 
budget and a supermajority of schools and libraries having used less 
than 90% of their budgets. Based on this finding, we propose 
maintaining the existing budget multipliers for the category two budget 
approach. Specifically, over a five-year funding cycle, schools would 
be eligible to receive up to $150 (pre-discount) per student and 
libraries are eligible to receive up to $2.30 or $5.00 (pre-discount) 
per square foot (depending on their Institute for Museum and Library 
Services (IMLS) locale codes). Entities with low student population or 
small square footage would receive a budget floor of $9,200 over five 
funding years. We recognize that student count, building age, geography 
and other factors vary from entity to entity, and as such, no budget 
multiplier will perfectly fit the category two budget needs for every 
school and library in the country. Nevertheless, we expect that, on 
balance, maintaining the existing multipliers will fit the needs of the 
majority of applicants.
    11. We seek comment on this proposal or, in the alternative, 
whether to change these per-student or per-square foot budget 
multipliers, particularly for entities that may have participated at a 
lower rate or that may face higher costs for internal connections. For 
instance, we seek comment on whether the minimum budget floor should be 
increased and, if so, what the appropriate budget floor level should be 
to address the needs of smaller entities and increase their 
participation in the program. Would, for example, increasing the budget 
floor to $25,000 as some commenters suggested in response to the 2017 
Public Notice be a more appropriate budget floor? Based on requests 
from funding years 2015 to 2018, schools with an enrollment of 190 
students or more participate at an 80% rate, which corresponds to a 
pre-discount budget of approximately $30,000, roughly three times the 
current funding floor, compared with those at the funding floor, which 
participate at a 48% rate. Would raising the budget floor to correspond 
with schools that participate at a higher rate be an appropriate budget 
floor level?
    12. Similarly, we seek comment on whether to adjust the budget 
multipliers for entities that may experience higher costs due to their 
geographic location. For example, the current budget multipliers appear 
to disadvantage rural libraries, leaving them with less than half the 
category two budget support per square foot than their urban

[[Page 34109]]

counterparts despite often smaller square footage. Should we maintain 
the increased budget multiplier for libraries in urban areas (i.e., 
$5.00 per square foot), or should we set a higher budget multiplier for 
rural libraries, which is currently $2.30 per square foot? Commenters 
should submit specific data and models to support their arguments that 
additional funding is necessary, including the relative importance of 
any particular factors such as rural or remote geography, building age, 
or low student population. For example, to the extent that entities in 
remote or Tribal areas or communities face higher category two costs, 
we seek data to assist the Commission in determining the appropriate 
budget multipliers.
    13. District-Wide or Library System-Wide Budget Calculations. We 
seek comment on moving from a per-school or per-library budget to a 
per-district or per-system budget for category two services. In 2014, 
the Commission adopted per-entity budgets, requiring districts to 
calculate budgets for each school in the district based on the number 
of students in the school, and for library systems to calculate budgets 
for each of its library outlets based on the square footage of that 
outlet. Stakeholders have consistently commented on the administrative 
difficulties associated with managing these per-entity budgets. For 
instance, many school districts have buildings of different ages or 
construction materials, and therefore some entities end up with too 
large of a budget, while others end up with an insufficient budget. As 
such, stakeholders have recommended moving to a district-wide or 
library system-wide budget that is calculated using the total number of 
students in the district or all of the buildings in the library system. 
Under this approach, a district would calculate its category two budget 
and then decide how and where category two E-Rate support should be 
directed.
    14. There are several potential benefits to this approach. First, 
as commenters contended in response to the 2017 Public Notice, moving 
to a district-wide calculation would streamline the application process 
for category two services from start to finish, simplifying the budget 
calculations, the FCC Form 471 application, the PIA reviews of those 
applications, and the FCC Form 500 cancellation process. Such a 
calculation could also simplify some of the more complicated issues 
that applicants face when seeking E-Rate support. For example, a 
district-wide budget calculation could largely eliminate the number of 
applicants that estimate student counts at new schools if the number of 
students in the district is unchanged despite a new school being built. 
Similarly, would a district-wide budget calculation simplify the 
application process by eliminating the need for school districts to 
count part-time students given that they would have the flexibility to 
allocate funding as they see fit? Moreover, a district-wide calculation 
should simplify the review of applications where there are shared 
services by E-Rate eligible entities. Under the current approach, cost 
allocation between the budgets of the entities sharing the service is 
required, adding to the applicant burden. Finally, calculating budgets 
on a district-wide basis would afford local entities that are familiar 
with the needs of their schools the opportunity to leverage that 
knowledge in making determinations about the efficient and effective 
allocation of E-Rate funds in fulfillment of the program's objectives 
and goals. We seek comment on each of these potential benefits and how 
they would impact applicants. What are the other potential benefits 
that could be realized in using district-wide budgets?
    15. We also seek comment on the costs of moving to district-wide 
budgets, including with respect to the allocation and distribution of 
category two funding. For instance, under a district-wide budget 
approach, there is a risk that fewer entities will receive category two 
E-Rate support if school districts elect to request funding only for 
certain schools. For example, in some states, charter schools are 
considered a part of a school district, while in others, they are 
independent from the district. For charter school applicants that are 
subject to school district administration, are there risks that 
category two E-Rate support requested by the school district will be 
unfairly distributed among the schools in the district? We seek comment 
on these risks and whether any safeguards could be used to ensure that 
funding is available for all eligible schools.
    16. We also seek comment on how a district-wide budget approach 
should be administered. For example, how should applicants and USAC 
determine which entities are part of a district for purposes of 
applying for and setting district-wide category two budgets? In 
particular, some parochial schools and charter schools apply as a group 
for purposes of calculating a district-wide discount rate under the 
Commission's rules. Should we consider using a similar approach when 
setting district-wide budgets for these entities? Further, what would 
happen if districts combine or separate during the five-year budget 
cycle? Are there other issues we should consider, including any rules 
or procedures that would need to be modified, under a district-wide 
category two budget approach?
    17. We also seek comment on whether the same approach is 
appropriate for library systems. In general, would library systems 
benefit from a system-wide budget in the same way schools might? Our 
rules also provide two budget multipliers for libraries (i.e., $2.30 or 
$5.00 per square foot), depending on the library's IMLS locale code. 
Would this require a modification in order for all library outlets in a 
system to share the same locale code? If so, what is the best method 
for determining the locale code for a system? Are there any other 
administrative issues to consider in using a system-wide budget for 
libraries?
    18. Finally, if we move to district-wide budgets, should we also 
consider easing the equipment transfer rules within a district? With 
the move to district-wide discounts and district-wide category two 
budgets, the original concerns that led to the adoption of a 
prohibition on equipment transfers for a period of three years after 
purchase--namely, that applicants might replace or upgrade their 
equipment more often than necessary or to circumvent the then-existent 
two-in-five rules--would no longer be relevant. We note, at the same 
time, that under section 54.516(a) of the Commission's rules, schools, 
libraries, and consortia are required to maintain asset and inventory 
records of equipment purchased and the actual locations of such 
equipment for a period of 10 years after purchase.
    19. Budget Calculations. We seek comment on simplifying the budget 
calculations generally. For example, should the student count and 
square footage in the first year of a five-year cycle be used for all 
five years to ease administration of the budgets? The ability to obtain 
additional funding if there is a student population increase or new 
library building was designed to provide flexibility, but applicants 
have raised concerns about the difficulty of updating this information 
during the application review process. Would having a set pre-discount 
budget for five years make the review process easier because applicants 
would only have to verify this information once? Or are there 
significant advantages to having the budgets rise (or fall) depending 
on student population or square footage each year? If so, are there 
other ways to ease the review process for verifying student counts and 
square footage if we

[[Page 34110]]

keep entity-level budgets on an annual basis? Should we establish a 
presumption that the student counts verified in one of the last four 
funding years are still accurate for the purposes of setting a category 
two budget, absent an effort by the applicant to increase the student 
count? Such a presumption could result in waste of funding if a 
school's student population dropped significantly, for example, due to 
migration of students to a new school. How could such an outcome be 
avoided if we were to adopt such a presumption?
    20. Similarly, we propose to codify rounding the inflation 
calculation to two decimals for the category two multipliers in funding 
year 2020. This approach will simplify the calculation for USAC and 
applicants and is consistent with other Commission rules that establish 
rounding. We seek comment on this proposal. Recognizing that applicants 
do not always know the inflation adjustment before the filing window, 
we also seek comment on whether there is a better way to adjust for 
inflation, such as adjusting the budgets just once every five years.
    21. Application and Administration. We also seek comment on other 
ways to make the application process for category two services and the 
administration of category two budgets simpler and more efficient. What 
administrative changes would have the greatest impact on applicants and 
USAC? For example, we seek comment on whether there are ways to 
simplify how applicants request category two services on the FCC Form 
471 and on whether the Commission should provide guidance on using 
master contracts for category two services. Additionally, are there 
changes to the FCC Form 500 cancellation process that would simplify 
the category two budget process?
    22. We seek comment on the five-year budget cycles and how best to 
transition from the existing category two budget rules following the 
five-year test period. The category two budget rules currently 
contemplate rolling budgets; that is, each year applicants calculate 
the pre-discount budget based on the current funding year student 
counts and budget multipliers, and then subtract the pre-discount 
amounts on the commitments received in the prior four funding years. 
For instance, assume a hypothetical school with 1,000 students that 
first received category two funding in funding year 2015; its budget in 
funding year 2015 would be $150,000. If there is no change in student 
count, in funding year 2016, the school's budget would be $151,500, 
minus the pre-discount amount of any funding received in funding year 
2015. In funding year 2017, the budget would be $153,469.50, minus the 
pre-discount amount of any funding received in funding years 2015 and 
2016, and so forth through funding year 2019. If not for the five-year 
test period established in the 2014 Second E-Rate Order, 80 FR 5961 
(February 4, 2015), in funding year 2020, the school's budget would be 
the student count multiplied by the funding year 2020 budget 
multiplier, minus the pre-discount amount of any funding received in 
funding years 2016, 2017, 2018, and 2019; funding received in funding 
year 2015 would not count against the school's budget in funding year 
2020. In this manner, the budgets were designed to be rolling, and an 
applicant could determine its budget by looking to its current student 
count, the current inflation-adjusted per-student budget multiplier, 
and the amount of funding received in the prior four funding years. The 
goal of this rolling approach is to provide applicants with greater 
certainty about whether funding would be available after the end of a 
five-year budget cycle and thus prevent unnecessary spikes in spending 
in the last year of such a cycle.
    23. The five-year test period adopted in 2014, however, makes it 
such that no applicant is able to request funding in a sixth year under 
the category two budget approach, and thus although the budgets were 
designed to be rolling, in practice they are not. We seek comment on 
using rolling budgets as originally intended. Under this approach, in 
funding year 2020, applicants would calculate their five-year budgets 
based on their student counts, inflation-adjusted per-student budget 
multipliers, and any funding committed in in funding years 2016, 2017, 
2018, and 2019 (but not funding year 2015). What are the other benefits 
of this rolling approach? What are the costs of this approach? For 
example, is it administratively burdensome to calculate budgets in this 
way?
    24. As an alternative to a rolling five-year cycle approach, we 
seek comment on moving to a fixed five-year cycle from funding year 
2020 through funding year 2024, with a new fixed five-year budget 
starting for all applicants every five years. Would a fixed five-year 
cycle be a more efficient and/or an easier-to-administer system than a 
rolling five-year cycle approach? How can applicants be incentivized to 
avoid wasteful spending at the end of a fixed cycle by requesting funds 
solely because the funds are scheduled to expire? What are the other 
costs and benefits of rolling and fixed budget cycles? We seek comment 
on these approaches and any alternatives.
    25. If we were to use a rolling budget approach, should we consider 
modifying the rolling budgets to smooth the amount of support available 
over a five-year cycle by providing some funding each funding year? For 
instance, should we consider a system where an additional 20% is added 
to the applicant budget each year while still having a maximum budgeted 
amount that can be spent each year? Continuing with the illustration 
above of a school with 1,000 students, in the first year the school 
received funding, its budget would be $150,000. In the following year, 
the school's budget would be $151,500, minus the pre-discount amount of 
any funding received in the prior funding year, plus $30,300, which is 
20% of the school's $151,500 budget. Under this additive approach, a 
school would be able to roll unused funding from year to year; however, 
applicants would not be permitted to request more than $150 per student 
(adjusted for inflation) in any given funding year. This approach would 
both allow applicants to either seek funding each year or carry the 
budget forward to the next year, and ensure that applicants always have 
access to at least some funding in every year. Because student counts 
can fluctuate, an applicant that sees a large decline in student 
population in one funding year could have a much smaller category two 
budget than previously anticipated. Using this additive approach of 
providing some portion of funding to the school each funding year could 
smooth that fluctuation. However, it could make tracking budgets more 
challenging. Specifically, under the current system, applicants 
calculate budgets using three variables (i.e., their current student 
count, the inflation-adjusted per-student budget multiplier, and the 
amount of funding received in the prior four funding years) while 
applicants would have to track the added 20% each year, adding a fourth 
variable to their calculations each year. We seek comment on this 
additive approach, its costs and benefits, and any alternatives to 
smooth out the amount of support available under a rolling five-year 
budget approach while minimizing administrative burdens on applicants 
and USAC.

[[Page 34111]]

    26. Further, we seek comment on how to transition from the existing 
category two budget rules to any modified category two budget rules. As 
described above, if we simply extend the current rules, in funding year 
2020, an applicant's budget calculation would take into account funding 
requested in funding years 2016 through 2019. For administrative 
efficiency, however, we seek comment on starting fresh in funding year 
2020 and resetting all applicant budgets, to allow applicants a new 
opportunity to track their category two budgets and ease the 
transition's impact on all E-Rate program stakeholders. We recognize, 
however, that some applicants have not requested all of their category 
two budgets from funding year 2015 through 2019, while others will have 
used all of their budgets for those years. We, therefore, also seek 
comment on whether there is an administratively feasible way to take 
previous category two funding commitments into account when 
transitioning all applicants in funding year 2020.
    27. Alternatively, depending on the timing of the new rules and the 
extent of the changes, should we consider using funding year 2020 as a 
bridge to transition to the final rules we adopt in this proceeding? 
For example, should we consider extending the existing rules for one 
funding year without any modifications? This approach could allow 
applicants that received support in funding year 2015 and have 
completed the five-year cycle, or applicants still within their five-
year cycles with funds remaining in their budgets, to request support 
and allow for a smoother transition to the new rules. Should we permit 
applicants who have completed a five-year cycle to nevertheless access 
any unused funds in funding year 2020, in what would be a sixth year? 
Similarly, should any particular restrictions apply to applicants that 
did not receive category two support in funding year 2015 through 2019? 
Should we further provide some additional category two support to the 
existing five-year budgets, for example, $30 per student or 20% of the 
library budget of $2.30 or $5.00? Commenters supporting this 
alternative are encouraged to also address what category two funding 
opportunities, if any, should be made for those E-Rate eligible 
entities who have already depleted their respective category two 
budgets. Or should we consider having a second, later filing window for 
category two service requests in funding year 2020? How can we best 
reduce applicant confusion and provide for simplified administration of 
the category two budgets as we move beyond funding year 2019? We seek 
comment on other alternatives that would afford a smooth and effective 
transition to the category two rules we adopt in the context of this 
proceeding.

III. Procedural Matters

    28. Initial Regulatory Flexibility Analysis. As required by the 
Regulatory Flexibility Act of 1980, as amended (RFA), the Commission 
has prepared this Initial Regulatory Flexibility Analysis (IRFA) of the 
possible significant economic impact on a substantial number of small 
entities by the policies and rules proposed in this Notice of Proposed 
Rulemaking (NPRM). Written comments are requested on this IRFA. 
Comments must be identified as responses to the IRFA and must be filed 
by the deadlines for comments on the NPRM. The Commission will send a 
copy of the NPRM, including this IRFA, to the Chief Counsel for 
Advocacy of the Small Business Administration (SBA). In addition, the 
NPRM and IRFA (or summaries thereof) will be published in the Federal 
Register.
    29. 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.
    30. Taking steps to close the digital divide is a top priority for 
the Commission. The E-Rate program provides a vital source of support 
to schools and libraries, ensuring that students and library patrons 
across the nation have access to high-speed broadband and essential 
communications services. The rules we propose in the NPRM seek to make 
permanent the category two budget approach for all E-Rate applicants 
beyond funding year 2019. We seek comment in the NPRM on streamlining 
and simplifying the administration of the E-Rate program for 
applicants, service providers, and the Universal Service Administrative 
Company. In addition, the rules that we propose or seek comment on in 
the NPRM would eliminate confusion over how to apply for category two 
services which provide connectivity within schools and libraries and 
include internal connections, basic maintenance of internal 
connections, and managed internal broadband services. We seek comment 
on our proposals as well as comments on other ways to lessen the 
administrative burden on participating schools and libraries within the 
framework of the category two budget approach.
    31. The proposed action is authorized pursuant to sections 1 
through 4, 201-205, 254, 303(r), and 403 of the Communications Act of 
1934, as amended by the Telecommunications Act of 1996, 47 U.S.C. 151 
through 154, 201 through 205, 254, 303(r), and 403.
    32. 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).
    33. Small Businesses, Small Organizations, Small Governmental 
Jurisdictions. Our actions, over time, may affect small entities that 
are not easily categorized at present. We therefore describe here, at 
the outset, three broad groups of small entities that could be directly 
affected herein. First, while there are industry specific size 
standards for small businesses that are used in the regulatory 
flexibility analysis, according to data from the SBA's Office of 
Advocacy, in general a small business is an independent business having 
fewer than 500 employees. These types of small businesses represent 
99.9% of all businesses in the United States which translates to 28.8 
million businesses.
    34. Next, the type of small entity described as a ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.'' 
Nationwide, as of August 2016, there were approximately 356,494 small 
organizations based on registration and tax data filed by nonprofits 
with the Internal Revenue Service (IRS).

[[Page 34112]]

    35. Finally, the small entity described as a ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, 
counties, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' U.S. Census 
Bureau data from the 2012 Census of Governments indicate that there 
were 90,056 local governmental jurisdictions consisting of general 
purpose governments and special purpose governments in the United 
States. Of this number there were 37,132 General purpose governments 
(county, municipal and town or township) with populations of less than 
50,000 and 12,184 Special purpose governments (independent school 
districts and special districts) with populations of less than 50,000. 
The 2012 U.S. Census Bureau data for most types of governments in the 
local government category show that the majority of these governments 
have populations of less than 50,000. Based on this data we estimate 
that at least 49,316 local government jurisdictions fall in the 
category of ``small governmental jurisdictions.''
    36. As noted, a ``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. A library includes 
``(1) a public library, (2) a public elementary school or secondary 
school library, (3) an academic library, (4) a research library, and 
(5) a private library, but only if the state in which such private 
library is located determines that the library should be considered a 
library for the purposes of this definition.'' For-profit schools and 
libraries, and schools and libraries with endowments in excess of 
$50,000,000, are not eligible to receive discounts under the program, 
nor are libraries whose budgets are not completely separate from any 
schools. Certain other statutory definitions apply as well. The SBA has 
defined for-profit, elementary and secondary schools and libraries 
having $6 million or less in annual receipts as small entities. In 
funding year 2017, approximately 104,500 schools and 11,490 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 104,500 schools and 11,490 
libraries might be affected annually by our action, under current 
operation of the program.
    37. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a size standard for small 
incumbent local exchange carriers. The closest applicable NAICS Code 
category is Wired Telecommunications Carriers. Under the applicable SBA 
size standard, such a business is small if it has 1,500 or fewer 
employees. U.S. Census Bureau data for 2012 indicate that 3,117 firms 
operated the entire year. Of this total, 3,083 operated with fewer than 
1,000 employees. Consequently, the Commission estimates that most 
providers of incumbent local exchange service are small businesses that 
may be affected by our actions. According to Commission data, one 
thousand three hundred and seven (1,307) Incumbent Local Exchange 
Carriers reported that they were incumbent local exchange services. Of 
this total 1,307 an estimated 1,006 have 1,500 or fewer employees and 
301 have more than 1,500 employees. Thus, using the SBA's size standard 
the majority of incumbent LECs can be considered small entities.
    38. We have included small incumbent LECs in this RFA analysis. A 
``small business'' under the RFA is one that, inter alia, meets the 
pertinent small business size standard (e.g., a telephone 
communications business having 1,500 or fewer employees), and ``is not 
dominant in its field of operation.'' The SBA's Office of Advocacy 
contends that, for RFA purposes, small incumbent LECs 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.
    39. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a definition of small entities specifically 
applicable to IXCs. The closest NAICS Code category is Wired 
Telecommunications Carriers. The applicable size standard under SBA 
rules is that such a business is small if it has 1,500 or fewer 
employees. U.S. Census Bureau data for 2012 indicate that 3,117 firms 
operated for the entire year. Of that number, 3,083 operated with fewer 
than 1,000 employees. According to internally developed Commission 
data, 359 companies reported that that their primary telecommunications 
service activity was the provision of interexchange services. Of this 
total, an estimated 317 have 1,500 or fewer employees. Consequently, 
the Commission estimates that the majority of interexchange service 
providers are small entities.
    40. Competitive Access Providers (CAPs). Neither the Commission nor 
the SBA has developed a definition of small entities specifically 
applicable to CAPs. The closest applicable definition under the SBA 
rules is for Wired Telecommunications Carriers. Under the SBA size 
standard, a Wired Telecommunications Carrier is a small entity if it 
employs no more than 1,500 employees. U.S. Census Bureau data for 2012 
show that 3,117 firms operated during that year. Of that number, 3,083 
operated with fewer than 1,000 employees. According to Commission data, 
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.
    41. Wireless Telecommunications Carriers (except Satellite). This 
industry comprises establishments engaged in operating and maintaining 
switching and transmission facilities to provide communications via the 
airwaves. Establishments in this industry have spectrum licenses and 
provide services using that spectrum, such as cellular services, paging 
services, wireless internet access, and wireless video services. The 
appropriate size standard under SBA rules is that such a business is 
small if it has 1,500 or fewer employees. For this industry, U.S. 
Census Bureau data for 2012 show that there were 967 firms that 
operated for the entire year. Of this total, 955 firms had employment 
of 999 or fewer employees and 12 had employment of 1000 employees or 
more. Thus, under this category and the associated size standard, the 
Commission estimates that the majority of wireless telecommunications 
carriers (except satellite) are small entities.
    42. Wireless Telephony. Wireless telephony includes cellular, 
personal communications services, and

[[Page 34113]]

specialized mobile radio telephony carriers. The closest applicable SBA 
category is Wireless Telecommunications Carriers (except Satellite). 
Under the SBA small business size standard, a business is small if it 
has 1,500 or fewer employees. For this industry, U.S. Census Bureau 
data for 2012 show that there were 967 firms that operated for the 
entire year. Of this total, 955 firms had fewer than 1,000 employees 
and 12 firms had 1,000 employees or more. Thus, under this category and 
the associated size standard, the Commission estimates that a majority 
of these entities can be considered small. According to Commission 
data, 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. Therefore, more than half of these 
entities can be considered small.
    43. Internet Service Providers (Broadband). Broadband internet 
service providers include wired (e.g., cable, DSL) and VoIP service 
providers using their own operated wired telecommunications 
infrastructure fall in the category of Wired Telecommunication 
Carriers. Wired Telecommunications Carriers are comprised of 
establishments primarily engaged in operating and/or providing access 
to transmission facilities and infrastructure that they own and/or 
lease for the transmission of voice, data, text, sound, and video using 
wired telecommunications networks. Transmission facilities may be based 
on a single technology or a combination of technologies. The SBA size 
standard for this category classifies a business as small if it has 
1,500 or fewer employees. U.S. Census Bureau data for 2012 show that 
there were 3,117 firms that operated that year. Of this total, 3,083 
operated with fewer than 1,000 employees. Consequently, under this size 
standard the majority of firms in this industry can be considered 
small.
    44. Internet Service Providers (Non-Broadband). Internet access 
service providers such as Dial-up internet service providers, VoIP 
service providers using client-supplied telecommunications connections 
and internet service providers using client-supplied telecommunications 
connections (e.g., dial-up ISPs) fall in the category of All Other 
Telecommunications. The SBA has developed a small business size 
standard for All Other Telecommunications which consists of all such 
firms with gross annual receipts of $32.5 million or less. For this 
category, U.S. Census Bureau data for 2012 shows that there were 1,442 
firms that operated for the entire year. Of these firms, a total of 
1,400 had gross annual receipts of less than $25 million. Consequently, 
under this size standard a majority of firms in this industry can be 
considered small.
    45. Vendors of Infrastructure Development or ``Network Buildout.'' 
The Commission has not developed a small business size standard 
specifically directed toward manufacturers of network facilities. There 
are two applicable SBA categories in which manufacturers of network 
facilities could fall and each have different size standards under the 
SBA rules. The SBA categories are ``Radio and Television Broadcasting 
and Wireless Communications Equipment'' with a size standard of 1,250 
employees or less and ``Other Communications Equipment Manufacturing'' 
with a size standard of 750 employees or less.'' U.S. Census Bureau 
data for 2012 show that for Radio and Television Broadcasting and 
Wireless Communications Equipment firms 841 establishments operated for 
the entire year. Of that number, 828 establishments operated with fewer 
than 1,000 employees, 7 establishments operated with between 1,000 and 
2,499 employees and 6 establishments operated with 2,500 or more 
employees. For Other Communications Equipment Manufacturing, U.S. 
Census Bureau data for 2012 shows that 383 establishments operated for 
the year. Of that number 379 operated with fewer than 500 employees and 
4 had 500 to 999 employees. Based on this data, we conclude that the 
majority of Vendors of Infrastructure Development or ``Network 
Buildout'' are small.
    46. Telephone Apparatus Manufacturing. 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 size standard for Telephone Apparatus Manufacturing is all such 
firms having 1,250 or fewer employees. U.S. Census Bureau data for 2012 
show that there were 266 establishments that operated for the entire 
year. Of this total, 262 operated with fewer than 1,000 employees. 
Thus, under this size standard, the majority of firms can be considered 
small.
    47. Radio and Television Broadcasting and Wireless Communications 
Equipment Manufacturing. 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 established a small business size 
standard for this industry of 1,250 employees or less. U.S. Census 
Bureau data for 2012 show that 841 establishments operated in this 
industry in that year. Of that number, 828 establishments operated with 
fewer than 1,000 employees, 7 establishments operated with between 
1,000 and 2,499 employees and 6 establishments operated with 2,500 or 
more employees. Based on this data, we conclude that a majority of 
manufacturers in this industry are small.
    48. The proposals under consideration in the NPRM, if adopted, may 
result in new and/or modified reporting, recordkeeping and other 
compliance requirements for both small and large entities. At this 
time, the Commission cannot quantify the cost of compliance with the 
potential rule changes in the NPRM, but we anticipate that the result 
of any rule changes will produce requirements that are equal to or less 
than existing requirements, and we do not believe small entities will 
have to hire attorneys, engineers, consultants, or other professionals 
in order to comply. Moving from a per-school or per-library budget to a 
per-district or per-system budget for category two services, for 
example, would streamline the application process for category two 
services from start to finish, simplifying the calculation, the FCC 
Form 471 application, Program Integrity Assurance (PIA) reviews, and 
the FCC Form 500 cancellation process. Moreover, adopting this approach 
may also simplify some of the more complicated issues that applicants 
face when seeking E-Rate support. Additionally, to find other ways to 
reduce any administrative processes which could impact compliance 
costs, we have sought comment on how the application process for 
category two services can be made simpler and more efficient. Regarding 
our proposal to amend our rules to make permanent the

[[Page 34114]]

category two budget approach beyond funding year 2019 in five-year 
funding cycle increments, we have sought comment on whether the 
benefits associated with making permanent the category two budget rules 
outweigh the cost of compliance associated with administering them.
    49. 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.''
    50. In the NPRM, we have taken steps to minimize the economic 
impact on small entities with the rule changes that we have proposed. 
Under the current E-Rate program, the category two budget rules will 
begin to sunset in funding year 2020. Absent a rule change, applicants 
seeking category two services will have to navigate two sets of rules 
until funding year 2024. We have therefore proposed amending the rules 
to make permanent the category two budget approach for all applicants 
beyond funding year 2019, which, if adopted, will remove the burden and 
the cost to small entities of having to navigate and comply with two 
different sets of rules. This proposal will also lessen the reporting 
requirements on small entities thereby lessening their administrative 
costs for report preparation. To further reduce the reporting and 
administrative requirements for small entities, we seek comment on 
moving to a district-wide or system-wide budget, rather than a school 
entity or library entity budget. We anticipate that permitting school 
districts and library systems to calculate a district-wide budget, 
rather than maintaining records and allocating costs between budgets 
for each school and library, may simplify the current application 
process by reducing the number of applications filed, reducing the 
paperwork burden for reporting student counts, and reducing the 
complexity of the budgets overall. The Commission expects to more fully 
consider ways to minimize the economic impact and explore alternatives 
for small entities following the review of comments filed in response 
to the NPRM.
    51. Federal Rules that May Duplicate, Overlap, or Conflict with the 
Proposed Rules. None.
    52. Paperwork Reduction Act. The NPRM may result in revised 
information collection requirements. If the Commission adopts any 
revised information collection requirement, the Commission will publish 
a notice in the Federal Register inviting the public to comment on the 
requirement, as required by the Paperwork Reduction Act of 1995, Public 
Law 104-13 (44 U.S.C. 3501-3520). In addition, pursuant to the Small 
Business Paperwork Relief Act of 2002, Public Law 107-198, see 44 
U.S.C. 3506(c)(4), the Commission seeks specific comment on how it 
might ``further reduce the information collection burden for small 
business concerns with fewer than 25 employees.''
    53. Ex Parte Rules. This proceeding shall be treated as a ``permit-
but-disclose'' proceeding in accordance with the Commission's ex parte 
rules. Persons making ex parte presentations must file a copy of any 
written presentation or a memorandum summarizing any oral presentation 
within two business days after the presentation (unless a different 
deadline applicable to the Sunshine period applies). Persons making 
oral ex parte presentations are reminded that memoranda summarizing the 
presentation must (1) list all persons attending or otherwise 
participating in the meeting at which the ex parte presentation was 
made, and (2) summarize all data presented and arguments made during 
the presentation. If the presentation consisted in whole or in part of 
the presentation of data or arguments already reflected in the 
presenter's written comments, memoranda, or other filings in the 
proceeding, the presenter may provide citations to such data or 
arguments in his or her prior comments, memoranda, or other filings 
(specifying the relevant page and/or paragraph numbers where such data 
or arguments can be found) in lieu of summarizing them in the 
memorandum. Documents shown or given to Commission staff during ex 
parte meetings are deemed to be written ex parte presentations and must 
be filed consistent with rule 1.1206(b). In proceedings governed by 
rule 1.49(f) or for which the Commission has made available a method of 
electronic filing, written ex parte presentations and memoranda 
summarizing oral ex parte presentations, and all attachments thereto, 
must be filed through the electronic comment filing system available 
for that proceeding, and must be filed in their native format (e.g., 
.doc, .xml, .ppt, searchable .pdf). Participants in this proceeding 
should familiarize themselves with the Commission's ex parte rules.
    54. Filing Procedures. Pursuant to sections 1.415 and 1.419 of the 
Commission's rules, 47 CFR 1.415, 1.419, interested parties may file 
comments and reply comments on or before the dates indicated on the 
first page of this document. Comments and reply comments may be filed 
using the Commission's Electronic Comment Filing System (ECFS). See 
Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121 
(1998).
     Electronic Filers: Comments may be filed electronically 
using the internet by accessing the ECFS: http://apps.fcc.gov/ecfs/.
     Paper Filers: Parties who choose to file by paper must 
file an original and one copy of each filing.
    If more than one docket or rulemaking number appears in the caption 
of this proceeding, filers must submit two additional copies for each 
additional docket or rulemaking number. Filings can be sent by hand or 
messenger delivery, by commercial overnight courier, or by first-class 
or overnight U.S. Postal Service mail. All filings must be addressed to 
the Commission's Secretary, Office of the Secretary, Federal 
Communications Commission.
     All hand-delivered or messenger-delivered paper filings 
for the Commission's Secretary must be delivered to FCC Headquarters at 
445 12th St. SW, Room TW-A325, Washington, DC 20554. The filing hours 
are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together 
with rubber bands or fasteners. Any envelopes and boxes must be 
disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9050 Junction Drive, 
Annapolis Junction, MD 20701.
     U.S. Postal Service first-class, Express, and Priority 
mail must be addressed to 445 12th Street SW, Washington, DC 20554.
    55. People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to [email protected] or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).

[[Page 34115]]

IV. Ordering Clauses

    56. Accordingly, it is ordered that, pursuant to the authority 
found in sections 1 through 4, 201-202, 254, and 303(r) of the 
Communications Act of 1934, as amended, 47 U.S.C. 151 through 154, 201 
through 202, 254, and 303(r), this Notice of Proposed Rulemaking is 
adopted.
    57. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Notice of Proposed Rulemaking, including the Initial 
Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of 
the Small Business Administration.

Federal Communications Commission.
Marlene Dortch,
Secretary.

Proposed Rule

    For the reason discussed in the preamble, the Federal 
Communications Commission proposes to amend 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

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

    Authority: 47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 
254, 303(r), 403, and 1302, unless otherwise noted.

0
2. Amend Sec.  54.502 by revising paragraph (b), removing paragraph (c) 
and redesignating paragraph (d) as paragraph (c) to read as follows:


Sec.  54.502  Eligible Services.

* * * * *
    (b) Category Two Budgets. Libraries, schools, or school districts 
with schools that receive funding 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 category two support committed prior to funding 
year 2020, each school or library shall be eligible for the total 
available budget less the pre-discount amount of category two services 
commitments in the prior four funding years. The category two budget 
levels and the funding floor shall be adjusted for inflation annually 
in accordance with Sec.  54.507(a)(2). Beginning in funding year 2020, 
the dollar amount shall be rounded to two decimal points. The increase 
shall be rounded to the nearest 0.01 by rounding 0.005 and above to the 
next higher 0.01 and otherwise rounding to the next lower 0.01.
    (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 (adjusted for inflation since funding year 2015) over a 
five-year funding cycle. Applicants shall calculate the student count 
per district at the time the discount is calculated each funding year. 
New schools may estimate the number of students but shall 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 (adjusted 
for inflation since funding year 2015) 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 
(adjusted for inflation since funding year 2015) 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.
    (4) Funding floor. Each eligible school and library will be 
eligible for support for category two services up to at least a pre-
discount price of $9,200 (adjusted for inflation since funding year 
2015) over a five-year funding cycle.
    (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.
    (6) Non-instructional buildings. 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 building, or the Commission has 
found that the use of those services meets the definition of 
educational purpose, as defined in Sec.  54.500.
* * * * *
[FR Doc. 2019-15164 Filed 7-16-19; 8:45 am]
BILLING CODE 6712-01-P