Discounted Telecommunications Rates for Libraries and Schools

Excerpts from FCC-97-157: Universal Service Report and Order May 7, 1997

Editor's Note:

A landmark decision by the Federal Communications Commission (FCC) on May 7, 1997, established the groundwork for discounted telecommunications rates for libraries and schools. Library discounts will primarily impact public and school libraries and consortia with school and public library members. The FCC's decision is very lengthy, but key portions are included here. The excerpts also were included in resource materials for the PBS videoconference, "Maximizing Your E-Rate: Making the Most of New Telecommunications Discounts for Schools and Libraries," which was broadcast on June 3,1997. The Illinois State Library and several library systems served as downlink sites for the library community in Illinois. The videoconference provided an excellent overview of the FCC decision and the steps that need to be taken next to make the discounts a reality.

Because only key excerpts from the decision are included, note that the paragraph numbering is not consecutive. Footnotes have been deleted. "Section 254," etc., refers to the Telecommunications Act of 1996.

The FCC decision in its entirety is available on the FCC Web site at http://www.fcc.gov.

These excerpts are reprinted with permission by PBS and the videoconference producer, Convergence Services, Inc., of Alexandria, Virginia.

X. SCHOOLS AND LIBRARIES

A. Overview

424. For the first time, the 1996 Act includes schools and libraries among the explicit beneficiaries of universal service support. The legislative history indicated that Congress intended to ensure that eligible schools and libraries have affordable access to modern telecommunications and information services that will enable them to provide educational services to all parts of the nation.(1086)

425. We adopt the Joint Board's recommendation that all eligible schools and libraries(1087) should receive discounts of between 20 percent and 90 percent on all telecommunications services, Internet access, and internal connections provided by telecommunications carriers, subject to a $2.25 billion annual cap. We take this action pursuant to section 254(c)(3) and section 254(h)(1)(B) rather than section 254(h)(2)(A) on which the Joint Board relied. We note that the Joint Board did not suggest that these services are not covered by section 254(h)(1)(B), it merely chose to rely on section 254(h)(2). As to installation and maintenance of internal connections, the Joint Board explicitly rejected the argument that these services are ineligible for support under section 254(h)(1) because they are "goods" or "facilities" rather than "services."(1088) In addition, any funds that are not disbursed in a given year shall be carried forward and may be disbursed in subsequent years without regard to the cap. We agree with the Joint Board that schools and libraries should have maximum flexibility to purchase the package of services they believe will most effectively meet their communications needs. We also share the Joint Board's preference that we foster competition from non-telecommunications carriers. We, therefore, encourage those providers to enter into partnerships or joint ventures with telecommunications carriers. In addition, pursuant to sections 254(h)(2) and 4(i), we extend support for the provision of discounted services by non-telecommunications carriers, within the overall annual cap mentioned above. We also concur with the Joint Board and conclude that economically disadvantaged schools and libraries, as well as schools and libraries located in high cost areas, shall receive greater discounts to ensure that they have affordable access to supported services. Finally, we agree with the Joint Board's conclusion that schools and libraries should be required to comply with several self-certification requirements, each designed to ensure that only eligible entities receive universal support and that they have adopted plans for securing cost-effective access to and use of all the services purchased from telecommunications carriers under section

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254(h)(1) and non-telecommunications carriers under sections 254(h)(2) and 4(i).

B. Services Eligible for Support

2. Discussion

a. Telecommunications Services

431. We adopt the Joint Board's recommendation, (1110) supported by many commenters,(1111) to provide schools and libraries with the maximum flexibility to purchase from telecommunications carriers whatever package of commercially available telecommunications services they believe will meet their telecommunications service needs most effectively and efficiently. We observe that Apple and the New York DOE ask us to focus support on T-1 or higher bandwidth access(1112) and Netscape asks us to provide greater discounts on higher bandwidth connections to the mtemet,(1113) while the Vermont PSB asks us to set greater discounts for more basic telecommunications services than for Internet access and internal connections.(1114) The contrasting views of New York and Vermont, and those revealed in the Florida PSC survey of 17 states,(1115) demonstrate how different states have set different priorities for meeting their schools' and libraries' varying needs and circumstances.

432. As the Joint Board recognized, the establishment of a single set of priorities for all schools and libraries would substitute our judgment for that of individual school administrators throughout the nation, preventing some schools and libraries from using the services they find to be the most efficient and effective means for providing the educational applications they seek to secure.(1116) Given the varying needs and preferences of different schools and libraries and the relative advantages and disadvantages of different technologies, we agree with the Joint Board that individual schools and libraries are in the best position to evaluate the relative costs and benefits of different services and technologies.(1117) We also agree with the Ohio PUC and DOE that our actions should not disadvantage schools and libraries in states that have already aggressively invested in telecommunications technologies in their state schools and libraries.(1118) Because we will require schools and libraries to pay a portion of the costs of the services they select,(1119) we agree with the Joint Board that, as recognized by most commenters,(1120) allowing schools and libraries to choose the services for which they will receive discounts is most likely to maximize the value to them of universal service support and to minimize inefficient uses of services.(1121)

433. As the Joint Board observed, permitting schools and libraries full flexibility to choose among telecommunications services also eliminates the potential risk that new technologies will remain unavailable to schools and libraries until the Commission has completed a subsequent proceeding to review evolving technological needs.(1122) Thus, in an environment of rapidly changing and improving technologies, empowering schools and libraries, regardless of wealth and location, to choose the telecommunications services they will use as tools for educating their students will enable them to use and teach students to use state-of-the-art telecommunications technologies as those technologies become available.

b. Internet Access

436. Eligible Services. We also follow the Joint Board's recommendation, supported by many commenters, (1129) that schools and libraries receive rate discounts from telecommunications carriers for basic "conduit" access to the Intemet.(1130) We conclude that sections 254(c)(3) and 254(h)(1), in the context of the broad policies set forth in section 254(h)(2), authorize us to permit schools and libraries to receive the telecommunications and information services provided by telecommunications carriers needed to use the Internet at discounted rates.

440. In this regard, section 254(h)(2)(A), which directs the Commission to establish competitively neutral rules to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services, informs our interpretation of sections 254(c)(3) and 254(h)(1)(B) as allowing schools and libraries to receive discounts on rates from telecommunications carriers for Internet access.(1148) Given the directive of section 254(h)(2)(A) that the Commission enhance the access that schools and libraries have to "information services," as described in the legislative history, i.e., actual educational content, we conclude that there should be discounts for access to these services provided by telecommunications carriers under the broad provisions of sections 254(c)(3) and 254 (h)(1)(B).

441. Ameritech and Citizen Utilities argue that the reference in section 254(h)(2)(A) to providing schools and libraries with "access" to information services does not direct the Commission to provide discounts to schools and libraries for the information services provided by Internet service providers, but rather, only to the telecommunications services necessary for them to reach those Internet service providers. (1149) We conclude, however, that Ameritech and Citizen Utilities are confusing

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two different types of information services. We do not grant schools and libraries discounts on the cost of purchasing information content. We conclude, however, that we are authorized to provide discounts on the data links and associated services necessary to provide classrooms with access to those educational materials, even though these functions meet the statutory definition of "information services" because of their inclusion of protocol conversion and information storage. Without the use of these "information service" data links, schools and libraries would not be able to obtain access to the "research information, [and] statistics" available free of charge on the Internet. We note that these information services are essential for effective transmission service, i.e., "conduit" service; they are not elements of the content services provided by information publishers.(1150) We conclude that our authority under sections 254(c)(3) and 254(h)(1)(B) is broad enough to achieve these section 254(h)(2)(A) goals.

444. We also offer a more precise definition of what "information services" will be eligible for discounts under this program in response to commenters(1155) who challenge the feasibility of using the "basic, conduit" Internet access terminology that the Joint Board used to describe what aspects of Internet access are eligible for support.(1156) We note that Congress described the conduit services we seek to cover in another context in the 1996 Act.(1157) That is, in listing exceptions to the definition of "electronic publishing" in section 274 of the Act, Congress described certain services that are precisely the types of "conduit" services that we agree with the Joint Board should be available to eligible schools and libraries at a discount.(1158) We adopt the descriptions of those services here because we find that they provide the additional clarification of conduit services that commenters request. (1159) We conclude that eligible schools and libraries will be permitted to apply their relevant discounts to information services provided by entities that consist of:

(i) the transmission of information as a common carrier;

(ii) the transmission of information as part of a gateway to an information service, where that transmission does not involve the generation or alteration of the content of information but may include data transmission, address translation, protocol conversion, billing management, introductory information content, and navigational systems that enable users to access information services that do not affect the presentation of such information services to users; and

(iii) electronic mail services [e-mail]. (1160)

As recommended by the Joint Board, other information services, such as voice mail, shall not be eligible for support at this time. (1161)

445. We also follow the Joint Board's recommendation to grant schools and libraries discounts on access to the Internet but not on separate charges for particular proprietary content or other information services. (1162) The Joint Board recommended that we solve the problem of bundling content and "conduit" (access) to the Internet by not permitting schools and libraries to purchase a package including content and conduit, unless the bundled package included minimal content and provided a more cost-effective means of securing non-content access to the Internet than other non-content alternatives. We agree with this approach.

446. Therefore, consistent with the Joint Board's recommendation, schools and libraries that purchase, from a telecommunications carrier, access to the Internet including nothing more than the services listed above will be eligible for support based on the purchase price. In addition, if it is more cost-effective for it to purchase Internet access provided by a telecommunications carrier that bundles a minimal amount of content with such Internet access, a school or library may purchase that bundled package and receive support for the portion of the package price that represents the price for the services listed above.

447. This approach will create three possible scenarios for schools and libraries. First, if the telecommunications carrier bundles access with a package of content that is otherwise available free of charge on the Internet because the content is advertiser supported, bundling that content with Internet access will not permit the telecommunications carrier to recover any additional remuneration other than the fee for the access. Second, if the telecommunications carrier offers other Internet users access to its proprietary content for a price, it may treat the difference between that price and the price it charges for its access-only package as the price of non-content Internet access. For example, if an IXC offers a $50.00 per month service that includes unlimited Internet access, as well as free access to particular proprietary educational software services, and the proprietary services are available independently for $30.00 per month, schools and libraries purchasing such a package will be eligible for support on $50.00 - $30.00 = $20.00 per month. Third, if a telecommunications carrier

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providing Internet access offers a bundled package of content that it does not offer on an unbundled basis and thus, the fair price of the conduit element cannot be ascertained readily, the school or library may receive support for such an Internet access package only if it can affirmatively show that the price of the carrier's Internet access package was still the most cost-effective manner for the school or library to secure basic, conduit access to the Internet.

449. Eligible Providers. Section 254(e) states that only an "eligible telecommunications carrier" under section 214(e) may receive universal service support.(1165) Section 254(h)(1)(B)(ii), however, states that telecommunications carriers providing services to schools and libraries may receive reimbursement from universal service support mechanisms, notwithstanding the provisions of section 254(e).(1166) Consequently, we agree with the Joint Board in concluding that Congress intended that any telecommunications carrier, even one that does not qualify as an "eligible telecommunications carrier," should be eligible for support for services provided to schools and libraries. (1167) We anticipate that Internet service providers may subcontract with IXCs and LECs that were not already providing Internet access to begin to provide such access to the Internet, and we encourage small businesses to form such joint ventures. We expect that the resulting competition will generate low pre-discount prices for schools and libraries, without regard to direct participation by non-telecommunications carriers as provided below.

c. Intra-School and Infra-Library Connections

450. Support for Internal Connections. We agree with the Joint Board's analysis of the internal connection issue,(1168) as well as the reasoning numerous commenters offer for supporting that analysis. (1169) Congress intended that telecommunications and other services be provided directly to classrooms. (1170) Therefore, eligible schools and libraries may, under sections 254(c)(3) and 254(h)(1), secure support for installation and maintenance of internal connections, among other services and functionalities provided by telecommunications carriers.

453. We find further that the broad purposes of section 254(h)(2) support our authority for providing discounts for the installation and maintenance of internal connections by telecommunications carriers under sections 254(c)(3) and 254(h)(l)(B). As the Joint Board explained, section 254(h)(2)(A) states that "[t]he Commission shall establish competitively neutral rules.. .to enhance, to the extent technically feasible and economically reasonable, access to advanced telecommunications and information services for all public and nonprofit elementary and secondary school classrooms... and libraries. "(1178) The Joint Board recognized that a primary way to give "classrooms" access to advanced telecommunications and information services is to connect computers in each classroom to a telecommunications network.(1179) We interpret the scope of sections 254(c)(3) and 254(h)(1)(B) as broad enough to cover the provision of discounts on internal connections provided by telecommunications carriers. Telecommunications carriers might well, of course, subcontract this business to non-telecommunications carriers.

454. We acknowledge that the cost of providing discounts for all internal connections for all unconnected schools and classrooms throughout the nation is substantial. We agree with the Joint Board, however, that the cost is economically reasonable and in the public interest. (1180) The existence and popularity of NetDays throughout the nation(1181) demonstrate that providing internal connections is technically feasible. The willingness of individual states to fund installation and maintenance of internal connections (1182) is strong evidence that those states consider such expenditures to be economically reasonable in light of the positive educational benefits they should generate.(1183)

455. We also agree with the Joint Board that the legislative history supports our finding that the installation and maintenance of internal connections are eligible for support. We note that, in its Joint Explanatory Statement, Congress explicitly refers repeatedly to "classrooms. "(1184) Reading these references, we conclude that Congress contemplated extending discounted service all the way to the individual classrooms of a school, not merely to a single computer lab in each school or merely to the schoolhouse door.(1185)

456. As further evidence that Congress intended that the installation and maintenance of internal connections be eligible for universal service support, the Joint Board noted that, during Senate consideration of this provision, Senators Snowe and Rockefeller emphasized that, at the time, 35 percent of public schools had access to the Internet, but only three percent of classrooms were connected to the Internet. (1186) As the Joint Board also observed,(1187) in his discussion of the Snowe-Rockefeller-Exon-Kerrey amendment, Senator Rockefeller cited the lack of funds to buy

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computer equipment as one reason for the lack of access to the Internet, but added that the expense of connecting classrooms to one another represents another significant barrier to gaining access.(1188)

457. As the Joint Board recognized, finding internal connections ineligible for support would skew the choices of schools and libraries to favor technologies such as wireless, in which internal connections are inseparable from external connection, over technologies such as conventional wireline, in which a distinction can be (and for unrelated reasons sometimes is) drawn, even when the latter would be the more economically efficient choice. We conclude, consistent with numerous letters that we have received from the schools and libraries communities,(1189) that schools, school districts, and libraries are in the best position and should, therefore, be empowered to make their own decisions regarding which technologies would best accommodate their needs, how to deploy those technologies, and how to best integrate these new opportunities into their curriculum. Moreover, a situation in which certain technologies were favored over others would violate the overall principle of competitive neutrality adopted for purposes of section 254.(1190) Of course, we by no means wish to discourage wireless technologies where they are the efficient solution; data suggest that wireless connections would already be the more efficient eligible "telecommunications service" for connecting schools to telephone carrier offices or Internet service providers for more than 25 percent of public schools.(1191) Nothing on the record or in the statute would appear to prevent schools and libraries from purchasing wireless technologies at a discount and using them for internal connections, and a wireless system can be used for both internal and external connections. If schools and libraries could not receive discounts from telecommunications carriers for internal connections through inside wiring, but could receive discounts from telecommunications carriers if using wireless service for this purpose, however, the discount mechanism would favor wireless technologies over wireline service. Because Congress intended to encourage competitive neutrality among technologies(1192) and because this is an explicit requirement under section 254(h)(2)(A), we conclude that Congress also intended to permit schools purchasing wireline intraschool connections to purchase those services from telecommunications carriers at discounted prices.(1193)

459. Extent of Support for Internal Connections. We agree with SBC and Citizen Utilities that it is often difficult to distinguish between "internal connections," which would be eligible for discounts, and computers and other peripheral equipment, which would not be eligible.(1198) While we also concur with AirTouch's observation that the Joint Board did not articulate a detailed "workable standard," we reject AirTouch's assertion that the distinction between internal connections eligible for support and services or equipment not eligible for support is "administratively unworkable. "(1199) We find that a given service is eligible for support as a component of the institution's internal connections only if it is necessary to transport information all the way to individual classrooms. That is, if the service is an essential element in the transmission of information within the school or library, we will classify it as an element of internal connections and will permit schools and libraries to receive a discount on its installation and maintenance for which the telecommunications carrier may be compensated from universal service support mechanisms.

460. Applying this standard, we agree with the Joint Board's recommendation that support should be available to fund discounts on such items as routers, hubs, network file servers,(1200) and wireless LANs and their installation and basic maintenance because all are needed to switch and route messages within a school or library. (1201) Their function is solely to transmit information over the distance from the classroom to the Internet service provider, when multiple classrooms share the use of a single channel to the Internet service provider. We also agree with Oracle that "internal connections" would include the software that file servers need to operate and that we should place no specific restrictions on the size, i.e., type, of the internal connections network covered.(1202) Consistent with the Joint Board's finding that the installation and maintenance of internal connections are services,(1203) we conclude that support should be available to fund discounts on basic installation and maintenance services necessary to the operation of the internal connections network. We expressly deny support, however, to finance the purchase of equipment that is not needed to transport information to individual classrooms. A personal computer in the classroom, for example, does not provide such a necessary transmission function and would not be supported, consistent with the Joint Board's recommendation.(1204) A personal computer is not intended to transmit information

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over a distance, unless it is programmed to operate as a network switch or network file server. Thus, a personal computer could not be installed, maintained, purchased or leased at a discount for which the seller or lessor would be compensated from universal service support mechanisms, unless it was used solely as a switch or file server. Similarly, universal service support discounts will not be financed for fax machines or modems because they are not necessary to transmit information to individual classrooms. We also find that no universal service support will be provided for asbestos removal.

461. We recognize that some providers may offer a bundled package of services and facilities, only some of which are eligible for support. For example, some file servers may also be built to provide storage functions to supplement personal computers on the network. We do not intend to provide a discount on such CPE capabilities. We could address the issue of bundling by allowing the bundling of eligible and ineligible services, but requiring that reimbursement not be requested for more than the fair market value of the eligible services. Such an approach would be similar to our handling of discounts when eligible schools and libraries and other, ineligible entities form consortia through which to receive their telecommunications services. (1205) In the case of service bundling, however, neither party to the transaction would have any incentive to ensure that the allocation of costs established in the contract was fair and nonarbitrary. In consortia, by contrast, the members each have an incentive to ensure that they are assigned a fair allocation of costs.

462. We conclude that eligible schools and libraries may not receive support for contracts that provide only a single price for a package that bundles services eligible for support with those that are not eligible for support. Schools and libraries may contract with the same entity for both supported and unsupported services and still receive support only if any purchasing agreement covering eligible services specifically prices those services separately from ineligible services so that it will be easy to identify the purchase amount that is eligible for a discount. Consequently, where the service provider indicates separately what the prices of the eligible and ineligible offerings would be if offered on an unbundled basis, the service provider must indicate the "price reduction" that would apply if the services are purchased together. The provider would then be able to apply the appropriate universal service support discount to the price for the eligible services after reducing the price to reflect a proportional amount of the "price reduction" the provider applied.

463. Finally, we agree with those commenters asserting that schools and libraries should not be forced by the provider of internal connections to select a particular provider for other services.(1207) With respect to wireline internal connections, or inside wiring, we have previously addressed the rights of carriers and customers to carrier-installed inside wiring. (1208) In the Detariffing Recon. Order, we restricted the carriers' ability to interfere with customer access to inside wiring. (1209) We observe that the federal antitrust laws prohibit any provider of internal connections with monopoly power from using that power to distort competition in related markets. (1210) Similarly, we agree with WinStar that, if a carrier does not currently charge for the use of internal connections, it should not be entitled to begin charging for such use if the school or library selects an alternate service provider,(1211) because that would distort the competitive neutrality supported strongly by both Congress and the Joint Board.(1212)

C. Discount Methodology

2. Discussion

a. Pre-Discount Price

473. In General. As the Joint Board recognized, the pre-discount price is the price of services to schools and libraries prior to the application of a discount.(1234) That is, the pre-discount price is the total amount that carriers will receive for the services they sell to schools and libraries: the sum of the discounted price paid by a school or library and the discount amount that the carrier can recover from universal service support mechanisms for providing such services.

474. Because we seek to ensure that pre-discount prices are established at the lowest "amounts charged [by providers] for similar services to other parties,"(1235) we must reject the arguments of EDLINC that we use a nationwide average pre-discount price.(1236) Using a nationwide average pre-discount price would almost certainly result in forcing providers in higher cost areas to provide service to schools and libraries without being able to recover their costs. In addition, using a nationwide average pre-discount price would permit providers in lower cost areas to recover more than their total cost of providing services to schools and libraries within their service areas.

475. Competitive Environment. As the Joint Board recognized, in a competitive marketplace, schools

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and libraries will have both the opportunity and the incentive to secure the lowest price charged to similarly situated non-residential customers for similar services, and providers of telecommunications services, Internet access, and internal connections will face competitive pressures to provide that price. (1237)

476. We agree with the Joint Board that we should encourage schools and libraries to aggregate their demand with others to create a consortium with sufficient demand to attract competitors and thereby negotiate lower rates or at least secure efficiencies, particularly in lower density regions. (1238) We concur with the Joint Board's finding that aggregation into consortia can also promote more efficient shared use of facilities to which each school or library might need access.(1239) For example, where five nearby schools might each seek use of a 1.5 Mbps link once a week, it might be more efficient to share a single 1.5 Mbps connection to a network server than for each school to purchase its own 1.5 Mbps link.

477. Thus, we agree with the Joint Board's objectives in recommending that eligible schools and libraries be permitted to aggregate their telecommunications needs with those of both eligible and ineligible entities, including health care providers and commercial banks, because the benefits from such aggregation outweigh the administrative difficulties.(1240) We are concerned, however, that permitting large private sector firms to join with eligible schools and libraries to secure prices below tarriffed rates could compromise both the federal and state policies of non-discriminatory pricing. Thus, although we find congressional support for permitting eligible schools and libraries to secure prices below tariffed rates, we find no basis for extending that exception to enable all private sector firms to secure such prices.

478. For this reason, as described in more detail below, we adopt a slightly modified version of the Joint Board's recommendation. We conclude that eligible schools and libraries will generally qualify for universal service discounts and prices below tariffed rates for interstate services, only if any consortia they join include only other eligible schools and libraries, rural health care providers, and public sector (governmental) customers. Eligible schools and libraries participating in consortia that include ineligible private sector members will not be eligible to receive universal service discounts unless the pre-discount prices of any interstate services that such consortia receive from ILECs are generally tariffed rates. We conclude that this approach satisfies both the purpose and the intent of the Joint Board's recommendation because it should allow the consortia containing eligible schools and libraries to aggregate sufficient demand to influence existing carriers to lower their prices and should promote efficient use of shared facilities. This approach also includes the large state networks upon which many schools and libraries rely for their telecommunications needs among the entities eligible to participate in consortia. We recognize that state laws may differ from federal law with respect to nondiscriminatory pricing requirements. We also recognize, however, that should states so choose, they may impose the same structure as detailed herein, on the basis of similar policies at the state level.

479. We agree with the Joint Board that, ideally, eligible schools and libraries will take full advantage of the competitive marketplace and the opportunity to aggregate with others to secure cost-based, pre-discount prices for the services they need.(1241) We anticipate that competition to serve eligible schools and libraries will be vigorous in most markets. As NTIA observed to the Joint Board, "the most efficient use of the universal service fund support system should be promoted through the use of market-based techniques wherever possible."(1242) Schools and libraries may not yet be fully aware of how the 1996 Act is forcing the opening of markets that were previously served by monopolies. For example, many schools and libraries may be unaware of the studies concluding that wireless service providers may offer the best prices to 27 percent of all schools for connecting to the Internet.(1243) Schools and libraries may also not know that cable systems currently pass more than 90 percent of homes nationwide,(1244) and thus that cable operators may offer to provide telecommunications service or access to the Internet over their networks, particularly where the cable operators have previously installed an institutional network (I-net) to all schools and libraries as part of a local cable television franchise agreement.

480. We, therefore, adopt the Joint Board's finding that fiscal responsibility compels us to require that eligible schools and libraries seek competitive bids for all services eligible for section 254(h) discounts.(1245) Competitive bidding is the most efficient means for ensuring that eligible schools and libraries are informed about all of the choices available to them. Absent competitive bidding, prices charged to schools and libraries may be needlessly high, with the result that fewer eligible schools and libraries would be able to participate in the program or the demand on universal

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service support mechanisms would be needlessly great. We discuss, in greater detail below, the procedures for undertaking the competitive bidding process.(1246)

481. Some commenters ask us to clarify a number of points regarding competitive bidding. First, in response to a number of commenters,(1247) we note that the Joint Board intentionally did not recommend that the Commission require schools and libraries to select the lowest bids offered but rather recommended that the Commission permit schools and libraries "maximum flexibility" to take service quality into account and to choose the offering or offerings that meet their needs "most effectively and efficiently,"(1248) where this is consistent with other procurement rules under which they are obligated to operate. (1249) We concur with this policy, noting only that price should be the primary factor in selecting a bid. When it specifically addressed this issue in the context of Internet access, the Joint Board only recommended that the Commission require schools and libraries to select the most cost-effective supplier of access.(1250) By way of example, we also note that the federal procurement regulations (which are applicable here) specify that in addition to price, federal contract administrators may take into account factors including the following: prior experience, including past performance; personnel qualifications, including technical excellence; management capability, including schedule compliance; and environmental objectives.(1251) We find that these factors form a reasonable basis on which to evaluate whether an offering is cost-effective.

482. Other commenters suggest that we go beyond the Joint Board's recommendation and require schools to take other actions. For example, Nextel and WinStar ask us to require schools and libraries to require providers to bid on services on an unbundled basis, because a combination of smaller providers may be able to offer them better prices than those who can offer them the entire package. (1252) Teleport and NCTA ask us to require schools to limit bids to a single round of sealed bids. (1253) TCI asks that we require vendors to provide their qualifications.(1254) We endorse the objectives that these suggestions seek to achieve; we find, nonetheless, that Commission action is not required because many individual schools and libraries operate under state and local procurement rules designed to achieve those objectives.(1255) Thus, although we do not impose bidding requirements, neither do we exempt eligible schools or libraries from compliance with any state or local procurement rules, such as competitive bidding specifications, with which they must otherwise comply.

484. Lowest Price Charged to Similarly Situated Non-Residential Customers for Similar Services. In competitive markets, we anticipate that schools and libraries will be offered competitive, cost-based prices that will match or beat the cost-based prices paid by similarly situated customers for similar services. We concur, however, with the Joint Board that, to ensure that a lack of experience in negotiating in a competitive telecommunications service market does not prevent some schools and libraries from receiving such offers, we should require that a carrier offer services to eligible schools and libraries at prices no higher than the lowest price it charges to similarly situated non-residential customers for similar services (hereinafter "lowest corresponding price").(1260)

485. We also adopt the Joint Board's recommendation to use the lowest corresponding price as an upper limit on the price that carriers can charge schools and libraries in non-competitive markets, as well as competitive markets, so that eligible schools and libraries can take advantage of any cost-based rates that other customers may have negotiated with carriers during a period when the market was subject to actual, or even potential, competition.(1261) We conclude that requiring providers to charge their lowest corresponding price would impose no unreasonable burden, even on non-dominant carriers,(1262) because all carriers would be able to receive a remunerative price for their services. We clarify that, for the purpose of determining the lowest corresponding price, similar services would include those provided under contract as well as those provided under tariff.

486. Section 254(h)(1)(B) requires telecommunications carriers to make services available to all schools and libraries in any geographic area the carriers serve.(1263) We share the Joint Board's concern that, if "geographic area" were interpreted to mean the entire state, any firm providing telecommunications services to any school or library in a state would have to be willing to serve any other school or library in the state.(1264) We also agree with the Joint Board that an expansive interpretation of geographic area might discourage new firms beginning to offer service in one portion of a state from doing so due to concern that they would have to serve all other areas in that state. (1265) For example, electric utilities might be discouraged from offering telecommunications services to schools if there were a requirement that once they had offered service to one school or

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library system in their state of operation, any other school or library in the state could also demand telecommunications services at rates comparable to those the utility offered to its initial "test" community, even if it were not equipped to telecommunications services in those other markets.

487. We concur, therefore, with the Joint Board's recommendation that geographic area (hereinafter referred to as geographic service area) be defined as the area in which a telecommunications carrier is seeking to serve customers with any of its services covered by section 254(h)(1)(B).(1266) We do not limit here the area in which a telecommunications carrier or a subsidiary or affiliate owned or controlled by it can choose to provide service.(1267) We also agree with the Joint Board that telecommunications carriers be required to offer schools and libraries services at their lowest corresponding prices throughout their geographic service areas.(1268) Moreover, we agree with the Joint Board's recommendation that, as a condition of receiving support, carriers be required to certify that the price they offer to schools and libraries is no greater than the lowest corresponding price based on the prices the carrier has previously charged or is currently charging in the market.(1269) This obligation would extend, for example, to competitive LECs, wireless carriers, or cable companies, to the extent that they offer telecommunications for a fee to the public. (1270) We share the Joint Board's conclusion that Congress intended schools and libraries to receive the services they need from the most efficient provider of those services.(1271)

488. We clarify that a provider of telecommunications services, Internet access, and internal connections need not offer the same lowest corresponding price to different schools and libraries in the same geographical service area if they are not similarly situated and subscribing to a similar set of services. (1272) Providers may not avoid the obligation to offer the lowest corresponding price to schools and libraries for interstate services, however, by arguing that none of their non-residential customers are identically situated to a school or library or that none of their service contracts cover services identical to those sought by a school or library. Rather, we will only permit providers to offer schools and libraries prices above the prices charged to other similarly situated customers when those providers can show that they face demonstrably and significantly higher costs to serve the school or library seeking service. EDLINC asks us to prohibit carriers from distinguishing among customers based on anything other than traffic volumes in comparing costs.(1273) We decline to adopt this approach because we find it reasonable for rates to reflect any factors that clearly and significantly affect the cost of service, including mileage from switching facility and length of contract. We would expect state commissions to employ these same standards when evaluating differences between customers of intrastate services.

489. If the services sought by a school or library include significantly lower traffic volumes or their provision is significantly different from that of another customer with respect to any other factor that the state public service commission has recognized as being a significant cost factor, then the provider will be able to adjust its price above the level charged to the other customer to recover the additional cost incurred so that it is able to recover a compensatory pre-discount price. We also recognize that costs change over time and, thus, as PacTel and USTA observe, compensatory rates would not necessarily result if a provider were required to charge the same price it had charged many years ago. (1274) We will establish a rebuttal presumption that rates offered within the previous three years are still compensatory. As Citizens Utilities recognizes, we also would not require a provider to match a price it offered to a customer who is receiving a special regulatory subsidy or that appeared in a contract negotiated under very different conditions, if that would force the provider to offer services at a rate below Total-Service Long-Run Incremental Cost (TSLRIC).(1275)

490. We also adopt the Joint Board's recommendation that, if they believe that the lowest corresponding price is unfairly high or low, schools, libraries, and carriers should be permitted to seek recourse from the Commission, regarding interstate rates, and from state commissions, regarding intrastate rates.(1276) Eligible schools and libraries may request a lower rate if they believe the rate offered by the carrier is not the lowest corresponding price. Carriers may request higher rates if they believe that the lowest corresponding price is not compensatory. We find that permitting eligible schools and libraries to seek such recourse permits sufficient flexibility to address U S West's concern that establishing the lowest corresponding price may sometimes be difficult.(1277)

b. Discounts

492. The Act requires the Commission, with respect to interstate services, and the states, with respect to intrastate services, to establish a discount on designated services provided to eligible schools

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and libraries. Pursuant to section 254(h)(1)(B), the discount must be an amount that is "appropriate and necessary to ensure affordable access to and use of" the services pursuant to section 254(c)(3).(1282) The discount must take into account the principle set forth in section 254(b)(5) and mandated in section 254(d) that the federal universal service support mechanisms must be "specific, predictable, and sufficient." (1283) We agree with the Joint Board's recommendation that we adopt a percentage discount mechanism, adjusted for schools and libraries that are defined as economically disadvantaged and those schools and libraries located in areas facing particularly high prices for telecommunications service. (1284) In particular, we concur with the Joint Board's recommendation that we adopt discounts from 20 percent to 90 percent for all telecommunications services, Internet access, and internal connections, with the range of discounts correlated to indicators of economic disadvantage and high prices for schools and libraries. (1285)

493. We agree with the Joint Board's recommendation that we adopt rules that provide support to eligible schools and libraries through a percentage discount mechanism rather than providing a package of free services or block grants to states because we find that discounts would better assure efficiency and accountability. (1286) Requiring schools and libraries to pay a share of the cost should encourage them to avoid unnecessary and wasteful expenditures because they will be unlikely to commit their own funds for purchases that they cannot use effectively. A percentage discount also encourages schools and libraries to seek the best pre-discount price and to make informed, knowledgeable choices among their options, thereby building in effective fiscal constraints on the discount fund. We find that this approach is consistent with many state and local requirements because such requirements generally require schools and libraries to seek competitive bids for procurements above a specified minimum level. (1287)

494. Discounts in High Cost Areas. We also adopt the Joint Board's recommendation that, to make service more affordable to schools and libraries, we offer greater support to those located in high cost areas than to those in low cost areas.(1288) We reject, however, arguments advanced by ALA and EDLINC that the discount matrix recommended by the Joint Board does not adequately acknowledge the substantial disparity between telecommunications prices in different locations.(1289) Although the discount matrix we adopt does not make the prices schools and libraries pay for telecommunications services in high and low cost areas identical, we find that the matrix distributes substantially more funds, particularly on a per capita basis, to reduce prices paid by schools and libraries in areas with higher telecommunications prices than they do to reduce prices in areas in which such prices are already relatively low. The greater price reduction in terms of total dollar amounts for schools and libraries in high cost areas results primarily because the discount rates are based on percentages that lead proportionally to more funds flowing to those schools and libraries facing proportionally higher prices.(1290)

495. The principle can be illustrated using an example provided by EDLINC.(1291) In that example, one school in the state of Washington faces undiscounted monthly T-1 charges of $125.00 per month, while a similar school elsewhere in the state faces undiscounted monthly T-1 charges of $2100.00 per month. Assuming that both are eligible for a 90 percent discount, the school facing relatively low prices would receive 0.9 x $125.00 = $112.50 in support, while the school facing relatively high prices would receive 0.9 x $2100.00 = $1890.00 in support. Thus, considering the total dollar amount of support, the school located in the high cost area receives almost 17 times as much support as the school located in the low cost area. In addition, the average number of students in schools in low cost, urban areas exceeds the number in high cost, rural areas.(1292) In fact, the per capita support figures show that students in high cost rural schools, like the ones in the EDLINC example, would receive 23 times as much support per student as those in the low cost school. Thus, while this high cost school's monthly charges are reduced to $210.00 per month, compared to the $12.50 per month paid by the low cost school, the support per student that the high cost school would receive would be 23 times that received by the low cost school.

496. Although the discount mechanism we adopt does not equalize prices in all areas nationwide, it makes telecommunications service in the areas with relatively high prices substantially more affordable to the schools and libraries in those areas. We find that a mechanism that may provide as much as 23 times more support per capita to a school or library in a high cost area than it does to one in a low cost area is providing substantially more of a discount to the former. We also note that some eligible schools and libraries in high cost areas will benefit, at least temporarily, from the high cost assistance that eligible telecommunications carriers serving them will

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receive. Although high cost support will only be targeted to a limited number of services, none of which are advanced telecommunications and information services,(1293) many schools and libraries will connect to the Internet via voice-grade access to the PSTN. Furthermore, whereas the Joint Board presumed that such support would only be targeted to residential and single-line businesses,(1294) in the short term, our decision diverges from that result and permits support for multiline businesses.(1295) We agree with the Joint Board that this position on support for schools and libraries in high cost areas is consistent with our other goal of providing adequate support to disadvantaged schools while keeping the size of the total support fund no larger than necessary to reach this goal.(1296) The Joint Board recommended, and we agree, that the nominal percentage discount levels should be more sensitive to how disadvantaged a school or library is than whether it is located in a high cost service area.(1297) We conclude, therefore, that the additional support for schools and libraries in high cost areas provided in the matrix we adopt(1298) is "appropriate and necessary to ensure affordable access" to schools and libraries as directed by section 254(h)(1)(B).(1299)

497. Discounts for Economically Disadvantaged Schools and Libraries. We adopt the Joint Board's recommendation that we establish substantially greater discounts for the most economically disadvantaged schools and libraries. (1300) We recognize that such discounts are essential if we are to make advanced technologies equally accessible to all schools and libraries. We agree, however, with the Joint Board(1301) and several commenters(1302) that not even the most disadvantaged schools or libraries should receive a 100 percent discount. We recognize that even a 90 percent discount, and thus a 10 percent co-payment requirement, might create an impossible hurdle for disadvantaged schools and libraries that are unable to allocate any of their own funds toward the purchase of eligible discounted services, and thus could increase the resource disparity among schools.(1303) We conclude, however, that even if we were to exempt the poorest schools from any co-payment requirement for telecommunications services, a 100 percent discount would not have a dramatically greater impact on access than would a 90 percent discount, because we are not providing discounts on the costs of the additional resources, including computers, software, training and maintenance, which constitute more than 80 percent of the cost of connecting schools to the information superhighway. (1304) We share the Joint Board's belief that the discount program must be structured to maximize the opportunity for its cost-effective operation, and that, for the reasons noted above, requiring a minimal co-payment by all schools and libraries will help realize that goal.(1305)

500. We...find that the matrix we adopt below satisfies the directive...that we establish a discount that is "appropriate and necessary to ensure affordable access to and use of such services by such entities." Given that no school or library could afford access without also having resources to purchase computers and software and train teachers or librarians, we find that no dollar figure or percentage discount can make access "affordable" in any absolute sense. Nor do we interpret section 254(h)(1)(B) as requiring us to discern such absolute figures or percentages. Rather, we conclude that the Joint Board correctly established its recommended percentages based on a careful balancing of the costs and benefits of providing those levels of support.

510. We conclude that a school may use either an actual count of students eligible for the national school lunch program or federally-approved alternative mechanisms to determine the level of poverty for purposes of the universal service discount program. Alternative mechanisms may prove useful for schools that do not participate in the national school lunch program or schools that participate in the lunch program but experience a problem with undercounting eligible students (e.g., high schools, rural schools, and urban schools with highly transient populations.) Schools that choose not to use an actual count of students eligible for the national school lunch program may use only the federally-approved alternative mechanisms contained in Title I of the Improving America's Schools Act, which equate one measure of poverty with another. These alternative mechanisms permit schools to choose from among existing sources of poverty data a surrogate for determining the number of students who would be eligible for the national school lunch program. A school relying upon one of these alternative mechanisms could, for example, conduct a survey of the income levels of its students' families. We conclude that only federally approved alternative mechanisms, which rely upon actual counts of low-income children, provide more accurate measures of poverty and less risk of over-counting, than other methods suggested by some commenters that merely approximate the percentage of low-income children in a particular area. Although the undercounting problem experienced by some schools in their use of the national

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school lunch program was raised by commenters after the Recommended Decision and is, therefore, an issue that the Joint Board did not consider, we conclude that our determination to permit the use of federally-approved alternative mechanisms is consistent with the Joint Board's recommendation that the method for measuring economic disadvantage be minimally burdensome and use data that schools already collect. We also note that federally-approved alternative mechanisms have been endorsed in existing regulations,(1339) have been the product of a negotiated rulemaking in which schools participated, and are in use already by some schools.

520. For purposes of administering the school lunch program, the Department of Education places schools in five categories, based on the percentage of students eligible for free or reduced-price lunches: 0-19 percent; 20-34 percent; 35-49 percent; 50-74 percent; and 75-100 percent. Consistent with the Joint Board's recommendation, we adopt the percentage categories used by the Department of Education for schools and libraries, and we also establish a separate category for the least economically disadvantaged schools and libraries, i.e., those with less than one percent of their students eligible for the national school lunch program. Schools and libraries in the "less than one percent" category should have comparatively greater resources within their existing budgets to secure affordable access to services even with lower discounted rates. We, therefore, adopt the matrix for schools and libraries.

521. We conclude that this approach fulfills our obligation to ensure that telecommunications and other supported services are provided to schools and libraries at "rates less than the amounts charged for similar services to other parties. "(1360) We also conclude that the step function used to define the entries in the discount matrix addresses CSE's concern that we provide greater levels of support to schools and libraries that have the greatest need.(1361)

522. Self-Certification Requirements. We agree with the Joint Board's recommendation that, when ordering telecommunications and other supported services, the procurement officer responsible for ordering such services for a school or library must certify its degree of poverty to the universal service administrator. For eligible schools ordering telecommunications and other supported services at the individual school level, which we anticipate will be primarily non-public schools, the procurement officer ordering such services must certify to the universal service administrator the percentage of students eligible in that school for the national school lunch program. (1362) For eligible libraries ordering telecommunications and other supported services at the individual library level, which we anticipate will be primarily single-branch libraries, the procurement officer ordering such services must certify to the universal service administrator the percentage of students eligible for the national school lunch program in the school district in which the library is located.

Figure 1

Schools and Libraries Discount Matrix

How Disadvantaged? Discount Level

% of students eligible for national school lunch program(1359)	[estimated % of US Schools in category)	Urban Discount (%)	Rural Discount (%)
<1	3	20	25
1-19	31	40	50
20-34	19	50	60
35-49	15	60	70
50-74	16	80	80
75-100	16	90	90

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523. For eligible schools ordering telecommunications and other supported services at the school district or state level, we agree with the Joint Board's recommendation that we minimize the administrative burden on schools while at the same time ensuring that the individual schools with the highest percentages of economically disadvantaged students receive the deepest discounts for which they are eligible.(1363) We, therefore, adopt the Joint Board's recommendation to require the procurement officer for each school district or state applicant to certify to the universal service administrator the percentage of students in each of its schools that is eligible for the national school lunch program,(1364) calculated either through an actual count of eligible students or through the use of a federally-approved alternative mechanism, as discussed above. (1365) If the level of discount were instead calculated for the entire school district, a school serving a large percentage of students eligible for the national school lunch program that was located in a school district comprised primarily of more affluent schools would not benefit from the level of discount to which it would be entitled if discounts had been calculated on an individual school basis. The school district or state may decide to compute the discounts on an individual school basis or it may decide to compute an average discount; in either case, the state or the district shall strive to ensure that each school receives the full benefit of the discount to which it is entitled.

524. For libraries ordering telecommunications and other supported services at the library system level, we agree with commenters asserting that library systems should be able to compute discounts on either an individual branch basis or based on an average of all branches within the system.(1366) Specifically, if individual branches within a library system are located in different school districts, we conclude that the procurement officer responsible for ordering telecommunications and other supported services for the library system must certify to the administrator the percentage of students eligible for the national school lunch program in each of the school districts in which its branches are located. This requirement is consistent with the treatment of school districts, as discussed above, and encourages library systems to strive to ensure that a branch located within a less affluent area of an otherwise more affluent library system will receive the greater discounts targeted to economically disadvantaged institutions. The library system may decide to compute the discounts on an individual branch library basis or it may decide to compute an average discount; in either case, the library system shall strive to ensure that each library receives the full benefit of the discount to which it is entitled.

525. Similarly, for library consortia ordering telecommunications and other supported services, we conclude that each consortium's procurement officer must certify to the administrator the percentage of students eligible for the national school lunch program for the school district in which each of its members is located. Each library consortium may compute the discounts on the basis of the school district in which each consortium member is located or it may compute an average discount; in either case, each library consortium shall strive to ensure that each of its members receives the full benefit of the discount to which it is independently entitled.

528. Finally, we adopt Ameritech's suggestion that information about the universal service discounts for which individual schools and libraries are eligible, based on their level of poverty and rural status, be posted on the same website as that on which schools' and libraries' RFPs will be posted, as discussed below. (1374) We conclude that posting this information on the website created by the universal service administrator for the schools and libraries discount program may assist providers seeking to provide eligible services to a school or library by providing potentially useful information about a prospective customer. If a school district submits school lunch eligibility information for each school, or a library system submits school lunch eligibility information for each branch, then the universal service administrator is instructed to post that information. If a school district chooses to submit only district-wide poverty information or a library system chooses to provide only system-wide poverty information, then that is the information that will be posted by the universal service administrator. We also adopt Ameritech's suggestion that the actual discounts be calculated and posted on the website, as discussed below.(1375)

f. Existing Contracts

545. We agree with the recommendations of the Joint Board(1412) and a number ofcommenters(1413) that we should permit schools and libraries to apply the relevant discounts we adopt in this order to contracts that they negotiated prior to the Joint Board's Recommended Decision for services that will be delivered and used after the effective date of our rules, provided the expenditures are approved by the administrator according to the procedures set forth above. No discount would

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apply, however, to charges for any usage of telecommunications or information services or installation or maintenance of internal connections prior to the effective date of the rules promulgated pursuant to this Order. While we will not require schools or libraries to breach existing contracts to become eligible for discounts, this exemption from our competitive bidding requirements shall not apply to voluntary extensions of existing contracts.

546. We conclude that allowing discounts to be applied to existing contract rates for future covered services is appropriate and necessary to ensure schools and libraries affordable access to and use of the services supported by the universal service program. As discussed above and in the Recommended Decision, the concept of affordability contains not only an absolute component, which takes into account, in this case, a school or library's means to subscribe to certain services, but also a relative component, which takes into account whether the school or library is spending a disproportionate amount of its funds on those services.(1414) Thus, although a school or library might have chosen to devote funds to, for example, certain telecommunications services, it might have done so at considerable hardship and thus at a rate that is not truly affordable. Moreover, some schools and libraries might be bound by contracts negotiated by the state, even though an individual school or library in the state might not be able to afford to purchase any services under the contract unless it is able to apply universal service support discounts to the negotiated rate. Furthermore, allowing discounts to be applied to existing contract rates will ensure affordable access to and use of all the services Congress intended, not just whatever services, however minimal, an individual school or library might have contracted for before the discounts adopted herein were available at a cost that might preclude it from being able to afford to purchase other services now available at a discount.

549. We agree with the Joint Board that schools and libraries, constrained by budgetary limitations and the obligation to pay 100 percent of the contract price, had strong incentives to secure the lowest rates possible when they negotiated the contracts. (1421) Thus, we find it appropriate to apply discounts to these presumptively low rates rather than requiring negotiation of new rates. Furthermore, we conclude that it would not be in the public interest to penalize schools and libraries in states that have aggressively embraced educational technologies and have signed long-term contracts for service by refusing to allow them to apply discounts to their pre-existing contract rates.

g. Interstate and Intrastate Discounts

550. We concur with the Joint Board's recommendation that we exercise our authority to provide federal universal service support to fund intrastate discounts. (1422) We also agree with the Joint Board's recommendation that we adopt rules providing federal funding for discounts for eligible schools and libraries on both interstate and intrastate services to the levels discussed above and that we require states to establish intrastate discounts at least equal to the discounts on interstate services as a condition of federal universal service support for schools and libraries in that state.(1423) While section 254(h)(1)(B) permits the states to determine the level of discount available to eligible schools and libraries with respect to intrastate services,(1424) the Act does nothing to prohibit the Commission from offering to fund intrastate discounts or conditioning that funding on action the Commission finds to be necessary to achieve the goal that the Snowe-Rockefeller-Exon-Kerrey amendment sought to accomplish under this subsection.

D. Restrictions Imposed On Schools and Libraries

2. Discussion

554. Eligibility. The Joint Board concluded that, to be eligible for universal service support, a school must meet the statutory definition of an elementary or secondary school found in the Elementary and Secondary Education Act of 1965, must not operate as a for-profit business, and must not have an endowment exceeding $50 million.(1446) We agree and conclude that all schools that fall within the definition contained in the Elementary and Secondary Education Act of 1965 and meet the criteria of section 254(h), whether public or private, will be eligible for universal service support. Illinois Board of Education and Community Colleges ask that we expand the definition of schools to include entities that educate elementary and secondary school aged students,(1447) and APTS asks that we permit discounts for educational television station licensees as a way to support distance learning. (1448) We find, however, consistent with the Joint Board and with SBC's observation,(1449) that section 254(h)(5)(A) does not grant us discretion to expand the statutory definition of schools. For the same reason, we must reject the West Virginia Consumer Advocate's suggestion that we presume private and parochial schools to be eligible even if they do not meet the statutory definition of schools.(1450)

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556. Section 254(h)[5) does not include an explicit definition of libraries eligible for support.(1453) Rather, in section 254(h)(4)'s eligibility criteria, Congress cited LSCA.(1454) The Joint Board, therefore, used the definition of library found in Title III of the LSCA.(1455) In late 1996, however, Congress amended section 254(h)[4) to replace citation to the LSCA with a citation to the newly enacted LSTA.(1456) In light of this amendment to section 254(h)(4), we find it necessary to look anew at the definitions of library and library consortium and adopt definitions that are consistent with the directives of section 254(h).

557. LSTA defines a library more broadly than did the former LSCA and includes, for example, academic libraries and libraries of primary and secondary schools.(1457) If, for purposes of determining entities eligible for universal service support, we were to adopt a definition that includes academic libraries, we are concerned that the congressional intent to limit the availability of discounts under section 254(h) could be frustrated. Specifically, in section 254(h)(5), Congress limited eligibility for support to elementary and secondary schools that meet certain criteria, choosing to target support to K-12 schools rather than attempting to cover the broader set of institutions of higher learning. If we were to adopt the new expansive definition of library, institutions of higher learning could assert that their libraries, and thus effectively their entire institutions, were eligible for support. For example, a university could establish "branch libraries" in classrooms and even student dormitories, making them eligible for universal service support as "academic libraries."Such a scenario could result in otherwise ineligible institutions receiving universal service support, thus draining a substantial amount of the support Congress intended for eligible schools and libraries. Similarly, elementary or secondary schools with endowments of more than $50 million that wouldotherwise be excluded from receiving support under section 254(h)(4) could establish "branch libraries" in each classroom, making them eligible for universal service support as elementary or secondary school libraries. This scenario would also result in otherwise ineligible entities, i.e., elementary and secondary schools with endowments exceeding $50 million, draining a significant amount of universal service support away from entities that Congress specifically targeted for support. Both of these outcomes would circumvent the section 254(h) limitation on support to eligible elementary and secondary schools, would contradict Congress's intent to target support to K-12 schools and libraries, and would inflict the most harm upon the economically disadvantaged schools and libraries eligible for the greatest percentages of universal service support.

558. We, therefore, adopt the LSTA definition of library for purposes of section 254(h), but we conclude that a library's eligibility for universal service funding will depend on its funding as an independent entity. That is, because institutions of higher education are not eligible for universal service support, an academic library will be eligible only if its funding is independent of the funding of any institution of higher education. By "independent," we mean that the budget of the library is completely separate from any institution of learning. This independence requirement is consistent with both congressional intent and the expectation of the Joint Board that universal service support would How to an institution of learning only if it is an elementary or secondary school.(1458) Similarly, because elementary and secondary schools with endowments exceeding $50 million are not eligible for universal service support,(1459) a library connected to such a school will be eligible only if it is funded independently from the school.

559. We adopt the independent library requirement because we are also concerned that, in some instances where a library is attached, for funding purposes, to an otherwise eligible school, the library could attempt to receive support twice, first as part of the school and second as an independent entity. We find that the independence requirement will ensure that an elementary or secondary school library cannot collect universal service support twice for the same services.

560. When Congress amended section 254(h)(4) in late 1996, it added the term "library consortium" to

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the entities potentially eligible for universal service support. (1460) We adopt the definition of library consortium as it is defined in LSTA, with one modification. We eliminate "international cooperative association of library entities" from our definition of library consortia eligible for universal service support because we conclude that this modified definition is consistent with the directives of section 254(h).

561. We find that the inclusion of "library consortium" in the LSTA definition of library should address the concern of MassLibrary that library consortia be eligible for universal service support.(1461) Moreover, in response to Community Colleges, (1462) we conclude that community college libraries are eligible for support only if they meet the definition above and other requirements of section 254(h). In addition, as described above, the Joint Board recommended, and we agree, that all eligible schools and libraries should be permitted to enter into consortia with other schools and libraries. (1463)

562. The Joint Board concluded that entities not explicitly eligible for support should not be permitted to gain eligibility for discounts by participating in consortia with those who are eligible, even if the former seek to further educational objectives for students who attend eligible schools. (1464) We agree with, and therefore adopt, this Joint Board recommendation. Nevertheless, we look to ineligible schools and libraries to assume leadership roles in network planning and implementation for educational purposes. Although we conclude that Congress did not intend that we finance the costs of network planning by ineligible schools and libraries through universal service support mechanisms, we encourage universities and other repositories of information to make their online facilities available to other schools and libraries. We note that eligible schools and libraries will be eligible for discounts on any dedicated lines they purchase to connect themselves to card catalogues or databases of scientific or other educational data maintained by colleges or universities, databases of research materials maintained by religious institutions, and any art or related materials maintained by private museum archives. Connections between eligible and ineligible institutions can be purchased by an eligible institution subject to the discount as long as the connection is used for the educational purposes of the eligible institution. For example, an eligible school could use universal service support discounts to pay for satellite connections to enable students or teachers to participate in academic symposiums or lectures, but not to receive live broadcasts of sporting events.

563. In response to Benton's, NASTD's, and Georgia PSC's comments,(1465) we emphasize that we y encourage all eligible entities to participate in consortia because such participation should enable them to secure the telecommunications and information services and facilities they need under terms and conditions better than they could negotiate alone. We conclude that, because they may be able to offer service providers economies of scale and scope that reduce costs of serving them, consortia may be able to negotiate lower prices with providers competing to serve them better than schools or libraries could on their own, Although consortia-negotiated prices might commonly be characterized as "discounted prices," because they are lower than the prices that individual members of the consortia would be able to secure on their own, we still characterize them as "pre-discount" prices for the purposes of section 254(h) because they are the prices eligible schools and libraries could obtain even without application of the relevant universal service support discounts.(1466) All members of such consortia, including those ineligible for universal service support, would benefit from these lower "pre-discount" prices produced by such statewide, regional or large group contracts.

564. While those consortium participants ineligible for support would pay the lower pre-discount prices negotiated by the consortium, only eligible schools and libraries would receive the added benefit of universal service discount mechanisms. Those portions of the bill representing charges for services purchased by or on behalf of and used by an eligible school, school district, library, or library consortia for educational purposes would be reduced further by the discount percentage to which the school or library using the services was entitled under section 254(h). The service provider would collect that discount amount from universal service support mechanisms. The prices for services that were not actually used by eligible entities for educational purposes would not be reduced below the contract price.

566. Resale. Section 254(h)(3) bars entities that obtain discounts from reselling the discounted services. It states that:

Telecommunications services and network capacity provided [to schools or libraries at a discount! may not be sold, resold, or otherwise transferred by such user in consideration for money or any other thing of value.(1471)

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We concur with the Joint Board's recommendation that we not interpret the section 254(h)(3) bar to apply only to resale for profit.(1472) To adopt the suggestion of EDLINC(1473) and permit waivers for resale to entities that serve educational purposes would permit schools and libraries to circumvent the eligibility requirements discussed above and would provide services at a discount to entities that Congress did not choose to cover. Moreover, adopting EDLINC's suggestion would rapidly deplete the funds available to the eligible schools and libraries that Congress intended to benefit from the universal service discount program. The same reasoning applies to the request by the Vermont PSB that schools and libraries be permitted to resell services if they charge the discounted prices that they pay for them.(1474) We agree with the Joint Board's recommendation that we interpret section 254(h)(3) to restrict any resale whatsoever of services purchased pursuant to a section 254 discount to entities that are not eligible for support.(1475)

567. We agree, however, with the Vermont PSB that the section 254(h)(3) prohibition on resale does not prohibit an eligible entity from charging fees for any services that schools or libraries purchase that are not subject to a universal service discount.(1476) Thus, an eligible school or library may assess computer lab fees to help defray the cost of computers or training fees to help cover the cost of training because these purchases are not subsidized by the universal service support mechanisms. We also observe that, if eligible schools, libraries, or consortia amend their approved service contracts to permit another eligible school or library to share the services for which they have already contracted, it would not constitute prohibited resale, as long as the services used are only discounted by the amount to which the eligible entity actually using the services is entitled.

568. We recognize that the prohibition on resale creates some tension with our decision to permit purchasing consortia that include both eligible and ineligible public sector institutions, even though discounts would only apply to services purchased by eligible institutions. On the one hand, we are concerned that permitting eligible and ineligible buyers to commingle their purchases would permit eligible schools and libraries to transfer the use of their discount to ineligible entities in violation of the prohibition on resale. On the other hand, as we explained above, we want to encourage eligible institutions to aggregate their demands with others to enable them to enjoy efficiencies and negotiate favorable arrangements with service providers. As the Senate Working Group stated, the Act "should not hinder or preclude the creative development of consortia among education[al] institutions."(1477) Limiting such consortia to include only other K-12 schools and libraries could severely constrain their ability to achieve sufficient demand to attract potential competitors and thereby to negotiate lower rates or at least secure efficiencies, particularly in lower density regions. Permitting schools and libraries to aggregate with other ineligible public sector institutions, including state colleges and universities, state educational broadcasters, and municipalities, could enable the eligible entities to secure lower pre-discount rates, thereby diminishing both their costs and the amount of money required to finance a given percentage discount. In fact, many schools and libraries rely primarily, if not solely, on access to the Internet through networks managed by their states. (1478) The difficulty, then, is how to allow eligible institutions to aggregate their demand with ineligible entities while diminishing the likelihood of illegal resale through the extension of discounts to services used by ineligible entities.

572. First, we will require applications to include a technology inventory/assessment. We expect that, before placing an order for telecommunications or information services, the person authorized to make the purchase for a school or library would need to review what telecommunications-related facilities the school or library already has or plans to'acquire. In this regard, applicants must at a minimum provide the following information, to the extent applicable to the services requested:

(1) the computer equipment currently available or budgeted for purchase for the current, next, or other future academic years, as well as whether the computers have modems and, if so, what speed modems;

(2) the internal connections, if any, that the school or library already has in place or has budgeted to install in the current, next, or future academic years, or any specific plans relating to voluntary installation of internal connections;(1485)

(3) the computer software necessary to communicate with other computers over an internal network and over the public telecommunications network currently available or budgeted for purchase for the current, next, or future academic years;

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(4) the experience of the training received by the relevant staff in the use of the equipment to be connected to the telecommunications network and training programs for which funds are committed for the current, next, or future academic years;

(5) existing or budgeted maintenance contracts to maintain computers; and

(6) the capacity of the school's or library's electrical system to handle simultaneous uses.

573. In addition, schools and libraries must prepare specific plans for using these technologies, both over the near term and into the future, and how they plan to integrate the use of these technologies into their curriculum. Therefore, we concur with the Joint Board's finding that it would not be unduly burdensome to require eligible schools and libraries to "do their homework" in terms of preparing these plans. (1486)

574. To ensure that these technology plans are based on the reasonable needs and resources of the applicant and are consistent with the goals of the program, we will also require independent approval of an applicant's technology plan, ideally by a state agency that regulates schools or libraries. We understand that many states have already undertaken state technology initiatives,(1487) and we expect that more will do so and will be able to certify the technology plans of schools and libraries in their states. Furthermore, plans that have been approved for other purposes, e.g., for participation in federal or state programs such as "Goals 2000" and the Technology Literacy Challenge, will be accepted without need for further independent approval. With regard to schools and libraries with new or otherwise approved plans, we will receive guidance from the Department of Education and the Institute for Museum and Library Services as to alternative approval measures. As noted below, we will also require schools and libraries to certify that they have funds committed for the current funding year to meet their financial obligations set out in their technology plans.

575. Second, we will require the application to describe the services that the schools and libraries seek to purchase in sufficient detail to enable potential providers to formulate bids. Since we agree with the Joint Board's conclusion that Congress intended schools and libraries to avail themselves of the growing competitive marketplace for telecommunications and information services,(1488) as discussed above, we concur with the Joint Board's recommendation that schools and libraries be required to obtain services through the use of competitive bidding. (1489) Once the subcontractor selected by the administrator receives an application and finds it complete, the subcontractor will post the application, including the description of the services sought on a website for all potential competing service providers to review and submit bids in response, as if they were requests for proposals (RFPs).(1490) Moreover, while schools and libraries may submit formal and detailed RFPs to be posted, particularly if that is required or most consistent with their own state or local acquisition requirements, we will also permit them to submit less formal descriptions of services, provided sufficient detail is included to allow providers to reasonably evaluate the requests and submit bids As the Joint Board recognized, many schools and libraries are already required by their local government or governing body to prepare detailed descriptions of any purchase they make above a specified dollar amount, and they may be able to use those descriptions for this purpose as well (1491) We emphasize, however, that the submission of a request for posting is in no way intended as a substitute for state, local, or other procurement processes.

576. We will also require that applications posted on the website by the administrator's subcontractor present schools' and libraries' descriptions of services in a way that will enable providers to search among potential customers by zip code, number of students (schools) or patrons (libraries), number of buildings, and other data that the administrator will receive in the applications. We believe that this procedure should enable even potential service providers without direct access to the website to rely on others to conduct searches for them. We also note that schools will submit the percentage of their students eligible for the national school lunch program and libraries will submit the percentage of students eligible for the national school lunch program in the school districts in which they are located to the administrator's subcontractor, in order to enable the administrator to calculate the amount of the applicable discount. This information will also be posted by the administrator on the website to help providers bidding on services to calculate the applicable discounts.

577. Third, we concur with the Joint Board's recommendation that the request for services submitted to the Administrator's subcontractor shall be signed by the person authorized to order telecommunications and other supported services for the

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school or library, who will certify the following under oath:

(1) the school or library is 'an eligible entity under sections 254(h)(4) and 254(h)(5) and the rules adopted herein;

(2) the services requested will be used solely for educational purposes;

(3) the services will not be sold, resold, or transferred in consideration for money or any other thing of value;

(4) if the services are being purchased as part of an aggregated purchase with other entities, the identities of all co-purchasers and the services or portion of the services being purchased by the school or library;

(5) all of the necessary funding in the current funding year has been budgeted and will have been approved to pay for the "non-discount" portion of requested connections and services as well as any necessary hardware, software, and to undertake the necessary staff training required in time to use the services effectively; and

(6) they have complied, and will continue to comply, with all applicable state and local procurement processes.

579. We conclude that, to permit all interested parties to respond to those posted requests, schools, libraries, and consortia including such entities should be required to wait four weeks after a description of the services they seek has been posted on the school and library website, before they sign any binding contracts for discounted services. Once they have signed a contract for discounted services,(1496) the school, library, or consortium including such entities shall send a copy of that contract to the administrator's subcontractor with an estimate of the funds that it expects to need for the current funding year as well as what it estimates it will request for the following funding year. Assuming that there are sufficient funds remaining to be committed, the subcontractor shall commit the necessary funds for the future use of the particular requester and notify the requester that its funding has been approved.

580. Once the school, library, or consortium including such entities has received approval of its purchase order, it may notify the provider to begin service, and once the former has received service from the provider it must notify the administrator to approve the flow of universal service support funds to the provider.

581. Auditing. We agree with the Joint Board recommendation that schools and libraries, as well as carriers, be required to maintain appropriate records necessary to assist in future audits.(1497) We share the Joint Board's expectation that schools and libraries will be able to produce such records at the request of any auditor appointed by a state education department, the fund administrator, or any other state or federal agency with jurisdiction that might, for example, suspect fraud or other illegal conduct, or merely be conducting a routine, random audit. We also agree with the Joint Board's recommendation and Vanguard's comments that eligibility for support be conditioned on schools' and libraries' consent to cooperate in future random compliance audits to ensure that the services are being used appropriately. (1498) The Commission, in consultation with the Department of Education, will engage and direct an independent auditor to conduct such random audits of schools and libraries as may be necessary. Such information will permit the Commission to determine whether universal service support policies require adjustment. We reject TCI's proposal for more formal annual reports as unnecessarily burdensome, given the likely costs of such reports.

582. Annual Carrier Notification Requirement. We agree with the Joint Board's recommendations and decline to impose a requirement that carriers annually notify schools and libraries about the availability of discounted services.(1499) As the Joint Board noted, many national representatives of school and library groups are participating in this proceeding, and we believe that these associations will inform their members of the opportunity to secure discounted telecommunications and other covered services under this program. For example, EDLINC alone represents more than two dozen educational associations. (1500) We encourage these groups to notify their members of the universal service programs through trade publications, websites, and conventions. In this regard, we note that the Commission has already participated in numerous outreach efforts aimed at disseminating information on the availability of universal service and support to schools and libraries.(1501) We also expect that providers of telecommunications services, Internet access, and internal connections will market to schools and libraries. Thus, while we concur with the Joint Board and decline to require provider notification to schools and libraries, we

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encourage service providers to notify each school and library association and state department of education in the states they serve of the availability of discounted services annually.

599. We thus conclude that the same non-telecommunications services eligible for discounts if provided by telecommunications carriers under section 254(h)(1)(B) are eligible for discounts if provided by non-telecommunications carriers under section 254(h)(2)(A). Furthermore, though the rules called for by section 254(h)(2)(A) are not required to mirror the discount schedule in section 254(h)(1)(B), we have authority to "enhance access" in this manner. Thus, the requirements that apply to the discount program for services provided by telecommunications carriers, discussed throughout this section, will apply to the discount program for services provided by non-telecommunications carriers, with one exception. Non-telecommunications carriers that are not required to contribute to universal service support mechanisms will be entitled only to reimbursement for the amount of the discount afforded to eligible schools and libraries under section 254(h)(1)(B), whereas telecommunications carriers will be entitled to either reimbursement or an offset to their obligation to contribute to universal service support mechanisms.(1532) Finally, we conclude that although sections 254(c)(3) and 254(h)(1)(B) on the one hand and sections 254(h)(2)[A) and 4(i) on the other hand authorize funding mechanisms under separate statutory authority, these funds can and should be combined into a single fund as a matter of administrative convenience.

600. New York DOE asserts that the Joint Board's recommendation provides no assurances that schools will take advantage of the discounts available under section 254(h)(2) to purchase advanced services rather than simply seeking discounts on the telecommunications services that they currently order.(1533) We note that POTS lines can be used to access sophisticated information services. We also agree, however, with the Joint Board's conclusion that our actions providing universal service support under section 254(h) will significantly increase the availability and deployment of telecommunications and information services for school classrooms and libraries.(1534) We find that the many requests from commenters that we include access to services using high capacity, including T-1 and T-3 lines, or functionalities such as video conferencing for distance learning, confirm that demand for these services actually exists.(1535) We also concur with the Joint Board's finding that additional steps are not needed at this time to meet Congress's goal of enhancing access to advanced telecommunications and information services,(1536) other than those taken here. Given the discounts available to schools and libraries and their recognition of the importance of providing students with the technological literacy they will need to survive in an information society, we agree with the Joint Board's reasoning and conclude that our action will promote access to advanced telecommunications services.

H. Initiation

1. Background

606. The Joint Board recommended that the Commission adopt rules that will permit schools and libraries to begin using discounted services ordered pursuant to section 254(h) at the start of the 1997-1998 school year.(1548) The Joint Board anticipated that schools and libraries may begin complying with the self-certification requirements as soon as the Commission's rules become effective.(1549)

2. Discussion

607. We concur with the Joint Board's recommendation and conclude that we adopt rules implementing the schools and libraries discount program at the start of the 1997-1998 school year. As discussed above, we also conclude that the funding year will be the calendar year and that support will begin to flow on January 1, 1998.

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