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PRdW,d\  P6G;PRdW,ׄ4  pG;yy.X80,ɒX\  P6G;Pz7jC:,ynXj\  P6G;XP{7nC:,\4  pG;}W!@(#,h@\  P6G;hP~H5!,),5\  P6G;,P\{,W80,%BZW*f9 xr G;X\5hC:,%rXh*f9 xr G;XX @|ND,_|\  P6G;P @ND,4  pG;6jC:,<̃Xj9 xOG;XL0~C;,XT2X~A P-7XP 1CC,f,$X\o pvN7X1~C;,ySmX~?Z x97XX8wC;,|Xw PE37XP6uC;,E;Xu&_ x7XXIYM,F \  P6G; PRdW,d\  P6G;PRdW,ׄ4  pG;IYM,\ 4  pG; @ @@@ @@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@@2 yO(  O X2#Xj\  P6G;ynXP#w Q Federal Communications Commission`(#FCC 99121 ă  yxdddy#X\  P6G;ɒP#O &Qo v #X\  P6G;ɒP#Before the  :FEDERAL COMMUNICATIONS COMMISSION  yO(}Washington, D.C. 20554 #Xj\  P6G;ynXP#у  XX2#Xj\  P6G;ynXP#  X2#X\  P6G;ɒP##Xj\  P6G;ynXP#In the Matter of ,hhh) ` `  ,hhh)  X2FederalState Joint Board onhh)ppXCC Docket No. 9645  X2Universal Service ,hhh)  Xr 2q  TWELFTH ORDER ON RECONSIDERATION }IN CC DOCKET NO. 9645 x  X2Adopted: May 27, 1999 hhhReleased: May 28, 1999  X2 By the Commission: Chairman Kennard and Commissioners Ness and Tristani issuing separate statements; Commissioner FurchtgottRoth dissenting and issuing a statement at a later date; Commissioner Powell concurring in part and dissenting in part, and issuing a statement.  Xu2 I. INTRODUCTION  XG21.` ` In this Order, we reconsider, on our own motion, the Commission's decision governing the amount of money that may be collected during the second six months of 1999 and the first six months of 2000 to fund the second year of the federal universal service  X2support mechanisms for schools, libraries, and rural health care providers.W\U {O{( xԍ The Commission retains jurisdiction to reconsider its own rules on its own motion. See 47 C.F.R.  1.108.  {OE( x,See also Central Florida Enterprises, Inc., v. FCC, 598 F.2d 37, 48 n.51 (D.C. Cir. 1978), cert. dismissed, 441 U.S. 957 (1979).W For the reasons set forth below, we find that we should set the collection rate for the schools and libraries  X2support mechanism at the $2.25 billion cap adopted in the Universal Service Order\U {Oq!( xԍ FederalState Joint Board on Universal Service, CC Docket No. 9645, First Report and Order, 12 FCC Rcd  yO;"( x8776, 9054, para. 529 (1997), appeal pending sub nom. Texas Office of Util. Counsel, No. 9760421 (5th Cir., filed  {O#(June 25, 1997) (Universal Service Order).  and that we should modify the collection rate for the rural health care support mechanism by setting a  X2collection level of $12 million.*U {Oi&( xԍ See Letter from Robert Haga, Secretary and Treasurer, Universal Service Administrative Company, to Magalie  yO3'(Roman Salas, Secretary, Federal Communications Commission, dated May 17, 1999 (USAC May 17 Letter).* Although we modify the collection rate for the rural health"j 0*o(o(qq" care support mechanism, we do not revise the annual $400 million cap for the rural health  X2care support mechanism adopted in the Universal Service Order. In addition, we do not  X2revise the rules of priority adopted in the Fifth Order on Reconsideration and the Eleventh  X2Order on Reconsideration to govern the schools and libraries support mechanism.Bc {O8( xԍ See Federal-State Joint Board on Universal Service, CC Docket No. 96-45, Fifth Order on Reconsideration  {O( xand Fourth Report and Order, 13 FCC Rcd 14915, 14934, para. 31 (1998) (Fifth Reconsideration Order). The rules  xof funding priority provide that requests for telecommunications services and Internet access for all discount  xcategories shall receive first priority for available funds. When sufficient funds are not available to fund all requests  xfor discounts on internal connection, the Administrator shall allocate funds for discounts to schools and libraries  xLbeginning with those applicants at the ninety percent discount level and, to the extent funds remain, continue to  xallocate funds for discounts to applicants at each descending single discount percentage, e.g., eightynine percent,  {O ( xeightyeight percent, and so on. See Changes to the Board of Directors of the National Exchange Carrier  {O~ ( xhAssociation, FederalState Joint Board on Universal Service, Fifth Order on Reconsideration in CC Docket No. 97 x21, Eleventh Order on Reconsideration in CC Docket No. 9645, and Further Notice of Proposed Rulemaking, FCC  {O (9949, para. 4 (adopted Mar. 18, 1999) (Eleventh Reconsideration Order).  X22.` ` In this Order, we direct the Universal Service Administrative Company (USAC  X|2or the Administrator)~|2 Bc yO_( xԍ In a November 20, 1998 order, the Commission revised the organizational structure of the universal service  x$support mechanisms. As of January 1, 1999, the Schools and Libraries Corporation and the Rural Health Care  xDivision Corporation merged into the Universal Service Administrative Company (USAC). USAC now serves as  {O( xthe single entity responsible for administering all of the universal service support mechanisms. See Changes to the  {O( xBoard of Directors of the National Exchange Carrier Association, Inc., FederalState Joint Board on Universal  {OK( x@Service, Third Report and Order in CC Docket No. 97-21, Fourth Order on Reconsideration in CC Docket No. 97-21, and Eighth Order on Reconsideration in CC Docket No. 96-45, FCC 98-306 (rel. Nov. 20, 1998).  to collect no more than $562.5 million per quarter for the third and fourth quarters of 1999 and the first and second quarters of 2000 to support the schools and libraries universal service support mechanism, and to limit collections to no more than $3 million per quarter for the third and fourth quarters of 1999 and the first and second quarters of 2000 to support the rural health care universal service support mechanism. Furthermore, we direct USAC neither to commit nor disburse more than $2.25 billion for the schools and libraries support mechanism during the third and fourth quarters of 1999 and the first two  X 2quarters of 2000 or more than $12 million for the third and fourth quarters of 1999 and the first and second quarters of 2000 for the rural health care support mechanism.  X 2 II. COLLECTIONS DURING THE SECOND FUNDING YEAR A. BACKGROUND  X 2 3.` ` When we initially implemented the schools and libraries and rural health care support mechanisms in 1997, we did not have historical data upon which to estimate with"x0*&&qqP"  X2certainty the demand for services in the initial months of the support mechanisms.Bc {Oy(ԍ Universal Service Order, 12 FCC Rcd at 905456, 914041, paras. 52933, 70405. As a result, the FederalState Joint Board on Universal Service (Joint Board) and the Commission relied on the figures submitted on the record in the universal service proceeding to project  X2demand for the schools and libraries and rural health care support mechanisms.m\ZBc {O( xԍ See FederalState Joint Board on Universal Service, CC Docket No. 9645, Recommended Decision, 12 FCC  {O( xRcd 87, 36871, paras. 55256 (1996) (First Recommended Decision); Universal Service Order, 12 FCC Rcd at 905457, paras. 52933.m Based on  X2extensive public comment and the unanimous recommendation of the Joint Board,z~Bc {O (ԍ See Recommended Decision, 12 FCC Rcd at 36871, paras. 55256.z the Commission instituted annual caps on both support mechanisms $2.25 billion for the  Xv2schools and libraries support mechanism,s vBc {O7(ԍ Universal Service Order, 12 FCC Rcd at 9054, para. 529.s and $400 million for the rural health care support  X_2mechanism. _Bc {O( x~ԍ Universal Service Order, 12 FCC Rcd at 9141, para. 705. In addition, the Commission specified that the  xAdministrator should collect $100 million per month for the first three months of 1998 for the schools and libraries  xdsupport mechanism, and held that, between January 1, 1998 and June 30, 1998, the Administrator "will only collect  x<as much as required by demand, but in no case more than $1 billion." For the rural health care support mechanism,  {O( xthe Commission directed the Administrator to collect $100 million for the first three months of 1998. Id. at 9145, para. 715. On December 16, 1997, the Commission adopted the Third Reconsideration  XJ2Order, in which it revised the collection amounts for the first six months of 1998. The Commission directed the Administrator to collect only as much is required by demand, but in no event more than $625 million for the first six months of 1998 to support the schools and libraries universal service support mechanism, and no more than $50 million for the first six  X 2months of 1998 to support the rural health care universal service support mechanism.w Bc {O(ԍ Third Order on Reconsideration, 12 FCC Rcd 22801, para. 1 (1997).w  X 2 4.` ` In May of 1998, the Administrator estimated that $2.02 billion in discounts had been requested by applicants that had filed for schools and libraries discounts for the first  X2funding year. Bc {O( xxԍ See Letter from Ira Fishman, CEO, Schools and Libraries Corporation, to the Honorable William E. Kennard, Chairman, Federal Communications Commission, dated May 7, 1998. The Administrator also projected that the rural health care support mechanism  X}2required $25 million for the third and fourth quarters of 1998. $D} Bc yO8#( xjԍ On May 13, 1998, the Common Carrier Bureau released a Public Notice seeking comment on a proposed  xrevision of the 1998 collection amounts for the schools and libraries and rural health care universal service support  {O$( x^mechanisms. See Common Carrier Bureau Seeks Comment on Proposed Revision of 1998 Collection Amounts for  {O%( xSchools and Libraries and Rural Health Care Universal Service Support Mechanisms, CC Docket No. 9645, Public"% 0*&&%"  {O( xxNotice, DA 98872 (rel. May 13, 1998) (Collection Public Notice). In the Collection Public Notice, the Common  xLCarrier Bureau sought comment on a proposal to direct USAC to collect only as much money as is required by  x demand, but in no event more than $25 million per quarter for the third and fourth quarters of 1998 to support the  x2rural health care universal service support mechanism, and no more than $524 million per quarter for the third and  xfourth quarters of 1998 to support the schools and libraries universal service support mechanism. The Common  xCarrier Bureau also sought comment on whether to direct the administrative corporations neither to commit nor  xZdisburse more than $100 million for the rural health care support mechanism and $1.67 billion for the schools and  {O (libraries support mechanism during the 1998 funding year. Id.Ċ The Fifth Reconsideration"} 0*&&qq"  X2Order, adopted on June 22, 1998, amended the collection amounts, directing the Administrator to collect and disburse only as much money as is required by demand, but in no event more than $25 million per quarter for the third and fourth quarters of 1998 to support the rural health care universal service support mechanism, and no more than $325 million for each of the third and fourth quarters of 1998 and the first and second quarters of 1999 to support the  X2schools and libraries universal service support mechanism.Bc {O( xԍ Fifth Reconsideration Order, 13 FCC Rcd at 14933, para. 29. The Fifth Reconsideration Order changed the  xfunding year for the schools and libraries support mechanism from a calendar year cycle (January 1 December 31)  x(to a fiscal year cycle (July 1 June 30). To facilitate the change, the Commission concluded that the first funding  xperiod should run from January 1, 1998 through June 30, 1999. As a result, the Commission found that applications  xsubmitted during the initial 75day filing window (January 30, 1998 April 15, 1998) should be funded through June  {O( x30, 1999.  Id. The Fifth Reconsideration Order also established new rules to govern how funding will take place  {O( x~in situations where available funding is less than total demand; see n.3, supra. The rules of priority provide that  xrrequests for telecommunications services and Internet access for all discount categories shall receive first priority for  {OZ(the available funds. See 47 C.F.R.  54.507(g)(1)(i).  Thus, the total collection amount for the first 18month funding cycle of the schools and libraries universal service support  Xa2mechanism was increased to $1.925 billion.aBc {O(ԍ This increase reflected the extension of the first funding year from 12 months to 18 months; see n. 14, supra.Ĥ In addition, the Fifth Reconsideration Order  XL2directed the Administrator neither to commit nor disburse more than $100 million during 1998 for the rural health care support mechanism, or more than $1.925 billion for the schools and  X 2libraries support mechanism during 1998 and the first two quarters of 1999.} >Bc {O (ԍ Fifth Reconsideration Order, 13 FCC Rcd at 14916, para. 3. } The Commission determined that the revised collection rates would ensure full support for telecommunications services and Internet access, and would provide support for internal  X 2connections for the neediest applicants.} Bc {OZ (ԍ Fifth Reconsideration Order, 13 FCC Rcd at 14938, paras. 3, 378.} The Commission reasoned that funding collections for the new support mechanisms should be set at reduced levels in light of both the need to implement the necessary administrative processes and the need to make the fund sufficiently  X2flexible to respond to demand.bBc {O$( xԍ Fifth Reconsideration Order, 13 FCC Rcd at 14928, para. 19. See also Universal Service Order, 12 FCC at  yOq%(9054, para. 529.  In addition, the Commission concluded that the collection"0*&&qq`" rate for the rural health care support mechanism, $25 million for the last two quarters of 1998, was consistent with demand and that it was unlikely that eligible health care providers  X2would require additional funding.}Bc {OK(ԍ Fifth Reconsideration Order, 13 FCC Rcd at 14928, para. 21.}  X25.` ` On February 27, 1999 , the Schools and Libraries Division (SLD) of USAC completed the issuance of funding commitment letters, which advised schools and libraries of the amount of discounts for which they are eligible for the first funding year. Collectively, eligible schools and libraries were found eligible to receive more than $1.6 billion in  XH2discounts for the first funding year.HZBc yOS (ԍ This amount does not reflect funds set aside for administrative expenses and appeals. For those applications submitted during the initial filing window period, SLD granted all approved requests for discounts on priority one services (telecommunications services and Internet access) and granted all approved requests for  X 2internal connections down to the 70 percent discount level.  X 26.` ` The filing window for second year applications for the schools and libraries support mechanism opened on December 1, 1998 and closed on April 6, 1999. As of April 16, 1999, the Schools and Libraries Division estimated that schools and libraries have  X2requested discounts in the amount of $2.435 billion.Bc {O+( xԍ See Letter from Kate L. Moore, President, Schools and Libraries Division, to the Honorable William E. Kennard, Chairman, Federal Communications Commission, dated April 16, 1999.  Xy2  Xb2 7.` ` Collections for the rural health care support mechanism prior to the first quarter of 1999 exceeded disbursements and USAC has reported that the support mechanism had a  X42balance of $87 million at the end of 1998.4DBc {O)( xԍ See Second Quarter 1999 Universal Service Contribution Factors, CC Docket No. 9645, Public Notice, DA 99455 (rel. March 4, 1999). The Commission directed that excess  X2contributions be credited back to contributors.3Bc {Ol(ԍ Id.3 Specifically, the Commission proposed that the excess contributions for the rural health care support mechanism be applied to the other support mechanisms with the same contribution base, i.e., the support mechanisms based upon  X2interstate, intrastate, and international enduser telecommunications revenues.40 Bc {O!(ԍ Id. 4 USAC reported that no more than $2.0 million would be necessary to fund completed applications  X2for the second quarter of 1999.3 Bc {O%(ԍ Id.3 USAC therefore requested that no contributions be collected for the second quarter of 1999 because the funding requirements would be satisfied by the"T 0*&&qqV"  X2remaining balance in the rural health care account.3Bc {Oy(ԍ Id.3  X28.` ` The filing window for the rural health care support mechanism opened on March 1, 1999 and is scheduled to close on May 14, 1999. The Administrator projected that demand for the rural health care support mechanism likely would not exceed $12 million for  X2the second funding year.SZBc {O(ԍ See USAC May 17 Letter.S  Xv2  X_2B. DISCUSSION   X12 9.` ` The Commission is committed to setting collection levels for the second funding year at an amount that will ensure that the Administrator is able to allocate support to schools and libraries at a level that is equal to or greater than the level of support that was allocated in the first funding year. Accordingly, given this commitment and estimated demand at $2.435 billion, we believe that the collection level should be set at the $2.25  X 2billion cap recommended by the Joint Board on Universal Service in the First Recommended  X 2Decisioni Bc {OF(ԍ First Recommended Decision, 12 FCC Rcd at 370, para. 556.i and adopted by the Commission in the Universal Service Order.g ~Bc {O(ԍ Universal Service Order, 12 FCC Rcd at 9054, para. 529.g   Consistent with  X2the Commission's conclusion in the Universal Service Order, we believe that setting the collection level at $2.25 billion reasonably balances the desire to provide support to eligible schools and libraries against the costs associated with establishing larger support  XQ2mechanisms.kQBc {O(ԍ See Universal Service Order, 12 FCC Rcd at 9056, para. 533.k While we recognize that some applicants' needs will not be met in full (i.e., for funding of all internal connection requests), a collection rate of $2.25 billion will be sufficient to fund fully all requests for priority one services (telecommunications services and Internet access) and to fund fully requests by the neediest schools and libraries for internal  X2connections to the same level of discount as was funded in the first program year.Bc {OH( x2ԍ See para. 5, supra. Some funds must be set aside for administrative expenses and appeals and, therefore, the total collection amount would not be available to fund requests for discounts. This approach is consistent with the Commission's commitment to ensuring that support will be directed toward the most economically disadvantaged schools and libraries, as well as those  X2located in rural areas. Accordingly, we direct USAC to collect only as much as required by demand, but in no event more than $562.5 million per quarter for the third and fourth quarters of 1999 and the first and second quarters of 2000 to support the schools and libraries universal service support mechanism. We also direct the Administrator to commit to"k 0*&&qq" applicants no more than $2.25 billion for disbursement during the second half of 1999 and the first half of 2000 to support the schools and libraries support mechanism.  X210.` ` We have determined that demand for funding will not increase significantly during the second funding year of the rural health care support mechanism. As projected by USAC, we anticipate that demand is not likely to exceed $12 million total annual support for  Xv2the second funding year.M vBc {O(ԍ See n. 27, supra.M We conclude therefore that we should establish a maximum collection level at $12 million for the third and fourth quarters of 1999 and the first and  XH2second quarters of 2000.G!HZBc {OS (ԍ See n. 31, supra.G This collection level is consistent with projected demand, and there is no evidence that eligible health care providers will require funding beyond this level for the second funding year. Accordingly, we direct USAC to limit collections to no more than $3 million per quarter for the third and fourth quarters of 1999 and the first and second quarters of 2000 for the rural health care universal service support mechanism. We also direct USAC to commit to applicants no more than $12 million for disbursement during the second half of 1999 and the first half of 2000 to support the rural health care support mechanism.   X2 III. CONCLUSION h  Xb211.` ` We find that it serves the public interest to direct USAC to collect only as much as required by demand, but in no event more than $562.5 million per quarter for the third and fourth quarters of 1999 and the first and second quarters of 2000 to support the schools and libraries universal service support mechanism. We direct USAC to limit collections to no more than $3 million per quarter for the third and fourth quarters of 1999 and the first and second quarters of 2000 for the rural health care universal service support mechanism. We also direct the Administrator to commit to applicants no more than $2.25 billion for disbursement during the second half of 1999 and the first half of 2000 to support the schools and libraries support mechanism and no more than $12 million for disbursement during the second half of 1999 and the first half of 2000 to support the rural health care support mechanism.  XN212.` ` We find good cause, pursuant to section 553(d)(3) of the Administrative  X72Procedure Act,?"7Bc yO!(ԍ 5 U.S.C.  553(d).? to make the rules adopted in this Order effective upon publication in the Federal Register. The rules adopted herein are necessary for the Commission to calculate the universal service contribution factors for the second funding year of the federal support mechanisms for schools, libraries, and rural health care providers. The contribution factors"|"0*&&qq"  X2must be published via Public Notice in early June#$Bc {Oy( x2ԍ The contribution factors become effective 14 days later absent further Commission action. See Changes to  x@the Board of Directors of the National Exchange Carrier Association, Inc., and FederalState Board on Universal  {O ( x2Service, CC Docket Nos. 9721 and 9645, FCC 97253, Report and Order and Second Order on Reconsideration (rel. July 18, 1997). to provide sufficient advance notification to industry representatives and service providers before USAC uses the factors in preparing to bill service providers, beginning July 1, for their third quarter contributions. Early effectiveness of the rules will thus enable the Commission and USAC to promptly complete these tasks. In addition, certain service providers must file tariffs in midJune that reflect the contribution factors. Thus, we find that good cause exists to make the rules adopted herein effective upon publication in the Federal Register.  XH2 IV. Regulatory Flexibility Analysis  X12  X 2 A.` ` Final Regulatory Analysis  X 213.` ` In compliance with the Regulatory Flexibility Act (RFA),a$Z Bc {OQ( xpԍ See 5 U.S.C.  604. The Regulatory Flexibility Act, 5 U.S.C.  601 et seq., was amended by the Small  xPBusiness Regulatory Enforcement Act of 1996 (SBREFA), Title II of the Contract with America Advancement Act of 1996, Pub. L. No. 104121, 110 Stat. 847 (1996).a this Supplemental Final Regulatory Flexibility Analysis (Supplemental FRFA) supplements the Final Regulatory  X 2Flexibility Analysis (FRFA) included in the Universal Service Order,q% Bc {OE(ԍ Universal Service Order, 12 FCC Rcd at 92199260, paras. 870983.q and the Supplemental  X 2Final Regulatory Flexibility Analyses in the Fifth Reconsideration Ordera& h Bc {O(ԍ Fifth Reconsideration Order, 13 FCC Rcd at 14948.a and the Eighth  X2Order on Reconsideration,'$ Bc {O?( xԍ Changes to the Board of Directors of the National Exchange Carrier Association, Inc., FederalState Joint  {O ( xBoard on Universal Service, Third Report and Order in CC Docket No. 9721, Fourth Order on Reconsideration in  xCC Docket No. 9721 and Eighth Order on Reconsideration in CC Docket No. 9645, FCC 98306 (rel. November 20, 1998). only to the extent that changes to the Order adopted here on reconsideration require changes in the conclusions reached in the FRFA and the two previous  Xh2Supplemental FRFAs. In the previous analyses, we sought written public comment on the  XQ2potential economic impact on small entities.  X:2  X#2 1.` ` Need for and Objectives of This Order  X214. ` ` The Commission is required by section 254 of the Act to promulgate rules to implement promptly the universal service provisions of section 254. On May 8, 1997, the Commission adopted rules whose principle goal is to reform our system of universal service"'0*&&qql" support mechanisms so that universal service is preserved and advanced as markets move toward competition. In this Order, we reconsider one aspect of those rules. We reconsider, on our own motion, the amounts that will be collected during the second six months of 1999 and the first six months of 2000 for the schools and libraries and rural health care support mechanisms.  X2   Xv22.` ` Description and Estimates of the Number of Small Entities to Which the Rules Adopted in This Order will Apply  XH2  X12 15.` ` The RFA directs agencies to provide a description of and, where feasible, an estimate of the number of small entities that may be affected by the proposed rules, if  X 2adopted.j( Bc yO| (#] PɒP#э 5 U.S.C.  603(b)(3). j The RFA generally defines the term "small entity" as having the same meaning as  X 2the terms "small business," "small organization," and "small governmental jurisdiction."r) XBc yO(#] PɒP#э 5 U.S.C.  601(6). r In addition, the term "small business" has the same meaning as the term "small business concern"  X 2under the Small Business Act.* Bc yOW( xd#] PɒP#э 5 U.S.C.  601(3) (incorporating by reference the definition of "small business concern" in 15 U.S.C. 632).  x Pursuant to the RFA, the statutory definition of a small business applies "unless an agency, after consultation with  xthe Office of Advocacy of the Small Business Administration and after opportunity for public comment, establishes  xone or more definitions of such term which are appropriate to the activities of the agency and publishes such definition(s) in the Federal Register." 5 U.S.C.  601(3). A small business concern is one which: (1) is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any  X2additional criteria established by the Small Business Administration (SBA).+Bc yO(#] PɒP#э Small Business Act, 15 U.S.C.  632 (1996). A small organization is generally "any notforprofit enterprise which is independently owned and  Xb2operated and is not dominant in its field."j,b( Bc yO;(#] PɒP#э 5 U.S.C.  601(4). j  X4216.` ` In the FRFA of the Universal Service Order, we estimated and described in  X2detail the number of small entities that might be affected by the new universal service rules.k- Bc {O (ԍ See Universal Service Order, 12 FCC Rcd at 9242, para. 925.k The rules adopted in this Order, however, would affect primarily schools, libraries, and rural health care providers. Moreover, the adopted rules will allow schools, libraries, and rural health care providers to benefit more fully from the schools and libraries and rural health care universal service support mechanisms, constituting a positive economic impact on these small entities. " J -0*&&qqB"Ԍ X217.` ` As noted above, small entities includes "small businesses," "small organizations," and "small governmental jurisdictions." All three types of small entities may also constitute schools, libraries, or rural health care providers for the purpose of this analysis. "Small governmental jurisdiction" generally means "governments of cities, counties, towns, townships, villages, school districts, or special districts, with a population of less than  X250,000.".Bc yO(#] PɒP##] PɒP#э 5 U.S.C.  601(5). As of 1992, there were approximately 85,006 such jurisdictions in the United  Xv2States./vXBc yO (#] PɒP#э U.S. Dept. of Commerce, Bureau of the Census, "1992 Census of Governments." This number includes 38,978 counties, cities, and towns; of these, 37,566, or 96  X_2percent, have populations of fewer than 50,000.0_Bc yO (#] PɒP#э U.S. Dept. of Commerce, Bureau of the Census, "1992 Census of Governments." The Census Bureau estimates that this ratio is approximately accurate for all governmental entities. Thus, of the 85,006 governmental entities, we estimate that 81,600 (91 percent) are small entities. As for "small organizations,"  X 2as of 1992, there were approximately 275,801.1 xBc yOC( x#] PɒP#э 1992 Economic Census, U.S. Bureau of the Census, Table 6 (special tabulation of data under contract to Office of Advocacy of the U.S. Small Business Administration).  X 218.` ` Also, as the Commission specifically noted in the Universal Service Order, the SBA defined small elementary and secondary schools and small libraries as those with under  X 2$5 million in annual revenues.k2 Bc {OA(ԍ See Universal Service Order, 12 FCC Rcd at 9242, para. 925.k The Commission has further estimated that there are fewer than 86,221 public and 26,093 private schools and fewer than 15,904 libraries that may be  X2affected by the decisions and rules adopted in the Universal Service Order.l3b Bc {O(ԍ See Universal Service Order, 12 FCC Rcd at 9243, para. 925.l We believe that these same small entities may be affected potentially by the rules adopted in this Order.  XM219.` ` In addition, the Commission noted in the Universal Service Order that neither the Commission nor the SBA has developed a definition of small, rural health care providers. Section 254(h)(5)(B) defines the term "health care provider" and sets forth the seven  X 2categories of health care providers eligible to receive universal service support.P4  Bc {O (ԍ See 47 U.S.C.  254(h)(5)(B).P We estimated that there are fewer than 12,296 health care providers potentially affected by the  X2rules in the Universal Service Order.k5 Bc {O$(ԍ See Universal Service Order, 12 FCC Rcd at 9242, para. 924.k We note that these small entities may potentially be affected by the rules adopted in this Order.  X2 " 50*&&qq"Ԍ X2 3. ` ` Description of the Projected Reporting, Recordkeeping, and Other  X2Compliance Requirements  X220.` ` The modifications to the Commission's rules that are set forth in this Order relate only to actions that need to be taken by the Administrator of the universal service support mechanisms. As a result, we do not anticipate any additional burdens or costs associated with these proposed rules on any entities, including on small entities.   XH2 4.` ` Steps Taken to Minimize Significant Economic Impact on Small Entities,  X12and Significant Alternatives Considered  X 221.` ` In the FRFA to the Universal Service Order, the Commission described the steps taken to minimize the significant economic impact on a substantial number of small entities consistent with stated objectives associated with the Schools and Libraries section, the  X 2Rural Health Care Provider section, and the Administration section of the Universal Service  X 2Order.k6 Bc {O$(ԍ See Universal Service Order, 12 FCC Rcd at 9242, para. 924.k As described above, our current action to amend our rules will benefit schools and libraries by ensuring that funds are allocated first to the neediest schools and libraries. We believe that these amended rules fulfill the statutory mandate to enhance access to telecommunications services for schools, libraries, and rural health care providers, and fulfill the statutory principle of providing quality services at "just, reasonable, and affordable  X:2rates,"D7:ZBc yOE(ԍ 47 U.S.C.  254(b)(1).D without imposing unnecessary burdens on schools, libraries, rural health care providers, or service providers, including small entities.  X222.` ` Report to Congress. The Commission will send a copy of the Twelfth Order on Reconsideration in CC Docket No. 9645, including this FRFA, in a report to be sent to  X2Congress pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996, see 5 U.S.C.  801(a)(1)(A). In addition, the Commission will send a copy of the Twelfth Order on Reconsideration in CC Docket No. 9645, to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the Twelfth Order on Reconsideration in CC Docket No.  Xm29645, and FRFA (or summaries thereof) will also be published in the Federal Register. See 5 U.S.C.  604(b).  X?2 V. ORDERING CLAUSES  X2  X223.` ` Accordingly, IT IS ORDERED that, pursuant to the authority contained in sections 14, 201205, 218220, 254, 303(r), 403, and 405 of the Communications Act of 1934, as amended, 47 U.S.C.  151154, 201205, 218220, 254, 303(r), 403, and 405, section 1.108 of the Commission's rules, 47 C.F.R.  1.108, and section 553 of the"! 70*&&qqX " Administrative Procedure Act, 5 U.S.C  553, Part 54 of the Commission's rules, 47 C.F.R. Part 54, is revised as set forth in Appendix A hereto, effective upon publication in the Federal Register.  X224.` ` IT IS FURTHER ORDERED that the Commission's Office of Public Affairs, Reference Operations Division, SHALL SEND a copy of this TWELFTH ORDER ON RECONSIDERATION, including the Supplemental Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration. ` `  ,hhhFEDERAL COMMUNICATIONS COMMISSION ` `  ,hhhMagalie Roman Salas ` `  ,hhhSecretary " 70*&&qq "  X2 zAppendix A Rule Changes ă  X2  54.507` `  ,Cap.  X2 1. Revise paragraph 54.507(a)(1) to read as follows: (1) No more than $562.5 million shall be collected or spent per quarter for the third and fourth quarters of 1999 and the first and second quarters of 2000 to support the schools and libraries universal service support mechanism. No more than $2.25 billion shall be collected or disbursed during the twelve month period from July 1, 1999 through June 30, 2000.  X 2  54.623 ` `  ,Cap. 2. Revise paragraph 54.623(a) to read as follows:  X2(a) Amount of the annual cap. The annual cap on federal universal service support for health care providers shall be $400 million per funding year, with the following exceptions. No more than $3 million shall be collected or spent per quarter for the third and fourth quarters of 1999 and the first and second quarters of 2000 for the rural health care universal service support mechanism. No more than $12 million shall be committed or disbursed during the twelve month period from July 1, 1999 through June 30, 2000. " 70*&&qq"  a2  ? #| P_P#Statement of  a 2Y Chairman William E. Kennard#Xj PynXP# on  W</x Funding for the Second Year of the Schools N and Libraries and Rural Health Care  W<mUniversal Support Mechanisms Đx As members of the FCC, sometimes we have the occasion to witness events and even make decisions that will shape the comunications revolution for years to come, decisions that will impact how technology can and does affect people's homes, businesses, families, and lives. Today is one such occasion. I will be voting to fund the erate ! a program to wire schools and libraries to the Internet ! to its cap of $2.25 billion for its second year. Before the erate, only 39 percent of classrooms in poor school districts in rural and urban America had any Internet connections compared to 62 percent of classrooms in wealthier districts. The onramps to the Information Superhighway were bypassing the communities that needed access to opportunity the most. After one year, though, we find that the digital divide is narrowing. Over 80,000 schools and libraries ! and more than 38 million kids have been helped by the erate program. Because of the erate, more than half of the unconnected classrooms will now be linked to the Internet, the bulk of which are found in schools where over half of the students live in poverty. And according to Forrester Research, Internet access among AfricanAmericans is expected to increase 42 percent, and among Hispanics 20 percent ! two phenomena that Forrester chalks up to the erate program and its ability to bring this technology into every community. By funding to the cap, we'll be able to wire 528,000 public school classrooms to the Internet. If we meet this high demand, we will be able to help schools that teach 40 million American children. We'll allow libraries and schools that never would have been able to pay for these services the chance to connect to the Internet. We'll be able to connect communities throughout rural America. The funding that we authorize today will be sufficient to ensure fullyfunded discounts for all telecommunications services and Internet access and to fully fund discounts for the neediest schools and libraries for internal connections to the same level of discount as was funded in the first program year. Unfortunately, some applicants' needs will not be met in full, but we have acted to ensure that support will be directed to rural areas and the most economically disadvantaged schools and libraries. Based on the record, we believe that the funding rates we have established today reasonably balance the need to provide support with the costs associated with a larger support program. Moreover, funding at this level is the only way in which we can reach those schools and"e'70*o(o(qqX%" libraries in rural America. In fact, by funding the erate to its cap, we'll be able to connect onethird of public schools throughout rural America. If you have ever traveled through our nation's countryside and spoken to the people who live in its small towns and on its farms, you will hear firsthand how important these connections are to them. With links to the online world, students won't have to travel far distances to take courses not offered in their schools. More time can be spent in the community giving a child the nurturing and support that they need. And with the "death of distance," educational and economic opportunities will become available locally and families will be able to comfortably stay on the land on which they've lived for generations. To further help families in our nation's small towns and farms, we are also directing the Universal Services Administrative Company to collect the funds required to meet projected demand up to $12 million over the next year for the rural health care support mechanism. Over 200 years ago, Benjamin Franklin ! who incidentally helped found a great university, the University of Pennsylvania, and a great library, the Philadelphia Free Library ! once remarked that "If a man empties his purse into his head, no one can take it away from him. An investment in knowledge always pays the best interest." The erate is one such investment. It's a down payment on the future of our kids and of our economy. By exposing more and more of our children to the Internet and information technology, they will learn the skills needed to gain the highpaying jobs of our InformationAge economy. They will be linked into our national community. They will be given the digital tools needed to fulfill the promise of American life in the Information Age. "70*&&qq|"  X2   Separate Statement of Commissioner Susan Ness  Q2#XIP T2XP#  V2# Xj\  P6G;ynXP#Re: Funding for the Second Year of the Schools and Libraries and Rural Health Care Universal Service Support Mechanisms (Federal!State Joint Board on Universal Service, CC  Vv2Docket No. 9645).#Xj\  P6G;ynXP#  The Telecommunications Act of 1996 embraces universal service as one of its fundamental goals ! that all Americans should have access to telecommunications and information services at affordable and reasonably comparable rates. Based upon the recommendations of a bipartisan federalstate joint board, the Commission, in May 1997, adopted an order that: (1) approved a plan that preserved existing explicit funding for rural carriers serving high cost areas; (2) established a forwardlooking cost model and nationalbenchmark regime for determining the cost of service and subsidy necessary for large carriers serving high cost areas; (3) expanded the Lifeline and Link Up programs to enable low income residents in states that did not have a matching program to qualify for this funding; and (4) pursuant to the SnoweRockefellerExonKerrey provisions of the Act, established a schools and libraries support mechanism to provide discounts for telecommunications services and internal connections to link classrooms and libraries to the Internet, as well as a program to provide rates for telecommunications services for rural health care providers that are comparable to those paid by urban providers. The high cost and low income programs were ongoing and were sufficiently funded; the schools and libraries and rural health care funds were new tiles in the universal service mosaic. Last year Congress raised very legitimate concerns about the structure and priorities of the schools and libraries program. After streamlining the structure of the schools and libraries and rural health care programs, reprioritizing schools and libraries to benefit institutions in the most economically disadvantaged and rural areas first, and undergoing exhaustive audits by the GAO and an outside accounting firm to ensure that adequate procedures are in place to deter and detect waste, fraud, and abuse ! all to address Congressional concerns ! the two programs finally began to fund applications late last year. The benefits to date from this funding are readily apparent. Over the past year the number of classrooms connected has more than doubled. For the schools and libraries program, the demand for telecommunications discounts has well exceeded the level of approved funding. Today, I vote to increase that funding level not to exceed $2.25 billion ! the cap recommended by the original bipartisan joint board and adopted by the Commission in1997 ! to enable schools and libraries serving some of the most economically disadvantaged and rural areas of the country to connect their classrooms and"#'70*o(o(qq%" facilities to the Internet. Section 254 of the Act wisely and specifically provides for classrooms to have access to advanced telecommunications services. It is in the classroom where the students and teachers assemble for learning. It is in the classroom where distance learning can offer students advanced courses taught by teachers located many miles away. And it is in the classroom where student forays on the Internet can best be protected. Moreover, the schools and libraries program will help to jumpstart the provision of advanced telecommunications and information services to rural America. In areas where individual households do not yet have access to advanced services, a highspeed Internet connection to a school or library is a tremendous resource for the whole community. It is noteworthy that Section 706 also focuses specifically on providing advanced telecommunications capability to all Americans (including, in particular, elementary and secondary schools and classrooms). In an increasingly global economy, it is essential that we prepare our children and our  X2communities now for the 21st century. Every day, more jobs require computer skills. Providing our children and communities with Information Age tools is key to our future success as a prosperous nation. We cannot afford to wait. "K70*&&qq|"  X2    STATEMENT OF COMMISSIONER MICHAEL K. POWELL / CONCURRING IN PART AND DISSENTING IN PART  X2  X2WBBody Text 2#XP\  P6QynXP#XxRe:Twelfth Order on Reconsideration, FederalState Joint Board on Universal Service, CC Docket No. 9645(# "9Body Text 2"Xx(# Giving all our children access to the world of information is unassailably a worthy and noble objective. Few, and certainly not I, dispute its value or its importance. I sincerely respect the depth of my colleagues support and commitment to this program as well as that of other proponents and supporters. As the father of two children, I have seen first hand the advantages of Internet access and computer literacy. Regrettably, however, I remain uncomfortable with much of the programs structure and parameters. And, today, I am uncomfortable with the funding increase that the majority will adopt. Because I am unsure that the funding increase is actually needed as opposed to just wanted, I must respectfully dissent from increasing funding to $2.25 billion (though I would have supported a more modest increase in funding). We are told that the demand for the program is extraordinarily high and we should continue to provide support to the neediest schools. But what information, data, or even mechanisms do I, or we, have as regulators to distinguish between need and want in picking the right amount? Demand certainly should be taken into account, but it is unremarkable that demand is high, for like in the movie Field of Dreams, if you build it, they will come. And, as one would expect, we built a large federal program and they have come. Indeed, shame on any school that has not acted aggressively to take advantage of this federal generosity. But, how do we know or distinguish, within that infinite demand, real need from want, even for the poorest schools? Part of the problem is that the distinction or choice involves questions of educational policy and priorities, as well as social judgments about worthiness among school demographics. For the Schools and Libraries program, these judgments uncomfortably rest with telecom policy experts at a federal agency. In fact, perhaps recognizing that we are fish out of water, we do not really attempt in our decision today to make these judgments and instead leave much of it in the hands of local officials who have the expertise, but who likely also have insatiable appetites. Passionate support of the objectives and commitment to the program alone should not and cannot determine the appropriate amount of funding. Nor can a lack of support or more modest commitment determine this amount. Yet, if there is going to be such a large and significant federal program as this, it must have some basis for fiscal discipline and restraint, some basis for picking the right funding level. But, as structured, I have no real idea how to do that without simply checking the political winds and aligning myself with one current or"%'70*o(o(qq%" the other. Passionate support in implementing federal programs is admirable. But, it can lead to overaggressive driving. In fact, this program often feels like we are driving fast along a dark road without headlights and we keep pushing harder on the accelerator. But, this road has twists and turns. Our aggressiveness may have consequences:   X_2XX` ` I worry that our aggressive interpretation of the statute will be arrested by the courts. Indeed, a decision is expected any day out of the Fifth Circuit with respect to some of our statutory interpretation maneuvers, that may severely constrain this program, yet we stay resolutely on the accelerator.(#` X(#  X 2XX` ` I worry that we cannot actually handle the speed of our aggressive funding"today, an increase of 80%, on average, on a monthly, quarterly and annual basis. We insist we can handle it, by covering the cost of the program through savings we hope to engineer. Yet, we really do not have complete control over such savings. Carriers in their business judgment will allocate savings in different ways, depending on how they choose to serve their customers. At present, we cant ultimately make carriers do it as we might like, and should be careful how far we go in trying to pressure or coerce them into doing so. Thus, the savings we tout may or may not be fully realized, and bill paying consumers may pay the price for the increase.(#` X` hp x (#%'0*,.8135@8:" Commissioner Gloria Tristani  XX2#XP PynXP#  VA2X44Re:44FederalState Joint Board on Universal Service; Twelfth Order on Reconsideration. CC Docket No. 9645. !4  X2 I strongly support the Commissions decision today setting the collection level for the schools and libraries support mechanism (the erate) at the $2.25 billion cap. I support fully funding the erate because it is a sound investment in the future of our children and our country. By funding Internet connections to classrooms, we bring the enormous educational resources of the Internet directly to teachers and students. 44 Although 89 percent of public schools have some Internet access today, only 51 percent of our nations classrooms are connected to the Internet. Only 39 percent of highpoverty classrooms are connected, compared to 62 percent of classrooms in wealthier schools. The erate is especially critical for ensuring that minority and low income children ! those who are less likely to have access to computers and the Internet at home ! are able to participate in the telecommunications revolution. It will help ensure that this countrys troubling digital divide does not become an  X2unbridgeable chasm. #C PɒP#  X2#XP PynXP#Moreover, the erate is sound competition policy for the United States. Today, technology companies in the United States cannot fill jobs because young people in the workforce lack the necessary skills. If companies do not fill those jobs with American workers, they will fill them with foreign workers. Any significant export of high technology jobs to other countries far outweighs the cost of the Schools and Libraries Program. Thus, we can make the relatively small investment now, or we can pay in countless ways later. I am committed to seeing this vital program move forward and  X2to seeing all our students reap the benefits. heading 1 ׃ sF  heading 1    Xd2WBBody Text 2#XP\  P6QynXP# 44 44  J