Modernization of the Schools and Libraries “E-Rate” Program, 49159-49204 [2014-18937]

Agencies

• FEDERAL COMMUNICATIONS COMMISSION

[Federal Register Volume 79, Number 160 (Tuesday, August 19, 2014)]
[Rules and Regulations]
[Pages 49159-49204]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-18937]



[[Page 49159]]

Vol. 79

Tuesday,

No. 160

August 19, 2014

Part II





Federal Communications Commission





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47 CFR Part 54





Modernization of the Schools and Libraries ``E-Rate'' Program; Final 
Rule

Federal Register / Vol. 79 , No. 160 / Tuesday, August 19, 2014 / 
Rules and Regulations

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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket No. 13-184; FCC 14-99]


Modernization of the Schools and Libraries ``E-Rate'' Program

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) takes major steps to modernize the E-rate program (more 
formally known as the schools and libraries universal service support 
mechanism). Building on the comments the Commission received in 
response to the E-rate Modernization NPRM, and the E-rate Modernization 
Public Notice, as well as recommendations from the Government 
Accountability Office (GAO), the program improvements the Commission 
adopts as part of this document begin the process of reorienting the E-
rate program to focus on high-speed broadband for our nation's schools 
and libraries.

DATES: Effective September 18, 2014, except for amendments in 
Sec. Sec.  54.502(b)(2), (3), and (5), 54.503(c), 54.504(a) and (f), 
54.507(d), 54.514(a), 54.516(a) through (c), and 54.720(a), which are 
subject to the Paperwork Reduction Act and will become effective upon 
announcement by the FCC in the Federal Register of OMB approval of the 
subject information collection requirements; and except for amendments 
in Sec. Sec.  54.500, 54.501(a)(1), 54.502(a), 54.507(a) through (c) 
and (e) through (f), 54.516, and 54.570(b) and (c), which shall become 
effective on July 1, 2015; and amendments in Sec. Sec.  54.504(f)(4) 
and (5) and 54.514(c), which shall become effective on July 1, 2016.

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

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order, in WC Docket No. 13-184; FCC 14-99, adopted on July 11, 2014 
and released on July 23, 2014. The full text of this document is 
available for public inspection during regular business hours in the 
FCC Reference Center, Room CY-A257, 445 12th Street SW., Washington, DC 
20554. Or at the following Internet address: https://www.fcc.gov/document/fcc-releases-e-rate-modernization-order. The Further Notice of 
Proposed Rulemaking (FNPRM) that was adopted concurrently with the 
Report and Order is published elsewhere in this issue of the Federal 
Register.

I. Introduction

    1. In this Report and Order we take major steps to modernize the E-
rate program. In so doing, we recognize E-rate's extraordinary success 
as the federal government's largest education technology program. Over 
the last 17 years, the E-rate program has helped to ensure that our 
nation's schools and libraries are connected to the digital world. At 
the same time, we acknowledge and embrace our responsibility to make 
sure the program evolves as the needs of schools and libraries evolve. 
In particular, the E-rate program must evolve to focus on providing 
support for the high-speed broadband that schools need to take 
advantage of bandwidth-intensive digital learning technologies and that 
libraries need to provide their patrons with high-speed access to the 
Internet on mobile devices as well as desktops. Access to high-speed 
broadband is crucial to improving educational experiences and expanding 
opportunities for all of our nation's students, teachers, parents and 
communities. Building on the comments we received in response to the E-
rate Modernization NPRM, 78 FR 51597, August 20, 2013, and the E-rate 
Modernization Public Notice, 79 FR 13300, March 10, 2014, as well as 
recommendations from the GAO, the program improvements we adopt as part 
of this Report and Order begin the process of reorienting the E-rate 
program to focus on high-speed broadband for our nation's schools and 
libraries.
    2. The record clearly demonstrates the power of high-speed 
broadband connectivity to transform learning. High-speed broadband, to 
and within schools, connects students to cutting-edge learning tools in 
the areas of science, technology, engineering and math (STEM) 
education, necessary for preparing them to compete in the global 
economy. High-speed broadband also creates opportunities for customized 
learning, by giving our students and their teachers access to 
interactive content, and to assessments and analytics that provide 
students, their teachers, and their parents real-time information about 
student performance while allowing for seamless engagement between home 
and school. Finally, high-speed broadband expands the reach of our 
schools and creates opportunities for collaborative distance learning, 
providing all students access to expert instruction, no matter how 
small the school they attend or how far they live from experts in their 
field of study.
    3. High-speed broadband is also a critical component of 21st 
Century libraries. In many communities, libraries are the only source 
of free, publicly available Internet access. As a result, high-speed 
broadband at libraries provides library patrons, many of whom have no 
other Internet access, the ability to participate in the digital world. 
Broadband services at libraries are crucial for enabling and fostering 
life-long learning, and they enable students at all stages of their 
education to perform research and complete their homework. Broadband at 
libraries is also crucial for students studying for and taking their 
General Educational Development (GED) tests and allows students to take 
and study for college and graduate-level courses. Broadband at 
libraries enables patrons to seek and apply for jobs; learn new skills; 
interact with federal, state, local, and Tribal government agencies; 
search for health-care and other crucial information; make well-
informed purchasing decisions; and stay in touch with friends and 
family.
    4. In adopting this Report and Order, we recognize the critical 
role the E-rate program plays in the lives of our students and 
communities and the importance of ensuring that the program supports 
sufficient, equitable, and predictable support for high-speed 
connectivity to and within schools and libraries. It is a crucial part 
of the Commission's broader mandate to further broadband deployment and 
adoption across our nation. We therefore adopt a number of the 
proposals made in the E-rate Modernization NPRM and begin the process 
of re-focusing the E-rate program on providing the necessary support to 
ensure our nation's schools and libraries have affordable access to 
high-speed broadband.
    5. To maximize the benefits of the E-rate program to our nation's 
schools and libraries, we adopt the proposal made in the E-rate 
Modernization NPRM to establish clear goals and measures for the 
program. The three goals we adopt for the E-rate program are: (1) 
Ensuring affordable access to high-speed broadband sufficient to 
support digital learning in schools and robust connectivity for all 
libraries; (2) maximizing the cost-effectiveness of spending for E-rate 
supported purchases; and (3) making the E-rate application process and 
other E-rate

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processes fast, simple and efficient. We also adopt approaches for 
measuring our success towards meeting those goals.
    6. In addition, we adopt the following updates to the E-rate 
program aimed at furthering each of those goals:
     To ensure affordable access to high-speed broadband 
sufficient to support digital learning in schools and robust 
connectivity for all libraries, we:
    [cir] Set an annual funding target of $1 billion for funding for 
internal connections needed to support high-speed broadband within 
schools and libraries;
    [cir] test a more equitable approach to funding internal 
connections for applicants who seek support in funding years 2015 and 
2016; and
    [cir] reorient the E-rate program to focus on supporting high-speed 
broadband by phasing down support for voice services and eliminating 
support for other legacy services.
     To maximize the cost-effectiveness of spending for E-rate 
supported purchases, we:
    [cir] Adopt transparency measures to encourage sharing of cost and 
connectivity data;
    [cir] encourage consortia purchasing; and
    [cir] emphasize that providers must offer the lowest corresponding 
price.
     To make the E-rate application process and other E-rate 
processes fast, simple and efficient, we:
    [cir] Streamline the application process by:
    [ssquf] Simplifying the application process for multi-year 
contracts;
    [ssquf] exempting low-cost, high-speed business-class broadband 
Internet access services from the competitive bidding requirements;
    [ssquf] easing the signed contract requirement;
    [ssquf] removing the technology plan requirement;
    [ssquf] requiring electronic filings; and
    [ssquf] enabling direct connections between schools and libraries.
    [cir] Simplify discount rate calculations by:
    [ssquf] Requiring a district-wide discount rate;
    [ssquf] modifying the definition of urban and rural;
    [ssquf] addressing changes to the national school lunch program 
(NSLP); and
    [ssquf] modifying the requirements for applicants using surveys.
    [cir] Simplify the invoicing and disbursement process by:
    [ssquf] Allowing direct invoicing by schools and libraries; and
    [ssquf] adopting an invoicing deadline.
    [cir] Create a Tribal consultation, training and outreach program.
    [cir] require the filing of all universal service appeals initially 
with USAC.
    [cir] direct USAC to adopt additional measures to improve the 
administration of the program by:
    [ssquf] Speeding review of applications, commitment decisions and 
disbursements;
    [ssquf] modernizing USAC's information technology systems;
    [ssquf] adopting open data policies;
    [ssquf] improving communications with E-rate applicants and 
providers.
    [cir] Protect against waste, fraud, and abuse by:
    [ssquf] Extending the document retention deadline; and
    [ssquf] ensuring auditors and investigators access to an 
applicant's premises upon request.
    7. The most fundamental step we take today is to overhaul the 
support system for internal connections, including the deployment of 
high-speed Wi-Fi in classrooms and libraries nationwide. When the E-
rate program was created, the idea of wired connections to classrooms 
was revolutionary. Today, students and teachers can and do take their 
devices with them wherever they go, which means they need to have 
Internet connectivity throughout their schools. Likewise, in 1997, 
desktop computers offered state of the art connectivity in libraries. 
Now, library patrons bring their own devices and use those that belong 
to their libraries. By modernizing the E-rate program to expand schools 
and libraries access to more predictable E-rate funding that is 
sufficient to meet their needs for Wi-Fi connectivity, and other 
internal broadband connections.
    8. Of course, Wi-Fi in classrooms and libraries requires broadband 
connectivity to schools and libraries. We therefore also take steps in 
this Report and Order to ensure that all eligible schools and libraries 
will continue to be able to receive E-rate support to purchase 
broadband services to their buildings.
    9. At the same time, we are mindful of the importance of continuing 
to improve the E-rate program in order to achieve the goals we adopt 
herein. In order to ensure the E-rate program evolves to meet the 
connectivity needs of our nation's schools and libraries, we leave the 
record open in this proceeding to allow us to address in the future 
those issues raised in the E-rate Modernization NPRM that we do not 
address today. We also issue an accompanying Further Notice of Proposed 
Rulemaking (FNPRM) to seek comment on some additional issues.

II. Performance Goals and Measures

    10. Based on overwhelming support in the record, and consistent 
with the Congressional directives in sections 254(b) and (h) of the 
Communications Act (the Act), we adopt three goals modeled on those 
proposed in the E-rate Modernization NPRM: (1) Ensuring affordable 
access to high-speed broadband sufficient to support digital learning 
in schools and robust connectivity for all libraries; (2) maximizing 
the cost-effectiveness of spending for E-rate supported purchases; and 
(3) making the E-rate application process and other E-rate processes 
fast, simple, and efficient. We also adopt associated performance 
measures and targets to determine whether we are successfully achieving 
these goals. Clearly articulating goals for the E-rate program, along 
with specific performance measures and targets, will help us focus our 
efforts as we modernize the E-rate program, monitor our progress over 
time, and adjust course as needed. In choosing these goals, performance 
measures, and targets, we also recognize the need to be sufficiently 
flexible to accommodate the evolving technological and connectivity 
needs of schools and libraries.
    11. Establishing clear performance goals is also consistent with 
the Government Performance and Results Act of 1993 (GPRA), which 
requires federal agencies to engage in strategic planning and 
performance measurement. In 2007, the Commission adopted measures to 
safeguard the universal service fund (USF or Fund) from waste, fraud, 
and abuse as well as measures to improve the management, 
administration, and oversight of the USF generally. More recently, the 
Commission has adopted goals in the other USF programs it has 
modernized over the last few years. In the E-rate Modernization NPRM, 
while the Commission recognized the importance of these measures, it 
also acknowledged the subsequent finding by the GAO that the E-rate 
program, specifically, lacked sufficient performance goals and 
measures. In its 2009 report, the GAO emphasized that successful 
performance measures should be tied to goals, address important aspects 
of program performance, and provide useful information for decision 
making. The goals, measures, and targets we adopt today respond 
directly to the GAO's recommendations and place the E-rate program on a 
clear strategic path, consistent with the GPRA.
    12. Throughout this Report and Order, we use these three goals as 
guideposts for our decisions about how to close the

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gap between the broadband needs of schools and libraries and their 
ability to obtain those services. As part of the performance measures, 
we set connectivity targets by which we will evaluate progress towards 
meeting our goals. We also adopt reporting obligations for USAC and for 
E-rate program participants that will enable us to measure progress 
towards meeting the goals. While we identify specific reporting 
obligations, we delegate authority to the Bureau, working with the 
Office of the Managing Director (OMD), to finalize the format and 
timing of those reporting obligations.
    13. Using the adopted goals and measures, we will, consistent with 
the GPRA, monitor the performance of the E-rate program over time, and 
regularly reassess our rules and policies to ensure that they are 
continuing to support our goals. If we find that the E-rate program is 
not making progress towards meeting the performance goals, we will 
consider corrective actions. Likewise, to the extent that the adopted 
targets and performance measures do not help us assess program 
performance, we will revisit them.

A. Ensuring Affordable Access to High-Speed Broadband Sufficient To 
Support Digital Learning in Schools and Robust Connectivity for All 
Libraries

1. Goal
    14. We adopt as our first goal ensuring affordable access to high-
speed broadband sufficient to support digital learning in schools and 
robust connectivity for all libraries. This goal is widely supported by 
commenters and implements Congress's directive in section 254(h) of the 
Act that the Commission ``enhance access to advanced telecommunications 
and information services'' to schools and libraries ``to the extent 
technically feasible and economically reasonable,'' and determine a 
discount level for all E-rate funded services that is ``appropriate and 
necessary to ensure affordable access to and use of such services.''
    15. Our record demonstrates that high-speed broadband is essential 
for students, teachers, and library patrons seeking to take advantage 
of the rapidly expanding opportunities for interactive digital 
learning. As the Commission observed in the E-rate Modernization NPRM, 
the availability of high-speed broadband in schools transforms learning 
opportunities and expands school boundaries by providing all students 
access to high-quality courses and expert instruction. We also agree 
with commenters that high-speed broadband connections should be 
available to students and teachers throughout a school, enabling them 
to utilize online materials and blended learning throughout the day and 
as part of their curriculum.
    16. High-speed broadband is also critical in libraries, where it 
provides patrons with the ability to access the Internet, search for 
and apply for jobs, engage with governmental entities, learn new 
skills, and engage in life-long learning. High-speed broadband to and 
within libraries is especially important in communities where many lack 
home access to broadband, including minority and low-income 
communities. Libraries in these communities provide broadband access 
during non-school hours to students who do not have home access to 
broadband.
    17. The record demonstrates that schools and libraries, recognizing 
the importance of high-speed broadband to utilize the variety of Wi-Fi-
enabled devices for educational purposes, are racing to deploy and 
upgrade their networks. Specifically, schools and libraries are working 
to upgrade local area networks (LANs) and wireless local area networks 
(WLANs or Wi-Fi networks) to deliver high-speed broadband to every 
student and patron device. School districts are increasingly 
implementing one-to-one student to device initiatives and bring your 
own device (BYOD) programs that require high-density Wi-Fi coverage in 
every classroom and common area. The WLAN upgrades necessary to support 
one-to-one digital learning may include upgraded switches, wireless 
routers, Cat 6 or fiber cabling, and 802.11n (or better) wireless 
access points (WAPs). Though the increasing number of Wi-Fi-enabled 
devices in schools provides exciting educational possibilities, 57 
percent of school districts responding to a recent survey by the 
Consortium on School Networking do not believe that they have Wi-Fi 
capacity capable of handling a one-to-one deployment.
    18. Libraries are also seeing a rapid increase in bandwidth demand 
driven by Wi-Fi-enabled devices and the public's need for broadband 
access. The percentage of libraries providing free Wi-Fi to the public 
grew from 37 percent in 2006 to 91 percent in 2012. Several commenters 
note that the public library is sometimes the only place offering free 
Internet access to the community. Many libraries report that patron-
owned devices connected to their network will soon surpass library-
provided devices. New technologies such as digital media labs, 
interactive learning tools for adult education, and videoconferencing 
services also contribute to increasing bandwidth demand in libraries.
    19. Finally, it is also crucial that high-speed broadband to 
schools and libraries be affordable, consistent with section 254(b)(1). 
The record makes clear that, in some areas today, schools and libraries 
are unable to afford high-speed broadband services or the services they 
can afford provide insufficient bandwidth to support digital learning 
or provide their patrons with robust Internet access. We have collected 
voluminous data on the current state of connectivity to schools and 
libraries, and the prices schools and applicants are paying for their 
connectivity. The record reveals a wide variance in the speed and price 
of connectivity at schools and libraries nationwide. Location, access 
to fiber connections, financial resources, access to a research and 
education network (REN), statewide or regional coordination, ISP 
competition, and a well-informed IT staff are among the many factors 
that can affect a school's or library's ability to procure high-speed 
connectivity at a reasonable price.
2. Measures
    20. We will evaluate progress towards our first goal by comparing 
connectivity to and within schools and libraries with widely accepted 
connectivity targets that are based on digital learning and library 
needs. As illustrated in Figure 2, the connectivity needs of schools 
can be divided into three components:
     Internet Access--School districts and some library systems 
purchase Internet access for the entire district or system at a single 
point of aggregation. For the purposes of this measure, we refer to 
``Internet access'' as the connection or connections that allow traffic 
to flow from that aggregation point to the public Internet. As part of 
the purchase of Internet access, the school district (or library 
system) may purchase dedicated connectivity (e.g., dedicated transport) 
from its point of aggregation to its Internet Service Provider's 
(ISP's) point of presence. For schools and libraries that are not 
connected to a district Wide Area Networking (WAN), Internet access 
simply refers to the school's or library's direct connection to the 
public Internet.
     WAN/Last-Mile--As just described, school districts and 
library systems frequently connect individual schools and libraries to 
a central aggregation point, such as a district, county, or regional 
data hub, that hosts the Internet demarcation point for the entire 
district, county, regional, or library system. We refer to these 
connections as WAN or last mile connections.

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     Internal Connections--This category encompasses the 
infrastructure necessary to deliver Internet access from the edge of a 
school or library to the actual student, faculty, or patron end-user 
device. Internal connections include Wi-Fi.
[GRAPHIC] [TIFF OMITTED] TR19AU14.000

    21. For each of these three network components, we adopt separate 
measures of progress, including distinct connectivity targets.
a. Internet Access
    22. Connectivity Targets. We adopt the State Education Technology 
Directors Association's (SETDA) target recommendation of Internet 
access for schools of at least 100 Mbps per 1,000 students and staff 
(users) in the short term and 1 Gbps Internet access per 1,000 users in 
the longer term. We agree with those commenters who support both the 
shorter and longer-term connectivity SETDA targets as reflecting 
schools' bandwidth needs as they increasingly adopt digital learning 
strategies and one-to-one device initiatives. SETDA's long-term targets 
are also consistent with President Obama's initiative to connect 99 
percent of students to high-speed broadband within five years.
    23. We will measure Internet connectivity at the district level for 
school districts and at the school level for schools that are not 
members of a district (e.g., private schools). We recognize that the 
SETDA target for Internet access connectivity may not be appropriate 
for every school or school district, especially very large or very 
small districts or individual schools, and will take that into account 
when measuring success towards the targets we set today. Large school 
districts often keep a significant amount of traffic on their internal 
networks and are able to oversubscribe Internet connections, thereby 
requiring less per-student Internet access bandwidth. For example, the 
Los Angeles Unified School District's (LAUSD) network has approximately 
750,000 total users and LAUSD is implementing a district-wide one-to-
one initiative. LAUSD anticipates that 90 Gbps Internet access 
connectivity, or approximately 120 Mbps per 1,000 students, will 
deliver sufficient bandwidth to every classroom and device with the 
help of bandwidth optimization measures that compress data and 
eliminate redundant traffic. We will continue to analyze data on 
broadband demand.
    24. This ongoing examination of our Internet connectivity targets 
should include regular input from schools and libraries. We therefore 
direct the Bureau to seek, as part of the application process, feedback 
from schools and libraries on the sufficiency of their Internet access 
bandwidth to meet their needs. The Bureau will consider all responses, 
in conjunction with usage and demand data, when refining the Internet 
connectivity targets.
    25. With respect to libraries, we initially adopt as a bandwidth 
target the American Library Association's recommendation that all 
libraries that serve fewer than 50,000 people have broadband speeds of 
at least 100 Mbps and all libraries that serve 50,000 people or more 
have broadband speeds of at least 1 Gbps. We agree with commenters that 
the size of the community served by a library must factor into the 
library target.
    26. Affordability. To measure affordability, we will track pricing 
as a function of bandwidth. We direct the Bureau, working with OMD and 
USAC, to regularly report normalized pricing (e.g., price per Mbps) for 
Internet access connectivity and to identify any outliers.
b. WAN
    27. Connectivity Targets. We adopt as a target for WAN connectivity 
the total number of schools that have a connection capable of providing 
a dedicated data service scalable to the SETDA long-term WAN target of 
10 Gbps per 1,000 students. At this time, the vast majority of 
districts and libraries that operate WANs do not have demand for, and 
therefore do not purchase, 10 Gbps circuits. Indeed, schools and 
districts have varying broadband needs that will increase at different 
rates. For example, some elementary schools may not require the same 
bandwidth per student as middle or high schools. Very small schools 
with

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fewer than 100 students, particularly those that are part of small 
districts, may not require WAN connections scalable to 1 Gbps 
(equivalent to 10 Gbps per 1,000 students). However, in some instances 
small schools in small districts may require more bandwidth per student 
because they may not be able to take advantage of high oversubscription 
ratios or conserve bandwidth by using network optimization tools to the 
same extent as larger schools and larger districts. Conversely, large 
school districts may be able to optimize their networks to deliver very 
high speed broadband to the classroom without having WAN connectivity 
of 10 Gbps per 1,000 students. We therefore adopt a target that focuses 
on the scalable capacity of school district WAN connections to 10 Gbps 
per 1,000 students. In most cases, a 1 Gbps fiber connection can be 
readily scaled to 10 Gbps with upgraded networking equipment.
    28. The WAN connectivity target that we adopt today is the result 
of careful analysis of the record and our programmatic experience. 
Several commenters agree that the SETDA WAN targets accurately reflect 
the rapidly increasing broadband demand in schools. Others argue that 
the SETDA WAN targets are too low given the increasing bandwidth 
demands of standardized testing, educational applications, streaming 
video, and the growing number of Wi-Fi-enabled devices in schools. Many 
school districts report that they have doubled their WAN bandwidth in 
recent years and are planning for future increases. Commenters opposed 
to adoption of the SETDA WAN targets express concerns about uniform 
targets for all schools because districts have widely varying student 
populations, broadband availability, and financial resources. Other 
commenters recommend that the Commission conduct a comprehensive 
analysis of schools' actual broadband needs before establishing 
specific bandwidth targets.
    29. We find that a WAN connectivity target measured by the capacity 
of connections available to schools properly balances the concerns 
identified by commenters opposed to the SETDA bandwidth targets with 
the need to ensure that all schools have affordable access to high-
speed broadband that supports digital learning. Several factors are 
driving the need to increase bandwidth to and within schools. School 
districts across the country are implementing one-to-one and BYOD 
programs that require more robust connectivity. Cisco notes that the 
density of devices and demand on the network in many schools surpasses 
the demand of other high-density environments such as hotels, 
restaurants, and corporate offices. The peak bandwidth usage of media-
rich curriculum and streaming video applications far exceeds the usage 
of basic web browsing and email. Online assessments will require high-
speed connections that are also highly reliable and secure. A target of 
ensuring that all schools connected to WANs have a connection scalable 
to 10 Gbps per 1,000 students will ensure that schools have access to 
bandwidth sufficient to meet growing demand while maintaining the 
flexibility to purchase the bandwidth that meets their needs.
    30. We direct the Bureau to continue analyzing data on WAN 
connectivity. As with the Internet connectivity targets, this ongoing 
examination should consider input from schools and libraries. We 
therefore direct the Bureau to seek feedback from schools and 
libraries, as part of the E-rate application process, on its WAN 
connectivity and whether its WAN provides sufficient bandwidth to meet 
the schools' and libraries' needs.
    31. For libraries, our record is not sufficiently developed to 
establish a performance measure and a WAN connectivity target at this 
time. However, to the extent that libraries are connected by a WAN, 
similar to our approach with schools, we will measure the total number 
of libraries that have a connection capable of providing a data service 
scalable to at least 10 Gbps.
    32. Affordability. As with Internet access, we will measure 
affordability of WAN connections by tracking pricing as a function of 
bandwidth. We also direct the Bureau, working with OMD and USAC, to 
regularly report normalized pricing (e.g., price per Mbps) for WAN 
connectivity and to identify any outliers.
c. Internal Connections
    33. Connectivity Targets. Pending the development of a suitable 
available bandwidth measure for internal connectivity, we find that a 
survey of school districts and libraries is the best method to gauge 
the sufficiency of internal connections at this time. Our record is not 
sufficiently well developed at this time to allow us to identify the 
appropriate level of bandwidth per device in either schools or 
libraries. We are also concerned that schools and libraries would find 
such a measure difficult to report, as the responsible individuals may 
not have access to the necessary technical data. We therefore decline 
to adopt such a measure at this time, but direct the Bureau to continue 
to develop the record on this issue.
    34. Several commenters emphasize that Wi-Fi performance is best 
measured by throughput to the student or library patron device rather 
than classroom or library coverage. Other commenters suggest that the 
high-density Wi-Fi demands of schools require at least one high-
capacity wireless access point (WAP) per classroom. Library commenters 
discuss increasing Wi-Fi demand, but generally did not endorse specific 
Wi-Fi targets. At this time, we do not think counting the number of 
WAPs is the right approach to measuring connectivity within schools and 
libraries. Several unique considerations impact WLAN design. For 
example, some school districts opt for very high-capacity WAPs that 
deliver ample bandwidth to multiple classrooms, while others have 
installed multiple lower-speed WAPs per classroom. Distribution of WAPs 
in libraries depends on specific factors such as user density and 
building design. Therefore, we agree with commenters that available 
bandwidth per device is a more suitable measure to determine whether 
internal connections are sufficient to support the needs of each 
individual user at a school or library. However, we need further 
information from schools and libraries before we adopt a specific 
measure. We therefore direct the Bureau to seek feedback from schools 
and libraries, as part of the survey, on the sufficiency of their LAN/
WLAN capacity and coverage to support the educational or library 
activities conducted at their school or library site. The answer to 
this question will help provide the Commission with insight on progress 
towards the stated goal pending the development of a more technical 
measure.
    35. Affordability. Consistent with our decision to use a survey to 
measure internal connections availability pending the development of a 
more precise measure, we direct the Bureau, as part of the survey, to 
also seek feedback from those schools and libraries that have 
insufficient WLAN capacity and coverage to support the educational or 
library activities conducted at their school or library site as to the 
reason for the lack of sufficient capacity and coverage (e.g., 
affordability of equipment, or lack of demand for Wi-Fi).
3. Reporting and Further Development of Measures and Targets
    36. We direct the Bureau to revise the information collections from 
E-rate applicants and vendors to collect data regarding the specific 
measures

[[Page 49165]]

adopted. The Bureau should analyze data collected from applicants to 
track progress toward meeting program goals and to inform revisions to 
the performance measures and E-rate program rules, and if necessary, to 
the goals themselves. We also agree with commenters that data should be 
publicly accessible so that applicants can make informed decisions 
regarding broadband purchasing and network design.
    37. In addition to the connectivity and affordability measures 
adopted, we agree with commenters who recommend that the Commission 
evaluate actual bandwidth usage and network performance statistics to 
continually refine our connectivity targets over time. Digital 
education and the technologies that deliver it are rapidly evolving. In 
such a dynamic environment, it is important that we understand changes 
in the bandwidth demands of school and library networks supported by E-
rate as well as the performance of those networks. We direct the Bureau 
to work with school districts and libraries to develop network 
measurement methods that gather data on network usage and performance.

B. Maximizing the Cost-Effectiveness of Spending for E-Rate Supported 
Purchases

1. Goal
    38. We adopt as our second goal maximizing the cost-effectiveness 
of spending for E-rate supported purchases, thereby minimizing the 
contribution burden on consumers and businesses and maximizing the 
benefit of each dollar spent on services for schools and libraries. Our 
rules require that applicants ``select the most cost-effective service 
offering.'' Moreover, when evaluating bids, applicants ``may consider 
relevant factors other than the pre-discount prices . . . , but price 
should be the primary factor considered.'' Commenters broadly support 
the Commission's proposal to adopt cost-effectiveness as a goal of the 
E-rate program, in recognition of the limited amount of E-rate funds 
available to meet the connectivity needs of all schools and libraries 
throughout the nation. This goal is also consistent with section 
254(h)(2)(A) of the Act, which requires that support to schools and 
libraries be ``economically reasonable.'' As the Commission recognized 
in the E-rate Modernization NPRM, we have a ``responsibility to be a 
prudent guardian of the public's resources.''
2. Measures
    39. We will focus our evaluation of progress towards this goal by 
measuring the prices paid for the E-rate services delivered to schools 
and libraries. We will separately measure and track the prices paid for 
the E-rate services delivered to schools and libraries for connections 
to and for connections within schools and libraries. Detailed pricing 
information is essential to our goal of maximizing cost-effectiveness 
as well as ``affordability'' under our first goal. We thus direct the 
Bureau and OMD working with USAC, as necessary, to develop the process 
by which we will measure, track, and report on the prices paid for E-
rate services. In addition, we will continue to monitor the results of 
USAC's audits and other reports to track progress in reducing improper 
payments and waste, fraud and abuse.
    40. For connectivity to school and library locations, we will 
measure and report on prices paid as a function of bandwidth (e.g., 
dollars per Mbps) and also as a function of number of users (or unique 
devices). In addition, we will track pricing as a function of various 
potential cost drivers, which may include physical layer type (e.g., 
fiber, copper, coax, fixed wireless), service type (e.g., DSL, cable 
modem, metro Ethernet, Internet access), geography (e.g., rural, 
urban), carrier, carrier type, and purchasing mechanism (e.g., 
individual school, district, regional consortium).
    41. An equally important component of cost-effectiveness is the 
matching of capacity purchased with need. We direct the Bureau, working 
with USAC, to develop and maintain best practices and benchmarks 
regarding network utilization, network architectures, network 
performance, and network optimization and management.
    42. For connectivity within schools and libraries, we will measure 
and report pricing as a function of number of users or unique devices. 
We will track pricing of eligible expenses associated with LANs and 
WLANs (e.g., Wi-Fi), including pricing of eligible network components 
(e.g., switches, routers, wireless access points, cabling), managed 
services, and other eligible services associated with LANs and WLANs. 
In addition to tracking the pricing and capacity, we will seek to track 
utilization and performance of these internal connections to more fully 
measure the value delivered with E-rate support. We will also track 
replacement and upgrade cycles and LAN/WLAN architectures to accurately 
measure cost-effectiveness.

C. Making the E-Rrate Application Process and Other E-Rate Processes 
Fast, Simple and Efficient

1. Goal
    43. We adopt as our third goal making the E-rate application 
process and other E-rate processes fast, simple, and efficient. Each 
year, USAC reviews tens of thousands of funding requests from schools 
and libraries, and processes thousands of appeals, invoice requests, 
deadline extension requests, and additional inquiries from schools, 
libraries, and other parties requesting information. Simplifying and 
improving these procedures will help applicants receive their funding 
in a timely fashion, which will allow them to plan better and maximize 
the impact of their support. Simplification of the E-rate application 
process also eases the administrative burden on applicants--which is 
particularly important for smaller schools and libraries that lack 
extensive administrative support. Conversely, complexity and delay 
discourage participation and ultimately result in fewer schools and 
libraries fully investing in needed high-speed broadband connections.
    44. Commenters overwhelmingly agree that making E-rate process 
fast, simple, and efficient is critical to the overall success of E-
rate. Commenters specifically highlight, among other things, the 
importance of simplicity and transparency in the application submission 
and review process, and the need for timeliness in making funding 
commitments and paying invoices, reclaiming unused funds, and 
completion of the application and selective review processes. We 
recognize that there are a number of considerations that compete with 
our efforts to simplify the program for applicants, speed processing of 
applications and appeals, and minimize overhead costs. For example, we 
will need to appropriately balance our need for data to appropriately 
monitor program performance, with our efforts to minimize the 
application burden on applicants. Likewise, we must ensure that a 
simplified E-rate program does not open the door to waste, fraud, or 
abuse.
2. Measures
    45. In 2007, the Commission adopted certain E-rate performance 
measurements related to the application and invoicing processes and the 
resolution of appeals submitted to USAC. Building on that work, in the 
E-rate Modernization NPRM the Commission sought comment on what 
additional measures we should adopt to

[[Page 49166]]

support the goal of making the E-rate application process and other E-
rate processes fast, simple and efficient. While commenters are very 
supportive of streamlining and simplifying the administrative process, 
few offer actual performance measures to support this goal.
    46. Based on our experience with the E-rate program, as an initial 
measure, we will evaluate progress towards our third goal by measuring 
the timely processing of funding commitments to eligible schools and 
libraries by USAC by tracking the processing time against an 
established target. Working with OMD, USAC has dramatically improved 
its rate of application processing for this funding year (funding year 
2014). In both funding year 2013 and 2014, USAC received applications 
requesting between $2.6 and $2.7 billion in priority one E-rate 
support. By July 1, 2013, USAC had only committed approximately $181 
million in support. By contrast, as of July 1, 2014, USAC has already 
committed approximately $1.22 billion in support. In 2013, USAC did not 
reach $1 billion in commitments until October.
    47. We applaud the progress USAC and OMD have made in improving the 
timeliness of processing of funding commitments to eligible schools and 
libraries. In light of this progress, and to ensure continued progress 
and further expedite the commitment process and increase the timeliness 
of funding commitment decisions, we direct USAC to aim to issue funding 
commitments or denials for all ``workable'' funding requests by 
September 1st of each funding year. A September 1st deadline provides 
USAC with approximately five months beyond the application filing 
window deadline to review all timely filed and complete funding 
requests and gives applicants certainty regarding a funding decision 
for those timely filed and complete requests by the beginning of the 
school year. ``Workable'' means that a funding request is filed timely 
and is complete, with all necessary information, to enable a reviewer 
to make the appropriate funding decision, and the applicant, provider, 
and any consultants are not subject to investigation, audit, or other 
similar reason for delay in a funding decision. Funding requests from 
applicants that decline to respond to USAC inquiries over the summer 
may be considered ``unworkable'' for purposes of this performance goal, 
though USAC will process these applications as quickly as possible when 
school staff return for the year. USAC shall continue to report at 
least monthly on its progress toward this goal, based on the dollars of 
requests processed and the total count of schools and libraries 
represented in those requests, as well as any other specific metrics 
OMD identifies, and on any obstacles to achieving the application 
processing target.
    48. In adopting this target, we recognize that even ``workable'' 
funding requests may be time consuming for USAC to process and may, 
after initial review, require further input from the applicant before 
USAC can issue a funding commitment. Our adoption of a specific 
application processing target should not affect in any way USAC's 
contacts with applicants to seek additional information concerning a 
funding request and USAC's thorough review of each application. USAC 
must continue to provide applicants with an opportunity to respond to 
their questions. While we seek to expedite USAC's processing of 
applications, we remain committed to guarding against waste, fraud, and 
abuse in the E-rate program. We note that failure of an applicant to 
timely respond to requested information could constitute an obstacle to 
receiving a funding decision by the target date. Therefore, we strongly 
encourage applicants to timely respond to USAC requests for 
information.
    49. We will also evaluate our progress towards the third goal by 
having USAC survey applicants and service providers about their 
experience with the program. A survey will provide useful and useable 
information to USAC and to the Commission about what is working and 
what needs to be improved.
    50. These performance measurements, taken together, will help 
provide greater certainty to applicants and providers, and will assist 
applicants in more timely deployment of eligible services. 
Additionally, these measures will help to ensure that the E-rate 
program is operated as efficiently as possible by minimizing the need 
for the submission and review of other requests, such as service 
delivery deadline extensions, service substitutions, service provider 
identification number (SPIN) changes and FCC Form 500 filings to change 
contract expiration dates, which are often necessitated due to the 
delay in the issuance of timely funding commitment decisions letters.

III. Ensuring Affordable Access to High-Speed Broadband Sufficient To 
Support Digital Learning in Schools and Robust Connectivity for All 
Libraries

    51. Having set our goals for the E-rate program, we now turn to the 
process of modernizing the program to meet each of those goals. In this 
section, we begin to update the E-rate program to ensure that schools 
and libraries have affordable access to the high-speed broadband 
connections needed for digital learning. The record in this proceeding 
and our own analysis of the program lead us to a particular focus on 
the internal connections, including Wi-Fi, needed for robust broadband 
connectivity in all classrooms and libraries.
    52. Wi-Fi is a transformative technology for education, allowing 
schools and libraries to transition from computer labs to one-to-one 
digital learning. Yet, in most funding years, the E-rate program has 
been able to provide priority two support for internal connections, 
including Wi-Fi, only to schools and libraries entitled to the highest 
discount levels. In funding year 2012, for instance, the program 
committed approximately $800 million for internal connections and was 
only able to fund applicants at the 90 percent discount level. As a 
result, nearly 60 percent of that funding went to urban applicants--
almost double the share of students in urban schools nationwide. In 
2013, for the first time ever, no E-rate support was available for 
internal connections.
    53. By contrast, the E-rate program has always been able to meet 
demand for services that provide connectivity to schools and libraries. 
However, only about half of the $2.4 billion E-rate budget is used to 
support priority one funding requests focused on broadband connectivity 
to schools and libraries.
    54. In short, the E-rate program has become increasingly ill-
equipped to meet the demands of the modern classroom and library. 
Therefore, we now act to modernize E-rate to ensure more equitable, 
reliable support for Wi-Fi networks, and other internal connections 
supporting broadband services, within schools and libraries. While we 
focus in this Report and Order on providing funding for internal 
connections, we remain committed to ensuring schools and libraries have 
high-speed connections to their buildings. In order to help ensure E-
rate funding is available to support high-speed broadband to and within 
schools and libraries, we also eliminate support for certain legacy, 
non-broadband services to help free up funding for these internal 
broadband connections. We begin, however, with a short review of our 
legal authority to set the list of E-rate supported services and define 
the mechanisms of E-rate support.

A. Legal Authority

    55. Sections 254(c)(1), (c)(3), (h)(1)(B), and (h)(2) of the 
Communications Act collectively grant the Commission broad and flexible 
authority to set the list of

[[Page 49167]]

services that will be supported for eligible schools and libraries, as 
well as to design the specific mechanisms of support. This authority 
reflects Congress's recognition that technology needs are constantly 
``evolving'' in light of ``advances in telecommunications and 
information technologies and services.''
    56. In creating the E-rate program in 1997, in the Universal 
Service First Report and Order, 62 FR 32862, June 17, 1997, the 
Commission designated all commercially available telecommunications 
services as services eligible for support (or discounts) under the E-
rate program. At the same time, the Commission determined that it could 
provide E-rate support for additional, non-telecommunications services, 
particularly Internet access, email, and internal connections, provided 
by both telecommunications carriers and non-telecommunications 
carriers. The Commission reasoned that such services enhance access to 
advanced telecommunications and information services for public and 
non-profit elementary and secondary school classrooms and libraries.
    57. We update this eligible services framework for today's needs. 
Revisiting our approach to this issue is consistent with 254(c)(1)'s 
definition of universal service as an ``evolving level'' of service, 
which the Commission must revisit ``periodically,'' ``taking into 
account advances in telecommunications and information technologies and 
services.'' We are also guided by section 254(h)(2)(A)'s directive that 
we ``enhance, to the extent technically feasible and economically 
reasonable, access to advanced telecommunications and information 
services'' for schools and libraries.
    58. Taken together, and considered in light of the Commission's 
``responsibility to be a prudent guardian of the public's resources,'' 
these provisions lead us to take a more focused approach to the 
definition of E-rate eligible services today than was adopted in 1997. 
In particular, based on the record of this E-rate modernization 
proceeding, and as described in more detail, we find that E-rate 
support should be transitioned to focus specifically on those 
telecommunications and information services, including associated 
inside wiring, necessary to support broadband to and within schools and 
libraries. The Commission has long supported these types of services, 
and we think it clear that the statute authorizes their support. 
Section 254(c)(1) and (c)(3) each provide ample authority for the 
support of broadband telecommunications services, and sections 
254(c)(3), (h)(1)(B), and (h)(2) provide authority to support advanced 
telecommunications and information services, including associated 
inside wiring.
    59. At the same time, in order to focus E-rate funding on these 
services, we must redirect funding away from services that are less 
essential to education, less directly tied to educational purposes, 
and/or more likely to be affordable without E-rate support than when 
the program began, including fixed and mobile voice service. The 
statute also amply supports this decision. Even if the E-rate fund was 
not capped at its current level, we have a responsibility to be prudent 
stewards of universal service funds, knowing that that those funds are 
ultimately paid for by consumers. Because the amount of available E-
rate funding is finite, we must make thoughtful decisions about what 
services are not just permissible to support, but are the most 
essential to support for schools and libraries. We have relied on the 
record to inform these choices.
    60. As we focus E-rate support on high-speed broadband, we 
recognize that we will ultimately reach a point where E-rate no longer 
supports voice service, which we have defined as the 254(c)(1) 
supported service for purposes of the High Cost (Connect America Fund) 
and Lifeline programs. But nothing in section 254(c)(1) or elsewhere 
bars the Commission from establishing different supported services for 
different elements of the overall Universal Service Fund.
    61. Indeed, in establishing the definition of the 
telecommunications services that are supported by the Federal universal 
service support mechanisms, the Commission is charged with considering 
the extent to which the telecommunications services meet the criteria 
section 254(c)(1)(A) through (D). This list of criteria implies that 
the definition of supported services can vary depending on the 
particular universal service program at issue. For example, section 
254(c)(1)(A) requires the Commission, in designating supported services 
to consider the extent to which services ``are essential to education, 
public health, or public safety.'' Congress recognized that 
telecommunications services deemed essential for education (and by 
extension the E-rate program) may well not be the same as 
telecommunications services essential for health (or the Rural Health 
Care program). Likewise, what is consistent with the public interest, 
convenience and necessity in section 254(c)(1)(D) could vary depending 
on the specific universal service program at issue.
    62. Moreover, reading section 254(c)(1) to bar the Commission from 
establishing different eligible services for different universal 
service programs would place section 254(c)(1) in tension with section 
254(b), which requires the Commission to ensure that rates charged to 
consumers nationwide are ``just, reasonable, and affordable,'' and 
therefore to keep universal service contributions, typically passed 
through in customers' rates, as low as possible. We think the better 
reading of 254(c)(1) provides the Commission authority to support 
services in more granular ways, such as only in the specific USF 
programs where the Commission concludes that such a definition of 
supported services is warranted after considering the (c)(1) factors, 
and thereby minimize the overall USF burden on consumers who pay into 
the Fund.
    63. Finally, in the sections that follow we change to some extent 
the mechanisms by which E-rate support is allocated and the discount 
levels provided under the program. Sections 254(c) and 254(h) give the 
Commission broad authority to design these mechanisms and set discount 
rates at the level ``appropriate and necessary to ensure affordable 
access to and use of'' E-rate supported services. This authority amply 
supports the changes we make here.

B. Providing More Equitable Funding for Broadband Within Schools and 
Libraries

    64. In this section, we focus on providing schools and libraries 
more equitable access to funding for Wi-Fi networks and other internal 
connections that allow high-speed connectivity within schools and 
libraries. We begin by designating internal connections that support 
broadband connectivity as ``category two'' services, rather than 
``priority two'' services in recognition of the importance of Wi-Fi 
networks in connecting students and library patrons. In the short term, 
in order to provide schools and libraries more access to category two 
funds over the next two funding years, we accept the recommendation of 
commenters who suggest that we focus the additional E-rate funds 
identified by the Bureau earlier this year on internal connections. 
Consistent with this focus, and with the record in this proceeding on 
the funding needs for Wi-Fi and other internal connections, we also set 
an annual budget target of $1 billion for category two services. Next, 
we increase the minimum contribution rate for these

[[Page 49168]]

category two services from 10 to 15 percent to encourage applicants to 
pursue the most cost-effective options. For applicants that apply for 
category two support during the next two funding years, we also test 
reasonable maximum per-student and per-library pre-discount budgets for 
category two services in order to ensure greater access to category two 
funding sufficient to deploy robust LANs and WLANs. Finally, we update 
our rules regarding eligible services to align with this new focus on 
providing E-rate support to services necessary for broadband 
connectivity and direct the Bureau to update the ESL accordingly.
1. Providing Support for Internal Connections
    65. As an initial matter, we change the E-rate program's existing 
priority funding nomenclature. We agree with commenters that schools 
and libraries should take a ``whole network'' approach to planning 
their purchase of E-rate eligible services that bring connectivity both 
to the building and to devices. In place of the priority nomenclature, 
we designate the services needed to support broadband connectivity to 
schools and libraries as ``category one'' services, and those needed 
for broadband connectivity within schools and libraries as ``category 
two'' services because we recognize that deploying internal connections 
is an important element in connecting schools and libraries to high-
speed broadband.
    66. For category one services, we are confident that the changes we 
make to the E-rate program in this Report and Order will ensure that we 
can continue funding all eligible category one requests, as we continue 
to evaluate the long-term, overall program needs. For category two 
services, the additional funding announced by the Bureau earlier this 
year will allow the Commission to make $1 billion available over each 
of the next two years. Building on the use of the identified program 
funds for the next two years, and to give applicants longer-term 
visibility into our approach, we also set a funding target of $1 
billion annually for category two services on an ongoing basis. In 
contrast to the current system, providing a target of $1 billion a year 
annually for category two services will ensure greater access to E-rate 
support for the Wi-Fi networks needed to connect 10 million students a 
year to 21st Century educational tools. We recognize the concern of 
some commenters, however, that, in the absence of a full review of 
long-term program needs, a hard funding allocation for category two 
services could put at risk our ability to provide sufficient support 
for category one requests. For that reason, the budget we adopt will 
remain a target, rather than a fixed allocation, as we continue to 
evaluate the long-term program needs, and we direct USAC to shift funds 
targeted for category two services to meet all eligible requests for 
category one services, in any funding year in which demand for category 
one services exceeds available funds. Given the availability of funding 
for the next two years, the need for continued analysis of longer-term 
trends in category one demand, as well as savings from the reforms we 
adopt today and future additional reforms, we do not increase the 
overall cap at this time, but seek additional comment on that issue in 
the accompanying FNPRM.
    67. If demand for internal connections exceeds the available 
funding for category two services, we will prioritize access to 
internal connections funding based on concentrations of poverty. Those 
schools and libraries entitled to a higher discount will receive 
internal connections funding ahead of those entitled to a lower 
discount rate. If there is insufficient funding available to meet the 
need at a particular discount rate for category two, we will prioritize 
funding within a discount rate based on the percentage of students that 
are eligible for free and reduced school lunches within each 
applicant's school district. Funding for libraries will be prioritized 
based on the percentage of free and reduced lunch eligible students in 
the school district that is used to calculate the library's discount 
rate. Funding for individual schools that are not affiliated 
financially or operationally with a school district, such as private or 
charter schools that apply individually, will be prioritized based on 
each school's individual free-and-reduced student lunch eligible 
population.
    68. This prioritization method maintains the core of the existing 
system that E-rate applicants are familiar with, and gives applicants 
serving the highest poverty populations first access to funds, while 
allowing us to fund within a discount-band even where funding is not 
sufficient to reach all schools in that band. As explained, however, 
and unlike the existing system, we adopt additional measures in an 
effort to provide the opportunity for a broader range of applicants to 
obtain funding for category two services.
    69. In the event that requests for category one services are less 
than the available funding and demand for category two services is 
higher than the $1 billion target for category two services at the 
close of the funding year window, the Bureau, working with OMD and 
USAC, may redirect the excess funding to category two services in the 
same funding year. If USAC does not commit the entire category two 
budget for a funding year, or committed funds are not used or returned, 
such funds may be carried forward to be used in subsequent funding 
years. Each year such funds are available, we direct the Bureau, 
working with OMD and USAC, to determine the proportion of carry-forward 
funds to be used for category one and category two services.
2. Increasing the Minimum Applicant Contribution Rate for Category Two 
Services
    70. In order to ensure more equitable access to limited internal 
connections funds, we will increase the minimum contribution applicants 
must make towards E-rate supported category two purchases from 10 to 15 
percent. We agree with commenters that requiring applicants to pay a 
larger share of the cost of E-rate supported category two purchases 
will spread available universal service funds more widely and increase 
the incentive for applicants to find the most cost-effective options 
that meet their internal connection needs.
    71. In deciding to reduce the top discount rate for internal 
connections from 90 percent to 85 percent, as with other changes we are 
making to the E-rate program, we remain mindful of the challenges faced 
by our most vulnerable schools and libraries in areas with the highest 
levels of poverty. Taken together, the changes we make in this Report 
and Order should benefit all schools and libraries, including those 
receiving the highest discount rate. At the same time, we have taken a 
measured approach in making changes that could negatively impact 
applicants entitled to the highest discount rates. For example, we 
reduce the top discount rate only for category two services, and only 
by five percent. Likewise, we phase down support for voice services 
over several years, to give applicants time to adjust to the loss of 
support for such services. We also seek to counterbalance potential 
reductions in funding by adopting proposals aimed at driving down the 
prices all applicants will pay for E-rate supports services, including 
increased pricing transparency and encouraging consortia purchasing and 
bulk buying.
    72. We expect that requiring higher matches will lead applicants 
that have been eligible for 90 percent discounts for priority two 
services to pursue lower prices for eligible category two services

[[Page 49169]]

more aggressively. Commenters note that applicants in the highest 
discount level spend more in pre-discount dollars than those that have 
a larger required match. Consistent with this analysis, E-rate Central, 
a member of USAC's 2003 Task Force on Waste, Fraud, and Abuse, observes 
``many examples of excessive spending by applicants at the highest 
discount levels, often driven by overly aggressive sales efforts by 
vendors targeting the poorest schools and libraries.'' Thus, as the 
Iowa Department of Education argues, requiring applicants to ``[h]av[e] 
more `skin in the game' . . . will guard against waste, fraud, and 
abuse.'' We therefore set the highest discount level for category two 
services at 85 percent. Applicants that would have been eligible for 
discounts of 86 to 90 percent will now be eligible for an 85 percent 
discount, and those eligible for a discount of 85 percent or less will 
see no change. This decision is consistent with a similar change to the 
Rural Health Care program that requires recipients of the new 
Healthcare Connect fund to contribute 35 percent of the costs of the 
support services, which the Commission found ``appropriately balances 
the objectives of enhancing access to advanced telecommunications and 
information services with ensuring fiscal responsibility and maximizing 
the efficiency of the program.''
    73. Although some commenters recommend even higher minimum 
applicant contribution rates--20, 25 or even 30 percent (80, 75 or 70 
percent maximum discount rates, respectively)--we recognize the 
concerns voiced by some stakeholders that we not raise the net cost to 
the most disadvantaged schools and libraries above levels that they can 
afford. Therefore, in order to minimize the impact of this change on 
these schools and libraries, we reduce the maximum discount rate only 
by five percent and only for category two services as a first step. We 
note that the per-student and per square foot applicant budgets for 
funding year 2015 and 2016 described below mitigate some of the 
concerns about overspending at this time. Other commenters agree that 
the discount level should be changed, but ask for it to be a temporary 
change. We see no reason, however, why the greater incentives for cost-
effective purchasing introduced by a slightly higher applicant match 
would be appropriate in the near term but less so in the future; to the 
contrary, we believe such incentives will remain important over time, 
whereas changing the discount rate from year-to-year could distort 
efficient decision making. Finally, because we are only reducing the 
maximum discount rate by five percentage points, and only for category 
two services, we make this change fully effective for funding year 2015 
rather than phasing it in over multiple years.
3. Setting Applicant Budgets
    74. In order to provide broader and more equitable support for 
category two services, we adopt budgets for applicants who apply for 
category two discounts during the next two funding years, as we 
continue to evaluate long term program needs. Under this approach, 
schools in districts that seek category two funding during funding 
years 2015 or 2016 will be eligible to request E-rate discounts on 
purchases of up to $150 (pre-discount) per student for category two 
services over a five-year period. Likewise, library systems and 
libraries that seek category two funding in funding years 2015 or 2016 
may request E-rate discounts on purchases of up to $2.30 (pre-discount) 
per square foot over a five-year period. If an applicant receives 
funding for category two services in funding year 2015 or 2016, the 
five-year budget will apply in the subsequent five funding years, in 
lieu of the existing ``two-in-five'' rule.
    75. We agree with commenters that E-rate must maintain its historic 
focus on poverty in distributing support. Therefore, as described, we 
will continue to use the discount matrix to calculate applicants' E-
rate support on their eligible costs, and applicants that have a higher 
percentage of students eligible for NSLP will continue to receive a 
larger proportion of support. For example, over a five-year period, 
schools or districts at the 80 percent level will be able to request up 
to $120 in E-rate support per student (an 80 percent discount on $150 
in services) and be required to pay 20 percent of the cost of eligible 
category two services that they purchase. Districts at the 20 percent 
level will be able to seek up to $30 per student over a five-year 
period, and be required to pay 80 percent of the costs of the eligible 
category two services that they purchase. Similarly, a library with 
10,000 square feet would be eligible for discounts on purchases of up 
to $23,000, so a library at the 80 percent discount level could request 
up to $18,400 in E-rate funding, while a library at the 20 percent 
discount level could request up to $4,600 over a five-year period.
    76. We recognize that this approach represents an important change 
to our handling of applicant requests, and we are committed to ensuring 
that the new five-year budgets not in any way compromise the program's 
fundamental commitments to providing sufficient support and to 
permitting local flexibility to address localized conditions, even as 
they expand access to program funds. Therefore we will consider funding 
years 2015 and 2016 to be a two-year test period, subject to further 
review by the Commission.
a. Methodology
    77. It would be impossible to identify, building-by-building, the 
precise amount of funding each eligible school and library will require 
in a given year to deploy or upgrade LANs and WLANs necessary to 
support broadband services within their buildings. As commenters note, 
building size, construction characteristics, where applicants are in 
their upgrade cycle, and other factors make each deployment unique. We 
can, however, establish a multi-year budget for category two services 
that will serve our goal of ensuring affordable access to high-speed 
broadband for schools and libraries by ensuring that (a) eligible 
schools and libraries have greater access to E-rate funding for 
internal connections necessary to distribute high-speed broadband 
within their buildings and (b) that category two budgets will be 
sufficient to ensure that eligible schools and libraries will be able 
to afford the deployment or upgrade of those internal connections. In 
setting such a budget, and the related budget-cycle, to fund internal 
connections, we find support from a broad array of cost data in our 
record.
    78. Budget Cycle. As an initial matter, for applicants that receive 
support in funding years 2015 or 2016, we establish a five-year budget 
cycle for category two services. The record demonstrates that most 
category two equipment has a typical lifecycle of approximately five 
years. After that point, schools and libraries likely will need 
additional support to upgrade their networks. This five-year budget 
cycle will give applicants the flexibility to determine when to make 
upgrades or changes.
    79. School Budget. We set a pre-discount budget of $150 per student 
over five years for schools. The record demonstrates that $2,500 per 
classroom, which is equal to just under $150 per student based on a 
ratio of 17 students per classroom, should be a sufficient budget to 
deploy LANs/WLANs to elementary and secondary school classrooms and 
common areas across the nation. States and districts submitted into our 
record specific cost data for recent upgrades to state-of-the-art 
deployments that were largely under this per-classroom amount. 
Likewise,

[[Page 49170]]

participants at the E-rate Modernization Workshop described spending 
differing amounts per classroom below this $2,500 range, from $1,300 to 
an average of $1,900 per classroom. North Carolina, which is in the 
middle of a statewide upgrade to Wi-Fi in its schools and libraries, 
originally estimated the upgrade cost at $2,200 per classroom, and has 
found actual deployment costs below this initial estimate, ranging from 
approximately $2,100 per classroom for a comprehensive high school 
upgrade to $900 per classroom for a more limited high school upgrade. 
In some parts of Mississippi, the $500 cost per classroom is well below 
this budget.
    80. Based on NCES data for average class sizes and other sources, 
commenters estimate that there are 18 to 20 students per classroom in 
the United States, an estimate supported by consultations with district 
technology officials and equipment vendors. Data in the record from a 
sample of states and districts suggests that the true number is 
slightly lower, however. In particular, statewide data from three 
states representing almost five million students (approximately 10 
percent of all students in the country) give an average of 17.8 
students per classroom, likely because not all classrooms are in use at 
all times of the day. Several individual districts also submitted 
classroom counts, both rural and urban, with an average of 19.6 
students per classroom. Combined, the state and district data provide 
information on schools serving over 5.6 million students, with an 
average of 18 students per classroom. We believe it makes sense to use 
a relatively conservative estimate to ensure support levels are 
sufficient for schools with smaller class sizes, such as smaller rural 
schools. Accordingly, in translating the various per-classroom cost 
estimates in our record into per-student costs (and vice-versa), we use 
an estimate of 17 students per classroom. Dividing $2,500 by 17 gives a 
per-student budget of $147, which we round up to $150 for simplicity of 
administration.
    81. A pre-discount budget of $150 per student over five funding 
years, or $30 per student annually, is also consistent with the market 
rate for elementary and secondary school managed Wi-Fi solutions, 
described. Because these costs include installation and maintenance, we 
find them to be a strong, market-driven representation of all-
inclusive, per-student LAN/WLAN deployment costs. For example, 
Education Networks of America (ENA) currently provides managed Wi-Fi to 
82 percent of public and charter high schools in Idaho for $21 per 
student and teacher per year, including installation, management, 
maintenance, and content filtering. C-Spire Fiber has several 
deployments in Mississippi that average an annual cost of $19 to $29 
per student for the managed Wi-Fi product it is piloting. In Ohio, 
several Information Technology Centers offer a managed Wi-Fi service to 
member school districts for $9-15 per student per year plus vendor 
installation charges.
    82. Commenters also submitted three different Wi-Fi cost models 
into our record: The EdSuperHighway/CoSN ConnectED Cost Model, the 
EdSuperHighway/CoSN Ongoing Cost Model, and the Cisco Model. The first 
of these, the EdSuperHighway/CoSN ConnectED Cost Model, produces the 
lowest estimate of required costs, producing a nationwide, average cost 
of approximately $21 per student per year, well below the budget we set 
here. This model assumes substantial existing infrastructure however, 
the extent of which will vary greatly between districts, so it is 
poorly suited to setting reasonable, nationwide budgets that will be 
sustainable on an ongoing basis. We thus do not rely on this model.
    83. The remaining models confirm our conclusion based on the record 
evidence discussed that a pre-discount $150 per student five-year 
budget we adopt here is reasonable. In contrast to the EdSuperHighway/
CoSN ConnectED Cost Model, the EdSuperHighway/CoSN Ongoing Cost Model 
and the Cisco Model each attempt to estimate the full, ongoing costs of 
internal connections deployments, averaged over the lifecycle of the 
equipment used. Both models consist of two basic components: An overall 
framework for estimating costs and a set of inputs for various costs 
and equipment lifecycles. Although they differ somewhat, the frameworks 
of both models appear to provide generally reasonable approaches to 
estimating Wi-Fi deployment costs. The deployment and maintenance cost 
estimates generated by the EdSuperHighway/CoSN Ongoing Cost Model and 
the Cisco Model differ, with EdSuperHighway/CoSN estimating an annual 
average cost of $869 per classroom, or $44 per student, and Cisco 
estimating an annual average of $1,081 per classroom, or $59 per 
student. The staff's sensitivity analysis of the key cost drivers, 
however, shows that the range of reasonable cost estimates that can be 
produced by the basic model frameworks is quite a bit wider than shown 
by these two data points. Specifically, with plausible changes to a 
small number of inputs, the models could support annual cost estimates 
ranging from approximately $22 all the way to $75 per student. The $150 
per student five-year budget we adopt here falls comfortably within 
this range, albeit toward the lower end. The EdSuperHighway/CoSN 
Ongoing Cost Model and the Cisco Model thus help confirm the 
conclusions we draw from the diverse data on real world deployment 
costs and the market-driven costs of managed Wi-Fi services, and, based 
on these data sets, we are comfortable choosing an estimate toward the 
lower end of the range produced by the models.
    84. In sum, the record suggests $150 per student is a reasonable 
budget, with many schools able to complete Wi-Fi deployments or 
upgrades for less than that amount. Some schools may still choose to 
spend more than $150 per student on their wireless deployments based on 
individual design decisions, and nothing in the approach we adopt 
prevents these decisions. Because the evidence shows that $150 per 
student has proven sufficient in numerous deployments over several 
geographic areas, however, we limit E-rate discounts to this budget.
    85. In finding that $150 per student over five years should provide 
sufficient support for category two services, we acknowledge that some 
cost variation exists across or even within LAN or Wi-Fi networks. For 
example, different building construction materials and variations in 
labor costs can affect upgrade costs. However, in contrast to some 
other costs, such as the costs of digging trenches for fiber 
deployment, the majority of the costs of LAN and Wi-Fi networks are 
commodity equipment costs, and therefore cost variation for efficient 
upgrades is far less than that for connectivity to schools and 
libraries. For the same reason, schools' costs for LAN or Wi-Fi 
networks generally should scale linearly by the number of classrooms 
(and therefore the number of students). We therefore conclude that a 
per-student system of setting budgets for category two funding 
(combined with a poverty-based discount rate and subject to the funding 
floor, as discussed below) reasonably suits the manner in which 
category two costs are incurred.
    86. Library Budget. We set a pre-discount budget of $2.30 per 
square foot over five years for libraries. Square footage provides a 
simple to calculate, predictable, and reasonably accurate method of 
setting budgets. Some commenters suggest that we should use patron 
counts, average daily users, peak hour users, or other metrics to help 
set reasonable internal connections budgets for libraries. We decline 
to adopt any of these other suggested metrics at this time because (a) 
we have identified no

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available sources of data on these metrics for all libraries, and (b) 
patron count, average daily users, and peak hour users may vary 
dramatically and could be difficult to measure. As a result, using 
these metrics at this time could reduce predictability, complicate the 
application process, and slow down application reviews.
    87. We choose $2.30 per square foot over five years as the budget 
amount based on three data sets in our record. First, Vermont libraries 
submitted state data showing the average equipment cost for deploying 
wireless networks in 35 libraries in the state to be approximately 
$0.81 per square foot. Second, the Urban Libraries Counsel (ULC) urged 
the adoption of a budget of $4 per square foot for libraries, which was 
supported by a number of libraries. Finally, the ALA filed an analysis 
reporting per square foot costs for a variety of libraries in the range 
of $1.79 to $2.29, which focused more specifically on E-rate eligible 
costs.
    88. Considering the range of all the cost data in the record and 
recognizing that the $2.30 budget is a cap, not a grant, we find that 
ALA's recommendation of $2.30 per square foot, taken with the $9,200 
funding floor over five years as set below, is a reasonable budget 
level. The ALA recommendation is based on a more thorough analysis and 
specifically limited to E-rate eligible costs. While we note that a 
number of libraries supported the ULC proposal, in general, these 
commenters did not provide sufficiently detailed data for the 
Commission to ensure that the estimates included only E-rate eligible 
services. Further, four ULC member libraries that did provide more 
specific cost data in response to requests from Commission staff 
indicate a range of $0.82 to $3.08 per square foot. Even so, we 
consider ULC's data in evaluating all the cost data in the record and 
selecting the $2.30 per square foot funding budget.
    89. Finally, we note that nationwide, schools have a median of 
approximately 150-175 square feet per student. The $150 per-student 
budget we adopt therefore equals about $0.86 to $1.00 per square foot 
for schools. The budget we select for libraries today is substantially 
above this amount. Therefore, we believe that $2.30 represents a 
generous figure that will not unnecessarily restrict library funding. 
Since our record suggests that usage density is unlikely to be 
substantially higher in libraries than it is in schools, the school 
costs in our record provide additional support for our finding that 
ALA's proposed $2.30 per square foot funding budget will provide 
sufficient support for library deployments.
    90. Notwithstanding this analysis, we recognize that the library 
data are less robust than that for schools. Accordingly, in the 
accompanying FNPRM we seek additional comment on these issues.
    91. Funding Floor. To ensure the category two budgets we set are 
sufficient to meet the minimum demand that certain schools and 
libraries might have regardless of size, we also establish a pre-
discount funding floor of $9,200 in category two support available for 
each school or library. While WLAN costs tend to scale by classroom 
size, schools and libraries will need the baseline funding to purchase 
a router and/or switch, at least one small wireless access point, and 
cabling necessary to deploy WLANs in even the smallest buildings. Our 
record is not, however, as well developed on this point as we would 
like, and so we take the conservative approach of adopting ALA's 
recommended floor of $9,200, based on ALA's consultation with its 
library members. Our record indicates that $9,200 should be sufficient 
to cover the costs to purchase necessary equipment, cabling, and 
installation for these libraries. We set the floor for schools at the 
same level to ensure equity and because the costs of deployment in 
small schools and libraries should be similar. Increasing the floor by 
this amount has a minimal budget impact. Therefore, all schools and 
libraries, including smaller schools and libraries, will be eligible to 
request pre-discounted support for up to at least $9,200 for category 
two services over any given five-year period.
    92. Per-Entity Basis. Applicants will be required to seek support 
for category two services on a school-by-school and library-by-library 
basis, although school districts will use a single district-wide 
discount rate for all of their schools, as will library systems for all 
of their libraries. Under this approach, school districts, whether 
public or made up of more than one independent school under central 
control, will have the flexibility to request support for any school or 
group of its schools each funding year, using the number of students in 
any school getting LAN/WLAN upgrades to determine the maximum eligible 
pre-discount amount in a given funding year for that school. This 
flexibility will allow districts to decide how to sequence deployment 
of LANs/WLANs based on their individual needs. For example, a large 
district may choose to upgrade one fifth of its schools in each of the 
five funding years, while a small district may request support to 
upgrade all of its schools in one funding year. To the extent that a 
district seeks or receives funding commitments for less than the 
category two budget for E-rate support available to a school, it may 
request additional category two E-rate support up to that budget in the 
following four funding years. The costs for services shared by multiple 
entities shall be divided between the entities for which support is 
sought in that funding year. Likewise, library systems that include 
multiple libraries will have the flexibility to request support for all 
or a portion of their library branches each year, using the floor area 
of the libraries being updated to determine the maximum budget 
available each year.
    93. Similarly, eligible schools that operate independently of a 
public school district, such as a private or charter school, are 
eligible for E-rate discounts on the purchase of eligible internal 
connections services up to $150 per student (or a minimum of $9,200). 
If an independently operated school seeks or receives less than the 
maximum amount of internal connections E-rate support available to that 
school in year one, it may request additional internal connections E-
rate support up to that maximum in the following four funding years. 
Likewise, libraries that are not part of a library system may request 
E-rate support for a pre-discount purchase of up to the greater of 
$9,200 or $2.30 per square foot, and any amount less than that will be 
available in the following four funding years. For example, a 10,000 
square foot library may request support for a purchase of up to $23,000 
over five years. If it seeks E-rate support for a purchase of $13,000 
in the first funding year, it may request discounted support for 
another $10,000 in eligible services over the next four years.
    94. Application of Budgets to Funding Years 2015 and 2016 and Five-
Year Funding Cycle. The question of applicant budgets is closely linked 
to the question of the long-term funding levels for category two 
services. As described, at this time we set funding for category two as 
a budget target rather than a firm allocation. In light of the funding 
identified by the Bureau earlier this year, we are confident we can 
meet this target for the next two funding years, and therefore we apply 
the budget approach adopted here to those two funding years. We will 
evaluate the longer-term application of this approach in conjunction 
with our evaluation of the overall, longer-term program needs.
    95. While the budget approach will only apply to applicants that 
receive funding in funding years 2015 and 2016,

[[Page 49172]]

we clarify that the budget themselves are five-year budgets. In other 
words, for schools in districts seeking funding in years 2015 and 2016, 
we adopt a rolling funding cycle of five years for category two 
services and remove the two-in-five rule that applied to priority two 
internal connections. As explained, Wi-Fi equipment has a lifecycle of 
approximately five years. Therefore, excluding any priority two support 
received before funding year 2015, schools in districts that seek 
category two support in funding years 2015 or 2016 will calculate their 
available support budget as $150 per student, multiplied by their 
discount, less any E-rate support received in the prior four years. In 
the first funding year that an applicant requests category two support, 
the full amount of the pre-discount $150 per student budget will be 
available to request. In later years, applicants will calculate the 
available budget based of $150 per student less any support received in 
the prior four funding years. Applicants that receive support in 
funding year 2015 will have $150 per student available divided over 
funding years 2016, 2017, 2018, and 2019. Applicants that receive 
support in funding year 2016, but not in funding year 2015, will have a 
budget of $150 per student divided over funding years 2017, 2018, 2019, 
and 2020. Likewise, libraries in library systems that receive support 
in funding years 2015 or 2016 will calculate support over the five-year 
funding cycle using the number of square feet less any support received 
in the prior four funding years. This approach will allow schools and 
libraries to plan for how best to upgrade their facilities, and plan 
for future upgrades based on their own prior spending. In contrast, 
adopting a shorter budget, such as a two-year budget, would create a 
mismatch between the budget cycle and real equipment lifecycles, and 
would likely encourage applicants to inefficiently front-load expenses 
in the next two years.
b. Reasons for a Multi-Year Budget Approach
    96. Our decision to limit applicants' total category two requests 
based on a five-year budget reflects broad consensus in the record that 
some reasonable limits on requests are necessary to spread support more 
broadly than under the current system. In the E-rate Modernization 
Public Notice, the Bureau outlined three options for such limits, and 
invited comments on alternatives. The five-year budget that we adopt 
here is a middle course between two of these options--an annual per-
student allocation and a one-in-five rotating funding schedule. After 
carefully evaluating the arguments for these and other options, we 
conclude that the approach we adopt today will bring several important 
benefits to applicants and the program.
    97. First, the approach we take to distribute category two funding 
provides greater predictability. Since funding year 1999, applicants 
have had no certainty from year-to-year that category two services 
would be supported. As such, administrators, budget managers, and 
technology planners have been discouraged from planning for E-rate 
support for Wi-Fi in their schools and libraries because annual funding 
was far from assured. Some commenters express concern regarding the 
predictability of other approaches, such as a rotating approach or a 
one-in-five approach. On the other hand, some commenters support an 
allocation approach in order to provide needed certainty. Unlike in 
previous years, when there was no funding for internal connections, or 
funding went to connect a small percentage of the nation's students and 
library patrons, the approach we adopt today provides greater 
predictability and will be able to provide support for 10 million 
students and thousands of libraries each year.
    98. Second, the approach we adopt today maintains the E-rate 
program's priority for the highest poverty schools and libraries. We 
continue to use poverty measures when distributing support under this 
approach. Applicants with the highest percentage of students eligible 
for free and reduced lunch will receive a greater proportion of E-rate 
support and be eligible earlier in the five-year cycle if demand 
exceeds the annual budget for category two services.
    99. At the same time, this approach guarantees a broader 
distribution of funding for internal connections--adjusted as 
appropriate to reflect greatest levels of poverty--by setting 
reasonable limits on category two requests in order to deploy Wi-Fi 
networks to a far greater number of eligible applicants. Many 
applicants debate the costs and benefits of different distribution 
approaches, but focus on a core principle that distribution must be 
made more equitable. As we noted earlier, the existing priority two 
methodology has resulted in E-rate funding for priority two services 
being distributed only to schools and libraries with the highest 
discount levels. Additionally, a disproportionate amount of available 
funding has gone to urban schools. Commenters point out that some 
proposals, like a one-in-five limitation, would not help to achieve a 
more equitable distribution of support. Similarly, an increase in the 
cap without these additional measures to encourage efficient purchasing 
would not achieve more equitable distribution. This five-year budget 
approach should provide sufficient support per student or per square 
foot for far more schools and libraries to access needed funding, but 
places a limit on less cost-efficient spending requests.
    100. Importantly, this approach to funding category two 
connectivity also provides flexibility to districts, schools, and 
libraries to deploy and maintain Wi-Fi as best suits their own 
circumstances. Many commenters argue that flexibility is essential for 
setting reasonable budgets each year, and this five-year budget 
approach allows applicants to decide the rate at which school networks 
are updated. This approach allows applicants to plan how to deploy 
their networks over five years, whether by requesting support for all 
or just a portion of entities each year, or by purchasing a managed Wi-
Fi service through which a third party provider installs and manages 
the necessary LAN and WLAN.
    101. Finally, the approach we take today promotes cost-effective 
purchasing by applicants while providing support that the record 
demonstrates should be sufficient to support these badly needed 
deployments. In the past, applicants at the top discount levels had an 
incentive to overbuy or use less cost-effective network design. A limit 
on category two support will encourage more cost-efficient purchasing.
    102. In contrast to the approach we adopt here, we find the 
alternative approaches that commenters suggest as well as those 
outlined by the Bureau in the E-rate Modernization Public Notice--such 
as maintaining the existing system but temporarily eliminating support 
for applicants that have recently received support, a rotating schedule 
of funding for different discount bands, or single-year budgets, 
implemented with or without the existing discount matrix--would each be 
less effective at solving the structural problems with how the E-rate 
program has historically funded internal connections. For instance, as 
pointed out by commenters, both the rotating eligibility approach and 
the one-in-five approach outlined by the Bureau in the E-rate 
Modernization Public Notice lack certainty for schools and libraries 
absent incentives for more cost-efficient purchasing in the highest 
discount bands, and would likely fail to distribute support more 
broadly than is the case today. In contrast, providing

[[Page 49173]]

applicants with a constant, single-year budget would fail to account 
for the reality that individual applicants will have different needs in 
different years, depending on where they are in their upgrade cycle.
c. Other Applicant Budget Issues
    103. Student Count. We move to a district-wide calculation of 
applicants' discount rates. In order to determine the budget available 
each funding year, districts should calculate the number of students 
per school at the time that they calculate their district-wide discount 
rate annually. We recognize that there will be some instances, such as 
the construction of a new school, that will make calculating the number 
of students more difficult for districts. We will permit schools and 
school districts to provide a reasonable estimate of the number of 
students who will be attending a school under construction during a 
particular funding year and seek support for the estimated number of 
students. However, if an applicant overestimates the number of students 
who enroll in that school, it must return to USAC by the end of the 
next funding year any funding in excess of that to which it was 
entitled based on the actual number of enrolled students. This means a 
school at the 80 percent discount level, which estimates that it will 
have 1,000 students, may request E-rate support of up to $120,000. If, 
however, enrollment after the school opens is only 750 students, the 
school will have to return any committed support exceeding $90,000. We 
note, however, that there may be funding years in which an entity loses 
students and therefore spent more than its available budget in the 
prior four funding years. In these instances, we will not require 
repayment of any E-rate support, but there will be no available funding 
for that funding year. Students who attend multiple schools, such as 
those that attend educational service agencies (ESAs) part-time, may be 
counted by both schools in order to ensure appropriate LAN/WLAN 
deployment for both buildings.
    104. Cost-Effective Purchasing. Our goal in setting a per-student 
limit is to ensure schools and libraries can purchase the internal 
connections they need while discouraging them from purchasing 
unnecessary equipment or using an inefficient network design. At the 
same time, we emphasize that the pre-discount $150 budget per student 
is not a block grant. Applicants may only request funding for discounts 
on eligible category two services, and schools must continue to pay the 
non-discounted portion of the supported services. These requirements 
remain in place. We will not, however, second guess schools' and 
libraries' decisions to purchase additional equipment or services with 
other sources of funding if they determine that it is the most cost-
effective service offering for what they have decided they need.
    105. Rural Remote Applicants. We decline to adopt the request made 
by some commenters that we provide additional category two funding or a 
rebuttable presumption allowing USAC or the Bureau to waive the budget 
for applicants in rural remote areas at this time. As described, we 
find that LAN/WLAN costs are largely based on the costs of equipment, 
and therefore tend to have consistent prices nationwide. To the extent 
there are price variations, it is often the case that internal 
connections upgrades are less expensive in rural areas because labor 
costs are lower, permitting is easier, and buildings are newer and/or 
easier to renovate. Therefore, we conclude that the benefits of 
additional funding for rural remote areas are outweighed by the added 
administrative burden and the additional costs to the Fund of providing 
such additional support.
4. Setting an Annual Funding Target for Internal Connections
    106. Based on the five-year school and library budgets we find 
sufficient above, total category two pre-discount requests over the 
next five-years will amount to no more than $8.8 billion to deploy LANs 
and WLANs in schools and libraries throughout the country. After 
accounting for the non-discounted share paid by applicants, with a 15 
percent minimum applicant contribution, we estimate that E-rate 
discounts will support approximately 67 percent of the total pre-
discount cost of $8.8 billion for eligible category two services. In 
addition, we estimate that there will be schools and libraries that do 
not seek funding or request less than the full budgeted amount to 
upgrade and maintain their LANs/WLANs over time. We therefore reduce 
the five-year budget by approximately 15 percent to avoid over-
budgeting and set the five-year budget at $5 billion, plus annual 
inflation adjustments. We adopt an annual target of $1 billion, plus 
any annual inflationary changes, for category two services, which is 
equal to one-fifth of the five-year estimate of E-rate support. In 
addition to this annual budget, the Bureau may allocate any available 
carry forward funding to meet category two demand.
5. Focusing Support on Broadband
a. Core Components of Broadband Internal Connections
    107. In order to help deploy LANs/WLANs necessary to permit digital 
learning in schools and libraries throughout the nation, we focus the 
category two ESL on broadband. With one narrow exception, we limit 
internal connections support to those broadband distribution services 
and equipment needed to deliver broadband to students and library 
patrons: Routers, switches, wireless access points, internal cabling, 
racks, wireless controller systems, firewall services, uninterruptable 
power supply, and the software supporting each of these components used 
to distribute high-speed broadband throughout school buildings and 
libraries. Some form of each of these services has previously been 
designated as eligible for E-rate support, and we find they are 
necessary to ensure delivery of high-speed broadband services to 
students and library patrons via LANs/WLANs. We do not limit these 
eligible services by form, and therefore agree that equipment that 
combines functionality, like routing and switching, is also eligible. 
Similarly, we recognize that some functionalities can be virtualized in 
the cloud, such as cloud wireless controllers, and therefore will 
permit such services to be eligible for purchase by schools and 
libraries.
    108. To focus support on only those internal connections necessary 
to enable high-speed broadband connectivity, beginning in funding year 
2015, we eliminate E-rate support for the priority two components that 
had been in the following ESL entries: Circuit Cards/Components; 
Interfaces, Gateways, Antennas; Servers; Software; Storage Devices; 
Telephone Components, Video Components, as well as voice over IP or 
video over IP components, and the components, such as virtual private 
networks, that are listed under Data Protection other than firewalls 
and uninterruptible power supply/battery backup. In recognition of our 
need to be a ``prudent guardian of the public's resources,'' we find 
that eliminating these priority two components from the ESL ensures 
that there is more E-rate support available to deploy the LANs/WLANs 
needed to improve digital learning in schools and libraries. It is also 
consistent with section 254(h)(2)(A) of the Act, which requires that 
support to schools and libraries improve access to advanced services in 
a manner that is ``technically feasible'' and ``economically 
reasonable.'' We direct the Bureau to release for comment a draft ESL 
for funding year 2015

[[Page 49174]]

consistent with this Report and Order, and encourage applicants to 
carefully review the eligible components included in the modernized 
category two section in that draft ESL. Some components that had been 
listed in the ESL as priority two may be relocated or described in 
updated or more generic terminology.
    109. Also, despite support from some commenters, we decline at this 
time to designate further network security services and other proposed 
services in order to ensure internal connections support is targeted 
efficiently at the equipment that is necessary for LANs/WLANs. Many 
commenters agreed that a limited list of eligible services would help 
ensure available funds are targeted and therefore available to more 
applicants. As we noted, we leave the record open on these services to 
allow for further comment as we evaluate the changes in the first 
funding year.
b. Basic Maintenance, Managed Wi-Fi, and Caching
    110. Basic Maintenance. For funding years 2015 and 2016, we will 
continue to provide support for basic maintenance services subject to 
each school or library's overall budget on E-rate eligible category two 
services. In the E-rate Modernization NPRM, the Commission proposed 
phasing out support for basic maintenance because the same high-
discount school districts received ample funding, while most school 
districts received none. Commenters point out however, that basic 
maintenance is needed to ensure networks operate properly, particularly 
as networks become more complicated. We believe that we can achieve the 
stated goal of broader funding distribution through other means, 
including a reasonable and equitable limit on the total amount of E-
rate support available per student and per square foot which will 
discipline districts and libraries in basic maintenance purchasing 
decisions. In particular, applicants are unlikely to seek support for 
unnecessary basic maintenance given these limits on the total amount 
available, but providing support to ensure these networks function 
effectively may aid those districts with limited resources. Support 
will only be available for maintenance on equipment and services on the 
ESL and not for any of the legacy services phased out in this Report 
and Order.
    111. Managed Wi-Fi. In light of the applicant budgets for funding 
years 2015 and 2016, we are persuaded by commenters who argue that 
managed Wi-Fi, which we call managed internal broadband services in the 
rules to cover the operation, management, or monitoring of a LAN or 
WLAN, should be eligible for internal connections support. In the past, 
applicants could seek internal connections support only for the 
purchase of internal connections and basic maintenance. Unlike the 
traditional approach to internal connections, for managed Wi-Fi service 
contracts, schools and libraries obtain LANs/WLANs as a service for a 
period of three to five years from a third party who manages the entire 
system, providing operations and maintenance for the life of the 
contract. In other cases, the school or library may own the equipment, 
but have a third party manage it for them.
    112. The record demonstrates that applicants would benefit from 
greater flexibility to choose among managed Wi-Fi options. In 
particular, the variations of managed Wi-Fi services can provide 
substantial benefits and cost savings to many schools and libraries, 
particularly small districts and libraries without a dedicated 
technology director available to deploy and manage advanced LANs/WLANs 
quickly and efficiently. Therefore, pursuant to our authority under 
section 254 of the Act, we find that providing support for managed 
internal broadband services, including managed Wi-Fi, will ``enhance . 
. . access to advanced telecommunications and information services'' 
for schools and libraries, and we direct the Bureau to include managed 
internal broadband services on the ESL for funding years 2015 and 2016.
    113. Under the five-year applicant budget approach we adopt, a 
district, school, or library will be able to seek annual support for a 
managed Wi-Fi service, up to an average pre-discount rate cost of $30 
per student per year or one-fifth of the budget available to libraries 
based on floor area. This is consistent with the price of managed Wi-Fi 
services in the market today and limits the likelihood of waste or 
abuse in these managed Wi-Fi contracts. As noted below, we will allow 
districts and libraries to sign multi-year contracts, but we will not 
make multi-year commitments. Our short-term budget will be sufficient 
to fund these smaller multi-year contracts and we will continue to 
evaluate whether additional changes are needed in the long-term, but 
emphasize that there is no guarantee of funding.
    114. We disagree with commenters who argue that managed Wi-Fi 
should be a category one service. Despite our recognition that 
virtualization and management may send some amount of information 
beyond the walls of the school or library building in order to manage 
the internal networks, we find that services used to distribute 
bandwidth throughout the school are internal connections services. We 
therefore remove the presumption in our rules that such a service is 
not an internal connection.
    115. Competitive bidding rules still apply to procurement of 
managed Wi-Fi services. We encourage districts to request bids in 
technologically neutral ways and compare the cost-effectiveness of bids 
for self-provisioned networks with those for managed Wi-Fi contracts. 
We also encourage schools and libraries considering managed Wi-Fi to 
evaluate the value of joining a consortium of schools and libraries to 
increase their buying power and drive down costs.
    116. We also clarify that E-rate support for managed Wi-Fi is 
limited to those expenses or portions of expenses that directly support 
and are necessary for the broadband connectivity within schools and 
libraries. Eligible managed Wi-Fi expenses include the management and 
operation of the LAN/WLAN, including installation, activation, and 
initial configuration of eligible components, and on-site training on 
the use of eligible equipment. Eligible managed Wi-Fi expenses do not 
include a managed voice service, for example. For bundled pricing that 
includes eligible and ineligible expenses, applicants are required to 
cost allocate eligible from ineligible services to ensure only eligible 
services are supported.
    117. Finally, we delegate to the Bureau the authority to determine 
how best to interpret managed services for the purposes of the ESL as 
we gain experience with funding of these services through the E-rate 
program. Wireless access as a managed service is a market that is still 
being developed, and we believe it will facilitate the efficient and 
effective support of these services to provide the Bureau flexibility 
to adjust our approach as this market develops. As always, parties may 
appeal any Bureau decision to the full Commission.
    118. Caching. Due in part to the applicant budgets for funding 
years 2015 and 2016 limiting waste or abuse, we agree with commenters 
who argue that caching functionality should be eligible for internal 
connections support. Caching functionality enables the local storage of 
information so that the information is accessible more quickly than if 
it is transmitted across a network from a distant server. By placing 
previously requested information in temporary storage, caching 
functionality can, in certain

[[Page 49175]]

circumstances, optimize network performance, and potentially result in 
more efficient use of E-rate funding. The record indicates that caching 
functionality can be an integral component of some LANs and WLANs. As 
commenters point out, caching can provide a more affordable way to 
achieve bandwidth goals. This is consistent with the goal we adopt in 
this Report and Order, as well as the Commission's authority to ensure 
affordable access to E-rate supported services. As such, we disagree 
with commenters who argue that caching functionality should not be 
supported by E-rate funds. Instead, we designate caching functionality 
as an eligible service that ``enhance(s), to the extent technically 
feasible and economically reasonable, access to advanced 
telecommunications and information services'' for schools and 
libraries. As with the core components of broadband internal 
connections, we agree that equipment that combines caching 
functionality with other functionalities is also eligible. However, 
equipment that combines caching functionality with an ineligible 
functionality must be cost allocated. We therefore delegate to the 
Bureau the authority to define caching functionality, as well as the 
necessary software or equipment, such as caching servers, for the 
purposes of the funding years 2015 and 2016 Eligible Services List. As 
always, parties may appeal any Bureau decision to the full Commission.
    119. Eligibility After Funding Years 2015 and 2016. We make these 
determinations about eligibility in light of the applicant budgets we 
set out that mitigate some of our concerns about waste or abuse. We 
therefore direct the Bureau to include basic maintenance, managed 
internal broadband services, and caching functionality on the ESL for 
funding years 2015 and 2016. The Commission will evaluate the benefits 
and drawbacks of these eligibility determinations in future funding 
years as it continues its work modernizing the program. Absent 
Commission action, in funding year 2017 and in subsequent funding 
years, support for basic maintenance, managed internal broadband 
services, and caching functionality, as an internal connection, will be 
available only to those applicants that received support in funding 
years 2015 and 2016 and are operating under a five-year applicant 
budget.
6. Other Issues
    120. Category Two Installation Can Begin on April 1. We also amend 
our rules for category two non-recurring services to permit applicants 
to seek support for category two eligible services purchased on or 
after April 1, three months prior to the start of funding year on July 
1. This will provide schools with the flexibility to purchase equipment 
in preparation for the summer recess and provide the maximum amount of 
time during the summer to install these critical networks. We agree 
with commenters who note that the last day of school is often in May or 
June and schools need to be able to use the entire summer recess to 
ensure the networks are ready when students return to school. This is 
consistent with our previous decision to allow advance installation and 
construction under certain conditions.
    121. Administration. In accordance with this section, we make 
necessary changes to Sec. Sec.  54.500, 54.502, 54.505, and 54.507 of 
our rules. We recognize that these represent major changes to the 
structure and distribution of support for internal connections. Because 
unanticipated technical or operational issues may arise that require 
prompt action, we reaffirm the delegation of authority to the Bureau to 
interpret our rules ``as necessary to ensure that support for services 
provided to schools and libraries . . . operate to further our 
universal service goals.''

C. Phasing Down and Ending Support for Legacy and Other Non-Broadband 
Services

    122. In funding year 2013, approximately 50 percent of priority one 
E-rate funding was committed to high-speed broadband services, while 
approximately one third went to fixed voice and mobile services. 
Phasing down support for voice services and eliminating support for 
certain legacy services will allow us to focus E-rate program funding 
on the high-speed broadband needed by schools to enable digital 
learning and by all libraries to meet the broadband needs of their 
patrons. After the first two years of the phase down, the Bureau will 
issue a report evaluating the impact of the reduction in support for 
voice services. If the Commission takes no further action, the voice 
services phase down will continue.
1. Phasing Down Support for Voice Services
    123. Many commenters support reducing E-rate support for voice 
services to focus the E-rate program on broadband. We agree that voice 
services, while important for schools and libraries, are not as 
essential as high-speed broadband is for meeting the educational needs 
of students and library patrons. Instead of immediately eliminating 
support for voice services, we will reduce voice support each funding 
year by subtracting the discount rate applicants receive for voice 
services by 20 percentage points every funding year. In funding year 
2015, the discounts applicants receive for voice services will be 
reduced by 20 percentage points from their discount rates for other 
eligible services, and in funding year 2016, the discounts applicants 
receive for voice services will be 40 percentage points lower than 
their discount rates for other eligible services. In each subsequent 
funding year, the discounts applicants receive for voice services will 
be reduced by an additional 20 percentage points. Over the first two 
years of the phase down for voice services support, we direct the 
Bureau to evaluate the impact of the phase down on eligible schools and 
libraries and study the transition of eligible schools and libraries to 
VoIP services and issue a report to the Commission as we continue to 
reduce voice support by 20 percentage points each year. If, by the 
opening of the funding year window for funding year 2018, the 
Commission takes no further action, the voice phase down will continue.
    124. Voice services have been eligible for E-rate program funding 
since the Commission determined that the E-rate program should support 
all commercially available telecommunications services in the Universal 
Service First Report and Order. When the Commission established the E-
rate program in 1997, the goal was to provide schools and libraries 
discounts on the broadest class of telecommunications services and 
advanced services available at that time, and to provide schools and 
libraries the flexibility to purchase new technologies as they became 
available. However, the options for Internet access then were generally 
limited to dial up modem services offered over POTS lines, and the data 
links provided by T-1 and T-3 lines.
    125. Today, a much broader array of high-speed broadband services 
are available to and needed by schools and libraries to support modern 
digital learning initiatives. Moreover, support for voice services 
today consumes approximately one third of E-rate commitments while many 
schools and libraries are unable to access the funding they need for 
internal connections to provide high-speed broadband throughout schools 
and libraries. In order to meet our goal of funding high-speed 
broadband services to support digital learning in schools

[[Page 49176]]

and robust connectivity for all libraries, we conclude that we can no 
longer continue to fund voice services at the same discounts rates as 
applied to other eligible services that provide broadband access. 
Instead, we will gradually reduce E-rate funding for voice services and 
shift these funds to support those services that provide high-speed 
broadband. Accordingly, we remove the reference to E-rate supporting 
``all commercially available telecommunications services'' in Sec.  
54.502(a) of our rules so that it is clear to applicants that the 
telecommunications services that are supported by E-rate are listed in 
the ESL, rather than potentially sending a confusing message that any 
telecommunications service available on the market is eligible for E-
rate discounts. This is important now that we are phasing down support 
for voice services and eliminating support for some of the services 
associated with telephone service as explained herein. We also add to 
the rules our schedule for phasing down support for voice services.
    126. We recognize that many schools and libraries consider E-rate 
support for voice services an important part of their overall budgets. 
However, several factors should help ameliorate the impacts of 
gradually phasing down support for these services. First, voice is now 
a competitive offering in many areas, and the availability of VoIP 
services, particularly for those with broadband, provides a cost-
effective option for many schools and libraries. This expansion of 
competition, particularly from VoIP offerings, represents a substantial 
shift since the E-rate program was created in 1997. Whereas changes in 
the voice market are reducing the costs of voice service over time, the 
shortage of funding for broadband services has increasingly become an 
impediment to balancing all of the Commission's requirements under 
section 254(h). Second, because we will initially reduce the maximum 
discount available for voice services to 70 percent in 2015, and 50 
percent in 2016, our approach strikes a balance between those 
commenters supporting elimination of discounts for voice services with 
those school and library commenters that stressed the importance of 
retaining some level of support over a defined period of time. Third, 
as a result of the other measures we take in this Report and Order, the 
applicants affected by this change will have opportunities to seek 
funding for broadband infrastructure that may not have been available 
to them previously. To some degree, this may offset changes in their 
overall budgets. Finally, our decision does not alter the Commission's 
requirement that providers of eligible services must provide supported 
services at a lowest corresponding price (LCP). While voice service 
remains a supported service, the Commission's LCP rule serves as a 
safeguard for affordability because service providers cannot submit 
bids for or charge E-rate applicants a price above the LCP for E-rate 
services; E-rate discounts are then applied to a service provider's 
LCP.
    127. Several stakeholders suggest that in lieu of gradual 
transition, we give schools one or two years more of full support for 
voice service, but then eliminate support for voice altogether in 
funding years 2016 or 2017. While that approach might benefit 
recipients seeking voice support for the next one or two funding years, 
it would eliminate funding for voice services altogether before the 
Commission has had a chance to study the impact of the gradual phase 
down of support for voice services on eligible schools and libraries. 
The approach we take today is more gradual while allowing us to begin 
redirecting E-rate funding to broadband next year. We agree that our 
revised interpretation of section 254 requires us to redefine eligible 
services and shift support away from voice services and towards 
broadband services, but eliminating support in 2016 or 2017 would cause 
a more abrupt change in schools and library budgets in those funding 
years, which we believe many applicants would find difficult to 
absorb--particularly those serving the highest poverty communities. 
Phasing down support for voice services over several funding years 
preserves some funding for applicants at least for the next several 
funding years, with the most economically disadvantaged schools and 
libraries receiving the highest discounts as they consider alternatives 
in the marketplace.
    128. In the E-rate Modernization Public Notice, the Bureau sought 
comment on phasing out support for voice services by 15 percentage 
points per funding year. We now conclude that a per-year reduction of 
20 percentage points is appropriate because we find a more 
straightforward percentage point decrease should be easier for 
applicants to calculate, and will help ensure that sufficient funding 
for is available for supported services. Beginning in funding year 
2015, when the maximum discount rate for category one services will be 
90 percent, eligible applicants shall receive a maximum discount rate 
of 70 percent for voice services. We disagree with those commenters who 
argue that reductions will be difficult for applicants to understand 
and for USAC to administer. The discount rate for voice services will 
be based on an applicant's already established discount rate and will 
require only a simple 20 percentage point subtraction from the discount 
rate any applicant would otherwise be required to calculate to receive 
support from the program. We change the FCC Form 471 to enable 
applicants to seek support for voice services using a separate funding 
request number (FRN) from other eligible services starting in funding 
year 2015. Combining voice and non-voice services in a single FRN would 
cause delays in processing if USAC had to separate out the services 
during the application review process.
    129. The reduced discount rates for voice services will apply to 
all applicants and all costs incurred for the provision of telephone 
services and circuit capacity dedicated to providing voice services 
including: Local phone service, long distance service, plain old 
telephone service (POTS), radio loop, 800 service, satellite telephone, 
shared telephone service, Centrex, wireless telephone service such as 
cellular, and interconnected VoIP. Although there was some support in 
the record for excluding VoIP from the voice services phase down, we 
agree with those commenters that assert that retaining a higher level 
of funding for VoIP services while reducing the discount rate only for 
non-IP voice services would provide VoIP providers a competitive 
advantage in serving schools and libraries. Because the marginal cost 
of delivering VoIP services should be lower once schools and libraries 
have robust broadband, we expect the price of these services to 
continue to drop over the coming years, alleviating the need to retain 
higher discounts for VoIP funding. Similarly, a few commenters argue 
that we should retain support for wireless telephone services, while 
others support eliminating wireless telephone services in funding year 
2015. As with VoIP services, eliminating support for wireless telephone 
service in 2015, or subjecting wireless telephone services to a 
separate phase out track, would provide non-wireless providers a 
competitive advantage over wireless providers in serving schools and 
libraries.
    130. Some commenters argue that, because the USF/ICC Transformation 
Order, 76 FR 76623, December 8, 2011, included voice telephony service 
in the definition of universal service, we are compelled to include 
voice telephony as an eligible service for E-rate support

[[Page 49177]]

under sections 254(c)(3) and 254(h)(1)(B) of the Act. However, as 
explained, nothing in section 254(c)(1) bars the Commission from 
establishing different supported services for different elements of the 
overall Universal Service Fund, and in this Report and Order, 
consistent with the purpose of the E-rate program, we find that it is 
necessary and appropriate to phase down voice services.
    131. During the initial two years of the phase down of support for 
voice services, we direct the Bureau to study the impact of these 
discount reductions for voice support on E-rate recipients and to study 
the transition of eligible schools and libraries to VoIP services. The 
Bureau shall report its findings to the Commission by October 1, 2017, 
after completion of funding year 2016. If, at the conclusion of this 
study, no further action is pursued by the Commission before the 
application filing window opens for funding year 2018, the phase down 
will continue.
2. Eliminating Support for Telephone Features, Outdated Services, and 
Non-Broadband Services That Do Not Facilitate High-Speed Broadband
    132. Pursuant to sections 254(c)(1), (c)(3), (h)(1)(B), and (h)(2) 
of the Act, we eliminate support for other legacy and non-broadband 
services effective for funding year 2015. Our decision to stop 
supporting these services reverses prior Commission and USAC decisions, 
however, we find many of these services to be important, but not 
essential to education, and E-rate funding is not sufficient to support 
these services at the risk of not being able to fund the services 
identified herein that advance our program goals. Within the 
Commission's authority under section 254 of the Communications Act to 
designate telecommunications and additional services rests our equal 
authority to withdraw services from eligibility, especially as the 
needs of schools and libraries evolve. The record supports our 
decision.
    133. Beginning in funding year 2015, we will no longer provide E-
rate support for components of telephone service, outdated services 
such as paging and directory assistance, and services that may use 
broadband but do not provide it, including email, voice mail, and web 
hosting. Applicants may continue to seek support for individual data 
plans and air cards, but only when they can demonstrate, consistent 
with our current rules, that the purchase of such services is the most 
cost-effective way to connect students on school premises or library 
locations to the Internet.
a. Telephone Features and Outdated Telephone Services
    134. The record supports eliminating E-rate support for paging, and 
telephone service components such as text messaging and directory 
assistance beginning in funding year 2015. There is widespread 
agreement among commenters that paging service is largely outdated and 
can be retired from funding. Similarly, there is agreement that the 
features listed as ``Telephone Service Components'' should no longer 
receive E-rate support. The Telephone Service Components to be removed 
from the ESL are directory assistance charges, text messaging, custom 
calling services, direct inward dialing, 900/976 call blocking, and 
inside wire maintenance plans.
    135. Although a few commenters argue that paging serves an 
educational purpose because sometimes it is the only way to reach a key 
staff member in an emergency, other commenters asserted that paging is 
not really critical, and has been replaced by other services. 
Similarly, a few commenters argue that we should continue to support 
text messaging because students prefer it for quick communication, and 
it is used for a variety of work related tasks for administrators and 
teachers in way that does not disrupt the classroom. These are all 
valid assertions and while we recognize that these services are worthy 
to certain applicants, we conclude that continuing to fund them diverts 
funding away from the high-speed broadband services that have become 
essential to schools and libraries.
    136. Notably, those commenters recommending a longer adjustment 
period for the phase down of funding for voice services did not request 
a commensurate phase down timeline for telephone components, or assert 
that a transition period would be critical for schools and libraries. 
This is consistent with our view that a protracted phase out for 
telephone components is not necessary, and that these services should 
be eliminated from the list of those that are eligible for E-rate 
support beginning in funding year 2015. Funding commitment data is not 
available for several of the telephone features we will eliminate, 
however, funding year 2012 commitments totaled approximately 
$898,045.00 for paging and text messaging. Some commenters point out 
that removing these services will not result in sizable cost savings 
for the Fund. However, we agree with other commenters who argue that we 
should eliminate support for these features and services because it 
will allow us to direct some additional funds towards meeting our high-
speed connectivity targets without imposing undue hardship on 
applicants.
    137. We recognize that removing telephone components from the ESL 
in funding year 2015 will require some providers to change their 
billing practices or require some applicants to cost allocate the cost 
of those services from their requests for support. However, because 
these services are typically provided as an add-on or enhanced services 
for an extra fee, they are often presented as separate line items on 
telephone bills. Accordingly, it should not be overly burdensome for 
applicants to seek funding for the voice component of the telephone 
service only, and provide a cost allocation for any telephone features 
we remove from the ESL. Under the Commission's rules, if a product or 
service contains ineligible components, costs should be allocated to 
the extent that a clear delineation can be made between the eligible 
and ineligible components. The clear delineation must have a tangible 
basis and the price for the eligible portion must be the most cost-
effective means of receiving the eligible service. For telephone 
feature costs that are bundled with the cost of voice services, one way 
to determine the cost of the feature is for an applicant to seek an 
appropriate cost allocation from its service provider. We find that the 
benefits of streamlining support for voice services by removing funding 
for these services to enable that support to be used for essential 
educational purposes outweigh any burdens applicants may face in the 
next few funding years as they adjust to these changes, which the 
record leads us to predict generally should be minimal.
b. Email, Web Hosting, Voicemail
    138. We eliminate E-rate support for email, web hosting, and 
voicemail beginning in funding year 2015 and delete the reference to 
``electronic mail services.'' As many commenters recognize, these 
services are applications delivered over broadband service, and do not 
themselves deliver high-speed broadband. There is also evidence in the 
record that applicants seeking E-rate support for these services may 
not be getting the most cost-effective solutions, and that some service 
providers package web hosting and email service offerings to E-rate 
customers in a way that has created a risk that E-rate funds will pay 
for ineligible services. We recognize that email, web hosting and 
voicemail services may be important services for the day-to-day 
operations of many schools and libraries and that some of

[[Page 49178]]

them have come to rely on E-rate support for those services. However, 
continuing to fund these services diverts E-rate funding away from 
essential high-speed broadband services. Therefore, removing E-rate 
support for email, web hosting, and voicemail services aligns with our 
restructuring of the E-rate program under section 254.
c. Data Plans and Air Cards for Mobile Devices
    139. Data plans and air cards for mobile devices will continue to 
be eligible for E-rate support only in instances when the school or 
library seeking support demonstrates that individual data plans are the 
most cost-effective option for providing internal broadband access for 
portable mobile devices at schools and libraries. We agree with 
commenters that it is generally not cost effective for applicants to 
purchase on-campus use individual data plans that provide service on a 
one plan per-device basis when a school or library has robust internal 
wireless networks that provide Internet connectivity to multiple 
devices within a school or library. Some commenters also contend that 
these individual data plan services generally do not provide users with 
enough high-speed connectivity to access certain educational and 
informational materials.
    140. Some schools and libraries already have wireless networks that 
support one-to-one device initiatives. Moreover, with the increased 
availability of E-rate funds as a result of our decisions in this 
Report and Order, many more will be able to install high-speed internal 
broadband networks to support one-to-one learning programs in schools 
and reliable public Internet access in libraries. We consider funding 
for individual data plans or air cards for individual users to be not 
cost effective when those users can already access the Internet through 
internal wireless broadband networks on wireless-enabled devices 
without the help of stand-alone data plans or air cards. In general 
(i.e., assuming no showing of cost effectiveness), for applicants that 
receive data plans bundled with voice, only the voice services in the 
plan will remain eligible for funding in accordance with the phase down 
reductions we implement; the applicant must remove from its funding 
request the costs associated with all other services in a bundled plan 
that are ineligible.
    141. We recognize that there are a few locales where WLANs are 
impracticable or difficult to install, such as library bookmobiles. 
There may also be some schools or libraries where installation of a 
wireless network is possible but would be more costly than using 
individual data plans because the school or library location serves a 
very small number of students or patrons. Therefore, we will allow 
applicants to seek funding for individual data plans where the 
applicant is able to demonstrate that individual data plans are the 
most cost-effective option for providing internal broadband access for 
mobile devices. In order to ensure that individual data plans are the 
most cost-effective option, applicants that seek funding for individual 
data plans must be able to demonstrate either that installing a WLAN is 
not physically possible, or must provide a comparison of the costs to 
implement an individual data plan solution versus a wireless local area 
network solution. The cost comparison may be established through the 
competitive bidding process by seeking and comparing bids on both 
internal wireless networks and individual data plans. Applicants should 
be prepared to demonstrate to the Commission and USAC that individual 
data plans are the most cost-effective option for their situation by 
submitting the cost comparison information upon request.
3. Impact on Multiyear Contracts
    142. In response to commenters asking that we permit funding for 
phased-out services until multi-year contracts expire for those 
services, we decline to provide exceptions or allow ``grandfathering'' 
for multi-year contracts. This decision will simplify the elimination 
of funding for these components and services for applicants and for 
USAC, and is consistent with our need to transition funding in the 
program to high-speed broadband without undue delay. Although the 
Commission permits applicants to enter into multi-year contracts for 
eligible services, the Commission has never adopted a rule insulating 
applicants and service providers from changes in program rules simply 
because a multi-year contract was utilized.

IV. Maximizing the Cost-Effectiveness of Spending for E-Rate Supported 
Purchases

    143. To maximize the cost-effectiveness of spending for E-rate 
supported services, we focus in this section on driving down costs for 
the services and equipment needed to deliver high-speed broadband 
connectivity to and within schools and libraries. There is widespread 
agreement in the record about the importance of encouraging cost-
effective purchasing in the E-rate program. Every dollar spent 
inefficiently for E-rate supported services is one less dollar 
available to meet schools' and libraries' broadband connectivity needs.
    144. Moreover, there appears to be substantial room for improvement 
in E-rate-supported purchasing. Although E-rate applicants are required 
to seek competitive bids for E-rate supported services and to select 
the most cost-effective bid they receive, there remain large variations 
in the amount of money spent on similar services. Some variation is to 
be expected due to differences in local needs and conditions, such as 
between large urban schools and small rural schools. However, pre-
discount prices also vary in ways that are unexpected. For instance, 
prices paid for telecommunications and Internet access in urban areas 
are often higher than those in rural areas. This is the opposite of 
what we would generally expect, given that the economies of scale and 
distance should generally make broadband deployment more expensive to 
smaller districts in rural America. In major metropolitan areas, the 
quartile of schools paying the most for 100 Mbps of Internet access 
services pays nearly three times more than the quartile paying the 
least and the quartile paying the most for 1 Gbps WAN connections pays 
nearly four times more than the quartile paying the least. Even in the 
same state, prices for rural broadband services can vary widely. For 
example, the Idaho Commission for Libraries explains that prices range 
from $3.33/Mbps/month to $397.56/Mbps/month in its state's rural 
libraries, while ALA notes that the cost for a T1 line can vary from a 
few hundred dollars to more than two thousand dollars per month in 
Pennsylvania.
    145. This variation suggests there is more we can do to drive down 
prices for E-rate services. It also suggests that applicants need more 
information about purchasing decisions. Therefore, in this section, we 
adopt changes to increase pricing transparency, encourage consortium 
purchasing and amend our LCP rule to clarify that potential service 
providers must offer eligible schools, libraries and consortia the LCP.

A. Increasing Pricing Transparency

    146. To assist schools and libraries in finding the best prices for 
E-rate supported services, we adopt transparency requirements for E-
rate recipients and vendors beginning in funding year 2015. We agree 
with those commenters who argue that transparency is an essential tool 
to help applicants make educated buying

[[Page 49179]]

decisions. Transparent pricing will give schools and libraries greater 
visibility into pricing and technology choices for their peers, which 
we expect will help applicants in negotiations with equipment and 
service providers.
    147. Shining a light on prices paid for E-rate supported services 
will help the Commission and third parties ensure that variations in 
prices paid are in accordance with the program rules and that schools 
and libraries are purchasing E-rate supported services cost 
effectively. As several commenters explain, the public should have a 
simple method to ensure that their students are getting the high-speed 
connectivity needed for digital learning at the lowest price. Making 
the pricing data publicly available will also improve analyses 
performed by the Commission, state coordinators, and third parties 
regarding the program's effectiveness and whether more needs to be done 
to improve cost-efficient purchasing by schools and libraries. Finally, 
pricing transparency will help third parties identify best practices 
for purchasing and reduce waste across the program.
    148. Therefore, to increase pricing transparency in the E-rate 
program, we will make information regarding the specific services and 
equipment purchased by schools and libraries, as well as their line 
item costs, publicly available on USAC's Web site for funding year 2015 
and beyond. This information is currently collected on FCC Form 471, 
Block 5, Item 21 (``Item 21s''). In addition, we agree with commenters 
that the information contained in the Item 21s should be standardized 
to provide meaningful information that is easy to compare across 
applications. We delegate authority to the Bureau to revise and oversee 
form standardization, while directing the Bureau to be mindful of the 
need to keep all forms as simple as possible in light of our goal of 
streamlining administration of the program. Because pricing and 
purchasing information will be of greatest benefit if it is available 
in electronic, searchable forms, we also direct OMD to work with USAC 
to ensure ready availability of the information in these forms, such as 
through publicly available APIs and/or bulk data files posted on USAC's 
Web site.
    149. A few commenters express concern that a state law, local rule, 
or an existing long-term contract may explicitly prohibit pricing 
disclosure. In light of these concerns, we will allow applicants to opt 
out of making pricing data public where such applicants can certify and 
cite to a specific statute, rule, or other restriction barring 
publication of the purchasing price data, such as a court order or a 
contract in existence prior to adoption of this order. Applicants 
making this certification shall retain necessary documentation to 
demonstrate the restriction in the event of a Program Integrity 
Assurance (PIA) review or audit. Contracts executed after the effective 
date of this Report and Order, however, may not contain such 
restrictions, and any such restrictions will have no effect.
    150. We recognize the arguments of some commenters that price 
transparency increases the risk of anti-competitive behavior by service 
providers. It is true that in certain market conditions, publication of 
prices can raise the risk of collusion or price harmonization. But 
given the level of public scrutiny of the E-rate program, we think 
price transparency will shine a light on any anti-competitive behavior. 
Moreover, the benefits to applicants from better pricing information 
are likely to outweigh any increased risks of collusion or price 
harmonization among providers. As many commenters note, some pricing 
information is already publicly available through state master 
contracts and state public records laws in a piecemeal fashion--a state 
of affairs that carries most of the collusion risks of broader 
publication with many fewer benefits. Sophisticated vendors interested 
in their competitors' pricing are most likely to be able to avail 
themselves of public records laws, while individual school and library 
applicants are less likely to have the practical ability to navigate 
these processes. In contrast, centralized, easily accessible data about 
pricing for purchased services will be more useful for applicants and 
program oversight, while doing little to increase the risk of 
collusion. For all these reasons, on balance, we conclude that 
increasing pricing transparency is likely to increase competition and 
drive down prices.
    151. Some commenters also argue that transparency will reduce the 
number of vendors competing to provide E-rate supported services 
because vendors will leave the program rather than allow their prices 
to be made public. Again, we are not persuaded. As described, in many 
states pricing information is already publicly available in some 
fashion, and there is no evidence in the record that this has lowered 
participation in those states. Moreover, schools and libraries, like 
all community anchor institutions, are valuable customers. Indeed, 
greater pricing transparency should help those vendors offering the 
best prices attract market interest in their services and equipment, 
which should help foster a competitive marketplace.
    152. We also disagree with the argument that school districts and 
libraries will find pricing information too confusing to be useful. As 
many commenters note, individual school districts or libraries often 
have unique characteristics that make the prices available to them 
lower or higher than national or regional averages. For example, small 
rural schools may legitimately face higher prices for broadband 
connectivity than large urban schools because of their distance from 
the nearest fiber, the dearth of other broadband customers in their 
immediate vicinity, and lack of competitive options. But E-rate 
applicants are already required to make judgments regarding the costs 
of proposed services. To the extent a school or library arms itself 
with price information from its peers and requests a price that a 
vendor believes is unreasonably low for some equipment or service, we 
are confident that the vendor will be appropriately incented to explain 
any unique circumstances that justify its higher price. In sum, even 
acknowledging that applicants will face varying circumstances that 
affect the prices available to them, we find that transparency will aid 
applicants in making smarter spending judgments in accordance with 
their obligation to select cost-effective services.
    153. Although we require publication of prices for goods and 
services purchased by applicants, we decline at this time to require 
public disclosure of other pricing information, including available 
pricing from service providers or bid responses. Many commenters argue 
that submitting bid information is burdensome, and the goods and 
services selected by applicants should represent the most cost-
effective solution for their needs following a competitive bidding 
process, with price as the primary factor. Therefore, we are persuaded 
that the current burden to applicants of submitting comprehensive bid 
information to USAC outweighs any incremental benefit to the public 
from the publication of prices for non-winning bids, which, by 
definition, were not the most cost-effective choice. At the same time, 
we take this opportunity to remind applicants and vendors that they are 
responsible for the retention of all documents related to their 
applications, including bids submitted in response to a solicitation, 
in accordance with our rules. Applicants still may be required to 
provide all bid responses during PIA

[[Page 49180]]

review of an application or during an audit.
    154. We also decline to require disclosure of pricing information 
for past funding years. Pricing information on Item 21s has not been 
published in the past, and the Commission has redacted pricing 
information from Freedom of Information Act responses at the request of 
service providers claiming it was proprietary information. Given 
stakeholders' expectations when prior-year applications were submitted, 
we will continue to treat recent Item 21 information as potentially 
sensitive for funding year 2014 and before. However, this Report and 
Order serves as notice to all service providers that the receipt of E-
rate support will be conditioned on disclosure of this pricing 
information beginning in funding year 2015.
    155. Finally, we terminate the program the Commission created in 
the Second Report and Order, 68 FR 36931, June 20, 2003, testing an 
online list of internal connections equipment eligible for discounts. 
USAC no longer updates the database in part because of the burdens it 
placed on USAC and vendors. Meanwhile, the publication of pricing data 
as provided will provide a less burdensome and more accurate 
representation of the goods and services being purchased by applicants 
with E-rate support, as well as the prices paid. We received no 
comments objecting to termination of the eligible products database.

B. Encouraging Consortia and Bulk Purchasing

    156. Consortium purchasing can drive down the prices paid by 
schools and libraries for E-rate supported services. In this section, 
we reduce or eliminate some of the existing barriers to applicants' 
participation in consortia. As an initial matter, we direct Commission 
staff to work with USAC to prioritize review of consortia applications. 
We also adopt rules to make it easier for applicants to take advantage 
of consortium bidding and clarify some apparent misconceptions about 
consortia participation. In response to concerns raised by E-rate 
applicants about the current method for allocating E-rate support among 
members of an E-rate consortium, in the accompanying FNPRM, we propose 
to amend the way consortia determine the amount of support to be 
received by their members to ensure that E-rate applicants that choose 
to join a consortium do not risk receiving less support, and seek 
comment on other ways to encourage consortium purchasing.
1. Speeding Review of Consortium Applications
    157. In order to address applicants' complaints that consortia 
applications have historically received reviews late in the application 
review process, we direct OMD and the Bureau, working with USAC, to 
prioritize application review for state and regional consortia 
applicants. OMD and USAC have already undertaken an initiative to speed 
review of all E-rate applications, with a particular focus on broadband 
applications. We applaud that work and want to build on the positive 
results, particularly with respect to state and regional consortia 
applications. We expect that the improved processing times for 
consortia applications will result in more funding commitments flowing 
faster to schools and libraries, which will motivate more applicants to 
join consortia in future funding years.
2. Preferred Master Contracts
    158. To further encourage applicants to take advantage of bulk 
buying opportunities, we delegate authority to the Bureau to designate 
preferred master contracts for category two equipment. The Bureau may 
make such a designation for the purpose of (a) exempting the preferred 
master contract from the FCC Form 470 filing requirement and (b) 
requiring applicants to include the preferred master contract in their 
bid evaluations even if the master contract is not submitted as a bid 
in response to the applicant's FCC Form 470. The Bureau has authority 
to institute either one or both of these exceptions for a preferred 
master contract and must re-evaluate its decision to designate a 
contract as a preferred master contract every two funding years.
    159. We authorize the Bureau to designate a master contract as a 
preferred master contract if it offers eligible entities nationwide the 
opportunity to obtain excellent pricing for category two services as 
reported on FCC Form 471. National availability of the equipment 
offered on a preferred master contract will ensure that all E-rate 
applicants have the opportunity to take advantage of its pricing.
    160. We limit preferred master contracts to equipment used in 
category two internal connections at this time. Commodities such as the 
equipment used in internal connections lend themselves to bulk 
purchasing arrangements, and can be shipped nationwide. The more varied 
nature of services, such as broadband services and internal connection 
installation services, makes implementing bulk purchase arrangements 
more complicated. We therefore choose not to authorize the designation 
of preferred master contracts for such services at this time.
    161. We agree with commenters who support national bulk buying 
opportunities because of the unmatched economy of scale national 
purchasing allows. In order to help ensure such scale (and thus 
maximize the benefit to applicants and the E-rate program), we 
authorize the Bureau to limit the number of master contracts it 
designates as preferred. Recognizing, however, that E-rate applicants 
may still be able to negotiate better pricing from vendors not 
associated with a preferred master contract, we decline to require 
applicants to purchase services from a preferred master contract at 
this time.
a. FCC Form 470 Exception
    162. Allowing applicants to take internal connections equipment 
from a preferred master contract without filing an FCC Form 470 will 
ease the administrative burden on applicants without compromising cost-
effectiveness. Several commenters encouraged us to eliminate the FCC 
Form 470 filing requirement for certain master contracts because of the 
administrative burdens associated with competitive bidding. Although 
competitive bidding is vital to limiting waste and ensuring that 
services are provided at the lowest possible rates, in the limited case 
of equipment available on a preferred master contract, we find that it 
is not necessary for applicants to file an FCC Form 470 because the 
terms of the preferred master contract assure us that applicants will 
receive the best possible pricing on the services they order. We cannot 
at this time exempt master contracts that are not preferred master 
contracts from any competitive bidding requirements because we do not 
have the same assurances with respect to pricing for all master 
contracts.
    163. Applicants who wish to take services from a preferred master 
contract without filing an FCC Form 470 would indicate on their FCC 
Form 471 that they are purchasing services from a preferred master 
contract instead of citing to an FCC Form 470.
b. Bid Evaluation Requirement
    164. Requiring applicants to include preferred master contracts in 
bid evaluations helps ensure that applicants make cost-effective 
purchases while enabling them to select the services that best suit 
their needs. Applicants will only be required to include equipment 
available on a preferred master contract in their bid evaluations if it 
is the same

[[Page 49181]]

equipment the applicant sought on its FCC Form 470. Applicants would 
still have the ability to select bids submitted by service providers in 
response to the FCC Forms 470, as long as the applicants' evaluation 
treats the price of eligible equipment as the primary factor in bid 
selection and the selected bid is the most cost-effective.
3. Authority To Seek Consortium Bids
    165. To further increase cost-effective purchasing by applicants, 
we next amend our rules to permit a consortium lead to identify on its 
consortium's FCC Form 470 the schools, school districts and libraries 
for which it has authority to seek competitive bids for E-rate eligible 
services even if it does not have authority to order services for those 
entities. Our rules currently require the FCC Forms 470 and FCC Forms 
471 be signed by a person authorized to order eligible services for the 
applicants and do not distinguish between authority for E-rate 
consortium leads to seek bids and authority for consortium leads to 
purchase the services. As a result, consortium members who are 
unwilling to cede authority to purchase E-rate eligible services to the 
consortium lead release their own FCC Form 470 and likely do not 
attract the number of competitively priced bids, if any, from 
competitive vendors. By aggregating potential demand in the bidding 
process, and using the FCC Form 470 process to attract bidders, a 
consortium can drive down the price of eligible services even for its 
members who wish to order services on their own. This rule change will 
take effect for funding year 2015. Our rules will continue to permit 
consortium leads to purchase services on behalf of some or all of their 
members and we encourage consortium leads to seek both forms of 
authorization, as appropriate.
4. Correcting Misconceptions
    166. We also take this opportunity to correct misconceptions about 
consortia applications that appear to have prevented some applicants 
from joining consortia, and to remind applicants and service providers 
about already-existing rules that should work to encourage 
participation in consortia. We remind applicants that E-rate rules do 
not require a consortium to solicit or select a single vendor to 
provide service to all consortium members and that applicants can 
authorize a consortium lead to act on their behalf for multiple years.
    167. Consortia selection of multiple service providers. Some 
commenters argue that consortia purchasing may actually increase prices 
by excluding smaller service providers who are not able to serve the 
full needs of a consortium. In light of these comments, we remind all 
stakeholders that consortia do not need to solicit or select a single 
vendor able to provide service to all members of a consortium. Rather, 
a consortium may invite vendors to bid on services to a subset of 
consortia members, and may find that a combination of different service 
providers offer the most cost-effective solution for consortium 
members. Even though a larger service provider may enjoy economies of 
scale and scope, it will not necessarily be able to provide 
competitively priced service in every area in which a consortium's 
members are located. Therefore, consortia applicants should make clear 
in their FCC Forms 470 and any associated RFPs that they are not 
required to select a single provider that can meet the needs of all 
members. While some consortia select a single service provider, many 
others select a combination of service providers to meet the needs of 
their consortium members. In light of the apparent confusion on this 
issue, we direct USAC to remind applicants and vendors, during USAC 
training and other outreach, that consortia can solicit bids from 
service providers to cover a portion of the services sought by the 
consortia.
    168. Multi-year authorization. We also clarify that applicants can 
authorize a consortium lead to act on their behalf for multiple years, 
and need not reaffirm that authorization every funding year. In order 
to ensure that a consortium lead is not seeking bids or applying for 
support on behalf of schools and libraries without their knowledge or 
consent, our rules have required and continue to require FCC Forms 470 
and FCC Forms 471 to be signed by a person authorized to seek or order 
services for the applicants. To show that it is authorized to seek or 
order eligible services for the applicants, a consortium lead may 
provide copies of relevant state statutes or regulations requiring 
members to participate in the consortium or some other proof that each 
consortium member is aware that it is represented in the application.
    169. Another common way for a consortium lead to demonstrate its 
authority to seek or order eligible services on behalf of its members 
is to solicit letters of agency (LOAs) from consortium members. Some 
commenters ask us to ease consortia's administrative burdens by 
reducing the frequency with which applicants provide LOAs or eliminate 
the practice of applicants providing LOAs to consortium leads. We 
decline to eliminate the LOA practice altogether because, in many 
circumstances, an LOA could be the only means a consortium lead has to 
demonstrate its authority to seek or order services on behalf of a 
specific consortium member. We can, however, clarify that applicants 
may provide consortia leads with LOAs that cover multiple funding years 
as long as those years are specified in the LOA and as long as the 
authorization includes the type of services covered by the LOA.
5. Other Rules Changes
    170. We also add a definition of ``consortium'' in our rules that 
is based on the definition of ``library consortium'' that has long been 
a part of our rules. In the definition, we also make it clear that 
consortia may include health care providers eligible under the Rural 
Health Care program and public sector (governmental) entities, 
including, but not limited to, state colleges and state universities, 
state educational broadcasters, counties, and municipalities. This 
change does not alter requirements for applicants and service 
providers.

C. Offering the Lowest Corresponding Price

    171. In order to help ensure that E-rate applicants make cost-
effective purchasing decisions, we remind service providers that they 
not only must charge eligible schools, libraries, and consortia the LCP 
when providing E-rate services, but also must offer eligible entities 
the LCP when submitting competitive bids to provide E-rate supported 
services.
    172. The LCP rule prohibits an E-rate provider from ``charg[ing]'' 
E-rate applicants a price higher than the lowest price that provider 
charges to non-residential customers who are similarly situated to a 
particular school, library, rural health care provider or consortium 
that purchase directly from the service provider. In authorizing the 
creation of the E-rate program, Congress imposed an obligation on 
telecommunications carriers to provide services to schools and 
libraries at rates less than the amounts charged for similar services 
to other parties. To ensure that schools, libraries and consortia 
participating in the E-rate program receive all services at the lowest 
rates available, the Commission extended this requirement to apply to 
all providers of E-rate supported services. The LCP rule benefits E-
rate applicants and the Fund by ensuring that the price for E-rate 
supported services is no more than the market price for those services, 
absent a showing by a provider that it faces

[[Page 49182]]

demonstrably higher costs to serve a particular school or library.
    173. While the LCP rule does not expressly mention an obligation to 
``offer'' eligible entities the LCP, this obligation was articulated in 
the Universal Service First Report and Order where the Commission 
described the LCP provision as requiring service providers to ``offer'' 
services that comply with the LCP. To ensure that applicants receive 
the best possible bids from service providers in response to their FCC 
Forms 470, consistent with the Commission's intent, we take this 
opportunity to reemphasize that our LCP rule, as it is now codified in 
our rules, means that providers must both (i) submit bids to applicants 
at prices no higher than the lowest price they charge to similarly-
situated non-residential customers for similar services; and (ii) 
charge applicants a price no higher than the LCP. In abundance of 
caution, we also modify our LCP rule to better reflect the dual nature 
of this obligation.
    174. Because the LCP rule makes prices more affordable for schools 
and libraries, as contemplated by the statute, we also take this 
opportunity to agree with those commenters who support stepped-up 
enforcement of our LCP rule. We therefore direct the Enforcement Bureau 
to devote additional resources to investigating, and where appropriate, 
bringing enforcement actions against service providers who violate the 
LCP rule.

V. Making the E-Rate Application Process and Other E-Rate Processes 
Fast, Simple and Efficient

    175. In this section, we focus on making the E-rate application 
process and other E-rate processes fast, simple and efficient. There is 
broad agreement on the need to simplify the administration of the E-
rate program in order to reduce the burden on applicants, make the most 
efficient use of E-rate funding, and foster greater participation in 
the E-rate program. We therefore adopt a host of programmatic changes 
in this section, including simplifying the application process by, 
among other things, providing a process for expediting the filing and 
review of applications involving multi-year contracts; eliminating 
technology plans for internal connections; simplifying and clarifying 
applicants' discount rate calculations; simplifying the invoicing and 
disbursement process; and requiring all USF requests for review to be 
filed initially with USAC. As we streamline the program, we remain 
mindful of our need to gather relevant data from applicants and to 
protect against waste, fraud, and abuse. Accordingly, in this section, 
we also adopt measures to protect against waste, fraud, and abuse.
    176. We also direct USAC to take steps to reduce the administrative 
burden on applicants by processing and managing applications more 
efficiently, modernizing its E-rate information technology (IT) 
systems, timely publishing all non-confidential E-rate data in an open 
and standardized format, and communicating more clearly with E-rate 
applicants and service providers. We recognize that, as part of this 
modernization effort, USAC, working with OMD and the Bureau, already 
has made great strides, and we expect that they will continue to work 
together closely to push these reforms forward.
    177. USAC, working with the Bureau and OMD, will implement the 
administrative changes we adopt today in funding year 2015, unless 
otherwise noted. In the Universal Service Third Report and Order, 62 FR 
56118, October 29, 1997, the Commission delegated authority to the 
Bureau to issue orders interpreting our E-rate rules as necessary to 
ensure that support for services provided to schools and libraries 
operate to further our universal service goals. We re-affirm that 
delegation. We also direct the Bureau, working with OMD and other 
Commission staff, to make changes to the E-rate forms, as needed, and 
to provide direction to USAC to implement the changes, including 
providing clarification and guidance in the case of any ambiguity that 
may arise. These changes, taken together, will result in a program that 
is easier to navigate for applicants and vendors, will improve program 
efficiency by eliminating unnecessary complexities, and will constrain 
USAC's administrative expenses, ultimately resulting in a cost savings 
to the E-rate program that can be used for the benefit of schools and 
libraries.

A. Simplifying the Application Process

    178. We agree with those commenters who support simplifying the E-
rate application process as an important part of streamlining the 
administration of the E-rate program. We therefore adopt a simplified 
application process for multi-year contracts; eliminate the requirement 
for technology plans; ease the signed contract requirement to allow 
applicants to seek E-rate support once they have entered into a legally 
binding agreement with a service provider; exempt from our competitive 
bidding requirements purchases of commercially available high-speed 
broadband services that cost less than $3,600 per year; require the use 
of electronic filings; and enable direct connections between schools 
and libraries.
1. Simplifying the Application Process for Multi-Year Contracts
    179. As an initial matter, we simplify the application process for 
funding requests that involve multi-year contracts for eligible 
services. This simplified application process will be available to any 
applicant, beginning in funding year 2015, when: (1) The applicant has 
a multi-year contract for E-rate supported services that is no longer 
than five years, and (2) any changes in the requested services or to 
the terms and conditions under which those services are provided are 
within the scope of the establishing FCC Form 470 and the applicable 
contract. As the Commission proposed in the E-rate Modernization NPRM, 
applicants that elect to use the multi-year contract funding review 
process will only be required to submit a complete FCC Form 471 for the 
first funding year in which they are seeking E-rate support under the 
multi-year contract. All applicants, even those currently in the middle 
of a multi-year contract, will be required to file a complete FCC Form 
471 once. In subsequent funding years covered by a multi-year contract, 
applicants will be permitted to use a streamlined application process 
that will be shorter, require less information from the applicants, and 
be approved through an expedited review process, absent evidence of 
waste, fraud, or abuse.
    180. By minimizing pre-commitment application review by USAC in 
subsequent years of a multi-year contract, we anticipate USAC will be 
able to review applications more quickly while lowering the 
administrative burdens on applicants and without increasing the 
likelihood of waste, fraud and abuse. While applicants taking advantage 
of this new process will benefit greatly from expedited review and the 
reduced administrative burden, this process does not guarantee funding 
in subsequent years, even for the same services. E-rate funding will 
continue to be committed and disbursed on an annual basis. Applicants 
must be eligible for E-rate support in each of the years funding is 
sought, and the services must be eligible for support in each such 
year.
    181. We agree with those commenters who suggest that five years is 
an appropriate maximum length of time for contracts seeking to use a 
multi-year contract application process. Commenters note that a five-
year contract length is consistent with other

[[Page 49183]]

procurement models in the education industry. We therefore find that 
the three-year limit the Commission proposed in the E-rate 
Modernization NPRM is too restrictive. Although we do not adopt a 
maximum contract length in this Report and Order, in the accompanying 
FNPRM we do seek further comment on setting a maximum contract length 
for E-rate supported services.
    182. To facilitate these changes to our application process, we 
direct the Bureau and OMD to work with USAC to revise the application 
process for multi-year contracts so that an applicant is not required 
to complete the full FCC Form 471 after the first year the applicant 
seeks funding for services provided pursuant to a multi-year contract 
that has a maximum term of five years. Under this revised application 
process, applicants must file a complete FCC Form 471 in the first year 
of a multi-year contract that is eligible for this streamlined review 
process, but in subsequent contract years applicants will only need to 
provide basic information identifying the applicant, confirm that the 
funding request is a continuation of an FRN from a previous funding 
year based on a multi-year contract, and identify and explain any 
changes to their application, such as changes in the discount rate, the 
membership of a consortium, or the services ordered. (All such changes 
must be within the scope of the establishing FCC Form 470 and the 
underlying agreement.) While USAC and the Commission staff, of course, 
remain able to request other information necessary to reach a 
commitment decision, we direct USAC to aim to minimize such requests.
    183. Although some commenters would prefer to file a single FCC 
Form 471 to cover multiple years of a multi-year contract, we find that 
a streamlined filing and review process for subsequent contract years 
of a multi-year contract balances the applicant's desire for expedited 
review and administrative convenience with USAC's need to confirm basic 
information about the request in subsequent years, and to verify an 
applicant's interest in applying for funds for that funding year. USAC 
will review the initial FCC Form 471 applications associated with 
multi-year contracts as thoroughly as it reviews applications covered 
by one-year contracts. In subsequent years of a multi-year contract, 
however, where USAC has already reviewed a funding application for the 
first year of a multi-year contract, USAC will be able to streamline 
its pre-commitment review. If there are no changes to the services 
purchased, conducting the same review for each subsequent year of the 
contract is not likely to identify errors in the application.
    184. While we amend our rules to simplify applicants' use of multi-
year contracts, we decline to allow applicants to receive multi-year 
funding commitments. In the E-rate Modernization NPRM, the Commission 
sought comment on allowing multi-year funding commitments. The 
Commission cited to its recent decision to allow multi-year funding 
commitments in the Healthcare Connect Fund Order, 78 FR 38606, June 27, 
2013, in which the Commission noted that, by eliminating the need for 
applicants to file every year, multi-year funding commitments would 
reduce uncertainty and minimize the administrative burden for 
applicants and for USAC. Despite support from commenters for similar 
multi-year funding commitments in the E-rate context, important 
differences between the Healthcare Connect Fund and the E-rate program 
prevent us from adopting multi-year funding commitments in the E-rate 
program. Unlike the Healthcare Connect Fund, demand for E-rate funds 
significantly outstrips supply. Further, there is no record yet on the 
effect of the Healthcare Connect Fund Order on the Healthcare Connect 
Fund or as a constraint on funding available for other applicants in 
the fund. Although multi-year commitments may slightly increase 
administrative efficiency for applicants and USAC, obligating funds 
years in advance of their use would be detrimental to the management of 
the program. Moreover, the multi-year contract application process we 
adopt today should allow the E-rate program and applicants to achieve 
many of the efficiencies of a multi-year funding commitment process.
2. Eliminating the Technology Plan Requirements
    185. In the interest of reducing the administrative burden on E-
rate applicants, beginning with funding year 2015, we eliminate from 
our rules the technology plan requirements for applicants seeking E-
rate support for category two services. The Commission previously 
eliminated the technology plan requirements for priority one services, 
and having considered the record, we now agree with commenters that the 
burden of our requirement that applicants for internal connections and 
basic maintenance of internal connections have certified technology 
plans outweighs the benefits, particularly for small applicants with 
limited resources.
    186. We agree with those commenters who argue that technology 
planning is an important step in the process of long-term planning on 
how best to procure and utilize internal connections. We are certain 
though that, even absent this rule, technology planning will continue 
to occur because technology has become a central part of school and 
library infrastructure, and technology planning has become integrated 
into applicants' core strategic planning. We also expect that the 
structural changes we make to the E-rate program's approach to 
providing support for internal connections and basic maintenance of 
internal connections will encourage good planning. We strongly 
encourage all applicants, both large and small, to carefully review 
existing plans given the many changes to the E-rate program that we 
adopt in this Report and Order. However, we find that the burden of 
getting formal approval and certification of these technology plans 
outweighs the benefits to the program.
3. Exempting Low-Dollar Purchases of Commercially Available Business-
Class Internet Access From Competitive Bidding Rules
    187. We create an exemption in our competitive bidding rules for 
applicants seeking E-rate support to purchase commercially available, 
business-class Internet access services that cost $3,600 or less for a 
single year. An Internet access service will be eligible for this 
exemption only if it offers bandwidth speeds of at least 100 Mbps 
downstream and 10 Mbps upstream for a pre-discount price of $3,600 or 
less annually, including any one-time installation and equipment 
charges, and the service and price are commercially available. Based on 
our review of commercial offerings online, this $3,600 annual limit is 
a reasonable maximum that will allow some applicants to purchase 
commercially available business-class Internet access. We clarify that 
the $3,600 annual limit is the pre-discount amount for the service per 
school or library. So, for example, a library system with three library 
branches could qualify for this exemption if it purchased 100 Mbps 
downstream and 20 Mbps upstream Internet access service for each of its 
three branches at a cost of $250 per month for each branch. Each school 
or library building must receive the eligible service at a cost of less 
than $3,600 annually and applicants may not average the cost of 
services across a number of schools or libraries. This exemption will 
become effective in funding year 2015. As explained, applicants may 
purchase services with a

[[Page 49184]]

multi-year contract, such as a two-year term, but we will not make 
multi-year commitments. Applicants will therefore still be required to 
file an FCC Form 471 in the second year of the service.
    188. We recognize that competitive bidding is an essential 
component of the E-rate program. At the same time, the record supports 
a finding that administrative costs associated with the Commission's 
competitive bidding rules and requirements may deter program 
participation by entities requesting low-dollar Internet access 
services. We are particularly concerned that smaller schools and 
libraries may not be purchasing high-speed Internet connectivity 
through the E-rate program due to these administrative costs. 
Consistent with the goals we adopt today to increase broadband and 
streamline the administrative process, we expect this limited exemption 
to competitive bidding will encourage additional bandwidth purchases 
and increased program participation. This exemption is likely to be 
particularly attractive to small applicants that face a 
disproportionate administrative burden from the competitive bidding 
process and encourage these entities to increase bandwidth speeds in 
the short term. Moreover, the bandwidth speeds required to qualify for 
this program are consistent with the goals we have outlined in this 
Report and Order, albeit typically for ``best efforts'' class services 
rather than dedicated connections. We believe that such ``best 
efforts'' service will frequently be sufficient for smaller entities 
with fewer students or patrons or in rural areas where fiber has not 
been deployed. For example, ALA notes that ``[o]ver half of all rural 
libraries have internet speeds of 4 Mbps or less . . . and only 17 
percent of rural libraries have speeds greater than 10 Mbps.'' As of 
2012, only nine percent of all libraries have speeds greater than 100 
Mbps. For these entities and others, this exemption will provide a 
simple and efficient method to purchase business-class Internet access 
and quickly increase connectivity speeds.
    189. With respect to their purchase of such services, applicants 
will be exempt from the competitive bidding rules under Sec.  54.503(a) 
through (c), the certification requirement under Sec.  
54.504(a)(1)(vi), and the corresponding rule on the selection of a 
provider of eligible services under Sec.  54.511(a) of our rules. Such 
applicants will use the FCC Form 471 to certify to their purchase of an 
eligible commercially available business-class Internet access service. 
We remind applicants of their obligation to comply with record 
retention rules when purchasing eligible Internet access. We also 
caution applicants and vendors that our gift rules will continue to 
apply even where a purchase arrangement is exempt from the competitive 
bidding process.
    190. We find that purchasing high-speed Internet access with at 
least 100 Mbps/10 Mbps for no more than a pre-discount price of $3,600 
is a cost-effective service offering, particularly in light of the 
benefits for smaller schools and libraries. In order to ensure that the 
benefits of removing the administrative burden continue to outweigh the 
costs of exempting competitive bidding, we also delegate authority to 
the Bureau to lower the annual cost of broadband services or raise the 
speed threshold of broadband services eligible for this competitive 
bidding exemption, based on a determination of what rates and speeds 
are commercially available and will meet the needs of at least some 
subset of schools and libraries. We decline to adopt a de minimis 
exemption for other eligible services at this time, but we keep the 
record open on this issue and look forward to learning from the 
experience of applicants who take advantage of the exemption from 
competitive bidding that we adopt today.
4. Easing the Signed Contract Requirement
    191. In order to further increase the efficiency of the 
administrative process and simplify the application process for 
applicants, we revise Sec.  54.504(a) of our rules to require that 
applicants have a signed contract or other legally binding agreement in 
place prior to submitting their FCC Forms 471 to USAC. The rule had 
required applicants to submit their FCC Forms 471 requesting support 
for services ``upon signing a contract for eligible services.'' While 
this rule ensures that applicants have negotiated and agreed to 
contractual terms prior to the filing of an FCC Form 471 requesting 
support for E-rate services, there are many instances where applicants 
have an agreement in place with their service provider or are already 
receiving services, but have difficulty obtaining signatures prior to 
the submission of their FCC Forms 471. Although we received no comments 
on this issue, in many instances, applicants have sought a waiver of 
this rule after having failed to obtain signatures prior to the 
submission of their FCC Forms 471. The Commission has consistently 
waived the requirement of a signed contract for petitioners who have 
demonstrated that they had a legally binding agreement in place for the 
relevant funding year. Rather than requiring applicants to seek such 
waivers, we now revise our rules to require applicants to have a signed 
contract or other legally binding agreement in place prior to filing 
their FCC Forms 471. This revision to our rules will be effective 
beginning in funding year 2015.
    192. Applicants and service providers should understand that, 
although no longer required, a signed contract will constitute the best 
evidence that a legally binding agreement exists. Absent the existence 
of a signed contract, in determining whether a legally binding 
agreement is in place, we direct USAC to consider the existence of a 
written offer from the service provider containing all the material 
terms and conditions and a written acceptance of that offer as evidence 
of the existence of a legally binding agreement. For example, a bid for 
the services that includes all material terms and conditions provided 
in response to an FCC Form 470 would be sufficient evidence of an offer 
and an email from the applicant telling the service provider the bid 
was selected would suffice as evidence of acceptance. In addition, 
after a commitment of funding, an applicant's receipt of services 
consistent with the offer and with the applicant's request for E-rate 
support will also constitute evidence of the existence of a sufficient 
offer and acceptance. A verbal offer and/or acceptance will not be 
considered evidence of the existence of a legally binding agreement. 
Revising the rule in this manner will provide applicants with 
sufficient flexibility to finalize their service agreements after 
filing their FCC Forms 471 while protecting the Fund against waste, 
fraud, and abuse. We also remind parties that they must retain all 
relevant documents for 10 years, consistent with our revised document 
retention rules.
5. Requiring Electronic Filing of Documents
    193. We also agree with commenters who suggest that, in order to 
streamline the administration of the program, we should require E-rate 
applicants and service providers to file all documents with USAC 
electronically and USAC to make all notifications electronically, and 
therefore direct USAC, in consultation with the Bureau and OMD, to 
phase in such a requirement over the next three funding years. As the 
Commission noted in the E-rate Modernization NPRM, the electronic 
submission of FCC forms will improve the efficiency of submitting and 
processing applications, resulting in faster commitments and 
disbursements of E-rate funding. Furthermore, electronic filing will 
reduce the

[[Page 49185]]

program's administrative costs because USAC will not have manually 
entered data into its electronic system from paper submissions. 
Electronic filing will result in fewer errors on forms and other 
communications between USAC and applicants and service providers. 
Therefore, beginning in funding year 2017, we will require the 
submission of all filings and notifications electronically.
    194. Some commenters argue that E-rate applicants and service 
providers should have the option of filing paper copies. We recognize 
that applicants vary widely in connectivity, technical resources and 
administrative resources, and a limited exemption to our mandatory 
electronic filing requirement would allow applicants and USAC to reap 
many of the benefits of electronic filing while allowing the program to 
respond to the needs of all applicants and service providers. We will 
therefore allow applicants who can demonstrate that they have 
insufficient resources to make electronic filings to file paper copies 
of applications and other documents. We direct the Bureau and OMD, 
working with USAC, to determine the circumstances under which 
applicants may be exempt from this mandatory electronic filing 
requirement and the process for applicants to seek permission to file 
paper copies of documents.
6. Enabling Direct Connections Between Schools and Libraries
    195. In the interest of promoting access to high-speed broadband 
connections in the simplest and most efficient manner possible, we take 
action consistent with a suggestion made by the ALA, and supported by 
other commenters, that we allow rural schools and libraries eligible 
for E-rate support to establish direct connections for the purpose of 
accessing high-speed broadband services. As ALA explains, in many rural 
communities, a library with low bandwidth may be in close proximity 
(e.g., across the street) to a school with significantly higher 
bandwidth and could be easily added to the school WAN. We find that 
allowing these connections will afford some schools and libraries that 
presently lack access to high-speed broadband the opportunity to 
quickly and efficiently benefit from such connections.
    196. We recognize that it will likely be necessary to waive some of 
our rules to allow E-rate support for such connections. However, the 
record is not fulsome enough for us to determine with certainty what 
rules will need to be waived for each particular direct connection 
project. We therefore encourage applicants to file waiver requests for 
the purpose of seeking E-rate support for such direct connections. We 
also direct the Bureau to expeditiously consider such waiver requests 
and, as appropriate, to waive our rules, as is necessary, to grant such 
requests, including the rule that would otherwise require both the 
school and the library to apply for E-rate support. We further direct 
the Bureau to report back to us on any such projects so that we may 
consider whether to amend our rules in the future to allow for such 
projects.

B. Simplifying Discount Rate Calculations

    197. In the interest of making the E-rate application process and 
other E-rate processes fast, simple and efficient, we adopt four 
changes to the procedures for applicants to use in calculating their E-
rate discounts. First, we require school districts to calculate and use 
district-wide discount rates for each application, thus eliminating the 
need to calculate different discount rates depending on which schools 
in a district are receiving services. Second, we modernize our 
definitions of ``rural'' and ``urban'' for purposes of determining 
applicants' discount rates. Third, we provide direction on how schools 
and school districts that receive funding under the new community 
eligibility provision (CEP) of the United States Department of 
Agriculture's (USDA) National School Lunch Program (NSLP) should 
calculate their E-rate discount rates. Finally, in order to protect the 
program against waste, fraud and abuse, we also direct USAC to require 
schools that calculate discount eligibility based on projections from 
school-wide surveys to base their E-rate discount rate only on the 
surveys they actually collect.
1. Adopting District-Wide Discount Rates
    198. Consistent with our goal of making the E-rate application 
process and other E-rate processes fast, simple and efficient, we adopt 
the proposal in the E-rate Modernization NPRM to amend our rules to 
require each school district to calculate and use a single district-
wide discount rate, rather than calculating and using building-by-
building discount rates. This requirement will be effective beginning 
with funding year 2015. The record demonstrates that E-rate applicants 
find the current building-by-building discount calculation approach to 
be confusing, time-consuming, and fraught with the potential for 
errors. It is also a significant source of delay in USAC's application 
review process. We agree with commenters that adopting a district-wide 
discount rate will simplify and streamline the E-rate application 
process for applicants as well as USAC, while creating a more equitable 
system of determining the discount schools and libraries should receive 
for eligible services.
    199. Requiring the use of a district-wide discount ensures the E-
rate program provides higher discount rates for higher poverty school 
districts, while more closely matching the E-rate funding mechanism to 
the actual accounting practices and organizational structure of school 
districts. Individual schools within a district do not have their own 
local taxing authority nor do they generally have a budget that is 
legally separate from the district's budget. Moreover, the tax base of 
a district is the entire district population, not just the population 
associated with a subset of schools. While individual schools within a 
district may have more or fewer student eligible for NSLP, school 
districts develop consolidated budgets and allocate resources to 
support comprehensively all of the district's students. As such, we 
find that it is more appropriate to gauge a district's relative need 
for funding based on its entire student population.
    200. The record demonstrates the many benefits of adopting a 
district-wide discount. For example, districts will no longer need to 
complete multiple steps to calculate the appropriate discounts for each 
building. Districts will also no longer need to file separate FCC Forms 
471 for different combinations of schools that produce different 
discount level requests. Also, by using a district-wide discount, 
districts will no longer have to make difficult determinations 
regarding non-instructional facilities (NIFs). For example, adopting a 
district-wide discount approach will eliminate the confusing and 
possibly misleading calculation for a NIF with a classroom that 
requires the applicant to rely on a snapshot of students on a single 
day for the specific discount. Consortia applications will also be 
simpler and more equitable since each member of the consortium, whether 
an individual school or an entire district, will use the discount level 
for the district in which it is located, calculated on a district-level 
basis.
    201. The record also demonstrates that a district-wide approach 
will reduce the administrative burden on USAC by removing the need to 
identify and verify each school's discount rate. Commenters note that 
associated USAC efforts to validate the calculation are

[[Page 49186]]

time-consuming. Reducing the burden of verifying each school's discount 
rate should speed the review process, and therefore help speed funding 
decisions to the benefit of all applicants.
    202. Modifying our rules so that schools calculate a district-wide 
discount rate should also benefit libraries, which already use the 
district-wide discount rate of the school districts in which they are 
located. We anticipate libraries will benefit from this change because 
school districts will have to determine their district-wide discount 
rates to submit their FCC Forms 471 and thus libraries should have an 
easier time getting that information in a timely fashion from the 
relevant school districts.
    203. Several commenters express concern that a district-wide 
discount calculation could deprive schools and libraries in higher 
poverty neighborhoods of internal connection funding. However, the 
revisions we make in this Report and Order to funding internal 
connections will provide predictable support for internal connections 
for all schools and libraries, and provide a greater discount for 
higher poverty school districts and the libraries located in those 
school districts.
    204. School districts rarely purchase broadband on a school or 
neighborhood basis but instead buy on a larger scale. Cost efficiencies 
and budgeting realities result in school districts purchasing 
telecommunications and Internet services on a district-wide basis or in 
geographic areas within that district that align with service provider 
availability. Although commenters also express concern that school 
districts will be unable to target E-rate resources to schools and 
libraries in lower-income neighborhoods if a district-wide discount 
calculation is in place, the Commission's decision to adopt a district-
wide discount will not affect school districts' ability to apply for 
funding based on the connectivity needs of individual schools. We also 
take this opportunity to remind school districts that they are under an 
obligation to ensure ``that the most disadvantaged schools and 
libraries that are treated as sharing in the service receive an 
appropriate share of benefits from those services.''
    205. In light of the benefits to school districts and libraries of 
adopting a district-wide discount, we revise Sec.  54.505(b)(4) of our 
rules to require school districts to calculate their E-rate discounts 
by: Dividing the total number of students in the district eligible for 
NSLP by the total number of students in the district and comparing that 
single figure against the discount matrix to determine the school 
district's discount rate for E-rate supported services. All public 
schools and libraries within that public school district will receive 
the same discount rate. For the sake of simplicity, library systems 
that have branches or outlets in more than one public school district 
should use the address of the central outlet or main administrative 
office to determine which public school district the library system is 
in, and should use that public located in school district's discount 
rate when applying as a library system or on behalf of individual 
libraries within that system.
    206. In addition, our adoption of a district-wide discount allows 
us to permit applicants to add schools within their districts that were 
inadvertently omitted from a district's E-rate funding applications 
even post-commitment. Our rules currently require schools and libraries 
to list on their FCC Forms 471 every entity that will receive E-rate 
supported services under that application. Even when a school district 
is intending to use the requested service to serve all the schools in 
its district, it sometimes inadvertently omits an eligible school from 
the application. The district has the opportunity to correct such an 
omission if it catches the error when it receives from USAC its Receipt 
Acknowledgement Letter (RAL), which summarizes the district's 
application and funding requested. However, if it does not notice the 
error by the time its funding commitment letter is issued, but it is 
later discovered by USAC as part of a post-commitment review--for 
example, an audit or other assessment--that eligible school technically 
is not allowed to receive E-rate funding, under the current procedures, 
even though it is an eligible school and the services were meant to 
serve the entire district. This procedure exists because omission of 
one school from a discount rate calculation can change the discount the 
district receives, as each school's discount is calculated separately. 
With our move to a district-wide discount calculation, districts will 
be including all the students from all their schools in their discount 
calculation. As such, we find that an applicant can add eligible 
schools within its district that were inadvertently omitted from its 
applications, even after the deadline for making changes to the FCC 
Form 471.
    207. We recognize that some schools use a federally approved 
alternative mechanism, such as a survey alternative, to determine their 
discount percentage. We do not anticipate any negative ramifications to 
districts with any such schools because, regardless of the method a 
school district uses to establish its discount, it must determine a 
district-wide percentage of students eligible for the free and reduced 
lunch program from the total student population.
    208. While we do not specifically define the term ``school 
district,'' an applicant should determine its discount using all E-rate 
eligible students in schools that fall under the control of a central 
educational agency. Commenters note that private and charter schools 
generally operate independently of the main public school district and 
are individually responsible for their finances and administration. We 
therefore agree with commenters that these educational entities and 
local public school districts should calculate their discounts 
separately if not affiliated financially or operationally with a school 
district. Independent charter schools, private schools, and other 
eligible educational facilities that are seeking support for more than 
one school building should factor all students in facilities under the 
control of their central administrative agency into the discount 
calculation.
    209. Consortia applications will continue to use a simple average 
of all members' discounts to calculate the overall consortium discount, 
but will now be required to use each member's district-wide discount. 
Consistent with current Commission rules, we require that for services 
used only by an individual institution, the applicable discount rate 
for the services will be determined based on the applicable district-
wide discount rate for that individual school or library, not the 
consortium's overall discount rate. We realize that there will be 
shared services that cannot, without substantial difficulty, be 
identified with particular users or be allocated directly to particular 
entities. In those situations, we will continue to require the state, 
school district, or library system to ``strive to ensure'' that each 
school and library in a consortium receives the full benefit of the 
discount on shared services to which it is entitled. Using the 
district-wide average, should help prevent consortia applications from 
being held up due to changes in building status, such as school 
closings and consolidations, so long as there is no indication of 
waste, fraud or abuse at the invoicing stage. We realize, however, that 
using a district-wide average in place of the individual consortium 
member discount still does not provide a ``weighted average'' for 
consortia members that better indicates the discount to which members 
would have been entitled if they had applied

[[Page 49187]]

for E-rate services on their own. Therefore, we seek additional comment 
on a proposal to use a weighted average in the accompanying FNPRM.
2. Updating the Definition of ``Rural''
    210. In keeping with our commitment to ensuring that rural schools 
and libraries are able to afford E-rate supported services, we adopt 
the U.S. Census Bureau (Census) definitions of rural and urban for the 
purpose of determining whether an E-rate applicant qualifies for an 
additional rural discount. In so doing, we adopt one of the approaches 
the Commission proposed in the E-rate Modernization NPRM to modernizing 
the definitions of ``rural'' and ``urban'' in Sec.  54.505(b)(3) of our 
rules. While many commenters supported an alternative proposal to adopt 
the U.S. Department of Education's National Center for Education 
Statistics (NCES) definition for determining whether a school is rural, 
we find that using Census data avoids several administrative challenges 
that would arise were we to adopt the NCES classification system. For 
instance, commenters noted that there can be delays in obtaining NCES 
codes for new schools and some E-rate-eligible entities do not have an 
NCES designation. Using Census data ensures that all E-rate-eligible 
schools and libraries, even those without an NCES code (or the library-
equivalent FCES code) can readily determine their urban/rural status. 
We also note that the Census definition fully overlaps with the 
geography defined by NCES as ``rural.''
    211. Our current definition of ``rural'' for purposes of the E-rate 
program is outdated. By contrast, the Census data is relatively new 
and, the urban boundaries are adjusted annually to remain current. The 
Census definition classifies a particular location as rural or urban 
based on population density and geography, and other criteria involving 
non-residential development. For the 2010 Census, the Census Bureau 
defined urban areas as the densely settled core of census tracts or 
blocks that met minimum population density requirements (50,000 people 
or more), along with adjacent territories of at least 2,5000 people 
that link to the densely settled core. ``Rural'' encompasses all 
population, housing, and territory not included within an urban area. 
Therefore, beginning with funding year 2015, schools and libraries 
located in areas that are not located in urban areas, as defined by the 
most recent decennial Census, will be considered rural for the purposes 
of the E-rate program. We direct USAC to post a tool on its Web site 
that will allow schools and libraries to obtain information regarding 
whether they are classified as urban or rural under the new definition. 
We note that the Census Bureau already offers a tool on its Web site 
that provides the urban/rural status of any U.S. address.
    212. In the E-rate Modernization NPRM, we sought comment on how to 
treat school districts and library systems with a combination of rural 
and urban schools and libraries. We conclude that any school district 
or library system that has a majority of schools or libraries in a 
rural area that meets the statutory definition of eligibility for E-
rate support will qualify for the additional rural discount. This 
approach mirrors the methodology used by NCES to determine whether a 
school district is urban or rural and is supported by commenters in the 
record. This approach is also consistent with the method the FCC uses 
in the rural health care program context. We further direct USAC to 
take steps to minimize the burden of reporting rural or urban 
classification in conjunction with the requirement to phase in all-
electronic filing over the next three years.\1\ For example, USAC 
should ensure that the FCC Form 471 allows applicants to certify that 
the location of the schools or libraries listed have not changed from 
the previous year's filing, or does not require applicants to provide 
classification data in cases where the applicant's status as ``urban'' 
or ``rural'' does not affect their discount rate.
---------------------------------------------------------------------------

    \1\ See supra section VI.A.5.
---------------------------------------------------------------------------

3. Addressing the NSLP Community Eligibility Provision
    213. Consistent with our goal of making the E-rate application 
process and other E-rate processes fast, simple and efficient, 
beginning with funding year 2015, we will allow schools and school 
districts that are participating in the NSLP CEP to use the same 
approach for determining their E-rate discount rate as they use for 
determining their NSLP reimbursement rate. Specifically, schools 
utilizing the CEP shall calculate their student eligibility for free or 
reduced priced lunches by multiplying the percentage of directly 
certified students by the CEP national multiplier. This number shall 
then be applied to the discount matrix to determine a school district's 
discount for eligible E-rate services. Libraries' discount percentages 
will continue to be based on that of the public school district in 
which they are physically located. Schools participating in the CEP 
will not be considered to have a greater than 100 percent student 
eligibility for purposes of determining the district-wide discount rate 
for E-rate services, priority access to category two services, or for 
any other E-rate purposes.
    214. Traditionally, schools that participate in the NSLP collect, 
on an annual basis, individual eligibility applications from each of 
their students seeking free or reduced-priced lunches. Schools use the 
NSLP eligibility data for many other purposes, including calculating an 
applicant's E-rate discount rate. However, schools increasingly have 
the option of participating in the CEP, which neither requires nor 
permits schools to collect individual student eligibility information. 
A school is eligible for community eligibility if at least 40 percent 
of its students are ``directly certified,'' i.e., identified for free 
meals through means other than household applications (for example, 
students directly certified as receiving benefits from the Supplemental 
Nutrition Assistance Program). To compensate for low-income families 
not reflected in the direct certification data, schools apply a 
standard, national factor (multiplier), currently set at 1.6, to their 
identified student population in order to determine the total 
percentage of meals for which they will be reimbursed by the USDA. 
Schools are required to renew their direct certification numbers once 
every four years. If, during the four-year cycle, a school's percentage 
of identified students increases, the school may use the higher 
percentage in determining USDA reimbursement. If the percentage of 
identified students decreases, the school may continue to use the 
original percentage for the remainder of the four-year eligibility 
period.
    215. We agree with commenters who recommend that we allow schools 
and school districts that participate in the CEP to determine their 
discount rate for E-rate by treating the number of directly certified 
students multiplied by the national multiplier as the percentage of 
students eligible for NSLP. The record demonstrates that the CEP 
provides an estimate of the percentage of students eligible for free 
and reduced-price meals in participating schools comparable to the 
poverty percentage that would be obtained in a non-CEP school, and does 
not unfairly inflate E-rate discounts on eligible services. As E-Rate 
Central notes in its comments, schools and school districts electing 
the CEP already have high low-income populations and most are already 
at the current 90 percent discount level. Thus, a multiplier that 
raises the percentage of students eligible for NSLP from, for example, 
an 81 percent to 89 percent level, would have

[[Page 49188]]

no effect on the school's E-rate discount rate.
    216. Allowing schools and school districts that participate in the 
CEP to use their CEP data to determine eligibility for E-rate support 
will also, as the West Virginia Department of Education explains, help 
to alleviate confusion and additional burdens on schools and school 
districts by eliminating the need for additional paperwork and 
administrative costs. Moreover, by relying on a USDA change intended in 
large part to reduce paperwork and other burdens on schools, this 
decision is consistent with our other measures taken in this Report and 
Order to alleviate applicant administrative burdens. Additionally, as 
the State E-rate Coordinators' Alliance notes, permitting the use of 
the CEP data for E-rate discount eligibility provides a predictable 
means of calculating the discount level for new CEP schools.
    217. We realize that the USDA has the statutory authority to change 
the multiplier to a number between 1.3 and 1.6, and to apply a 
different multiplier for different schools or local educational 
agencies beginning on or after July 1, 2014. To simplify schools' 
administrative burden, we will require CEP applicants to use the same 
multiplier under the E-rate program for determining their poverty level 
as required by the USDA for their reimbursement under the CEP. Unlike 
applicants to the current E-rate program, CEP applicants will not be 
required to calculate their discount rate every year, but for clarity 
and administrative ease, shall use the calculation that they use during 
the course of a four-year CEP cycle. However, if an applicant adjusts 
that calculation for purposes of the CEP, it must also adjust it for 
purposes of E-rate support.
4. Modifying the Requirements for Using School-Wide Income Surveys
    218. We also direct USAC to revise its procedures to require 
schools and school districts seeking to calculate their E-rate 
discounts by using a school-wide income survey to base their E-rate 
discount rate only on the surveys they actually collect beginning with 
funding year 2015. Under the E-rate program, instead of using NSLP 
data, schools and school districts can choose to use a federally 
approved alternative mechanism, such as a survey, as a proxy for 
poverty when calculating E-rate support. Until now, a school using a 
school-wide income survey needed to collect surveys from at least 50 
percent of its students. It could then calculate the percentage of 
NSLP-eligible students from the returned surveys, and project that 
percentage of eligibility for the entire school population, for 
purposes of determining its discount rate under the E-rate program. We 
agree with New Hope that allowing schools to use an alternative method 
for determining eligibility is essential. However, we are concerned 
that permitting schools to project the number of NSLP-eligible students 
may provide an artificially higher eligibility percentage. Therefore, 
in order to help protect against incentives to artificially inflate 
eligibility percentages, beginning with funding year 2015, schools 
electing to use a school wide income survey to determine the number of 
students eligible for NSLP must calculate their discount based only the 
surveys returned by their students that demonstrate that those students 
would qualify for participation in the free and reduced school lunch 
program to determine the school's discount level. For example, a school 
with 100 students that distributes and collects 60 surveys showing that 
52 students meet the eligibility criteria for the free and reduced 
lunch program would be considered to have a 52 percent eligibility 
percentage and therefore qualify for an 80 percent discount rate.
    219. We considered the proposal offered by the Alaska Department of 
Education & Early Development to allow projections based on a 75 
percent return rate. We agree that would be more accurate than the 
current 50 percent return rate. But, on balance, we find that it is 
more equitable to base the discount rate for schools that conduct 
surveys on the actual number of students whose survey responses 
demonstrate that they meet the NSLP criteria. We thus direct USAC to 
amend its procedures to require actual survey results for determining a 
school's NSLP-eligibility from the surveys. We also take this 
opportunity to remind applicants that, upon request from any 
representative (including any auditor) appointed by a state education 
department, USAC, the Commission, or any local, state or federal agency 
with jurisdiction over the entity, they are required to provide copies 
of all returned surveys supporting their discount eligibility.

C. Simplifying the Invoicing and Disbursement Processes

    220. Consistent with our goal of reducing the administrative 
burdens on applicants and service providers, we take several measures 
related to the invoicing process to simplify and expedite funding 
disbursement. First, we revise our rules to allow an applicant that 
pays the full cost of the E-rate supported services to a service 
provider to receive direct reimbursement from USAC. Second, we adopt 
rules codifying USAC's existing invoice filing deadline, while allowing 
applicants to request and automatically receive a single one-time 120-
day extension of the invoicing deadline. Taken together, these 
modifications will yield an invoicing process that is simpler and 
clearer, while still providing protections against waste, fraud, and 
abuse.
1. Allowing Direct Invoicing
    221. In response to widespread support in the comments, we revise 
Sec. Sec.  54.504 and 54.514 of our rules to allow an applicant that 
pays the full cost of the E-rate supported services to a service 
provider to receive direct reimbursement from USAC, beginning with 
funding year 2016. We agree with the commenters who argue this change 
would improve the administrative process by eliminating unnecessary 
invoicing steps, which in turn would speed disbursements to schools and 
libraries. We also agree with applicants and service providers who 
argue that revising the invoicing process to allow applicants to 
receive direct reimbursement from USAC is a common-sense approach to 
simplifying the administration of the E-rate program. Further, we agree 
with those commenters who argue that providing an option for 
reimbursing schools and libraries that have paid upfront for E-rate 
supported services is consistent with section 254 of the Act. As the 
courts have found, section 254 of the Act gives the Commission broad 
discretion in administering the E-rate program. Nothing in the Act 
prevents the payment of universal service funds directly to applicants 
in the schools and libraries program. The only requirement in the Act 
regarding reimbursement is that the service provider is made whole, 
either through an offset against their contribution obligations, or 
using the Commission's universal service mechanism. We find that the 
revised Billed Entity Reimbursement (BEAR) process we adopt today 
provides sufficient documentation to demonstrate that the applicant has 
fully paid for the requested services and is entitled to direct 
reimbursement from USAC, thereby satisfying Congress's statutory 
requirement.
    222. Under the current E-rate program's Billed Entity Applicant 
Reimbursement (BEAR) process, if an applicant agrees to pay its service 
provider in full before USAC has reimbursed the provider for E-rate 
supported services, the applicant must submit an FCC Form 472 (BEAR 
form)

[[Page 49189]]

to USAC but only after getting approval from the service provider. 
After making a funding commitment and receiving invoices for eligible 
services, USAC will then process payments to the service provider, 
which in turn passes funds through to the applicant. The BEAR process 
requires significant coordination between the applicant and service 
provider for the applicant to receive payment. If a service provider is 
unable to process a BEAR form because, for example, the service 
provider has gone out of business or has filed for bankruptcy 
protection prior to the applicant submitting the BEAR form, another 
service provider (the Good Samaritan) can agree to serve as the conduit 
and receive payment from USAC for purposes of passing the payment 
through to the applicant. By removing the requirement that E-rate funds 
pass through the service provider to the applicant, we remove the need 
for a Good Samaritan procedure.
    223. This change we adopt today will only affect applicants that 
avail themselves of the BEAR process and elect to pay the entire cost 
of the discounted service in advance of USAC's reimbursement. Some 
commenters express concern that applicants should continue to have the 
option of the SPI process, paying only their portion of the price of 
eligible services and requiring the service provider to wait for 
payment from USAC for the remaining portion of the price of the 
eligible services. We take this opportunity to reiterate that E-rate 
applicants continue to have the option of electing BEAR or SPI 
reimbursement. Thus, when the applicant pays only the discounted cost 
of the services directly to the service provider through the SPI 
process, the service provider will continue to file a SPI form with 
USAC to receive reimbursement.
    224. Under the revised BEAR process we adopt today, an applicant 
filing an FCC Form 471 and selecting reimbursement through the BEAR 
process will be required to have on file with USAC current and accurate 
information concerning where payments should be sent. In accordance 
with the Debt Collection Improvement Act of 1996 (DCIA), all universal 
service disbursements must be made by electronic funds transfer. 
Accordingly, schools and libraries that choose to utilize the BEAR 
process must provide USAC with bank account information from a bank 
that can accept electronic transfers of money. We expect there will be 
additional information that USAC will also need to process payment to 
applicants, and we direct the Bureau and OMD to work with USAC to 
collect from applicants that use the new BEAR process all the 
information USAC will need to process such payments while protecting 
the integrity of the program. Further, for purposes of program 
integrity, payments will not be made to consultants, but only directly 
to schools or libraries.
    225. We direct the Bureau and OMD to work with USAC to implement 
the new direct reimbursement process. We recognize that the current FCC 
Form 472 requires a service provider to certify that: (1) It must remit 
the discount amount authorized by the fund administrator to the Billed 
Entity Applicant; (2) it must remit payment of the approved discount 
amount to the Billed Entity Applicant; and (3) it is in compliance with 
the rules and orders governing the schools and libraries universal 
service support program. Because service providers will no longer serve 
as a pass-through for payment, they will not be required to approve 
every FCC Form 472. However, the service provider certifications on the 
current FCC Form 472 are crucial for protecting the program against 
waste, fraud and abuse. We therefore revise Sec.  54.504(f) of our 
rules by adding a paragraph requiring each service provider to certify 
on the FCC Form 473 that the service provider has complied with the E-
rate invoicing rules and regulations. Specifically, the service 
provider will be required to certify that the bills or invoices that it 
provides to applicants are accurate, and that the services it provides 
are eligible for E-rate support.
2. Adopting Invoicing Deadlines
    226. We also codify USAC's existing invoice filing deadline to 
allow applicants to request and automatically receive a single one-time 
120-day extension of the invoicing deadline. Codifying the invoicing 
deadline will provide certainty to applicants and service providers. 
Providing certainty on invoicing deadlines will also allow USAC to de-
obligate committed funds immediately after the invoicing deadline has 
passed, providing increased certainty about how much funding is 
available to be carried forward in future funding years. The invoice 
deadline extension rule will be effective beginning in funding year 
2014.
    227. As the Commission has explained, filing deadlines are 
necessary for the efficient administration of the E-rate program. We 
agree with commenters that the current invoice deadline--the latter of 
120 days after the last day to receive service, or the date of the FCC 
Form 486 notification letter--provides the right balance between the 
need for efficient administration of the program, and the need to 
ensure that applicants and service providers have sufficient time to 
finish their own invoicing processes. We also agree that codifying the 
existing deadline provides certainty to program participants, while 
generally providing sufficient flexibility based on an applicant's or 
service provider's specific circumstances.
    228. At the same time, we agree with commenters that there may be 
circumstances beyond some applicants' or service providers' control 
that could prevent them from meeting the 120-day invoice filing 
deadline. Therefore, we adopt a rule allowing applicants to seek and 
receive from USAC a single one-time invoicing extension for any given 
funding request, provided the extension request is made no later than 
what would otherwise be the deadline for submitting invoices: The 
latter of 120 days after the last day to receive service, or the date 
of the FCC Form 486 notification letter. By adopting such a rule, we 
eliminate the need for applicants and service providers to identify a 
reason for the requested extension and the need for USAC to determine 
whether such timely requests meet certain criteria, which will ease the 
administrative burden of invoice extension requests on USAC. In the 
interest of efficient program administration, USAC shall grant no other 
invoicing deadline extensions. Moreover, in considering waivers of our 
new invoicing rules, we find that it is generally not in the public 
interest to waive our invoicing rules, and therefore the Bureau should 
grant waivers of those rules in extraordinary circumstances.
    229. In light of our codification of the invoice deadline, we 
direct USAC, working with OMD, to determine the appropriate de-
obligation date for funds against which an invoice has not been 
received for a particular funding year, taking into account the 
existence of pending appeals, holds, investigations, and other matters. 
Our goal is to have USAC establish, working with OMD, a date on which 
the bulk of undisbursed funds from a given funding year can be de-
obligated. By de-obligating those funding commitments, USAC will have 
greater certainty with respect to the amount of funds from past funding 
years that can be carried forward for future requests.
    230. With respect to appeals or requests to USAC or the Commission 
seeking permission to submit invoices after USAC's invoicing deadline 
for earlier funding years, we direct USAC

[[Page 49190]]

and the Bureau to consider whether such requests were made in good 
faith and within a reasonable time period after the services were 
provided or whether other extraordinary circumstances exist that 
support such a request. In the Canon-McMillan Order, the Bureau 
established a precedent of granting relief to petitioners demonstrating 
good faith in complying with the invoicing deadline despite submitting 
very late invoices. At the same time the Bureau recognized that invoice 
filing deadlines are necessary for the efficient administration of the 
E-rate program and that as schools and libraries continue to 
participate in the E-rate program, participants should ``become more 
experienced with the invoice requirements of the program.'' Until now, 
USAC had allowed unlimited invoice extensions under certain 
circumstances, and the Bureau, acting on delegated authority, has been 
generous when deciding invoicing deadline appeals. As reflected in the 
rules we adopt today, we find that while USAC's procedures were 
reasonable in the past, firmer limits on invoicing extensions are 
required at this time. Therefore, with respect to invoicing deadlines 
for earlier funding years, absent extraordinary circumstances 
justifying the failure to timely submit invoices, we expect the Bureau 
and USAC to deny any requests or appeals seeking an invoicing deadline 
extension of more than 12 months after the last date to invoice.

D. Creating a Tribal Consultation, Training, and Outreach Program

    231. As part of our overall effort to modernize the E-rate program, 
we take several actions today to raise the profile of the E-rate 
program and ensure that Tribal schools and libraries are able to 
participate effectively in the program. Specifically, we commit to 
enhance the Commission's Tribal consultation, training, and outreach, 
and we seek to gain a better understanding of the current state of 
connectivity among Tribal schools and libraries to enable the 
Commission to take steps that will reduce the digital divide and 
promote high-speed broadband connectivity to Tribal lands.
    232. The Commission recognizes the historic federal trust 
relationship and responsibilities it has with federally recognized 
Tribal Nations. Accordingly, we have a longstanding policy of promoting 
Tribal self-sufficiency and economic development and have developed a 
record of helping to ensure that Tribal Nations and those living on 
Tribal lands obtain access to communications services. It is well 
documented that communities on Tribal lands have historically had less 
access to both basic and advanced forms of telecommunications services 
than any other segment of the U.S. population. We recognize that a 
digital divide persists and extends not only to residents of Tribal 
lands, but also to Tribal anchor institutions such as schools and 
libraries located on Tribal lands. Given the challenges many Tribal 
Nations face in lacking access to even basic services, we recognize the 
important role of universal service support and the E-rate program in 
helping provide telecommunications services to and on remote and 
underserved Tribal lands. We thus take these actions today to gain a 
better understanding of the current state of connectivity among Tribal 
schools and libraries and to empower Tribal Nations to meet the high-
speed broadband needs of their schools and libraries.
    233. Consultation. We find that more extensive government-to-
government consultation with Tribal Nations is necessary to understand 
both the need for E-rate support on Tribal lands and how to 
successfully connect Tribal schools and libraries with modern high-
speed communications. One benefit of consultation will be the 
opportunity to collect better data on the connectivity needs of Tribal 
schools and libraries. While some data was provided in response to the 
E-rate Modernization NPRM, we need to know much more about connectivity 
and the use of E-rate support on Tribal lands. In particular, we 
recognize the need for data on how E-rate has impacted connectivity on 
Tribal lands to date, which Tribal schools and libraries receive E-rate 
and for what uses, what services are available to those schools and 
libraries, what the price structure is on Tribal lands, what speeds are 
available and needed on Tribal lands, and where broadband 
infrastructure still is most needed. We recognize that, without Tribal-
specific data, we cannot make the most informed decisions for provision 
of E-rate support to Tribal Nations.
    234. Many Tribal commenters agree and advocate for the need to 
collect data to ensure that all schools and libraries, including Tribal 
schools and libraries, have affordable access to high-speed broadband 
that supports digital learning and educational mandates. NCAI also 
advocates for coordination with certain inter-Tribal organizations to 
collect the necessary data. We therefore delegate authority to the 
Office of Native Affairs and Policy (ONAP), in coordination with the 
Bureau and OMD, to conduct government-to-government consultation for 
the purpose of determining how best to gather data on current 
connectivity levels and help the Commission better determine the need 
for E-rate support among Tribal schools and libraries. We expect that 
ONAP's experience in working with Tribal Nations will inform their 
decisions on how best to conduct this consultation, in coordination 
with the Bureau and OMD. Our hope is that, by gaining a better 
understanding of the current state of connectivity among Tribal schools 
and libraries, we will be in a better position to more effectively meet 
the high-speed broadband needs of the Native Nations of the United 
States.
    235. Training. We find that training tailored to the specific and 
often unique needs of Tribal schools and libraries is necessary to 
ensure that Tribal Nations are informed and empowered to participate 
fully in the E-rate program. In response to several Tribal-specific 
inquiries in the E-rate Modernization NPRM, commenters stressed the 
need to adopt E-rate program reforms that serve to increase access to 
high-speed broadband technologies for Tribal lands, specifically Tribal 
anchor institutions, and encouraged both rule changes and 
administrative changes. For example, NNTRC requested Tribal-specific 
training and outreach to ensure that Tribal schools and libraries are 
aware of the E-rate program and have at least a basic understanding of 
the E-rate process, services, and eligibility, all to ensure that 
Tribal Nations have equal access to participation in the E-rate 
program. The Confederated Tribes of the Colville Reservation stated 
that Tribal Nations are unable to fully benefit from the E-rate program 
due to a lack of available training on the program. Further, a 2011 
study of Tribal libraries by the Association of Tribal Archives, 
Libraries, and Museums (ATALM) found that the top three barriers to 
Tribal library participation in the E-rate program are lack of 
awareness of the program, uncertainty about eligibility, and a 
complicated application process. This study found that, while 46 
percent of Tribal libraries are the only source of free public Internet 
access in their communities, less than 5 percent of Tribal libraries 
benefit from the E-rate program (as compared to 51 percent of public 
libraries).
    236. USAC currently conducts a series of applicant trainings during 
the fall of each year, usually located in large cities and focused on 
issues of general importance to E-rate applicants. As part of the 
training we adopt today, we envision that ONAP, in coordination with 
USAC, would help provide E-rate specific training to schools and 
libraries. We therefore direct USAC to work with ONAP to develop and 
provide Tribal-

[[Page 49191]]

specific E-rate training targeted to Tribal schools and libraries. We 
direct ONAP, in consultation with the Bureau and OMD to advise USAC on 
the most appropriate timing and mechanism to provide such training, 
outreach, and materials to Tribal schools and libraries. We also direct 
ONAP to coordinate with USAC to incorporate and distribute USAC E-rate 
training materials when mobilizing the Native Learning Lab.
    237. Outreach. In conjunction with the training described, we 
direct USAC, in close coordination with and under the guidance of ONAP, 
the Bureau, and OMD, to create a formal Tribal liaison at USAC to 
assist with Tribal-specific outreach, training, and assistance. We 
expect that USAC's Tribal liaison will coordinate closely with ONAP, 
the Bureau, and OMD on all Tribal training initiatives. The Tribal 
liaison's responsibilities will require direct communication with 
Tribal schools and libraries throughout the E-rate process and will 
include helping to conduct and coordinate Tribal-specific trainings and 
training materials, initiating and responding to Tribal ``Helping 
Applicants To Succeed'' requests and visits, fielding questions from 
Tribal schools and libraries regarding the E-rate program and process, 
and attending national and regional Tribal conferences or meetings 
where Tribal school and libraries are present. The creation of this 
position at USAC and the required coordination with ONAP, the Bureau, 
and OMD, will further our goal of ensuring that Tribal schools and 
libraries can participate fully and effectively in the E-rate program.

E. Requiring Filing of Appeals With USAC

    238. Consistent with our goal of streamlining the administration of 
the E-rate program and improving the E-rate appeals process, we revise 
Sec.  54.719 of our rules to require parties aggrieved by an action 
taken by a division of USAC, including the Schools and Libraries 
Division, to first seek review of that decision by USAC before filing 
an appeal with the Commission. The standards for evaluating the merits 
of these appeals will be unchanged and affected parties will still have 
the right to seek Commission review of such decisions, as provided in 
the Commission's rules. This rule change will become effective 30 days 
after the publication of this Report and Order in the Federal Register.
    239. Currently, any party may seek Commission review of an action 
taken by USAC without first seeking review of that decision by USAC. 
One result of the current system is a growing number of E-rate appeals 
with the Commission. While we have made a concerted effort to reduce 
the backlog of appeals, a backlog remains and we continue to receive 
numerous appeals on a monthly basis. The appeals backlog is further 
exacerbated by the fact that aggrieved parties often decline to seek 
review from USAC and appeal directly to the Commission.
    240. We find that requiring parties to first file appeals of USAC 
decisions with USAC itself before seeking Commission review will 
improve efficiency in the appeals process. It will reduce the number of 
appeals coming to the Commission, and allow USAC an initial opportunity 
to correct any of its own errors, and to receive and review additional 
information provided by aggrieved parties without having to involve the 
Commission staff. We remind parties filing an appeal with USAC to 
follow USAC's appeals guidelines and provide USAC with all relevant 
information and documentation necessary for USAC to make an informed 
decision on an appeal. USAC cannot waive our rules; therefore parties 
seeking only a waiver of our rules are not governed by this 
requirement, but instead must seek relief directly from the Commission 
or the Bureau.

F. Directing USAC To Adopt Additional Measures To Improve the 
Administration of the E-Rate Program

    241. We adopt a number of additional measures to ease the burden 
upon applicants, expedite commitments, and ensure that all applicants 
receive complete and timely information to help inform their decisions 
regarding E-rate purchases. In particular, we adopt a specific 
application review and funding commitment target for all category one 
funding requests as a performance measure in evaluating our progress 
towards this goal; continue to work on modernizing USAC's E-rate 
Information Technology (IT) systems; require the publishing of all non-
confidential E-rate data in open, electronic formats; and direct USAC 
to make its communications simpler and clearer so that applicants and 
service providers will have no difficulty understanding the information 
and direction that USAC provides them.
1. Speeding Review of Applications, Commitment Decisions and Funding 
Disbursements
    242. Many of the rule revisions we adopt today will help speed 
review of applications, funding commitment decisions and funding 
disbursements. In this proceeding, we received many comments 
complaining about the delay in receiving funding commitments. We 
recognize that those delays have real and substantial impacts on 
schools and libraries' willingness and ability to purchase high-speed 
broadband services. USAC, working closely with OMD, has already 
committed to overhaul its application review process for the current 
funding year 2014 and the initial results are impressive. As noted, by 
July 1, 2013, USAC had only committed approximately $181 million in 
support. By contrast, as of July 1, 2014, USAC has already committed 
approximately $1.22 billion in support. In 2013, USAC did not reach $1 
billion in commitments until October.
    243. We applaud the work that USAC and OMD have done in the last 
few months. Building on that momentum, we adopt a specific application 
review and funding commitment target for all funding requests as a 
performance measure in evaluating our progress toward meeting our goal 
of streamlining the administrative process. We believe that 
establishing a specific target will help to hold USAC further 
accountable for more quickly reviewing and issuing category one funding 
commitments in future funding years. We again remind applicants that 
failure to timely respond to requested information by USAC could delay 
the issuance of a commitment, and we therefore encourage applicants to 
respond expeditiously and completely to all information and 
documentation requests by USAC.
2. Modernizing USAC's E-Rate Information Technology Systems
    244. We also direct USAC and OMD to continue to work on modernizing 
USAC's E-rate IT systems. Numerous commenters express frustration with 
USAC's E-rate IT systems, and recommend that USAC create an online 
portal with pre-populated information for returning applicants and 
service providers to reduce administrative burden and errors, and to 
provide applicants and service providers with easy access to historic 
information as well as information about the status of their funding 
and invoice requests.
    245. OMD and the Bureau have already begun the process of working 
with USAC to modernize its E-rate IT systems. We recognize that this is 
a long-term project. We therefore direct OMD and the Bureau to continue 
USAC's IT modernization work, with a focus on easing the administrative 
burdens on E-rate applicants and service providers, while protecting 
against waste, fraud and abuse, and on collecting high-quality data 
that will assist us in measuring our progress

[[Page 49192]]

towards the goals we adopt today. We note that measuring progress 
towards our goals, particularly the first two goals, will require USAC 
to collect a wealth of data from applicants and service providers in a 
manner that will allow us the flexibility to manipulate and analyze 
that data in a variety of ways.
3. Requiring Open and Accessible E-Rate Data
    246. We direct USAC to timely publish through electronic means all 
non-confidential E-rate data in open, standardized, electronic formats, 
consistent with the principles of the Office of Management and Budget's 
(OMB's) Open Data Policy. USAC must provide the public with the ability 
to easily view and download non-confidential E-rate data, for both 
individual datasets and aggregate data. We further direct USAC to 
design open and accessible data solutions in a modular format to allow 
extensibility and agile development, such as providing for the use of 
application programming interfaces (APIs) where appropriate and 
releasing the code, as open source code, where feasible. USAC's 
solutions must be accessible to people with disabilities, as is 
required for federal agency information technology. The solutions must 
also, on a going-forward basis, incorporate international standards and 
best practices for security and privacy controls.
    247. The record supports USAC releasing E-rate data in as open a 
manner as possible so that the schools and libraries that receive 
support from the program and their associated service providers can 
track the status of their E-rate applications and requests for 
reimbursement and so that they and the public at large can benefit from 
greater program transparency and public accountability. Making non-
confidential E-rate data open and accessible will allow members of the 
public to develop new and innovative methods to analyze E-rate data, 
which will benefit all stakeholders, including this Commission as we 
continue to improve the program. Releasing E-rate data in this manner 
should also enable greater integration with other datasets such as 
those maintained by NCES and those maintained by IMLS. This integration 
will create opportunities for new and innovative analyses about 
connectivity to and within our nation's schools and libraries.
4. Adopting Plain Language Review
    248. We are concerned that many of USAC's standard communications 
are excessively lengthy and difficult to understand. Because the E-rate 
program has a wide range of large and small stakeholders, USAC should 
be particularly careful to communicate in a simple, direct, and user-
friendly manner. Plain language is an essential tool for communicating 
information effectively to the public about decisions and benefits. We 
therefore direct USAC to work with OMD to implement a full review and 
revision, as appropriate, of USAC's most commonly used correspondence 
using plain language, before the beginning of funding year 2016. We 
find that this review and the improvement to USAC's communications that 
result will reduce applicant confusion and ensure parties have the 
information necessary to comply with or appeal USAC's decisions. These 
requirements will be effective beginning in funding year 2015.

G. Protecting Against Waste Fraud and Abuse

    249. While we seek to modernize the E-rate program and ease the 
burdens upon applicants and service providers, we are extremely mindful 
of our commitment to ensuring the program's integrity by protecting 
against waste, fraud and abuse. We believe that proper documentation is 
crucial for demonstrating applicant and vendor compliance with E-rate 
rules, and for uncovering waste, fraud and abuse in the program, 
whether through compliance audits or investigations. Therefore, we 
revise our document retention requirements and compliance procedures 
and clarify that applicants must permit inspectors on their premises as 
described below.
1. Extending the E-Rate Document Retention Requirements
    250. We revise Sec.  54.516(a) of our rules to extend the document 
retention period from five to 10 years after the latter of the last day 
of the applicable funding year, or the service delivery deadline for 
the funding request. As the Commission explained in the E-rate 
Modernization NPRM, the current five year document retention 
requirement is not adequate for purposes of litigation under the False 
Claims Act (FCA), which can involve conduct that occurred substantially 
more than five years prior to the filing of a complaint. We recognize 
commenters' concerns that extending the mandatory document retention 
period to 10 years may create additional administrative burdens and 
incur document storage costs. However, we agree with the San Jacinto 
School District that electronic storage of documents can dramatically 
reduce these costs. We therefore strongly encourage schools, libraries, 
consortia, and service providers to take advantage of digital storage 
mechanisms. As the Commission did in both the USF/ICC Transformation 
Order and FNPRM, 76 FR 78384, December 16, 2011, and Lifeline Reform 
Order, 77 FR 12784, March 2, 2012, we conclude that the benefits to the 
integrity of the program outweigh the burdens of extending our document 
retention rules to 10 years. Our action thus ensures greater 
consistency across the various universal service programs.
    251. We also modify Sec.  54.516 of our rules to refer to 
``schools, libraries and consortia'' rather than just ``schools and 
libraries,'' thereby providing clarity that all applicants (as well as 
all service providers) are required to comply with our document 
retention and other auditing rules.
2. Allowing Access for Inspections
    252. To support E-rate compliance audits and enforcement 
investigations, we also revise Sec.  54.516 to clarify that E-rate 
applicants and service providers must permit auditors, investigators, 
attorneys or any other person appointed by a state education 
department, USAC, the Commission or any local, state or federal agency 
with jurisdiction over the entity to enter their premises to conduct E-
rate compliance inspections. Allowing auditors and investigative 
personnel to inspect an applicant's premises is necessary to ensure 
that the applicant is in compliance with E-rate rules. The list of 
entities entitled to appoint representatives to enter the premises of 
an applicant or service provider parallels the list of entities 
entitled to seek production of records from applicants and service 
providers.

VI. Delegation To Revise Rules

    253. Given the complexities associated with modernizing the E-rate 
program, modifying our rules, and the other programmatic changes we 
adopt in this Report and Order, we delegate authority to the Bureau to 
make any further rule revisions as necessary to ensure the changes to 
the program adopted in this Report and Order are reflected in our 
rules. This includes correcting any conflicts between new and/or 
revised rules and existing rules as well as addressing an omissions or 
oversights. If any such rule changes are warranted the Bureau shall be 
responsible for such change. We note that any entity that disagrees 
with a rule change made on delegated authority will have the 
opportunity to file an

[[Page 49193]]

Application for Review by the full Commission.

VII. Procedural Matters

A. Final Regulatory Flexibility Analysis

    254. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Federal Communications Commission (Commission) 
included an Initial Regulatory Flexibility Analysis (IRFA) of the 
possible significant economic impact on a substantial number of small 
entities by the policies and rules proposed in the E-rate Modernization 
NPRM in WC Docket No. 13-184. The Commission sought written public 
comment on the proposals in the E-rate Modernization NPRM, including 
comment on the IRFA. This Final Regulatory Flexibility Analysis (FRFA) 
conforms to the RFA.

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

    255. The Commission is required by section 254 of the 
Communications Act of 1934, as amended, to promulgate rules to 
implement the universal service provisions of section 254. On May 8, 
1997, the Commission adopted rules to reform its system of universal 
service support mechanisms so that universal service is preserved and 
advanced as markets move toward competition. Specifically, under the 
schools and libraries universal service support mechanism, also known 
as the E-rate program, eligible schools, libraries, and consortia that 
include eligible schools and libraries may receive discounts for 
eligible telecommunications services, Internet access, and internal 
connections.
    256. In July 2013, the Commission issued a Notice of Proposed 
Rulemaking seeking public comment on proposals to update the E-rate 
program to focus on 21st Century broadband needs of schools and 
libraries. Then, in February 2014, the Wireline Competition Bureau 
issued a Public Notice seeking focused comment on issues raised in the 
E-rate Modernization NPRM. In this Report and Order, the Commission 
adopts a number of the proposals put forward in the E-rate 
Modernization NPRM and discussed in the E-rate Modernization Public 
Notice.
    257. This Report and Order continues the Commission's efforts to 
promote broadband access for schools and libraries. In it, we adopt 
goals and measures for the E-rate program to (1) ensure affordable 
access to high-speed broadband sufficient to support digital learning 
in schools and robust connectivity for all libraries, (2) maximize the 
cost-effectiveness of spending for E-rate supported purchases, and (3) 
make the E-rate application process and other E-rate processes fast, 
simple and efficient.
    258. The rule changes we adopt support these goals and fall into 
three conceptual categories. First, we ensure affordable access to 
high-speed broadband sufficient to support digital learning in schools 
and robust connectivity for all libraries by providing more reliable 
and equitable funding for broadband without schools and libraries and 
by phasing down support for legacy services. Second, we maximize the 
cost-effectiveness of spending for E-rate supported purchases by 
increasing transparency in the purchasing process, encouraging 
consortium purchasing, and amending the lowest corresponding price 
(LCP) rule. Third, we make the E-rate application process and other E-
rate processes fast, simple, and efficient by simplifying the 
application process; simplifying discount rate calculations; 
simplifying the invoicing and disbursement process; requiring filing of 
appeals with USAC; directing USAC to adopt additional measures to 
streamline the administration of the E-rate program; and protecting 
against waste, fraud, and abuse.

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

    259. No comments specifically addressed the IRFA.

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

    260. The RFA directs agencies to provide a description of and, 
where feasible, an estimate of the number of small entities that may be 
affected by the proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small business concern'' under the Small Business 
Act. A small business concern is one that: (1) Is independently owned 
and operated; (2) is not dominant in its field of operation; and (3) 
satisfies any additional criteria established by the Small Business 
Administration (SBA). Nationwide, there are a total of approximately 
28.2 million small businesses, according to the SBA. A ``small 
organization'' is generally ``any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field.''
    261. Nationwide, as of 2002, there were approximately 1.6 million 
small organizations. The term ``small governmental jurisdiction'' is 
defined generally as ``governments of cities, towns, townships, 
villages, school districts, or special districts, with a population of 
less than fifty thousand.'' Census Bureau data for 2002 indicate that 
there were 87,525 local governmental jurisdictions in the United 
States. We estimate that, of this total, 84,377 entities were ``small 
governmental jurisdictions.'' Thus, we estimate that most governmental 
jurisdictions are small.
    262. Small entities potentially affected by the proposals herein 
include eligible schools and libraries and the eligible service 
providers offering them discounted services.
    263. Schools and Libraries. As noted, ``small entity'' includes 
non-profit and small government entities. Under the schools and 
libraries universal service support mechanism, which provides support 
for elementary and secondary schools and libraries, an elementary 
school is generally ``a non-profit institutional day or residential 
school that provides elementary education, as determined under state 
law.'' A secondary school is generally defined as ``a non-profit 
institutional day or residential school that provides secondary 
education, as determined under state law,'' and not offering education 
beyond grade 12. For-profit schools and libraries, and schools and 
libraries with endowments in excess of $50,000,000, are not eligible to 
receive discounts under the program, nor are libraries whose budgets 
are not completely separate from any schools. Certain other statutory 
definitions apply as well. The SBA has defined for-profit, elementary 
and secondary schools and libraries having $6 million or less in annual 
receipts as small entities. In funding year 2007, approximately 105,500 
schools and 10,950 libraries received funding under the schools and 
libraries universal service mechanism. Although we are unable to 
estimate with precision the number of these entities that would qualify 
as small entities under SBA's size standard, we estimate that fewer 
than 105,500 schools and 10,950 libraries might be affected annually by 
our action, under current operation of the program.
    264. Telecommunications Service Providers. First, neither the 
Commission nor the SBA has developed a size standard for small 
incumbent local exchange services. The closest size standard under SBA 
rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is

[[Page 49194]]

small if it has 1,500 or fewer employees. According to Commission data, 
1,307 incumbent carriers reported that they were engaged in the 
provision of local exchange services. Of these 1,307 carriers, an 
estimated 1,006 have 1,500 or fewer employees and 301 have more than 
1,500 employees. Thus, under this category and associated small 
business size standard, we estimate that the majority of entities are 
small. We have included small incumbent local exchange carriers in this 
RFA analysis. A ``small business'' under the RFA is one that, inter 
alia, meets the pertinent small business size standard (e.g., a 
telephone communications business having 1,500 or fewer employees), and 
``is not dominant in its field of operation.'' The SBA's Office of 
Advocacy contends that, for RFA purposes, small incumbent local 
exchange carriers are not dominant in their field of operation because 
any such dominance is not ``national'' in scope. We have therefore 
included small incumbent carriers in this RFA analysis, although we 
emphasize that this RFA action has no effect on the Commission's 
analyses and determinations in other, non-RFA contexts.
    265. Second, neither the Commission nor the SBA has developed a 
definition of small entities specifically applicable to providers of 
interexchange services (IXCs). The closest applicable definition under 
the SBA rules is for wired telecommunications carriers. This provides 
that a wired telecommunications carrier is a small entity if it employs 
no more than 1,500 employees. According to the Commission's 2010 Trends 
Report, 359 companies reported that they were engaged in the provision 
of interexchange services. Of these 300 IXCs, an estimated 317 have 
1,500 or few employees and 42 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of 
interexchange services are small businesses.
    266. Third, neither the Commission nor the SBA has developed a 
definition of small entities specifically applicable to competitive 
access services providers (CAPs). The closest applicable definition 
under the SBA rules is for wired telecommunications carriers. This 
provides that a wired telecommunications carrier is a small entity if 
it employs no more than 1,500 employees. According to the 2010 Trends 
Report, 1,442 CAPs and competitive local exchange carriers (competitive 
LECs) reported that they were engaged in the provision of competitive 
local exchange services. Of these 1,442 CAPs and competitive LECs, an 
estimated 1,256 have 1,500 or fewer employees and 186 have more than 
1,500 employees. Consequently, the Commission estimates that most 
providers of competitive exchange services are small businesses.
    267. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the Census Bureau has placed wireless firms within this new, 
broad, economic census category. Prior to that time, such firms were 
within the now-superseded categories of ``Paging'' and ``Cellular and 
Other Wireless Telecommunications.'' Under the present and prior 
categories, the SBA has deemed a wireless business to be small if it 
has 1,500 or fewer employees. Because Census Bureau data are not yet 
available for the new category, we will estimate small business 
prevalence using the prior categories and associated data. For the 
category of Paging, data for 2002 show that there were 807 firms that 
operated for the entire year. Of this total, 804 firms had employment 
of 999 or fewer employees, and three firms had employment of 1,000 
employees or more. For the category of Cellular and Other Wireless 
Telecommunications, data for 2002 show that there were 1,397 firms that 
operated for the entire year. Of this total, 1,378 firms had employment 
of 999 or fewer employees, and 19 firms had employment of 1,000 
employees or more. Thus, we estimate that the majority of wireless 
firms are small.
    268. Wireless telephony includes cellular, personal communications 
services, and specialized mobile radio telephony carriers. As noted, 
the SBA has developed a small business size standard for Wireless 
Telecommunications Carriers (except Satellite). Under the SBA small 
business size standard, a business is small if it has 1,500 or fewer 
employees. According to the 2010 Trends Report, 413 carriers reported 
that they were engaged in wireless telephony. Of these, an estimated 
261 have 1,500 or fewer employees and 152 have more than 1,500 
employees. We have estimated that 261 of these are small under the SBA 
small business size standard.
    269. Common Carrier Paging. As noted, since 2007 the Census Bureau 
has placed paging providers within the broad economic census category 
of Wireless Telecommunications Carriers (except Satellite). Prior to 
that time, such firms were within the now-superseded category of 
``Paging.'' Under the present and prior categories, the SBA has deemed 
a wireless business to be small if it has 1,500 or fewer employees. 
Because Census Bureau data are not yet available for the new category, 
we will estimate small business prevalence using the prior category and 
associated data. The data for 2002 show that there were 807 firms that 
operated for the entire year. Of this total, 804 firms had employment 
of 999 or fewer employees, and three firms had employment of 1,000 
employees or more. Thus, we estimate that the majority of paging firms 
are small.
    270. In addition, in the Paging Second Report and Order, the 
Commission adopted a size standard for ``small businesses'' for 
purposes of determining their eligibility for special provisions such 
as bidding credits and installment payments. A small business is an 
entity that, together with its affiliates and controlling principals, 
has average gross revenues not exceeding $15 million for the preceding 
three years. The SBA has approved this definition. An initial auction 
of Metropolitan Economic Area (``MEA'') licenses was conducted in the 
year 2000. Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven 
companies claiming small business status won 440 licenses. A subsequent 
auction of MEA and Economic Area (``EA'') licenses was held in the year 
2001. Of the 15,514 licenses auctioned, 5,323 were sold. One hundred 
thirty-two companies claiming small business status purchased 3,724 
licenses. A third auction, consisting of 8,874 licenses in each of 175 
EAs and 1,328 licenses in all but three of the 51 MEAs, was held in 
2003. Seventy-seven bidders claiming small or very small business 
status won 2,093 licenses.
    271. Currently, there are approximately 74,000 Common Carrier 
Paging licenses. According to the most recent Trends in Telephone 
Service, 291 carriers reported that they were engaged in the provision 
of ``paging and messaging'' services. Of these, an estimated 289 have 
1,500 or fewer employees and two have more than 1,500 employees. We 
estimate that the majority of common carrier paging providers would 
qualify as small entities under the SBA definition.
    272. Internet Service Providers. The 2007 Economic Census places 
these firms, whose services might include voice over Internet protocol 
(VoIP), in either of two categories, depending on whether the service 
is provided over the provider's own telecommunications facilities 
(e.g., cable and DSL ISPs), or over client-supplied telecommunications 
connections (e.g., dial-up ISPs). The former are within the category of 
Wired Telecommunications Carriers, which has an SBA small business size 
standard of 1,500 or fewer employees. The latter are within the

[[Page 49195]]

category of All Other Telecommunications, which has a size standard of 
annual receipts of $25 million or less. The most current Census Bureau 
data for all such firms, however, are the 2002 data for the previous 
census category called Internet Service Providers. That category had a 
small business size standard of $21 million or less in annual receipts, 
which was revised in late 2005 to $23 million. The 2002 data show that 
there were 2,529 such firms that operated for the entire year. Of 
those, 2,437 firms had annual receipts of under $10 million, and an 
additional 47 firms had receipts of between $10 million and 
$24,999,999. Consequently, we estimate that the majority of ISP firms 
are small entities.
    273. Vendors of Internal Connections: Telephone Apparatus 
Manufacturing. The Census Bureau defines this category as follows: 
``This industry comprises establishments primarily engaged in 
manufacturing wire telephone and data communications equipment. These 
products may be standalone or board-level components of a larger 
system. Examples of products made by these establishments are central 
office switching equipment, cordless telephones (except cellular), PBX 
equipment, telephones, telephone answering machines, LAN modems, multi-
user modems, and other data communications equipment, such as bridges, 
routers, and gateways.'' The SBA has developed a small business size 
standard for Telephone Apparatus Manufacturing, which is: all such 
firms having 1,000 or fewer employees. According to Census Bureau data 
for 2002, there were a total of 518 establishments in this category 
that operated for the entire year. Of this total, 511 had employment of 
under 1,000, and an additional seven had employment of 1,000 to 2,499. 
Thus, under this size standard, the majority of firms can be considered 
small.
    274. Vendors of Internal Connections: Radio and Television 
Broadcasting and Wireless Communications Equipment Manufacturing. The 
Census Bureau defines this category as follows: ``This industry 
comprises establishments primarily engaged in manufacturing radio and 
television broadcast and wireless communications equipment. Examples of 
products made by these establishments are: Transmitting and receiving 
antennas, cable television equipment, GPS equipment, pagers, cellular 
phones, mobile communications equipment, and radio and television 
studio and broadcasting equipment.'' The SBA has developed a small 
business size standard for firms in this category, which is: All such 
firms having 750 or fewer employees. According to Census Bureau data 
for 2002, there were a total of 1,041 establishments in this category 
that operated for the entire year. Of this total, 1,010 had employment 
of under 500, and an additional 13 had employment of 500 to 999. Thus, 
under this size standard, the majority of firms can be considered 
small.
    275. Vendors of Internal Connections: Other Communications 
Equipment Manufacturing. The Census Bureau defines this category as 
follows: ``This industry comprises establishments primarily engaged in 
manufacturing communications equipment (except telephone apparatus, and 
radio and television broadcast, and wireless communications 
equipment).'' The SBA has developed a small business size standard for 
Other Communications Equipment Manufacturing, which is having 750 or 
fewer employees. According to Census Bureau data for 2002, there were a 
total of 503 establishments in this category that operated for the 
entire year. Of this total, 493 had employment of under 500, and an 
additional 7 had employment of 500 to 999. Thus, under this size 
standard, the majority of firms can be considered small.

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

    276. Several of our rule changes will result in additional 
recordkeeping requirements for small entities. For all of those rule 
changes, we have determined that the benefit the rule change will bring 
for the program outweighs the burden of the increased recordkeeping 
requirement. Other rule changes decrease recordkeeping requirements for 
small entities.
1. Increase in Projected Reporting, Recordkeeping and Other Compliance 
Requirements
    277. Compliance burdens. All of the rules we implement impose some 
burden on small entities by requiring them to become familiar with the 
new rule to comply with it. For many new rules, such as those codifying 
invoicing deadlines, increasing price transparency, phasing down 
support for voice services, eliminating support for telephone features, 
and reducing the maximum discount rate for internal connections, the 
burden of becoming familiar with the new rule in order to comply with 
it is the only burden the rule imposes.
    278. Connectivity metrics. The metrics we adopt will require 
applicants to provide data on connectivity, demand costs and LAN/WLAN 
capacity. The benefit collection of this data will provide us by giving 
us a better understanding of how the E-rate program is accomplishing 
its goals outweighs the burden it will impose on small entities.
    279. Internal connections funding. Our rule change to provide more 
funding for internal connections will increase recordkeeping burdens on 
small entities who previously did not apply for funding for internal 
connections because funding was not available to them. The benefit of 
receiving funding for internal connections clearly outweighs the burden 
on applying for this funding.
    280. Preferred master contracts. Our rule change to allow the 
Bureau to designate preferred master contracts that applicants would be 
required to include in their bid evaluations even if the master 
contract was not submitted as a bid would increase recordkeeping 
requirements on small entities because it would require many small E-
rate applicants to consider an additional bid in their evaluations. The 
significant savings the Fund and applicants would realize from 
including preferred master contracts in bid evaluations justifies this 
added burden.
    281. Price transparency. We allow applicants to opt out of public 
disclosure by USAC of their E-rate pricing data if such disclosure 
would violate a state law, local rule, or an existing long-term 
contract by certifying and citing to the specific statute, rule or 
other restriction barring publication of pricing data. Making this 
certification will increase recordkeeping requirements for those 
applicants who wish to opt out, but allowing the certification is 
necessary to ensure consistency between E-rate rules and state and 
local laws.
    282. Determining rurality for school districts. Requiring 
applicants to determine whether a majority of their schools are in 
rural areas increases recordkeeping requirements. The benefit to rural 
applicants of receiving an additional discount justifies this 
additional burden.
    283. Document retention. Extending the retention period from five 
to 10 years after the latter of the last day of the applicable funding 
year, or the last day of delivery of services for that funding year 
increases recordkeeping requirements and costs for E-rate recipients 
and service providers. Our interest in combatting waste, fraud and 
abuse by litigating matters under the False Claims Act, which can 
involve conduct that relates back substantially

[[Page 49196]]

more than five years, justifies this additional burden.
    284. Electronic filing. Although filing electronically is easier 
than filing on paper for most applicants, we recognize that requiring 
electronic filing may impose additional burdens for applicants who are 
unfamiliar with the electronic filing process. Nonetheless, the 
efficiencies for USAC that requiring electronic filing creates outweigh 
the burden on applicants.
    285. Maximum term for multi-year contracts. Our requirement that 
contracts for E-rate supported services not exceed five years, which an 
exception permitting contracts for deployment of new fiber to schools 
or libraries to not exceed ten years, could increase reporting 
requirements for some applicants by requiring them to negotiate 
contracts more frequently than they otherwise would. Our interest in 
promoting cost-effective purchasing justifies this additional burden.
    286. Requiring filing of appeals with USAC. Requiring applicants to 
first file appeals with USAC before appealing decision to the 
Commission could increase recordkeeping requirements by requiring 
applicants who planned to appeal directly to the Commission to file an 
additional appeal before doing so. The benefit of reducing the 
Commission's E-rate appeal backlog outweighs this burden.
    287. Changes to ESL. We recognize that the changes to focus the 
category two Eligible Services List (ESL) on broadband may require 
applicants to cost allocate newly-ineligible services. E-rate 
recipients have always been required to cost allocate ineligible 
components. In many instances, cost allocation should not be difficult 
because these services appear on separate line items on bills. Even 
when ineligible services do not appear as separate line items on bills, 
the savings to the program from these changes to the ESL outweighs the 
administrative burden of cost allocation for program participants.
2. Decrease in Projected Reporting, Recordkeeping and Other Compliance 
Requirements
    288. Focusing support on broadband. Limiting internal connections 
support to routers, switches, wireless access points, internal cabling, 
wireless controller systems, data protection services, and the software 
supporting each of these components used to distribute high-speed 
broadband throughout school buildings and libraries will decrease 
recordkeeping requirements for small entities because they will no 
longer go through the application process for services that have been 
made ineligible.
    289. Simplified application process for multi-year contracts. Our 
new procedure for funding commitments for multi-year contracts for 
priority one services that is no longer than five years will alleviate 
reporting burdens on small entities because, in many circumstances, 
applicants will only be required to submit an FCC Form 471 for the 
first year of a multi-year contract. For subsequent years, applicants 
will be permitted to use a streamlined application process.
    290. Eliminating technology plan requirements. We eliminate the 
technology plan requirement for applicants seeking category two 
services, which will decrease recordkeeping requirements.
    291. Exempting certain low-dollar purchases from competitive 
bidding rules. The exemption to our competitive bidding rules that 
allows E-rate applicants to purchase certain business-class Internet 
access reduces recordkeeping requirements related to the competitive 
bidding process. Although the requirement that applicants certify that 
they have purchased services that are eligible for an exemption imposes 
a minimal recordkeeping requirement, the overall effect of the rule 
change is a reduction in recordkeeping requirements.
    292. Preferred master contracts. We also permit applicants to take 
services on a preferred master contract designated by the Bureau 
without filing an FCC Form 470. This reduces the burdens associated 
with filing an FCC Form 470 and conducting a bid evaluation.
    293. District-wide discount rates. The requirement that applicants 
use a district-wide data to determine their discount rates will reduce 
reporting requirements because districts will no longer have to perform 
a discount rate calculation for each school within a district.
    294. Invoicing. Applicants who submit a Billed Entity Application 
for Reimbursement (BEAR) Form may now receive reimbursement directly 
from USAC, rather than having the service provider serve as an 
intermediary. This alleviates reporting requirements on the service 
provider.
    295. Plain language review. The plain language review of USAC's 
standard forms that we order make it easier for small entities to 
comply with our rules by reducing applicant confusion and ensuring that 
entities have the information necessary to comply with our rules.
3. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    296. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): ``(1) the establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rule for such small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for such small 
entities.''
    297. This rulemaking could impose minimal additional burdens on 
small entities. We considered alternatives to the rulemaking changes 
that increase projected reporting, recordkeeping and other compliance 
requirements for small entities.
4. Alternatives Permitted
    298. Electronic filing. To accommodate applicants who have 
insufficient connectivity or other administrative resources to file 
electronically with USAC, we permit an exception to our electronic 
filing requirement that allows those applicants to file applicants and 
other documents with USAC using paper.
    299. Document retention. We encourage applicants to take advantage 
of electronic storage of documents to mitigate the additional expense 
our increase of the document retention requirement from five to 10 
years imposes.
5. Alternatives Considered and Rejected
    300. Connectivity metrics. The best source for obtain the data we 
need for connectivity metrics is applicants. Although we could obtain 
this data from service providers, it is less burdensome for an 
applicant to provide connectivity data for itself than it would be for 
a service provider to furnish it for all of its customers who receive 
E-rate support.

F. Report to Congress

    301. The Commission will send a copy of this Report and Order, 
including this FRFA, in a report to be sent to Congress pursuant to the 
SBREFA. In addition, the Commission will send a copy of the Report and 
Order, including the FRFA, to the Chief Counsel for Advocacy of the 
SBA. A copy of the

[[Page 49197]]

Report and Order and the FRFA (or summaries thereof) will also be 
published in the Federal Register.

G. Paperwork Reduction Act Analysis

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

H. Congressional Review Act

    303. The Commission will include a copy of this Report and Order in 
a report to be sent to Congress and the Government Accountability 
Office pursuant to the Congressional Review Act.
    304. For additional information on this proceeding, contact James 
Bachtell at (202) 418-2694 or Kate Dumouchel at (202) 418-1839 in the 
Telecommunications Access Policy Division, Wireline Competition Bureau.

VIII. Ordering Clauses

    305. Accordingly, it is ordered, that pursuant to the authority 
contained in sections 1 through 4, 201 through 205, 254, 303(r), and 
403 of the Communications Act of 1934, as amended, 47 U.S.C. Sec. Sec.  
151-154, 201-205, 254, 303(r), and 403, and section 706 of the 
Telecommunications Act of 1996, 47 U.S.C. Sec.  1302, this Report and 
Order is Adopted effective September 18, 2014, except to the extent 
expressly addressed below.
    306. It is further ordered, that pursuant to the authority 
contained in sections 1 through 4, 201 through 205, 254, 303(r), and 
403 of the Communications Act of 1934, as amended, 47 U.S.C. 151-154, 
201-205, 254, 303(r), and 403, and section 706 of the 
Telecommunications Act of 1996, 47 U.S.C. 1302, Part 54 of the 
Commission's rules, 47 CFR part 54, is Amended as set forth below, and 
such rule amendments shall be effective September 18, 2014 of the 
Report and Order in the Federal Register, except for Sec. Sec.  
54.502(b)(2) through (3) and (5), 54.503(c), 54.504(a) and (f), 
54.507(d), 54.514(a), 54.516(a) through (c), and 54.720(a), which are 
subject to the Paperwork Reduction Act and will become effective upon 
announcement in the Federal Register of OMB approval of the subject 
information collection requirements; and except for amendments in 
Sec. Sec.  54.500, 54.501(a)(1), 54.502(a), 54.507(a) through (c) and 
(e) through (f), 54.516, and 54.570(b) and (c), which shall become 
effective on July 1, 2015; and amendments in Sec. Sec.  54.504(f)(4) 
and (f)(5) and 54.514(c), which shall become effective on July 1, 2016.
    307. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, Shall Send a 
copy of the Report and Order, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.

Federal Communications Commission.
Sheryl D. Todd,
Deputy Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

Subpart A--General Information

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

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

0
2. Amend Sec.  54.5 by revising the definition of ``Internet access'' 
to read as follows:


Sec.  54.5  Terms and definitions.

* * * * *
    Internet access. ``Internet access'' includes the following 
elements:
    (1) The transmission of information as common carriage; and
    (2) The transmission of information as part of a gateway to an 
information service, when 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, and that do not 
affect the presentation of such information to users.
* * * * *

Subpart F--Universal Service Support for Schools and Libraries

0
3. Amend Sec.  54.500 by removing the alphabetical paragraph 
designations and adding in alphabetical order definitions for ``basic 
maintenance,'' ``consortium,'' ``internal connections,'' ``managed 
internal broadband services,'' and ``voice services'' to read as 
follows:


Sec.  54.500  Terms and definitions.

    Basic maintenance. A service is eligible for support as a ``basic 
maintenance'' service if, but for the maintenance at issue, the 
internal connection would not function and serve its intended purpose 
with the degree of reliability ordinarily provided in the marketplace 
to entities receiving such services. Basic maintenance services do not 
include services that maintain equipment that is not supported by E-
rate or that enhance the utility of equipment beyond the transport of 
information, or diagnostic services in excess of those necessary to 
maintain the equipment's ability to transport information.
* * * * *
    Consortium. A ``consortium'' is any local, statewide, regional, or 
interstate cooperative association of schools and/or libraries eligible 
for E-rate support that seeks competitive bids for eligible services or 
funding for eligible services on behalf of some or all of its members. 
Consortium may also include health care providers eligible under 
subpart G, and public sector (governmental) entities, including, but 
not limited to, state colleges and state universities, state 
educational broadcasters, counties, and municipalities, although such 
entities are not eligible for support. Eligible schools and libraries 
may not join consortia with ineligible private sector members unless 
the pre-discount prices of any services that such consortium receives 
are generally tariffed rates.
* * * * *
    Internal connections. A service is eligible for support as a 
component of an institution's ``internal connections'' if such service 
is necessary to transport or distribute broadband within one or more 
instructional buildings of a single school campus or within one or more 
non-administrative buildings that comprise a single library branch.
* * * * *
    Managed internal broadband services. A service is eligible for 
support as

[[Page 49198]]

``managed internal broadband services'' if provided by a third party 
for the operation, management, and/or monitoring of the eligible 
components of a school or library local area network (LAN) and wireless 
LAN.
* * * * *
    Voice services. ``Voice services'' include local phone service, 
long distance service, plain old telephone service (POTS), radio loop, 
800 service, satellite telephone, shared telephone service, Centrex, 
wireless telephone service such as cellular, interconnected voice over 
Internet protocol (VoIP), and the circuit capacity dedicated to 
providing voice services.
* * * * *

0
4. Amend Sec.  54.501 by revising the section heading and paragraph 
(a)(1), by removing paragraph (c)(1), and by redesignating paragraphs 
(c)(2) and (3) as paragraphs (c)(1) and (2), respectively.
    The revisions read as follows:


Sec.  54.501  Eligible recipients.

    (a) * * *
    (1) Only schools meeting the statutory definition of ``elementary 
school'' and ``secondary school'' as defined in Sec.  54.500 of this 
subpart, and not excluded under paragraphs (a)(2) or (3) of this 
section shall be eligible for discounts on telecommunications and other 
supported services under this subpart.
* * * * *

0
5. Revise Sec.  54.502 to read as follows:


Sec.  54.502  Eligible services.

    (a) Supported services. All supported services are listed in the 
Eligible Services List as updated annually in accordance with paragraph 
(b) of this section. The services in this subpart will be supported in 
addition to all reasonable charges that are incurred by taking such 
services, such as state and federal taxes. Charges for termination 
liability, penalty surcharges, and other charges not included in the 
cost of taking such service shall not be covered by the universal 
service support mechanisms. The supported services fall within the 
following general categories:
    (1) Category one. Telecommunications services, telecommunications, 
and Internet access, as defined in Sec.  54.5 and described in the 
Eligible Services List are category one supported services.
    (2) Category two. Internal connections, basic maintenance and 
managed internal broadband services as defined in Sec.  54.500 and 
described in the Eligible Services List are category two supported 
services.
    (b) Funding years 2015 and 2016. Libraries, schools, or school 
districts with schools that receive funding for category two services 
in funding years 2015 and/or 2016 shall be eligible for support 
pursuant to paragraphs (b)(1) through (6) of this section.
    (1) Five-year budget. Each eligible school or library shall be 
eligible for a budgeted amount of support for category two services 
over a five-year funding cycle. Excluding support for internal 
connections received prior to funding year 2015, each school or library 
shall be eligible for the total available budget less any support 
received for category two services in the prior four funding years.
    (2) School budget. Each eligible school shall be eligible for 
support for category two services up to a pre-discount price of $150 
per student over a five-year funding cycle. Applicants shall provide 
the student count per school, calculated at the time that the discount 
is calculated each funding year. New schools may estimate the number of 
students, but shall repay any support provided in excess of the maximum 
budget based on student enrollment the following funding year.
    (3) Library budget. Each eligible library shall be eligible for 
support for category two services, up to a pre-discount price of $2.30 
per square foot over a five-year funding cycle. Libraries shall provide 
the total area for all floors, in square feet, of each library outlet 
separately, including all areas enclosed by the outer walls of the 
library outlet and occupied by the library, including those areas off-
limits to the public.
    (4) Funding floor. Each eligible school and library will be 
eligible for support for category two services up to at least a pre-
discount price of $9,200 over five funding years.
    (5) Requests. Applicants shall request support for category two 
services for each school or library based on the number of students per 
school building or square footage per library building. Category two 
funding for a school or library may not be used for another school or 
library. If an applicant requests less than the maximum budget 
available for a school or library, the applicant may request the 
remaining balance in a school's or library's category two budget in 
subsequent funding years of a five year cycle. The costs for category 
two services shared by multiple eligible entities shall be divided 
reasonably between each of the entities for which support is sought in 
that funding year.
    (6) Non-instructional buildings. Support is not available for 
category two services provided to or within non-instructional school 
buildings or separate library administrative buildings unless those 
category two services are essential for the effective transport of 
information to or within one or more instructional buildings of a 
school or non-administrative library buildings, or the Commission has 
found that the use of those services meets the definition of 
educational purpose, as defined in Sec.  54.500. When applying for 
category two support for eligible services to a non-instructional 
school building or library administrative building, the applicant shall 
allocate the cost of providing services to one or more of the eligible 
school or library buildings that benefit from those services being 
provided.
    (c) Funding year 2017 and beyond. Absent further action from the 
Commission, each eligible library or school in a school district, which 
did not receive funding for category two services in funding years 2015 
and/or 2016, shall be eligible for support for category two services, 
except basic maintenance services, no more than twice every five 
funding years. For the purpose of determining eligibility, the five-
year period begins in any funding year in which the school or library 
receives discounted category two services other than basic maintenance 
services. If a school or library receives category two services other 
than basic maintenance services that are shared with other schools or 
libraries (for example, as part of a consortium), the shared services 
will be attributed to the school or library in determining whether it 
is eligible for support. Support is not available for category two 
services provided to or within non-instructional school buildings or 
separate library administrative buildings unless those category two 
services are essential for the effective transport of information to or 
within one or more instructional buildings of a school or non-
administrative library buildings, or the Commission has found that the 
use of those services meets the definition of educational purpose, as 
defined in Sec.  54.500.
    (d) Eligible services list process. The Administrator shall submit 
by March 30 of each year a draft list of services eligible for support, 
based on the Commission's rules for the following funding year. The 
Wireline Competition Bureau will issue a Public Notice seeking comment 
on the Administrator's proposed eligible services list. The final list 
of services eligible for support will be released at least 60 days 
prior to the

[[Page 49199]]

opening of the application filing window for the following funding 
year.

0
6. Amend Sec.  54.503 by revising paragraphs (c), (d)(2)(i), and (d)(4) 
and adding paragraph (e) to read as follows:


Sec.  54.503  Competitive bidding requirements.

* * * * *
    (c) Posting of FCC Form 470. (1) An eligible school, library, or 
consortium that includes an eligible school or library seeking bids for 
eligible services under this subpart shall submit a completed FCC Form 
470 to the Administrator to initiate the competitive bidding process. 
The FCC Form 470 and any request for proposal cited in the FCC Form 470 
shall include, at a minimum, the following information, to the extent 
applicable with respect to the services requested:
    (i) A list of specified services for which the school, library, or 
consortium requests bids; and
    (ii) Sufficient information to enable bidders to reasonably 
determine the needs of the applicant.
    (2) The FCC Form 470 shall be signed by a person authorized to 
request bids for eligible services for the eligible school, library, or 
consortium, including such entities.
    (i) A person authorized to request bids on behalf of the entities 
listed on an FCC Form 470 shall certify under oath that:
    (A) The schools meet the statutory definition of ``elementary 
school'' or ``secondary school'' as defined in Sec.  54.500 of these 
rules, do not operate as for-profit businesses, and do not have 
endowments exceeding $50 million.
    (B) The libraries or library consortia eligible for assistance from 
a State library administrative agency under the Library Services and 
Technology Act of 1996 do not operate as for-profit businesses and have 
budgets that are completely separate from any school (including, but 
not limited to, elementary and secondary schools, colleges, and 
universities).
    (C) Support under this support mechanism is conditional upon the 
school(s) and library(ies) securing access to all of the resources, 
including computers, training, software, maintenance, internal 
connections, and electrical connections necessary to use the services 
purchased effectively.
    (ii) A person authorized to both request bids and order services on 
behalf of the entities listed on an FCC Form 470 shall, in addition to 
making the certifications listed in paragraph (c)(2)(i) of this 
section, certify under oath that:
    (A) The services the school, library, or consortium purchases at 
discounts will be used primarily for educational purposes and will not 
be sold, resold, or transferred in consideration for money or any other 
thing of value, except as allowed by Sec.  54.513.
    (B) All bids submitted for eligible products and services will be 
carefully considered, with price being the primary factor, and the bid 
selected will be for the most cost-effective service offering 
consistent with Sec.  54.511.
    (3) The Administrator shall post each FCC Form 470 that it receives 
from an eligible school, library, or consortium that includes an 
eligible school or library on its Web site designated for this purpose.
    (4) After posting on the Administrator's Web site an eligible 
school, library, or consortium FCC Form 470, the Administrator shall 
send confirmation of the posting to the entity requesting service. That 
entity shall then wait at least four weeks from the date on which its 
description of services is posted on the Administrator's Web site 
before making commitments with the selected providers of services. The 
confirmation from the Administrator shall include the date after which 
the requestor may sign a contract with its chosen provider(s).
    (d) * * *
    (2) * * *
    (i) The terms ``school, library, or consortium'' include all 
individuals who are on the governing boards of such entities (such as 
members of a school committee), and all employees, officers, 
representatives, agents, consultants or independent contractors of such 
entities involved on behalf of such school, library, or consortium with 
the Schools and Libraries Program of the Universal Service Fund (E-rate 
Program), including individuals who prepare, approve, sign or submit E-
rate applications, or other forms related to the E-rate Program, or who 
prepare bids, communicate or work with E-rate service providers, E-rate 
consultants, or with USAC, as well as any staff of such entities 
responsible for monitoring compliance with the E-rate Program; and
* * * * *
    (4) Any service provider may make charitable donations to an 
eligible school, library, or consortium that includes an eligible 
school or library in the support of its programs as long as such 
contributions are not directly or indirectly related to E-rate 
procurement activities or decisions and are not given by service 
providers to circumvent competitive bidding and other E-rate program 
rules, including those in paragraph (c)(2)(i)(C) of this section, 
requiring schools and libraries to pay their own non-discount share for 
the services they are purchasing.
    (e) Exemption to competitive bidding requirements. An applicant 
that seeks support for commercially available high-speed Internet 
access services for a pre-discount price of $3,600 or less per school 
or library annually is exempt from the competitive bidding requirements 
in paragraphs (a) through (c) of this section.
    (1) Internet access, as defined in Sec.  54.5, is eligible for this 
exemption only if the purchased service offers at least 100 Mbps 
downstream and 10 Mbps upstream.
    (2) The Chief, Wireline Competition Bureau, is delegated authority 
to lower the annual cost of high-speed Internet access services or 
raise the speed threshold of broadband services eligible for this 
competitive bidding exemption, based on a determination of what rates 
and speeds are commercially available prior to the start of the funding 
year.

0
7. Revise Sec.  54.504 to read as follows:


Sec.  54.504  Requests for services.

    (a) Filing of the FCC Form 471. An eligible school, library, or 
consortium that includes an eligible school or library seeking to 
receive discounts for eligible services under this subpart shall, upon 
entering into a signed contract or other legally binding agreement for 
eligible services, submit a completed FCC Form 471 to the 
Administrator.
    (1) The FCC Form 471 shall be signed by the person authorized to 
order eligible services for the eligible school, library, or consortium 
and shall include that person's certification under oath that:
    (i) The schools meet the statutory definition of ``elementary 
school'' or ``secondary school'' as defined in Sec.  54.500 of this 
subpart, do not operate as for-profit businesses, and do not have 
endowments exceeding $50 million.
    (ii) The libraries or library consortia eligible for assistance 
from a State library administrative agency under the Library Services 
and Technology Act of 1996 do not operate as for-profit businesses and 
whose budgets are completely separate from any school (including, but 
not limited to, elementary and secondary schools, colleges, and 
universities).
    (iii) The entities listed on the FCC Form 471 application have 
secured access to all of the resources, including computers, training, 
software, maintenance, internal connections, and electrical 
connections, necessary to

[[Page 49200]]

make effective use of the services purchased, as well as to pay the 
discounted charges for eligible services from funds to which access has 
been secured in the current funding year. The billed entity will pay 
the non-discount portion of the cost of the goods and services to the 
service provider(s).
    (iv) The entities listed on the FCC Form 471 application have 
complied with all applicable state and local laws regarding procurement 
of services for which support is being sought.
    (v) The services the school, library, or consortium purchases at 
discounts will be used primarily for educational purposes and will not 
be sold, resold, or transferred in consideration for money or any other 
thing of value, except as allowed by Sec.  54.513.
    (vi) The entities listed in the application have complied with all 
program rules and acknowledge that failure to do so may result in 
denial of discount funding and/or recovery of funding.
    (vii) The applicant understands that the discount level used for 
shared services is conditional, for future years, upon ensuring that 
the most disadvantaged schools and libraries that are treated as 
sharing in the service, receive an appropriate share of benefits from 
those services.
    (viii) The applicant recognizes that it may be audited pursuant to 
its application, that it will retain for ten years any and all 
worksheets and other records relied upon to fill out its application, 
and that, if audited, it will make such records available to the 
Administrator.
    (ix) Except as exempted by Sec.  54.503(e), all bids submitted to a 
school, library, or consortium seeking eligible services were carefully 
considered and the most cost-effective bid was selected in accordance 
with Sec.  54.503 of this subpart, with price being the primary factor 
considered, and it is the most cost-effective means of meeting 
educational needs and technology goals.
    (2) All pricing and technology infrastructure information submitted 
as part of an FCC Form 471 shall be treated as public and non-
confidential by the Administrator unless the applicant specifies a 
statute, rule, or other restriction, such as a court order or an 
existing contract limitation barring public release of the information.
    (i) Contracts and other agreements executed after adoption of this 
rule may not prohibit disclosure of pricing or technology 
infrastructure information.
    (ii) The exemption for existing contract limitations shall not 
apply to voluntary extensions or renewals of existing contracts.
    (b) Mixed eligibility requests. If 30 percent or more of a request 
for discounts made in an FCC Form 471 is for ineligible services, the 
request shall be denied in its entirety.
    (c) Rate disputes. Schools, libraries, and consortia including 
those entities, and service providers may have recourse to the 
Commission, regarding interstate rates, and to state commissions, 
regarding intrastate rates, if they reasonably believe that the lowest 
corresponding price is unfairly high or low.
    (1) Schools, libraries, and consortia including those entities may 
request lower rates if the rate offered by the carrier does not 
represent the lowest corresponding price.
    (2) Service providers may request higher rates if they can show 
that the lowest corresponding price is not compensatory, because the 
relevant school, library, or consortium including those entities is not 
similarly situated to and subscribing to a similar set of services to 
the customer paying the lowest corresponding price.
    (d) Service substitution. (1) The Administrator shall grant a 
request by an applicant to substitute a service or product for one 
identified on its FCC Form 471 where:
    (i) The service or product has the same functionality;
    (ii) The substitution does not violate any contract provisions or 
state or local procurement laws;
    (iii) The substitution does not result in an increase in the 
percentage of ineligible services or functions; and
    (iv) The applicant certifies that the requested change is within 
the scope of the controlling FCC Form 470, including any associated 
Requests for Proposal, for the original services.
    (2) In the event that a service substitution results in a change in 
the pre-discount price for the supported service, support shall be 
based on the lower of either the pre-discount price of the service for 
which support was originally requested or the pre-discount price of the 
new, substituted service.
    (3) For purposes of this rule, the two categories of eligible 
services are not deemed to have the same functionality as one another.
    (e) Mixed eligibility services. A request for discounts for a 
product or service that includes both eligible and ineligible 
components must allocate the cost of the contract to eligible and 
ineligible components.
    (1) Ineligible components. If a product or service contains 
ineligible components, costs must be allocated to the extent that a 
clear delineation can be made between the eligible and ineligible 
components. The delineation must have a tangible basis, and the price 
for the eligible portion must be the most cost-effective means of 
receiving the eligible service.
    (2) Ancillary ineligible components. If a product or service 
contains ineligible components that are ancillary to the eligible 
components, and the product or service is the most cost-effective means 
of receiving the eligible component functionality, without regard to 
the value of the ineligible component, costs need not be allocated 
between the eligible and ineligible components. Discounts shall be 
provided on the full cost of the product or service. An ineligible 
component is ``ancillary'' if a price for the ineligible component 
cannot be determined separately and independently from the price of the 
eligible components, and the specific package remains the most cost-
effective means of receiving the eligible services, without regard to 
the value of the ineligible functionality.
    (3) The Administrator shall utilize the cost allocation 
requirements of this paragraph in evaluating mixed eligibility requests 
under paragraph (e)(1) of this section.
    (f) Filing of FCC Form 473. All service providers eligible to 
provide telecommunications and other supported services under this 
subpart shall submit annually a completed FCC Form 473 to the 
Administrator. The FCC Form 473 shall be signed by an authorized person 
and shall include that person's certification under oath that:
    (1) The prices in any offer that this service provider makes 
pursuant to the schools and libraries universal service support program 
have been arrived at independently, without, for the purpose of 
restricting competition, any consultation, communication, or agreement 
with any other offeror or competitor relating to those prices, the 
intention to submit an offer, or the methods or factors used to 
calculate the prices offered;
    (2) The prices in any offer that this service provider makes 
pursuant to the schools and libraries universal service support program 
will not be knowingly disclosed by this service provider, directly or 
indirectly, to any other offeror or competitor before bid opening (in 
the case of a sealed bid solicitation) or contract award (in the case 
of a negotiated solicitation) unless otherwise required by law; and
    (3) No attempt will be made by this service provider to induce any 
other concern to submit or not to submit an

[[Page 49201]]

offer for the purpose of restricting competition.
    (4) The service provider listed on the FCC Form 473 certifies that 
the invoices that are submitted by this Service Provider to the Billed 
Entity for reimbursement pursuant to Billed Entity Applicant 
Reimbursement Forms (FCC Form 472) are accurate and represent payments 
from the Billed Entity to the Service Provider for equipment and 
services provided pursuant to E-rate program rules.
    (5) The service provider listed on the FCC Form 473 certifies that 
the bills or invoices issued by this service provider to the billed 
entity are for equipment and services eligible for universal service 
support by the Administrator, and exclude any charges previously 
invoiced to the Administrator by the service provider.

0
8. Amend Sec.  54.505 by revising paragraphs (b)(1), (b)(2), (b)(3)(i), 
(b)(3)(ii), (b)(4), (c) and adding paragraph (d) to read as follows:


Sec.  54.505  Discounts.

* * * * *
    (b) * * *
    (1) For schools and school districts, the level of poverty shall be 
based on the percentage of the student enrollment that is eligible for 
a free or reduced price lunch under the national school lunch program 
or a federally-approved alternative mechanism. School districts shall 
divide the total number of students eligible for the National School 
Lunch Program within the school district by the total number of 
students within the school district to arrive at a percentage of 
students eligible. This percentage rate shall then be applied to the 
discount matrix to set a discount rate for the supported services 
purchased by all schools within the school district. Independent 
charter schools, private schools, and other eligible educational 
facilities should calculate a single discount percentage rate based on 
the total number of students under the control of the central 
administrative agency.
    (2) For libraries and library consortia, the level of poverty shall 
be based on the percentage of the student enrollment that is eligible 
for a free or reduced price lunch under the national school lunch 
program or a federally-approved alternative mechanism in the public 
school district in which they are located and should use that school 
district's discount rate when applying as a library system or on behalf 
of individual libraries within that system. Library systems that have 
branches or outlets in more than one public school district should use 
the address of the central outlet or main administrative office to 
determine which school district the library system is in, and should 
use that school district's discount rate when applying as a library 
system or on behalf of individual libraries within that system. If the 
library is not in a school district, then its level of poverty shall be 
based on an average of the percentage of students eligible for the 
national school lunch program in each of the school districts that 
children living in the library's location attend.
    (3) * * *
    (i) The Administrator shall designate a school or library as 
``urban'' if the school or library is located in an urbanized area as 
determined by the most recent rural-urban classification by the Bureau 
of the Census. The Administrator shall designate all other schools and 
libraries as ``rural.''
    (ii) Any school district or library system that has a majority of 
schools or libraries in a rural area qualifies for the additional rural 
discount.
    (4) School districts, library systems, or other billed entities 
shall calculate discounts on supported services described in Sec.  
54.502(a) that are shared by two or more of their schools, libraries, 
or consortia members by calculating an average discount based on the 
applicable district-wide discounts of all member schools and libraries. 
School districts, library systems, or other billed entities shall 
ensure that, for each year in which an eligible school or library is 
included for purposes of calculating the aggregate discount rate, that 
eligible school or library shall receive a proportionate share of the 
shared services for which support is sought. For schools, the discount 
shall be a simple average of the applicable district-wide percentage 
for all schools sharing a portion of the shared services. For 
libraries, the average discount shall be a simple average of the 
applicable discounts to which the libraries sharing a portion of the 
shared services are entitled.
    (c) Matrices. Except as provided in paragraph (d) of this section, 
the Administrator shall use the following matrices to set discount 
rates to be applied to eligible category one and category two services 
purchased by eligible schools, school districts, libraries, or 
consortia based on the institution's level of poverty and location in 
an ``urban'' or ``rural'' area.

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

    (d) Voice Services. Discounts for category one voice services shall 
be reduced by 20 percentage points off applicant discount percentage 
rates for each funding year starting in funding year 2015, and reduced 
by an additional 20 percentage points off applicant discount percentage 
rates each subsequent funding year.
* * * * *

0
9. Revise Sec.  54.507 to read as follows:


Sec.  54.507  Cap.

    (a) Amount of the annual cap. The aggregate annual cap on federal 
universal service support for schools and libraries shall be $2.25 
billion per funding year, of which $1 billion per funding year will be 
available for the category two services, as described in Sec.  
54.502(a)(2), unless demand for category one services is higher than 
available funding.
    (1) Inflation increase. In funding year 2010 and subsequent funding 
years, the

[[Page 49202]]

$2.25 billion funding cap on federal universal service support for 
schools and libraries shall be automatically increased annually to take 
into account increases in the rate of inflation as calculated in 
paragraph (a)(2) of this section.
    (2) Increase calculation. To measure increases in the rate of 
inflation for the purposes of this paragraph (a), the Commission shall 
use the Gross Domestic Product Chain-type Price Index (GDP-CPI). To 
compute the annual increase as required by this paragraph (a), the 
percentage increase in the GDP-CPI from the previous year will be used. 
For instance, the annual increase in the GDP-CPI from 2008 to 2009 
would be used for the 2010 funding year. The increase shall be rounded 
to the nearest 0.1 percent by rounding 0.05 percent and above to the 
next higher 0.1 percent and otherwise rounding to the next lower 0.1 
percent. This percentage increase shall be added to the amount of the 
annual funding cap from the previous funding year. If the yearly 
average GDP-CPI decreases or stays the same, the annual funding cap 
shall remain the same as the previous year.
    (3) Public notice. When the calculation of the yearly average GDP-
CPI is determined, the Wireline Competition Bureau shall publish a 
public notice in the Federal Register within 60 days announcing any 
increase of the annual funding cap based on the rate of inflation.
    (4) Filing window requests. At the close of the filing window, if 
requests for category one services are greater than the available 
funding, the Administrator shall shift category two funds to provide 
support for category one services. If available funds are sufficient to 
meet demand for category one services, the Administrator, at the 
direction of the Wireline Competition Bureau, shall direct the 
remaining additional funds to provide support for category two 
requests.
    (5) Amount of unused funds. All funds collected that are unused 
shall be carried forward into subsequent funding years for use in the 
schools and libraries support mechanism in accordance with the public 
interest and notwithstanding the annual cap. The Chief, Wireline 
Competition Bureau, is delegated authority to determine the proportion 
of unused funds, if any, needed to meet category one demand, and to 
direct the Administrator to use any remaining funds to provide support 
for category two requests. The Administrator shall report to the 
Commission, on a quarterly basis, funding that is unused from prior 
years of the schools and libraries support mechanism.
    (6) Application of unused funds. On an annual basis, in the second 
quarter of each calendar year, all funds that are collected and that 
are unused from prior years shall be available for use in the next full 
funding year of the schools and libraries mechanism in accordance with 
the public interest and notwithstanding the annual cap as described in 
this paragraph (a).
    (b) Funding year. A funding year for purposes of the schools and 
libraries cap shall be the period July 1 through June 30.
    (c) Requests. Funds shall be available to fund discounts for 
eligible schools and libraries and consortia of such eligible entities 
on a first-come-first-served basis, with requests accepted beginning on 
the first of July prior to each funding year. The Administrator shall 
maintain on the Administrator's Web site a running tally of the funds 
already committed for the existing funding year. The Administrator 
shall implement an initial filing period that treats all schools and 
libraries filing within that period as if their applications were 
simultaneously received. The initial filing period shall begin on the 
date that the Administrator begins to receive applications for support, 
and shall conclude on a date to be determined by the Administrator. The 
Administrator may implement such additional filing periods as it deems 
necessary.
    (d) Annual filing requirement. Schools and libraries, and consortia 
of such eligible entities shall file new funding requests for each 
funding year no sooner than the July 1 prior to the start of that 
funding year. Schools, libraries, and eligible consortia must use 
recurring services for which discounts have been committed by the 
Administrator within the funding year for which the discounts were 
sought. Implementation of non-recurring services may begin on April 1 
prior to the July 1 start of the funding year. The deadline for 
implementation of non-recurring services will be September 30 following 
the close of the funding year. An applicant may request and receive 
from the Administrator an extension of the implementation deadline for 
non-recurring services if it satisfies one of the following criteria:
    (1) The applicant's funding commitment decision letter is issued by 
the Administrator on or after March 1 of the funding year for which 
discounts are authorized;
    (2) The applicant receives a service provider change authorization 
or service substitution authorization from the Administrator on or 
after March 1 of the funding year for which discounts are authorized;
    (3) The applicant's service provider is unable to complete 
implementation for reasons beyond the service provider's control; or
    (4) The applicant's service provider is unwilling to complete 
installation because funding disbursements are delayed while the 
Administrator investigates their application for program compliance.
    (e) Long term contracts. If schools and libraries enter into long 
term contracts for eligible services, the Administrator shall only 
commit funds to cover the pro rata portion of such a long term contract 
scheduled to be delivered during the funding year for which universal 
service support is sought.
    (f) Rules of distribution. When the filing period described in 
paragraph (c) of this section closes, the Administrator shall calculate 
the total demand for both category one and category two support 
submitted by applicants during the filing period. If total demand for 
the funding year exceeds the total support available for category one 
or both categories, the Administrator shall take the following steps:
    (1) Category one. The Administrator shall first calculate the 
demand for category one services for all discount levels. The 
Administrator shall allocate the category one funds to these requests 
for support, beginning with the most economically disadvantaged schools 
and libraries, as determined by the schools and libraries discount 
matrix in Sec.  54.505(c). Schools and libraries eligible for a 90 
percent discount shall receive first priority for the category one 
funds. The Administrator shall next allocate funds toward the requests 
submitted by schools and libraries eligible for an 80 percent discount, 
then for a 70 percent discount, and shall continue committing funds for 
category one services in the same manner to the applicants at each 
descending discount level until there are no funds remaining.
    (2) Category two. The Administrator shall next calculate the demand 
for category two services for all discount categories as determined by 
the schools and libraries discount matrix in Sec.  54.505(c). If that 
demand exceeds the category two budget for that funding year, the 
Administrator shall allocate the category two funds beginning with the 
most economically disadvantaged schools and libraries, as determined by 
the schools and libraries discount matrix in Sec.  54.505(c). The 
Administrator shall allocate funds toward the category two requests 
submitted by schools and libraries eligible for an 85 percent

[[Page 49203]]

discount first, then for a 80 percent discount, and shall continue 
committing funds in the same manner to the applicants at each 
descending discount level until there are no category two funds 
remaining.
    (3) To the extent that there are single discount percentage levels 
associated with ``shared services'' under Sec.  54.505(b)(4), the 
Administrator shall allocate funds to the applicants at each descending 
discount level (e.g., 90 percent, 89 percent, then 88 percent) until 
there are no funds remaining.
    (4) For both paragraphs (f)(1) and (2) of this section, if the 
remaining funds are not sufficient to support all of the funding 
requests within a particular discount level, the Administrator shall 
allocate funds at that discount level using the percentage of students 
eligible for the National School Lunch Program. Thus, if there is not 
enough support to fund all requests at the 40 percent discount level, 
the Administrator shall allocate funds beginning with those applicants 
with the highest percentage of NSLP eligibility for that discount level 
by funding those applicants with 19 percent NSLP eligibility, then 18 
percent NSLP eligibility, and shall continue committing funds in the 
same manner to applicants at each descending percentage of NSLP until 
there are no funds remaining.


Sec.  54.508  [Removed and Reserved]

0
10. Remove and reserve Sec.  54.508.

0
11. Revise Sec.  54.511 to read as follows:


Sec.  54.511  Ordering services.

    (a) Selecting a provider of eligible services. Except as exempted 
in Sec.  54.503(e), in selecting a provider of eligible services, 
schools, libraries, library consortia, and consortia including any of 
those entities shall carefully consider all bids submitted and must 
select the most cost-effective service offering. In determining which 
service offering is the most cost-effective, entities may consider 
relevant factors other than the pre-discount prices submitted by 
providers, but price should be the primary factor considered.
    (b) Lowest corresponding price. Providers of eligible services 
shall not submit bids for or charge schools, school districts, 
libraries, library consortia, or consortia including any of these 
entities a price above the lowest corresponding price for supported 
services, unless the Commission, with respect to interstate services or 
the state commission with respect to intrastate services, finds that 
the lowest corresponding price is not compensatory. Promotional rates 
offered by a service provider for a period of more than 90 days must be 
included among the comparable rates upon which the lowest corresponding 
price is determined.

0
12. Revise Sec.  54.514 to read as follows:


Sec.  54.514  Payment for discounted services.

    (a) Invoice filing deadline. Invoices must be submitted to the 
Administrator:
    (1) 120 days after the last day to receive service, or
    (2) 120 days after the date of the FCC Form 486 Notification 
Letter, whichever is later.
    (b) Invoice deadline extension. In advance of the deadline 
calculated pursuant to paragraph (a) of this section, service providers 
or billed entities may request a one-time extension of the invoicing 
deadline. The Administrator shall grant a 120 day extension of the 
invoice filing deadline, if it is timely requested.
    (c) Choice of payment method. Service providers providing 
discounted services under this subpart in any funding year shall, prior 
to the submission of the FCC Form 471, permit the billed entity to 
choose the method of payment for the discounted services from those 
methods approved by the Administrator, including by making a full, 
undiscounted payment and receiving subsequent reimbursement of the 
discount amount from the Administrator.

0
13. Revise Sec.  54.516 to read as follows:


Sec.  54.516  Auditing and inspections.

    (a) Recordkeeping requirements--(1) Schools, libraries, and 
consortia. Schools, libraries, and any consortium that includes schools 
or libraries shall retain all documents related to the application for, 
receipt, and delivery of supported services for at least 10 years after 
the latter of the last day of the applicable funding year or the 
service delivery deadline for the funding request. Any other document 
that demonstrates compliance with the statutory or regulatory 
requirements for the schools and libraries mechanism shall be retained 
as well. Schools, libraries, and consortia shall maintain asset and 
inventory records of equipment purchased as components of supported 
category two services sufficient to verify the actual location of such 
equipment for a period of 10 years after purchase.
    (2) Service providers. Service providers shall retain documents 
related to the delivery of supported services for at least 10 years 
after the latter of the last day of the applicable funding year or the 
service delivery deadline for the funding request. Any other document 
that demonstrates compliance with the statutory or regulatory 
requirements for the schools and libraries mechanism shall be retained 
as well.
    (b) Production of records. Schools, libraries, consortia, and 
service providers shall produce such records at the request of any 
representative (including any auditor) appointed by a state education 
department, the Administrator, the FCC, or any local, state or federal 
agency with jurisdiction over the entity.
    (c) Audits. Schools, libraries, consortia, and service providers 
shall be subject to audits and other investigations to evaluate their 
compliance with the statutory and regulatory requirements for the 
schools and libraries universal service support mechanism, including 
those requirements pertaining to what services and products are 
purchased, what services and products are delivered, and how services 
and products are being used. Schools, libraries, and consortia 
receiving discounted services must provide consent before a service 
provider releases confidential information to the auditor, reviewer, or 
other representative.
    (d) Inspections. Schools, libraries, consortia and service 
providers shall permit any representative (including any auditor) 
appointed by a state education department, the Administrator, the 
Commission or any local, state or federal agency with jurisdiction over 
the entity to enter their premises to conduct E-rate compliance 
inspections.

Subpart G--Universal Service Support for Health Care Providers

0
14. Amend Sec.  54.642 by revising paragraph (h)(5) to read as follows:


Sec.  54.642  Competitive bidding requirements and exemptions.

* * * * *
    (h) * * *
    (5) Schools and libraries program master contracts. Subject to the 
provisions in Sec. Sec.  54.500, 54.501(c)(1), and 54.503, an eligible 
health care provider in a consortium with participants in the schools 
and libraries universal service support program and a party to the 
consortium's existing contract is exempt from the Healthcare Connect 
Fund competitive bidding requirements if the contract was approved in 
the schools and libraries universal service support program as a master 
contract. The health care provider must comply with all Healthcare 
Connect Fund rules and procedures except for those applicable to 
competitive bidding.

[[Page 49204]]

Subpart H--Administration


Sec.  54.705  [Amended]

0
15. Amend Sec.  54.705 by removing and reserving paragraphs (a)(1)(vi) 
through (viii).

Subpart I--Review of Decisions Issued by the Administrator

0
16. Revise Sec.  54.719 to read as follows:


Sec.  54.719  Parties permitted to seek review of Administrator 
decision.

    (a) Any party aggrieved by an action taken by the Administrator, as 
defined in Sec.  54.701, Sec.  54.703, or Sec.  54.705, must first seek 
review from the Administrator.
    (b) Any party aggrieved by an action taken by the Administrator, 
after seeking review from the Administrator, may then seek review from 
the Federal Communications Commission, as set forth in Sec.  54.722.
    (c) Parties seeking waivers of the Commission's rules shall seek 
relief directly from the Commission.

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17. Revise Sec.  54.720 to read as follows:


Sec.  54.720  Filing deadlines.

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

[FR Doc. 2014-18937 Filed 8-18-14; 8:45 am]
BILLING CODE 6712-01-P